As with any complex issue, outsourcing can't be simply categorized as good or bad. You have to ask "in what way?" and "for whom?" when considering such questions. As Michael has mentioned, the potential for uplifting other society's is an important potential good coming from outsourcing, beyond the obvious potential benefit of lower prices and obvious downsides of lost jobs and environmental degregation.
The reason I brought up corporate governance is that I think the benefits will remain potential while the downside will be all too real unless we have better control over the actions of these immortal fictional people that we've created through our legal system. If corporations remain purely devoted to profit as shareholder lawsuits and a peculiar interpretation of our legal system has ordained in recent years, then we'll see outsourcing used to externalize costs as much as possible, which means that your wealth and mine will be extracted by the corporations to enhance their profits.
If we can change corporate governance, moving it away from its new and unhealthy monofocus on shareholders, then we'll begin to see the benefits, as corporations will no longer impose their costs of doing business on both sides of the outsourcing equation as they generally do now.
The reason I brought up corporate governance is that I think the benefits will remain potential while the downside will be all too real unless we have better control over the actions of these immortal fictional people that we've created through our legal system. If corporations remain purely devoted to profit as shareholder lawsuits and a peculiar interpretation of our legal system has ordained in recent years, then we'll see outsourcing used to externalize costs as much as possible, which means that your wealth and mine will be extracted by the corporations to enhance their profits.
If we can change corporate governance, moving it away from its new and unhealthy monofocus on shareholders, then we'll begin to see the benefits, as corporations will no longer impose their costs of doing business on both sides of the outsourcing equation as they generally do now.
Michael:
I agree that American education at the post-secondary level is strong. The problem is Americans aren't going into the technical fields in college in the numbers they once did. MIT could fill its Freshman class this fall entirely with CHINESE or INDIANS and probably raise the average SAT score of its Freshman class. How many adults do you know that understand the scientific method, know simple biological concepts, can solve a simple quadratic equation, know the chemical symbol for water or helium, to say nothing of such "difficult" concepts as differentials/integrals or Avogadro's Law? I was talking yesterday at my race with a lawyer friend who made the blunder of saying that he didn't understand how biologists could believe in evolution when they have no proof life was formed out of the primeval ooze.
He went to the University of Florida, which doesn't even have a biology major but has 48K students, so I'll forgive him this time.
So, as I see it, we will move more and more manufacturing jobs abroad, and the average guy will have no job to go to because he never got a high school education in the first place and technology has outpaced his education. We have already dropped below the 60% high school graduation rate and the numbers are FALLING. Unless we want a blue collar revolt of BIBLICAL proportions, we need to get this problem straightened out pronto. I would not want to be the President who has to deal with 2-5 million out of work guys who listen to C-W and maintain a small armory in their garages.
-Robert
I agree that American education at the post-secondary level is strong. The problem is Americans aren't going into the technical fields in college in the numbers they once did. MIT could fill its Freshman class this fall entirely with CHINESE or INDIANS and probably raise the average SAT score of its Freshman class. How many adults do you know that understand the scientific method, know simple biological concepts, can solve a simple quadratic equation, know the chemical symbol for water or helium, to say nothing of such "difficult" concepts as differentials/integrals or Avogadro's Law? I was talking yesterday at my race with a lawyer friend who made the blunder of saying that he didn't understand how biologists could believe in evolution when they have no proof life was formed out of the primeval ooze.
He went to the University of Florida, which doesn't even have a biology major but has 48K students, so I'll forgive him this time. So, as I see it, we will move more and more manufacturing jobs abroad, and the average guy will have no job to go to because he never got a high school education in the first place and technology has outpaced his education. We have already dropped below the 60% high school graduation rate and the numbers are FALLING. Unless we want a blue collar revolt of BIBLICAL proportions, we need to get this problem straightened out pronto. I would not want to be the President who has to deal with 2-5 million out of work guys who listen to C-W and maintain a small armory in their garages.
-Robert
Thus follows the standard example for outsourcing :
A lawyer is looking to get his house painted.
He can pay a contractor $400 to have it done. Contractor finishes in two hours and does a professional job.
He can do it himself over the weekend. Takes one working day, total of 8 hours. Lawyer's salary is $100 an hour.
In other words, the lawyer spends either $400 for someone else to do it or loses 8 hours of his salary, $800.
Obviously, the number are very rough and probably largely inaccurate, but the philosophy is the same.
