Wednesday, September 01, 2004

Parasoft's CEO hits the nail on the head

Why Regulating Offshore Outsourcing Will Hurt the U.S. Economy

"It's important to recognize that outsourcing can help us develop trading relations with the nations to which we are outsourcing. Such trading relations can lead to long-term opportunities for the U.S. For example, consider the evolution of the U.S.'s now vital trading relationship with Japan. At the end of World War II, Japan was largely undeveloped; if they remained that way, we might not have a trade deficit with them, but we also would have little to no trade with them. As Japan first began to develop, they flooded the U.S. market with sometimes strange exports. By the late 1980s, there was fairly widespread fear that Japan's economic development was going to threaten the U.S. economy -- just as there is now fear that economic development in India and China will threaten the U.S. economy.

Did Japan's economic development ruin us? Hardly. In fact, starting around the early 1990s, Japan became a prime market for U.S. exports. Many U.S. companies (including Parasoft, the software development company of which I am the CEO and co-founder) enjoyed much success exporting products to Japan since the early 1990s. To this day, Parasoft and many other companies have continued to build and foster relationships with Japanese organizations -- relationships that have been key to our ability to weather U.S. recessions.

If Japan had remained a less-developed nation -- as many in the U.S. initially hoped it would -- Parasoft and other U.S. companies would not have been able to reap the benefits yielded by our exporting to Japan. Job growth would have been slower, tax revenues from corporate profits would have been reduced, and many fewer U.S. companies would have weathered the previous (early 1990s) and current recession. Now, development in India and China is starting to promote new export opportunities. If it weren't for offshore outsourcing, these opportunities would not exist. We would continue to consider India and China to be nations that are not receptive to our technology exports (like we currently consider Africa and much of South America).

I think that when we hear about short-term job losses that result from outsourcing to India and China, we also need to consider the long-term benefits of these nations developing into prime markets for U.S. exports. From my perspective as the CEO of a technology company, it appears that having these new markets offers U.S. businesses, U.S. workers (and prospective workers), and the US economy a tremendous opportunity for growth and expansion."

Labor Secretary Elaine Chao also pointed out an important fact about our economy:

In the past year, employers have eliminated about 300,000 jobs in the United States in favor of cheaper labor elsewhere, Chao said. Yet about 9 million Americans currently work for U.S. subsidiaries of foreign-owned companies, she said.

"People talk about (outsourcing) a lot," Chao said in an interview after appearing before Missouri delegates at the Republican convention. "The anxiety belies the numbers."

Vice presidential candidate John Edwards seized on Chao's remarks and called it another example of President Bush's misguided economic policies.

"Today a member of his cabinet said that outsourcing American jobs overseas creates jobs," Edwards said. "Like most Americans, I have no idea how they could say that."

Chao said the administration is concerned about every lost job, but realizes job shuffling is part of a dynamic economy that constantly requires workers to get new training."

This is what people do not get about outsourcing. Other countries do not send us exports as gifts, i.e. there is no such thing as free wealth. Exports pay for imports, and vice versa. There's no way around that, that's why it's called trade. Initially we may lose some jobs to other countries who have a comparative advantage in a certain market. But that only increases demand for products that we have a comparative advantage in down the road. When they export, they receive our money. They're not going to just take this money and bury it in the ground, and they can't spend it in their economy. Basically, they receive our wealth in one form or another when they export goods to our economy. Whether that is our exports or money that will be used to buy our exports in the future is irrelevant. There is simply no such thing as one-sided trade. Anyone who says such a thing is either making a very fundamental economic fallacy, or he is a politician that knows better but wants to tell the laid-off plant workers something they want to hear despite how wrong it is.

Trade is trade. One-sided trade is an oxymoron.


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