Santa Claus, The Easter Bunny, The Tooth Fairy, and Outsourcing

Among the great modern-day myths is the Outsourcing Boogeyman:

Concerns about outsourcing overseas as a source of job loss have been overstated in the media. A recent government report from the Bureau of Labor Statistics indicates that in only 2 percent of recent layoffs of 50 or more people was offshore outsourcing even a factor.

There is a right way and a wrong way to expand economic opportunity in individual states around the country. The wrong approach is to implement measures that would restrict trade, invite retaliation, or violate the U.S. Constitution. The right way is for legislators to adopt positive measures to create jobs, including lowering the tax, regulatory, and litigation burden on employers.

Anyone in an undergraduate economics class ought to be able ace their final exam with one phrase: "There ain't no such thing as a free lunch."

This is very, very easy to understand.

Labor remains a major component of the price of products and services. For most businesses, 80% or more of their operating budgets consist of personnel-related costs (salaries, benefits, etc). To significantly cut costs, particularly when your revenues are down (people aren't buying as much of your stuff), you almost always have to touch personnel.

This is an unpopular thing to do, both within and without the company. Nobody wants to do it, and managers go to considerable lengths to resist doing it.

One method for making this whole labor cost flexibility issue less painful is to not hire employees in the first place, but to outsource the labor. That makes life a lot easier for the company, as it can then flex labor in an area quickly and easily by placing new orders or placing fewer orders.

Since there ain't no such thing as a free lunch, the price they pay for this flexibility is the overhead necessary to monitor it, the markup from the company the labor is purchased from, and the political excoriation from the usual suspects who understand nothing at all about business or the economy.

Outsourcing has been a productivity engine for American business. We have a dwindling labor pool in the United States, dictated in part by demographics (the Baby Boomers are leaving the workforce, meaning we'll have a lot more jobs than workers in the future) and in part by the failure of American educational institutions to put out large numbers of highly-qualified workers.

There are a couple of ways to address this worker scarcity issue. Since there ain't no free lunch, there are downsides to each:

1. Import more workers. This is very tricky since the very labor we need most is the kind that will absolutely rankle the Left---high-tech, high-skill white collar labor. Universities in India, China, and Eastern Europe produce lots of these folks, very talented, very hardworking. You can hear the outcry now among the same folks who are all for uneducated agricultural labor to come in by the millions, so long as they know enough English to cast fraudulent ballots for the right party come election time.

2. Grow less. This is the option the Democratic Party actually pushes relentless, from their overblown inflation concern (inflation is a consequence of economic growth to a large extent) to their constant battle to establish protectionsit trade policies and tax wealth. Just about everything Democrats propose acts as a brake on economic growth. Less growth, less jobs, more dependency on government. Get it? The downsides of less growth are obvious, despite Ted Kennedy's "Free Lunch Here" sandwich board.

3. Outsource the things you don't do well to places where they can be done cheaply and well. The downside is that the economically ignorant will never forgive you for "shipping jobs overseas."

I've been involved with global sourcing for most of the past decade. The arguments against outsourcing are constant; it is the countries involved, the skills involved, and the ways to ignore the obvious benefits which are variable.

If you want to know how the U.S. emerged from the Clinton recession so quickly, outsourcing played a key role, along with tax policy.

Moreover, it's a gift that keeps on giving. By companies freeing up cash and labor to work on higher-value areas of its business, we get increased productivity, better products, and cheaper products.

I recently made several purchases and was simply amazed at the quality I could get for so low a cost, in large part because the products were themselves globally sourced. Your average Wal-Mart today has better stuff than you could get at pricy boutiques and catalogues a few short years ago. It's part of the reason why Wal-Mart is exploding. And why the Left is exploding, too.

Free markets work. Labor is a commodity, not a fetish. If you're worried about the impact of outsourcing, you need only keep an eye on unemployment and household income figures. If the Left were right, unemployment would be skyrocketing and household income falling. Good luck torturing stats to tell that story.