For any given job, a specialist is more likely have better results than a jack of all trades. A specialist may charge more wages, but get it done faster. Or, the specialist may charge less, and get the work done in around the same time. In the best case scenario, a specialist charges less, does a better job, and gets the work done faster.
Most people tend to see outsourcing as money-grubbing corporations hiring lower-quality workers for less money. While this is true in many cases, it is certainly not applicable everywhere. Small businesses outsource on a daily basis. They hire other companies to handle shipping, they hire accountants to do the taxes or balance the books, they contract newspapers and magazines to get the word out, and if it's a manufacturing company, they hire repairmen to fix or maintain machines. If you get right down to it, they might even contract with a car company to lease the company car/truck.
Unless you grow your own food, make your own clothes, manufacture your own car, refine your own oil, mow your own lawn, etc, then you are outsourcing. Less than 100 years ago, a woman spent half a day on average just preparing for dinner. Large dinners simply used more people to help. Nowadays, the same meal can be prepared at home in about an hour (usually less) and even better meals for half an hour if you eat out. You also have the option of really bad meals for the five minutes spent at a drive thru or using the microwave.
If you feel a sudden compulsion to label all outsourcing evil, consider how many items in which you depend were manufactured by yourself. Corporations or small businesses are no different in that respect.
Originally posted by: chess9
Michael:
I agree that American education at the post-secondary level is strong. The problem is Americans aren't going into the technical fields in college in the numbers they once did. MIT could fill its Freshman class this fall entirely with CHINESE or INDIANS and probably raise the average SAT score of its Freshman class. How many adults do you know that understand the scientific method, know simple biological concepts, can solve a simple quadratic equation, know the chemical symbol for water or helium, to say nothing of such "difficult" concepts as differentials/integrals or Avogadro's Law? I was talking yesterday at my race with a lawyer friend who made the blunder of saying that he didn't understand how biologists could believe in evolution when they have no proof life was formed out of the primeval ooze.
So, as I see it, we will move more and more manufacturing jobs abroad, and the average guy will have no job to go to because he never got a high school education in the first place and technology has outpaced his education. We have already dropped below the 60% high school graduation rate and the numbers are FALLING. Unless we want a blue collar revolt of BIBLICAL proportions, we need to get this problem straightened out pronto. I would not want to be the President who has to deal with 2-5 million out of work guys who listen to C-W and maintain a small armory in their garages.
-Robert
That 60% drop out rate is apparently not a problem Robert. With only 20% of Manufacturing left in the U.S. and dropping everyday we will be nothjing but a giant Bahamas type Island with a few Rich Elite and the rest of the dumb as rock population to serve them in low paying $6 hr or less service jobs anyway. Problem solved, the plan is going according to schedule.
Chess,
The US is multi-ethnic society. Whether the class is non-caucasion or not has nothing to do with it. (I realize that isn't what you said but that's how it reads) There is a major cultural item that most people fail to take into account when comparing the US to other nations. In the US and a few select nations innovation and risk-taking is rewarded and failure is a learning experience. In the vast majority of worldwide cultures taking risks is a major Taboo and failing ends your career. So if China produces 50x the engineers and scientists we do it won't do them much good as long as their culture discourages imagination, innovation and risk-taking. The US continues to lead the world (along with Europe and Canada) in innovation and development of new technology. Although that technology is then exported for production our companies are the ones that profit from it.
Outsourcing of prodution is the only thing keeping inflation in check in the US. The continued decline in pricing of products keeps inflation in check as wages continue to rise in this country. I would prefer an world where the US controls the businesses and the world makes the stuff we need while we sit on the high paying management jobs.
The US is multi-ethnic society. Whether the class is non-caucasion or not has nothing to do with it. (I realize that isn't what you said but that's how it reads) There is a major cultural item that most people fail to take into account when comparing the US to other nations. In the US and a few select nations innovation and risk-taking is rewarded and failure is a learning experience. In the vast majority of worldwide cultures taking risks is a major Taboo and failing ends your career. So if China produces 50x the engineers and scientists we do it won't do them much good as long as their culture discourages imagination, innovation and risk-taking. The US continues to lead the world (along with Europe and Canada) in innovation and development of new technology. Although that technology is then exported for production our companies are the ones that profit from it.
Outsourcing of prodution is the only thing keeping inflation in check in the US. The continued decline in pricing of products keeps inflation in check as wages continue to rise in this country. I would prefer an world where the US controls the businesses and the world makes the stuff we need while we sit on the high paying management jobs.
