China: Blame Game and Outsourcing

I came across this article on Outsourcing on the website of The People’s Daily of China (English Edition).

This article talks about outsourcing from the point of view of the Chinese. For some very weird reason, the article dumps all the outsourcing brouhaha on India and its IT outsourcing industry.

“Worst of all, US high-tech firms, big and small, compete with each other to transfer IT-related jobs to countries such as India, where the pay and welfare level are much lower than those in the United States. They do this in order to cut costs to the minimum and reap the highest possible profits. This again costs many Americans their jobs. Statistics indicate that about 300,000 computer-programming jobs have so far been transferred from the United States to India. And the tendency looks likely to continue.

At the same time, some financial institutions on Wall Street, following the examples of the high-tech companies, have also shifted some high-salary monetary analytical posts to India. US research firm ForrestResearch predicts that about 3.3 million US white-collar jobs in service industries will be transferred to lower-wage countries, chiefly India, by 2018. This is bound to give rise to more serious problems.”

Please read the entire article which appears below the fold. What I find really disturbing is China’s holier than thou attitude. Maybe the author does not speak for national policy, but if you are even remotely monitoring the situation, it seems that this is the Communist Party Manifesto itself.

The number of manufacturing jobs lost in the US, to China is massive. In comparision, the number of tech jobs that go to India is miniscule.

Take two case studies. Most commodities or objects sold in the US today carry the “Made In China” tag. Be it a key chain at the souvenir stall or fancy electronics. All of this not so very long ago was made in the US.

The tremendous trade imbalance between China and US is another fact in the face. In that scenario, to not share the blame but pass it on to a third party, is well…..so Chinese !!!

Do not blame China for job losses in the US

Many Americans, influenced by US media, believe that their jobs are being stolen by competitors from China.

This opinion, which is widely bought by workers in manufacturing sectors, has great influence on the US Government.

In view of this, it is necessary to analyze the employment situation in the United States.

The transfer of traditional industries overseas constitutes one of the major reasons for job loss in the United States.

Expensive US labour costs have led to the shifting of primary manufacturing industries to other countries where the price of labour is much lower.

The core competitive edge of the US economy lies in technological innovation, service industries and high-tech manufacturing. Transferring traditional industries overseas helps the country focus on developing the industries in which it enjoys advantages over other economies.

This strategy can enhance its international competitive power as much as possible and also brings fat profits to US companies.

But workers in sectors that have become hollowed out have to look elsewhere for employment, and this is a major problem. When their old skills fail to meet the requirements of new posts, they face unemployment.

On the other hand, China is not the only country affected in this kind of industrial transfer.

The bulk of Chinese exports to the United States are labour-intensive products. If China stopped exporting such products to the United States, the Western nation would not engage in making these goods anyway. And other countries would fill the vacancy.

Scientific and technological progress and the increase of productivity have robbed many Americans of their jobs.

Since the beginning of the 1990s, US companies have invested heavily in IT, automation and artificial intelligence technologies, which have helped raise the productivity by large margins. But wide application of new technologies and the sharp enhancement of productivity have led to job redundancies.

Of course, there is still a huge demand for workers in newly emerging sectors. But the posts created by these new industries are less than the jobs lost in traditional sectors. This renders the employment pressure all the more serious.

In addition to those in traditional sectors, many US high-tech workers have also lost their jobs recently as a result of the bubble burst of high-tech shares on the stock market.

Worst of all, US high-tech firms, big and small, compete with each other to transfer IT-related jobs to countries such as India, where the pay and welfare level are much lower than those in the United States. They do this in order to cut costs to the minimum and reap the highest possible profits. This again costs many Americans their jobs.

Statistics indicate that about 300,000 computer-programming jobs have so far been transferred from the United States to India. And the tendency looks likely to continue.

At the same time, some financial institutions on Wall Street, following the examples of the high-tech companies, have also shifted some high-salary monetary analytical posts to India.

US research firm ForrestResearch predicts that about 3.3 million US white-collar jobs in service industries will be transferred to lower-wage countries, chiefly India, by 2018. This is bound to give rise to more serious problems.

The situation is compounded by the fact that many Americans find it difficult to adapt to new posts once the sectors where they are working decline, owing to their inability to keep up with the changing times, or to their low educational or training levels. Many employment opportunities are therefore missed.

Job hunters have been subjected to higher education requirements because the United States is shifting from a manufacturing-orientated economy to a knowledge-based economy over the last decade or so.

The figures released by the US Labour Department show that the unemployment rate for those who received education below senior high was 6.5 per cent in November 2000 but rose to 9.2 per cent in January 2003.

Many unemployed people with low education levels are unwilling or unable to learn new skills, while keeping their job expectations high and hoping to get posts in their old sectors with generous pay.

In the meantime, the US economy is suffering, which drags down the US public’s consumption confidence and their consuming power as well.

This necessarily results in weak domestic demand, and 70 per cent of the US economic growth is powered by demand.

Insufficient domestic demand makes it hard for the US economy to recover. This, in turn, worsens the employment situation. Rising unemployment renders consumption all the weaker. A vicious cycle is triggered.

Recent statistics, however, suggest that the US economy shows signs of recovery. It is believed that the employment situation will take a turn for the better if the recovery maintains its momentum.

Taking all this into account, the blame on China for robbing Americans of jobs is unfounded.

Some Americans see only the transfer of funds, technology and employment opportunities to China but turn a blind eye to the fact that good and cheap Chinese consumer goods lower Americans’ consumption costs. They also forget that the US-headquartered multinational corporations are the biggest beneficiaries of the industrial transfer.

They should realize that the unemployment problem is the necessary consequence of economic globalization and that the problem signifies a necessary phase through which the US economy is undergoing.

Source: China Daily; By Guo Di, he author is a Beijing-based economics researcher.

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