Offshoring and Politics

They're the first to come and the last to leave
Working for that minimum wage
They'll set it up in another town
--Jackson Browne

Recently we distinguished between outsourcing and offshoring. Offshoring is either a) contracting out (i.e., outsourcing) to external suppliers located in other countries, or b) insourcing by relocating work units in others countries.

Either way, what people tend to see is migration of jobs offshore. What they tend to not see is that, in unhampered markets, offshoring is done in the name of providing better value for customers. When producers deliver satisfy customers in novel or more efficient ways, standard of living improves.

Because people generally focus on what they see, offshoring becomes an attractive target for those interested in preserving domestic jobs. A local union, for example, might demonize a vertically integrated employer that moves a unionized domestic parts operation to another country that operates in a union-free environment.

However misguided they might be, opponents of offshoring have a right to complain. They can buy TV ads, rent lecture halls, and lambast the practice of offshoring to those willing to listen. They might even try to convince buyers to elevate their taste preferences for locally produced goods and services.

Stated differently, opponents of offshoring can market the virtues of keeping jobs at home.

This is all well and good - as long as there is no force involved. Unfortunately, this is commonly not the case.

Politicians possess uncanny capacity for exploiting what people see. They can utilize their expertise in making markets for politial favor to promise those blindly married to the idea of domestic jobs that, if (re)elected, they will work towards bending the rules toward keeping jobs here.

But politicians can only bend rules through the use of force. Only thru the use of force can government coerce people to a) do what they do not voluntarily want to do, or b) not do what they voluntarily do want to do.

When politicians intervene in markets that engage in offshoring activity, consumers are no longer calling the shots. Instead, politicians and their special interest groups (SIGs) are forcefully altering behavior thats fits their view of the world.

Customer satisfaction goes down, standard of living declines, and, quite ironically, domestic employment is likely to take a hit as well.

Perhaps the strangest consequence of the present US situation related to offshoring is that policians have actually bent the rules in a manner that encourages more rather than less offshoring.

To be explained in a future installment.