Do you know why so many IT jobs went overseas? That's because the same job could be done for less money. Dell sent its call centers to India because its call centeres in the US used scripts anyway. They figured the few problems that actually required technical knowledge could be handled as usual while the bulk of the problems (from computer illiterate customers, no less) could be handled in the same manner for less money. Well, last I heard, the quality (English skills) wasn't enough, so Dell decided to return them to the U.S. That may or may not be true.
Same thing with other jobs. I personally know more than one CS major whose job I could easily do even though my field is unrelated. They are code monkees and I wouldn't be surprised if the bulk of US trained programmers were the same; basically like script kiddies vs hackers. The way I see it, the US economy has two types of workers : Those who need to think and those who don't. Those who think will always have a job, but not necessarily the same one. Those who don't will see their jobs outsourced at the earliest possible moment or replaced by robots.
The car industry saw the same changes years ago. Manufacturing was outsourced to other companies or replaced with robotics. Their former workers either sat around moaning or went off to do other work. Somehow, I don't hear much moaning these days.
The problem with your argument is that you've ignored the issue of scale.
Scale is the core problem underlying all issues in economics and politics. We have millions of years of evolutionary heritage that led us to evolve a brain that's very good at living in small (<100 people) tribes where we know everyone, but we've only lived in large conglomerations of many thousands or millions of people, most of whom are strangers to us. Life in a hunter-gatherer tribal situation is easy for us; figuring out how to live together by the millions presents very different problems.
People and their small businesses and multinational corporations have different effects on their environment due to their different sizes and rights. While it may be interesting to discuss outsourcing in general, I believe this thread is meant to be about multinational corporations outsourcing to other countries.
Scale is also an issue in terms of distance. The effect of outsourcing between two people in the same town is different than the effect of outsourcing between two states or countries with different taxation, legal, and government systems. Having the ability to choose which government's rules to follow in different aspects of your business is a powerful advantage for the few who are wealthy enough to take advantage of them.
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chess9 - You actually hit on one of the points that Jeff Immelt made in the presentation I went to last week.
Instead of focusing on "jobs", it is far better to focus on the why and what has to be done instead of trying to artificially create something.
Education is one area. He tossed out the statistic that there are far more sports management degrees being issued right now than engineering degrees and he felt that imbalance had to be addressed. Our public education system is not producing the results that our society needs and this is making us vulnerable to foreign competition.
He also used the mismatch in cost of the entitlements that go along with hiring someone (healthcare costs and workmen's comp in California). The American healthcare payment system of insurance means that we are not consumers in the same way we are for the other expenses we have. This drives behaviour that makes costs higher and puts a lot of burden on corporations (who do you think really pays for the uninsured? They have to be treated by law and someone is paying for them).
I can't discuss your observations on what level of knowledge our education system is producing as my social circle has contracted somewhat due to excessive work hours and I have an advanced degree and I'm married to a MD who was a Chemistry undergrad. I would say that most of my friends could do all the examples you mentioned. I had to look up Avogadro's Law, I haven't done chemistry since high school and that is long enough ago that my memory is getting fuzzy.
So I would propose 2 ideas on what we can do about outsourcing:
1) Make sure that the USA remains fully competitive - that means addressing education and cost of doing business in the USA. the cost question is the tricky one as many of the costs are there because we want them to be there (minimum wages, no child labour, environmental laws, healthcare coverage under our system, etc.)
2) Make sure we are competing on a level playing field. If our borders are open and they can compete here, the same should apply on their end.
cquark - I have some disagreement with your discussion on corporations, but I'll have to get to it when I have a little more time.
Michael
Instead of focusing on "jobs", it is far better to focus on the why and what has to be done instead of trying to artificially create something.
Education is one area. He tossed out the statistic that there are far more sports management degrees being issued right now than engineering degrees and he felt that imbalance had to be addressed. Our public education system is not producing the results that our society needs and this is making us vulnerable to foreign competition.
He also used the mismatch in cost of the entitlements that go along with hiring someone (healthcare costs and workmen's comp in California). The American healthcare payment system of insurance means that we are not consumers in the same way we are for the other expenses we have. This drives behaviour that makes costs higher and puts a lot of burden on corporations (who do you think really pays for the uninsured? They have to be treated by law and someone is paying for them).
