Thursday, September 09, 2004

Paul Samuelson's contrarian view of outsourcing

An article in the NYTimes (reg. reqd.) talks about legendary economist Paul Samuelson's less than positive view on outsourcing. He offers the same argument that I've argued before, and has been put forth by other people (including Charlie Munger).
The global spread of lower-cost computing and Internet communications breaks down the old geographic boundaries between labor markets, he noted, and could accelerate the pressure on wages across large swaths of the service economy. "If you don't believe that changes the average wages in America, then you believe in the tooth fairy," Mr. Samuelson said.

Basically, the outsourcing suppliers may not have the requisite skills in the short term, but as they gain proficiency at the low end jobs they have the potential to gain expertise. While this will cause some localized short-term stress, and mid-term profits, long-term (over the course of several decades or centuries) this will cause the U.S. to lose ground. Having said all this, I'm still in favor of outsourcing, simply because putting roadblocks in place to stop it will only accelerate the damage. The key is to be competitive at an individual level, not at a national level.


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