The Long-Term Effects of Outsourcing

Indian Outsourcing A friend who is traveling to India recently received a flier from the Indian Consulate that stated that the Consulate would no longer be processing visa applications directly, but rather, all visa services have been outsourced to a company named Travisa Outsourcing, Inc of New York, NY. Despite the obvious irony that the Indians are choosing to outsource work to the US, the change serves to illustrate the long-term benefits of outsourcing to both the outsourcing country and the recipient of the work. In the end, outsourcing work will lift the economies of everybody involved–not to mention the economies of many countries not involved.

Too often, we only look at outsourcing from the narrow perspective of a single job rather than its effect on the economy as a whole. Certainly people lose jobs when outsourcing occurs, and as the world’s richest nation, we should make sure that person is able to live comfortably and receive enough support to find new employment. Looking at the bigger picture, outsourcing has both immediate and long-run positive effects. First of all, by sending work to the cheapest place to do the job, it means that the rest of us get to enjoy the lowest price possible. Think of the implications of this statement: because of outsourcing, instead of giving your money to somebody else (a corporation’s stockholders), you get to keep more of it for childcare, education, automobile payments, and vacations. This very fact is the key to the strength of outsourcing, instead of giving your money to an inefficient corporation, you get to spend it where it does the best good. And, this fact, holds true not just for you, but for everybody else who spends money too. The end result is that outsourcing results in large increases in economic efficiency, which, in turn, leads to the creation of more and better jobs than those lost in the first place (though not likely for the people who lost those jobs; they typically are the losers in this bargain).

The gains from outsourcing do not end there. Look at what I call the Wal-Mart World Aid Plan. Wal-Mart buys a large proportion of its products from outside the US, and much of this comes from India. By employing Indians to do work more cheaply than in the US, it not only makes us better off, but it makes India richer too. What this means is that as Indians grow richer and their economy grows they can afford to purchase more and more of the high dollar services that the US provides: consulting expertise, financial services, and apparently, visa processing, which makes us even richer. Other evidence of this is the fact that many Indian programming companies are now hiring newly-minted British college graduates because it is actually cheaper to import young Brits than hire experienced and expensive Indian programmers.