I can't discuss your observations on what level of knowledge our education system is producing as my social circle has contracted somewhat due to excessive work hours and I have an advanced degree and I'm married to a MD who was a Chemistry undergrad. I would say that most of my friends could do all the examples you mentioned. I had to look up Avogadro's Law, I haven't done chemistry since high school and that is long enough ago that my memory is getting fuzzy.
So I would propose 2 ideas on what we can do about outsourcing:
1) Make sure that the USA remains fully competitive - that means addressing education and cost of doing business in the USA. the cost question is the tricky one as many of the costs are there because we want them to be there (minimum wages, no child labour, environmental laws, healthcare coverage under our system, etc.)
2) Make sure we are competing on a level playing field. If our borders are open and they can compete here, the same should apply on their end.
cquark - I have some disagreement with your discussion on corporations, but I'll have to get to it when I have a little more time.
Michael
1) Make sure that the USA remains fully competitive - that means addressing education and cost of doing business in the USA. the cost question is the tricky one as many of the costs are there because we want them to be there (minimum wages, no child labour, environmental laws, healthcare coverage under our system, etc.)
2) Make sure we are competing on a level playing field. If our borders are open and they can compete here, the same should apply on their end.
Michael
Fully competitive for what and what fields? 80% of our Manufacturing is already gone and dropping further everyday.
Certainly agree on the level playing field. If that was ever reasonably achieved then maybe some of the Manufacturing could come back.
But CAD & Co don't want any Manufacturing here, they think it is fine for a Country to be totally dependent on others to survive.
2) Make sure we are competing on a level playing field. If our borders are open and they can compete here, the same should apply on their end.
Michael
Fully competitive for what and what fields? 80% of our Manufacturing is already gone and dropping further everyday.
Certainly agree on the level playing field. If that was ever reasonably achieved then maybe some of the Manufacturing could come back.
But CAD & Co don't want any Manufacturing here, they think it is fine for a Country to be totally dependent on others to survive.
CADsortaGUY
Lifer
Originally posted by: dmcowen674
Fully competitive for what and what fields? 80% of our Manufacturing is already gone and dropping further everyday.
Certainly agree on the level playing field. If that was ever reasonably achieved then maybe some of the Manufacturing could come back.
But CAD & Co don't want any Manufacturing here, they think it is fine for a Country to be totally dependent on others to survive.
Lots of misinformation in the post I quoted here. I just wanted it preserved in it's original format.
Lets play a little game. How many inaccuracies can you find in the above short post?
CkG
A single large corporation affects the environment in ways very similar to a large number of small corporations. The only difference is the degree of concentration. The effects upon the economy in general are similar no matter the scale. There are likely relatively small differences due to more overhead.
Multi-national corporations outsourcing to other countries is no different than national corporations outsourcing out of state. National corporations outsourcing to other states is no different than small companies outsourcing out of town. Smalle companies outsourcing out of town is no different than the individual outsourcing to another household. Obviously, the details will differ, but the situation and effects will be the same, just on a different scale. Much as a multi-national corporation can pick and choose which nation to work to its advantage, the individual or small business can pick and choose from different sources to best suit the job for the best price. It's called shopping around. Thanks to free trade, the options are less limited all across the spectrum.
In conclusion, there is no issue with scale. The situation is essentially the same whether one company outsources a thousand jobs or a thousand companies outsource one job.
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The real scale difference is that one large factory being closed has a very big impact on one town than one small business failing. The same goes for building a new factory. Large companies more easily cause large splashes even though the little ripples that the small comapnies cause may move more water in total. Large companies make for large targets.
Michael
Michael
I agree with you that America need to address the cause of current outsourcing trend through education and cost of doing business in the USA. However, those are not something you can address within 1 or 2 years. Especially education, it will take years to change the mindsets of American and focus on subjects like math and science.
In the meantime, if you don't address the immediate outsourcing trends, there will be less and less technical jobs left in the US and as a result, 1) less and less people will be interested in the technical field or 2) people in the technical field won't be able to find jobs. In contrast, country like India will have more people involved in the technical field and build strong competitive advantages in those fields.
That's just the way it is going to be, and it is up to American to decide if technical expertise is something a country need to develop. If it is important for American as a country to have technical expertise for the sake of the society, you can't let companies and cost drive what kind of job people have and what kind of skills people need to develop.
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I found this to be interesting reading:
Report on shortage of skilled manufacturing labour
One of the interesting points made in the study was that most young people are not interested in working in a factory. I know that my parents did what they could to make sure none of their kids ended up with a factory job. These are the "good" jobs that the first waves of outsourcing took away. Like garment work.
