Outsourcing is part of globalization

July 07, 2005, vol. 33, no. 6
By Marianne Meadahl

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How far should the outsourcing of jobs from North America to overseas markets go? A new book by SFU political science professor Anil Hira and his brother Ron Hira, from the Rochester Institute of Technology, suggests the question is not whether to outsource or move jobs, but how to create public policies that will maximize its benefits and deal with the impact on labour markets and the social fabric of affected communities.

Outsourcing America examines the extent of job outsourcing, the implications for future employment prospects and what policies need to be enacted.

Thousands of jobs have been outsourced from North America and Europe to overseas markets over the past five years. A recent PriceWaterhouseCoopers study suggests that 75,000 jobs will move from Canada by 2010 and that immediate policy action is needed.

The authors say while outsourcing may lead to some cost reductions, companies also lose their best employees as well as product-buying consumers. “Outsourced jobs include not only the call centres that now field much of our customer service and telemarketing needs from abroad, but also highly paid engineering, accounting, and even legal positions,” says Anil Hira. “So far, Canada has been able to capture some of the professional outsourcing from the U.S., particularly in areas like information technology, based on lower labour costs.

“However, like Ireland before it, the Canadian advantage is showing signs of vulnerability. For example, Nortel Networks has sped up its outsourcing of engineering jobs, including the crucial components of product research and development.” Hira says there have been no definitive studies on outsourcing in Canada and it's not known how many jobs the country is gaining and losing from the practice.

In their book, the authors show how outsourcing is part of the historical economic shift toward the globalization of supply chains. They focus on policies that countries such as India and China use to attract U.S. industries. They say the dream of U.S. and Canadian CEOs to dominate markets in China and India through outsourcing is falling prey to a harsher reality. “Not only are jobs being lost at home, but Indian and Chinese firms are demonstrating the capability to out compete with them on their home turf,” Hira notes.

A recent book review in the Washington Times points out, “despite the enormous stakes for all Americans, there is denial among policymakers and corporate champions about outsourcing's adverse effects on the U.S. The Hiras interject harsh reality where delusion has ruled.”

Former U.S. vice presidential candidate senator Joseph Lieberman calls the book a timely and perceptive contribution to the growing national debate.

Princeton University professor William Baumol notes that the authors bring out the perils of outsourcing, “without falling victim to espousing trade barriers.” Harvard University's Richard Freeman adds, “There is nothing in economic theory or reality that states outsourcing will benefit all of us or even most of us. This book is factual and careful. The recommendations are thoughtful and realistic.”

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