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Tuesday, November 23, 2004

Giving Thanks for Offshoring

Christopher Farrell, contributing editor Businessweek writes, in his thanksgiving day column that offshoring is the first thing to be thanked about. Excerpts from a thought provoking article:

The No. 1 spot is reserved (for thanksgiving) for the offshoring of skilled-service jobs by American corporations. Americans should be deeply thankful for the emerging trend of American (and European) companies outsourcing software development and other skilled tasks to developing-world havens.Companies may have gone to India to save money on back-office operations, such as payroll, order fulfillment, and customer service. But they're continuing to do business with Indian high-tech companies because of the quality of the work being done. So, those jobs aren't coming back, and that means we have to create new ones here.

Offshoring is a result of three simultaneous and independent events at this juncture in economic history.
-First, education levels are rising throughout the developing world -- the payoff from decades of investment.
-Second, many developing nations have been liberalizing their economies, especially after the collapse of communism toward the end of the 1980s.
-Last is the information-technology revolution, which made it possible to link developed nations' companies with developing nations' workers -- and do it cheaply.

WANTED: CREATIVE IMPULSE. In general, rising economic prospects in much of the developing world is good, a force for expanding opportunities and eliminating poverty. But the competition for investment money and corporate profits in the global economy is now growing faster than many economists thought possible even a few years ago. To be sure, the rapid integration into the developed-world labor market of some billion workers in China and India is opening up new opportunities to sell cars, washing machines, software, and many other commonplace goods made by American multinationals. while this may not fully provide reverse benefits to the US, the main reason is that the offshoring challenge focuses attention on what spurs job creation: The formation of new markets and the meeting of new wants.

LEFT BEHIND : The long-run prosperity of the West depends on the capacity of its entrepreneurial individuals and firms to create and satisfy new consumer wants. That means the major institutions of society -- government, education, and business -- need to focus a lot more money and effort on educating the American workforce.

CUT THE RED TAPE. As US makes progress on this,America should keep welcoming educated, skilled immigrants. The American economy is a major beneficiary of the entrepreneurship diaspora that has grown up between Silicon Valley and India, and between and Silicon Valley and Asia. It's getting harder and harder for skilled Chinese and Indian professionals to come here to work and study. While the current bias toward saying no is understandable, the economic price is too high.The way economists look at the world, the efficiency gains of offshoring free up resources in the U.S. The key question is what do we do with those resources. The offshoring challenge says invest in human capital and open borders. That's how we'll generate the good middle-class jobs of the future -- and give more people something to be thankful for.
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