In terms of the short term trnds and what can be done - I don't worry about the short-term because just about any government action within the economy wouldn't take effect fast enough to change anything.
A few high-proile trade cases launched one after the other against markets that are closed to our goods (China and India are good targets) would havemuch more short-term impact in slowing the actual trend. Assuming you want to slow the trend.
Michael
Report on shortage of skilled manufacturing labour
One of the interesting points made in the study was that most young people are not interested in working in a factory. I know that my parents did what they could to make sure none of their kids ended up with a factory job. These are the "good" jobs that the first waves of outsourcing took away. Like garment work.
In terms of the short term trnds and what can be done - I don't worry about the short-term because just about any government action within the economy wouldn't take effect fast enough to change anything.
A few high-proile trade cases launched one after the other against markets that are closed to our goods (China and India are good targets) would havemuch more short-term impact in slowing the actual trend. Assuming you want to slow the trend.
Michael
That is a good article, and look at the first thing the article proposed to address the skill shortage problem:
- advocating public policies that will maintain and strengthen the manufacturing sector;
You see, you need a public policy to strenghten the manufacturing sector because without a strong manufacturing sector, all the awareness campaign, the eduation and the training will be useless. There just won't be enough job if there is no policies to address the shorter term problems.
I am looking from the point of view that outsourcing hurts industries. It maybe beneficial for the overall economy (monetary wise), but there will be social cost if certain industry is weakened or destroyed because of outsourcing. Your proposal to launch trade cases against trade partners does not address outsourcing that may weaken or destroy certain industry. Now not having a cloth making industry may not hurt a nation too much, but not having heavy machinary making industry or information technology industry will.
Again, company tries to maximize profit and they won't care about the strategic industries that a country must maintain for it to be a strong and secure nation. It is up to the government planners to see what are the important industry and implement policies that provide incentives too keep jobs in or prevent companies outsource jobs from those industry.
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My proposal is simply to buy time without resorting to tariffs (that can spiral out of control).
I agree that you need a real public policy and need to make a decision about what is important. There are many industries that, other than the jobs they provide, are not a long-term source of wealth creation for the country. Those could be done better in other countries (gament making is a good example).
On a related topic, the USA lost the fight to make TVs through foreign competion, not outsourcing. Same with many of the other fights that have been lost. The focus on outsourcing is, in my mind, too much as the actual number of jobs affected is low. Make the country better bale to compete and you can g=fix both problems. You need a superior workforce, reasonable costs, and good infrastructure to do that.
Michael
I agree that you need a real public policy and need to make a decision about what is important. There are many industries that, other than the jobs they provide, are not a long-term source of wealth creation for the country. Those could be done better in other countries (gament making is a good example).
On a related topic, the USA lost the fight to make TVs through foreign competion, not outsourcing. Same with many of the other fights that have been lost. The focus on outsourcing is, in my mind, too much as the actual number of jobs affected is low. Make the country better bale to compete and you can g=fix both problems. You need a superior workforce, reasonable costs, and good infrastructure to do that.
Michael
That's a good beginning to an answer, Michael, but it leaves out the important factor of time. The single factory closing has a large, immediate impact, whereas even if all the small businesses in town are cutting jobs, they won't all do it on the same day. Instead, they'll do it gradually, offering time for the local economy and government to adjust instead of suddenly decreasing the number of people who can buy and pay taxes while at the time time suddenly increasing the number drawing from local charities and unemployment insurance.
Obviously, there are differences as you admit in your last clause of the quote; however, what you fail to realize is that the differences accumulate as you slowly increase the scale, until qualitative properties emerge from small quantitative changes, as they do in any field of study. The fact that there's essentially no difference between 1 micron transistors and between 0.50 micron ones and likewise between 0.50 and 0.25 and likewise between 0.25 and 0.10 and likewise between 0.10 and 0.05 and likewise between 0.050 and between 0.010 and likewise between 0.010 and 0.005 doesn't mean that quantum mechanics doesn't exist, because you will find that the laws of physics you're basing your calculations on have changed from classical Newtonian physics to quantum physics during that scale transition.
