Outsourcing Has No Easy Answers, Say Panelists

Most panelists at the Oct. 9 conference say competitiveness is the key weapon against social inequality and unemployment associated with outsourcing.

October 01, 2004

| by Isabel Awad

In a world of global competition, not only is outsourcing inevitable, but it requires very complex solutions. There is no silver-bullet solution, agreed speakers at the Oct. 9. conference “Outsourcing Bay Area Employment Internationally,” held at the Stanford Graduate School of Business. For most panelists, however, competitiveness is the key weapon against social inequality and unemployment associated with outsourcing. In the words of Carl Guardino, executive director of the Silicon Valley Manufacturing Group, “We have to make sure that we have a climate where we can compete and where we will win.”

Guardino was the keynote speaker of the conference organized by the World Affairs Council and co-sponsored by Stanford GSB’s Sloan Master’s Program. The first step in any discussion about outsourcing is to “replace dogma with data” and understand that this phenomenon is part of a bigger trend related to global markets and competition. Fifty-nine percent of Bay Area production is for international markets, said Guardino. “It is no wonder then that we place facilities and people around the globe as we deal with the logistics, supply chains, material resources, local customs, and local talent pools to serve those markets and to stay competitive.”

Bay Area firms must cope simultaneously with international and domestic competition. “We lose as many jobs to other states as we do to other nations,” Guardino explained. In his view, California can maintain its level of competitiveness “first and foremost” by investing in education. “We need to have the best education system in the world,” he said. Supporting schools and universities is essential for the future, he said, but also in the short term because good and accessible education attracts and maintains today’s workforce.

“If the research and the innovation happen here, then the seeds of that innovation are going to be planted here, and at least some of those jobs are going to grow and blossom and stay here,” Guardino said. That is why, apart from education, the Bay Area’s competitiveness requires top-level research and infrastructure. Boasting the fifth-largest economy of the world, he argued, California cannot afford to spend a mere 3 percent of its general fund on infrastructure as if it were “a third world nation.”

While a significant number of American workers have seen their jobs outsourced, others have benefited from the inverse process—insourcing. “In California alone, nearly three quarters of a million workers work for foreign companies with subsidiaries or facilities here in the U.S. That is a huge benefit to our economy.”

“The United States gains as much as we lose from outsourcing,” agreed Business School professor Paul Oyer. “We are gaining jobs where proximity to U.S. innovation is important; we’re losing jobs where that proximity is not important.” He also agreed with Guardino that improving education and infrastructure requires government investment.

Outsourcing “is not any different from all other trade issues,” said Oyer. A key issue for him is to help people through this transition because outsourcing intensifies social differences. “The hourglass will become more pronounced,” he said, producing the greatest growth in the higher and lower social strata. In the long term, however, he thinks that the aggregate social distribution “is moving in the right direction.”

Not an hourglass but a Victorian gown is the best metaphor to represent the American economy, said Bob Brownstein, policy director of Working Partnerships USA. Brownstein did not share Oyer’s and other panelists’ long-term trust in market forces. The unequal distribution of income and jobs, he said, is leading to a decline in social mobility, that produces “incredibly unfair competition for the people with fewer resources.”

Like a Victorian gown, Brownstein explained, American society today has a small upper section, a corseted thin middle class, and a big majority at the bottom with no access to the American dream. For him, changing the shape of the Victorian gown is a priority requiring more than competitiveness. He called for a “shared-prosperity model” based on a safety net that would guarantee access to housing, health, education, and basic services for all.

Brownstein was the only panelist to defend specific measures created to combat outsourcing. He argued that precisely because this problem is comparatively small in relation to economic issues that seem uncontrollable, it is important to attack it directly with “a regulative and punitive tax approach.”

One of the things that makes outsourcing particularly problematic, panelists agreed, is the insufficient economic data to understand its impact. Changes are happening too quickly and without sufficient transparency. Outsourcing is such “a hot potato” that companies don’t want to provide information about it, said Eugene Poznikov, vice president of Xtra Information Management.

According to Poznikov, “There has to be a framework of reciprocity.” In addition to government investment in infrastructure and education, there must be a high level of corporate social responsibility. Companies should invest in education, respect labor laws, and provide access to information, argued Poznikov.

At the end, the people affected by outsourcing have a final say, concluded Karl Schoenberger, the San Jose Mercury News Pacific Rim reporter. American voters’ concern with “the outsourcing boom” is reflected in proposals to regulate this issue in at least 40 states. Although most of these proposals were vetoed, a “critical mass” of disenfranchised people in the future may lead to political changes. “There is always a self-correcting process, which is political,” Schoenberger argued.

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