The Politics of Outsourcing

We are one week from the Presidential election in the US. I've posted a bit before about the politics of outsourcing and trade. I firmly believe that international trade can be good for all parties in a macro sense. I accept that trade also has downsides for individuals. Those people should be helped to find other employment or be re-trained for other jobs.

The macro economics behind trade being a good thing can be summarized by saying that buyers and sellers benefit when the most efficient producers of a certain good are selected. Buyers benefit from getting a lower price. Sellers benefit by getting the business and economies of scale. When countries start to specialize in certain industries or processes (like China specializing in high labor content manufacturing) and become low-cost producers then both they and the buyer country benefit. In that case, the buyer country should focus on other industries or processes where it can be the most efficient producer.

The graphic analogy for this is a ladder. The US economy grows best when we continually move up the ladder of technology and innovation. As we do that other countries with lower labor costs begin to take on those processes and industries at the lower rungs of the ladder. Our focus should not be on saving the lower rungs, but on finding the next higher rung. Personal computing was an example in the 70's and 80's. The internet was the next rung in the 90's until now. I believe the next rung will be in environmental technology, energy, or water. Our country should support research and development of the next rungs.

Many politicians focus on the populist message of, "We need to save our manufacturing jobs". I agree that we should work hard to compete and keep the manufacturing jobs that are best for America. We should make sure our tax policies and other laws do not put US companies at a disadvantage. We should also work with other countries to improve their environmental and labor safety laws. However, we should not try to save companies or industries that are not competitive just so we can save the jobs at that company/industry. That is not in the best interest of the country. Instead government should promote personal responsibility while offering help and retraining support.

I won't spend much energy at all on politics in this blog. This time of year I think about it more often as I see ads and read about politicians trying to get elected by promoting policies that are popular with some, although short-sighted and bad for the country.