31 March 2004
Outsourcing and Economic Growth
Certain factors of production, like capital, technology, and labor, can be exported from country to country. Others, like innovation, are not so easy. They are driven by more ephemeral links to their end-use markets than prices, or supply and demand. Wealthy consumer markets communicate their requirements for new products, techniques, services through less transparent media than the stock exchange. Responding effectively with adaptation and invention requires proximity to those consumers, and interaction with them.
The fundamental question about the relationship of outsourcing to economic growth is how flexible a country’s society is – how quickly can it shift human resources from the outsourced activity to a newly innovated one? to the process of innovation itself? If there is a cost for making this shift, who will pay? Who will finance it? To be successful at this game, a society has to be adept at investing in such transformations.
The funds needed to finance these transformations are created, in part, by savings made possible by the lower price of goods and services that is caused by outsourcing their production. The U.S. has for a long time depended on other countries for a large portion of the capital required by its innovation. In fact, the U.S. is an entrepot for the capital resources of the rest of the world. The inflow of these funds from abroad balances capital markets by keeping interest rates low, and encourages more innovation for continued economic growth. It also makes affordable the interest-rate-sensitive sectors of the American economy, like home-ownership and education that raise its standard of living and its ability to innovate.
Protectionism in commodities trade was shown to be disruptive to world peace and well-being in the 1930s. Similarly, artificial barriers to free access to the means of production, like labor, across borders will only generate irrepressible displacement that ultimately will upset the welfare of all nations (cf. the visionary 1973 novel by Jean Raspail, Le Camp des Saints). Thus, outplacement is integral to our personal as well as national economic health.
Certain factors of production, like capital, technology, and labor, can be exported from country to country. Others, like innovation, are not so easy. They are driven by more ephemeral links to their end-use markets than prices, or supply and demand. Wealthy consumer markets communicate their requirements for new products, techniques, services through less transparent media than the stock exchange. Responding effectively with adaptation and invention requires proximity to those consumers, and interaction with them.
The fundamental question about the relationship of outsourcing to economic growth is how flexible a country’s society is – how quickly can it shift human resources from the outsourced activity to a newly innovated one? to the process of innovation itself? If there is a cost for making this shift, who will pay? Who will finance it? To be successful at this game, a society has to be adept at investing in such transformations.
The funds needed to finance these transformations are created, in part, by savings made possible by the lower price of goods and services that is caused by outsourcing their production. The U.S. has for a long time depended on other countries for a large portion of the capital required by its innovation. In fact, the U.S. is an entrepot for the capital resources of the rest of the world. The inflow of these funds from abroad balances capital markets by keeping interest rates low, and encourages more innovation for continued economic growth. It also makes affordable the interest-rate-sensitive sectors of the American economy, like home-ownership and education that raise its standard of living and its ability to innovate.
Protectionism in commodities trade was shown to be disruptive to world peace and well-being in the 1930s. Similarly, artificial barriers to free access to the means of production, like labor, across borders will only generate irrepressible displacement that ultimately will upset the welfare of all nations (cf. the visionary 1973 novel by Jean Raspail, Le Camp des Saints). Thus, outplacement is integral to our personal as well as national economic health.
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