Outsourcing and Economic Inequality
The world today is globalized economically. At the same time, there is a striking level of economic inequality. Currently, about 1% of the population controls nearly 46% of global wealth, while the bottom 55% of the people share only 1.1% of the wealth. While many in the developed countries are taking their luxury lifestyles for granted, 25,000 people starve to death every single day, and about 690 million people are starving when they go to bed. Starvation is only an extreme manifestation of inequality. There are also countless fellow humans of ours working in a dehumanized way to gain their basic need for living. The terrifying reality urges us to act and reduce such massive inequality under the structure of today’s economy. Some would suggest that the separation of labor markets works better in protecting labor’s rights and avoiding exploitation that intensifies economic inequality. However, outsourcing under strictly enforced international regulations should end up better mitigating global inequality since cooperation and specialization between markets can eventually better facilitate the growth of developing economies, and proper regulations that are strictly enforced are necessary to eliminate unfair and exploitative practices.
The current economic globalization, and outsourcing, in particular, made the working class increasingly dissatisfied due to its unbalanced distribution. We have observed some very powerful anti-globalization waves going on, especially during the past few years. When Donald Trump proposed his economic policy to “bring jobs back to America,” he gained a large number of supporters. Apart from people in developed countries complaining about losing their jobs, the improvements of workers’ conditions in developing countries can also be seen as insignificant. China, the major target of outsourcing over the past few decades, had witnessed little improvement in its workers’ conditions. The tremendous wealth China had gained during outsourcing skyrocketed its national Gini coefficient. In other words, the wealth went into the hands of a very small proportion of people. More and more people in China, accordingly, are resentful that opening its markets, labor market included, led to an overly unequal society. In the end, it seems like inequality is intensified through the process of outsourcing.
Like Trump supporters who are voting for a candidate to reverse the outsourcing progress, there are more and more people leaning towards the idea to stop outsourcing. This idea is to only allow companies hiring people in their own countries, since supporters of this national approach assume that by separating labor markets and punishing companies that try to outsource, the inequality issue and dissatisfaction will be effectively addressed. However, I believe they have overlooked how much benefit outsourcing could generate. Based on well-established economic principles, all parties involved in international specialization and cooperation should end up benefiting from it. According to the International Organization for Standardization, companies that practice outsourcing can reduce fifteen percent of their costs on average. Considering the tremendous revenue of the global outsourcing industry, which is around ninety billion dollars, it is safe to conclude that a vast amount of profit was generated. Jobs were created in developing countries, and much more profits were made by the companies that practice outsourcing. Most importantly, all these advantages came from nowhere. If labor markets are strictly separated, the enormous value created by outsourcing is gone, and what do we get? Nothing at all! Outsourcing is not a zero-sum game. Instead, it increases the total wealth of the world compared to a hypothetical world where no outsourcing is practiced at all. The national approach is not a good option because the beneficial nature of outsourcing is irrefutable, even though the current way wealth is distributed can make it looks harmful.
Therefore, I believe it is a better option to refine the current outsourcing system through international regulations on workers’ basic rights. Powerful international regulations should be imposed to limit this externality. One possible way of doing this is through the establishment of a global organization with special power or a restrictive international treaty. This measure should be seen as a prerequisite for any nation participating in the future outsourcing process. The key part of this global regulation is to set strict requirements on workers’ fundamental rights. It may include basic wages, working condition limitations, and safety requirements. I believe the standard for different economies should be based on national differences such as the level of development and other measures of the economy. In other words, it should be a dynamic requirement when it comes to different nations. For example, the basic wage for a less developed country should not be expected to be the same as that of the United States. However, the established standard should be able to secure basic workers’ rights in developing nations and provide them with a higher share of the benefit of outsourcing while maintaining an attractive advantage due to its lower costs.
Establishing such regulations is a practical option because it will still maintain the structure of outsourcing. Companies such as Apple will continue to move their production lines to developing countries, but with less profit. Those profits that are the result of outsourcing will be transferred to the working class in developing countries, so their working conditions will be improved. Not only will the workers in developing nations benefit from it. According to the supply and demand rule, there will be more jobs offered to workers in developed countries as well since their disadvantage on labor costs is weakened by a little. In this way, all parties involved in outsourcing will be benefited from the process through a reasonable redistribution to have companies give out part of their share to the workers whose basic living conditions cannot be secured under the current situation.
Some would argue that this ideal scheme will be hard to implement due to realistic barriers, including the lack of motive among governments, resistance from companies, and difficulty to make sure countries obey their own promises. I have to admit, they are true, but only in the short run. Companies today take for granted that they should get almost all the benefits from outsourcing, but this will not be long-lasting. It is a warning sign that the working class around the world are starting to oppose outsourcing and globalization, especially when they start to realize how disproportionately small their share is compared to the firms. It is very likely this situation will continue to escalate in the future. One of the reasons is that the internet provides people worldwide access to a tremendous amount of information, and it will allow the working class to more easily see and understand the unreasonable picture of wealth distribution today. Once they see it, they will not easily get over it. The other reason is that technological advancement will keep causing new problems with the same nature as the unequal distribution in globalization. For example, automation is going to greatly reduce the cost of companies, while human employees will be losing their jobs. If companies still decide to take all the benefits, it will cause even bigger discontent among the working class. Therefore, in the long run, companies will have to change the rationale they are using today that rationalizes them to take all the benefits from new economic measures. Setting international regulations on outsourcing will become a part of it.
In conclusion, I believe that as long as the outsourcing process promotes the workers’ rights and wealth, a globalized labor market will always outrun a national approach to separate the global labor market. I also think that in the long run, the current distribution of wealth generated by outsourcing will need to be interfered with by non-market powers, and it will ultimately become a crucial factor in reducing global inequality and promoting the well-being of all.
