Wednesday June 20, 2012

 

 

 

The Full Price of Offshoring

by Michael Chapdelaine

07/06/11

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As the U.S. economy continues to struggle, the effects of the now infamous practice of offshoring are more evident. The shift of industry and attendant business processes – even high skill, intellectually demanding positions – from America to foreign lands over the past several decades has yielded no shortage of cheap goods at discount, retail mega-stores; but, the total, real cost extends beyond the price tag.

The production-and-operational-cost reduction practice of offshoring is part of the policy of so-called free trade in the larger move toward globalization; though, neither has much to do with democracy, egalitarianism, or a gentle world view. The narrative of the inevitability of globalization has approached something of gospel in mainstream American economic thinking and it is presumed to be unambiguously positive.

Aside from U.S. commitments to international monetary and financial institutions such as the International Monetary Fund (IMF), World Bank, the General Agreement on Tariffs and Trade (GATT) and World Trade Organization (WTO), the U.S. currently has specific agreements to trade freely with Australia, Bahrain, Canada, Chile, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Jordan, Mexico, Morocco, Nicaragua, Oman, Peru, and Singapore. Anticipated and pending agreements with dozens of other nations will further extend this practice in breadth and depth. Assistant Professor of Economics at the Lebanese American University, Dr. Saifedean Ammous, describes the aforementioned institutions as part of a system of “structural failures… and conditionality… and a vicious cycle of taking on more debt… where a few people at the top continue to enrich themselves and make more money whereas the majority of the people find it impossible to make a living.” Egypt and Greece, for example, illustrate his point.

Free trade does mean free market access between or among nations. Free trade, though, also means free of employment tax, free of the encumbrance of labor laws and wage expectations, free of ecological consideration and environmental regulation, free of repatriation of profits, and free to import without equalizing tariffs. Global free-trade places countries and peoples in service to world markets; rather than the more nationalistic view of markets existing for and reflecting the needs and interests of you and your neighbors in more localized economies, whether you live in Seattle, Washington, U.S.A. or Chiclayo, Lambayeque, Peru. Corporations operating trans-nationally under the free-trade policy enjoy higher profit margins and face fewer impediments to business efficiency. Cui bono?

Presently, Americans are broadly unemployed or underemployed. Offshoring has not ended up with American workers that have lost their jobs moving to more desirable, higher-paying jobs; the free-trade promise of comparative advantage is unfulfilled. Sadly, many young Americans that have pursued higher education cannot find post-graduation employment matching their acumen. U.S. civil industry is hollowed, skills have been lost, manufacturing capacities and living standards have been reduced, and employment diversity has been curtailed. A resilient, perhaps more “socially conscious” and less stratified economy could accommodate manual laborers, skilled tradesmen, professional service providers, manufacturers, agriculturalists, and more. In any nation, different people have different interests, talents and ambitions.

The American economy today is most heavily represented by retail and service; roughly three-quarters of U.S. gross domestic product (GDP). Real manufacturing – exclusive of mining, drilling, fishing, and forestry – is anemic. The sad reality is that activity such as food processing is now a leading sector. It should be little wonder that per-capita health care demands are rising for idle, malnourished American masses.

Free trade’s social fallout drifts across borders. For instance, while the 1994 North American Free Trade Agreement (NAFTA) held the promise of new markets for American business and of a means to lift Mexican peasants out of a humble existence, and perhaps did for some desiring a more luxurious or conspicuous existence, it also had other, destructive results recognized by the political “left,” “right,” and “center”. Mexican agriculture and attendant agrarian culture took a large hit. The NAFTA forced many formerly independent, self sufficient, subsistence farmers, unable to compete against subsidized, unrestricted imports and with their land rights altered, into a condition of dependence and requisite consumption. The U.S., in turn, saw waves of illegal immigrants that were essentially economic refugees which were also a conveniently cheap pool of labor. The drug trade, with the skids of cross-border shipment heavily greased, concurrently offered employment to Mexican peasantry that was shifting to cities as they looked for new positions in industry.

The environmental toll of free trade and globalization is similarly profound. In particular, the shipping of goods and foodstuffs over great distances will only become a more expensive and absurd proposition as the era of cheap oil reaches its end. The energy involved is huge and growing; we should expect energy shortfalls will constrain economic growth. The business-as-usual allocation of energy resources toward shipping sneakers across the Pacific Ocean to the Port of Long Beach and into Lincoln, Nebraska plays no small part in exacerbating climate change. Is this the great triumph of offshoring? Is this a celebratory condition for the American citizen-worker or for the consumer-purchaser?

Food production has likewise been shifted “offshore” worldwide; formerly self-sufficient in food production, many nations are now dependent on the ingredients of their chicken salad taking a cross-continental or trans-oceanic journey before reaching the dining table. Although American lands still yield crops and livestock, American agriculture, in the wake of the petroleum-based Green Revolution, has become something akin to modern latifundia: massive, corporate, petroleum based, and reliant on cheap, migrant laborers with input from synthesized fertilizers, dangerous pesticides, hormones, and genetic engineering experiments. This, too, is neither a sustainable nor an assuredly safe model for America or any other nation. Localized agriculture, as was the norm throughout most of recorded history, is the future.

There isn’t a reason America could not, once again, provide for itself in automobiles and bicycles, textiles and apparel, digital cameras and televisions, as well as promising, new, essential industry in solar panels and wind turbines. This could be combined with a return to localized, organic farming and ranching for nutrient packed crops and happy, healthy livestock expeditiously and efficiently delivered to local markets: available, affordable, fresh, natural, nutritious, and delicious.

Winds of Change? (Credit: Petr Kratochvil)

Continued globalization, free trade and offshoring will yield more deleterious consequences. Supposing a welcome mat waits for them, most patriotic, unemployed Americans have neither the inclination to renounce their citizenship nor the means to move overseas in pursuit of employment in Bangalore, India or Manila, Philippines.

However, tremendous opportunities do exist for entrepreneurs that recognize the value of domestic business operations in the emerging markets of alternative energy and re-emerging markets for organic foodstuffs – from farm to corner store. In a world absent cheap and abundant fossil fuels and experiencing measurable climate alterations due to fossil fuel use, renewable energy and localized cultivation of food will be two of the hottest avenues for growth in the 21st century. Farming will necessarily be an economic sector that is reliably “onshore” and, with 40 percent of today's U.S. farmers age 55 or older, a sector open to new workers.

 

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