Experts Debate Global Outsourcing

Thursday, March 16, 2006 - 10:00

Since the 1970s, the closing of manufacturing plants in favor of cheaper facilities and labor in foreign countries has been a source of heated debate in the U.S. And these days, a computer user is more likely to get Bombay than California on the line for technical assistance.

Globalization has taken on a new and, to many, even more threatening dimension in the new millennium. As the U.S. continues to tap the intellectual capacity of nations such as India and China, offshore outsourcing is a trend that promises to stay and promises to ignite passionate discussions about the pros and cons of its long-reaching economic impact.

Thirteen experts came to the Mount Holyoke campus on March 3-4 to explore these issues at the Center for Global Initiatives' inaugural conference, The New Global Division of Labor: Winners and Losers from Offshore Outsourcing, cosponsored by the New York Times Knowledge Network and the Rockefeller Brothers, with additional funding coming from the Mary E. Tuttle '37 Colloquium.

Eva Paus, professor of economics and director of the Center for Global Initiatives, conceived and organized the conference in conjunction with a half-semester course, Global Challenges: Winners and Losers from Offshore Outsourcing, taught by eight professors from four disciplines. Many Mount Holyoke students, including the 140 students from the course, Mount Holyoke alumnae, Five College faculty and students, and many members from the larger community were among the audience that filled Gamble Auditorium when Paus opened the conference on Friday evening.

"We are at the beginning of a historic transformation," Paus said about the impact of today's economic global realities. Over the next 24 hours, speakers and panelists would echo this perspective as they explored her opening questions: Should we welcome and embrace offshoring or should we fear it? How do we weigh, in developed countries, the cost of heightened economic vulnerability of many people against the benefit of lower consumer prices? Which developing countries and groups within developing countries are winning and which ones are further left behind? Which policies and rules do we need at the national and international level?

Friday night's keynote speaker, Richard Freeman, Herbert Ascherman Chair in Economics at Harvard University, offered a number of sobering statistics regarding the increasingly well-educated foreign labor pool competing against a decreasingly educated U.S. pool for the same jobs. "We are not going to be immune with our university degrees," he said, "they go to college too." But he also expressed optimism. Offshore outsourcing holds the promise of higher productivity, thus cheaper goods, and ultimately a higher standard of living for the consumer.

Freeman pointed out that developed countries with capital and developing nations with labor could achieve this win/win situation. Losers in the globalization process would be those entirely left out of the loop. "I fear the biggest problem is the developing countries, like Turkey and Peru," he said. "They can't compete with the wages of countries such as China and Bangladesh."

The Impact on Developed and Developing Countries
The conference picked up the next morning with a panel discussion, "The Impact of Globalized Production on Developed Countries," moderated by MHC associate professor of politics Kavita Khory. Panelists included Catherine Mann, senior fellow at the Institute for International Economics; Will Milberg, from the Schwartz Center for Economic Policy Analysis at the New School University; and Vivien Ann Schmidt, Jean Monnet Professor of European Integration at Boston University. Hans-Peter Martin, a member of the European Parliament in Brussels, served as the panel's discussant, responding to the arguments put forth by the panelists.

Mann examined what she referred to as "globalization's Petri dish [in which] everything grows faster … the interplay of information technology (IT) and the globalization of services." Countries and industries like finance and telecommunications that lead in IT are winning over IT laggards.

Mann agreed with Freeman that global outsourcing is an advantage because of increased productivity. But she said it involves a cost of adjustment, such as job loss. Focusing on the service industry, Milberg agreed with Mann. He said outsourcing "creates efficiency … and creates losers." To cope with this, both Mann and Milberg argued for a change in the way pension plans and health insurance are handled in our society so that corporations are less financially burdened and therefore have more resources to expand investment in such sectors as research and development; and those who lose jobs are able to retain benefits.

"The Impact of Globalized Production on Developing Countries" panel took place in the second half of the morning. The panel was composed of moderator Shahrukh Khan, visiting professor of economics at Mount Holyoke; discussant Alice Amsden, Barton L. Weller Professor of Political Economy at MIT; Gary Jefferson, Carl Marks Professor of International Trade and Finance at Brandeis University; Bart Kaminski, from the University of Maryland at College Park and the World Bank; and Luis Abugattas, senior trade expert with the United Nations Conference on Trade and Development.

Lively question-and-answer sessions drew out differing views among the participants. A Mount Holyoke student asked this panel to speak about whether it was important for local companies to assume control of multinational endeavors. According to Amsden, locally owned companies are better for a country's economy. Kaminski disagreed, saying local or foreign control need not be a determining factor if good regulatory practices are in place. Abugattas then said that success depends on good policies, and that those that encouraged "spillages" into the local economy were the right type of government intervention.

Abugattas believes that "what might be good for a few countries will not be good for most." He questioned the sustainability of outsourcing benefits to developing countries under current conditions. "Success is not just market driven," he said, pointing out that active government policies that supported the private sector and technological growth have been integral to the competitive advantage of certain nations.

The Disposable American
Wedged between the piecharts, graphs, and statistics, Saturday's keynote speaker Louis Uchitelle put a human face on the impact of globalization and offshore outsourcing. Senior economics journalist for the New York Times, Uchitelle has recently come out with a new book, The Disposable American, which covers the havoc that systematic layoffs wreck on individuals, industry, and society at large. Uchitelle gave a compelling account of the closing of a top-notch United Airlines maintenance facility, of management decisions resulting in wasted talent and resources, of the mechanics who lost not only jobs but a sense of self-worth. We should not, he said, be "stampeded into justifying layoffs … into dismantling hard-won communal rights" because they are "linked to the well-being of our democracy."

The final panel, "Responses to the Challenges of Globalized Production," moderated by Paus and with Freeman serving as discussant, offered perspectives from labor, academia, and industry. Panelists included Guy Standing, director of the Socio-Economic Security Program, International Labor Organization; Jerry Epstein, professor of economics and codirector of the Political Economy Research Center at the University of Massachusetts; and Hugh Dyar, senior executive, Accenture New York office, Communications and High Tech Outsourcing.

Standing spoke of the mounting tensions and insecurities spreading across the world, saying that "the winners are beginning to get worried." He believes a redistribution of income has to occur--between developing and developed countries and between corporations and citizens.

Arguing for "citizen-friendly rules of the game," Epstein suggested treaties between the world players, such as taxing profits from globalization. "Citizens need to argue for protection," Epstein said, and regulations should act as threats to get multinational companies to the bargaining table.

Closing the conference, Paus concluded that the event had been very intense and very interesting. "We saw a lot of contested areas and a lot of agreement. In terms of political agency, we've heard a strong message: Get involved--raise awareness about the issues and push for policy changes that harness the offshoring process for the benefit of more people and countries."

A DVD of the conference will be released in May 2006.

Related Links:

Center for Global Initiatives

Photo Gallery