Differences can and do accumulate. You can't replace people by corporations in your economics calculations and get the same results. After all, economics is a social science, its results completely dependent on how people behave, and humans are animals whose behavior is determined by biology and psychology while corporations are legal fictions whose behavior is determined by laws that require them to behave in ways that few humans would. Scaling up from people to corporations does change economics and politics. Modern judicial interpretation requires corporations to drop jobs and move them overseas in situations (to increase quarterly results, for example) where the small businessman would not let his or her employees go, being able to plan for longer term results.
The individual hasn't nearly the range of choices in terms of which laws to obey or the ability to write laws to his or her benefit that multinational corporations have. It's also worth noting that labor and goods are essentially different--the corporation can choose to outsource to India with full aid of their government, whereas their government is less interested in hiring you or me, having plenty of local people. Besides, moving to India is a huge financial risk to an individual who likely has a large portion of his financial worth invested in his house, family at home, and so forth, whereas the corporation can move one plant of many, taking a much smaller risk. Having large financial reserves and the ability to exist in multiple places at once are other important scale advantage of corporations.
How can you not acknowledge the scale advantages of multinational corporations? Why would people build them so big otherwise? Why else would municipalities offer them tax breaks and zoning exemptions?
The effects upon the national economy are the same. The only difference, as I said, is concentration. If a single large corporation has a need to lay off 100 employees working in one field and outsource out of state/country, 100 small businesses in its place would do the same with each single employee. The only difference is whether one company does it with 100 employees or 100 companies with 1 employee each. The timinig is similar, and in fact, may be faster for the small businesses who must actually pay more per employee than a large corporation.
Um... transistors do not exist in Newtonian physics. Transistors have always been a product of quantum mechanics. If anything, your example simply strengthens my argument as the operation of the first NMOS transistors and the newest NMOS transistors is essentially the same. The only difference between a single .5um transistor, a single .35um transistor, a single .25 um transistor, a single .13u transistor, and a single 90nm transistor is simply scale. Different ubstrates might use different materials to address particular power or speed requirements, but the structures are the same and the scaling using a particular material is the same. The rest of the chip, such as substrate, metal layers, and other fun stuff, are what really distinguishes the different performance characteristics of a particular transistor.
So, if you have one large transistor devoted to switching signal A, it's essentially the same as a large number of small transistors devoted to switching the same signal.
Oh, but the whole point is that you CAN replace people by corporations. One the one hand, you have the individual human. On the other hand, you have the giant corporation. What makes up the giant corporation? People. A thousand people have the same power combined as a single large corporation.
An individual's small shop in a niche corner somewhere downtown operates exactly like a large corporation but on a smaller scale. You say the small business won't lay off employees to move offshore. That is, for the most part, true. Instead, the small business will lay off employees and hire another company in town or even out of town to service its needs. Same situation, different scale. A foreign government offshore might entice large companies with incentives to build factories or offices. Well, a local government does the exact same thing, but on a smaller scale and local building owners do the same but on a much smaller scale. Break up a single large company into smaller companies and the effect of those small companies is pretty much the same. The same approximate number of people will be hired/fired and similar numbers of businesses will be relocated.
In other words, you're having a problem scaling everything down for a small business when you're comparing them to a large corporation.
Once again, simply a question of scale. The individual is less likely to move to another foreign country as it would be similar to a corporation moving to another planet (assuming stable interplanetary travel). Labor and goods are essentially the same in any economy. Both are bartered, traded, and sold in much the same processes.
Moving to India for a large corporation is similar to moving out of town for a smaller business. Large financial reserves is not an 'important' scale advantage, nor is the ability to exist in multiple places at once. Those 'advantages' do exist at the smaller scale, but, like everything else, at a smaller scale. What's important to note here is the effect of multiple smaller businesses compared to a single large corporation is the same. One large corporation with twenty factories spread throughout the world is the similar economically as twenty small companies with a single factory spread throughout the world.
The ONLY scale advantage multi-national corporations MIGHT have economically is the overhead cost. A properly structured large corporation will have less combined overhead than a large number of smaller corporations. However, like many things, if the corporation gets too large, the overhead increases past the optimum low and you're stuck with similar combined overhead. Still, even with lower overhead, the actions of the corporation will eventually balance out the benefits.
Why do people build large corporations? First, think of who is the one building them. The executives at the top love building large corporations for a single reason : concentration of wealth. Instead of 100 CEO's with $40,000 salaries, you've got a single CEO with $4Million salary. Economically the same, but for the individual CEO it's very nice. Too bad the other 99 potential CEO's are unemployed.
Municipalities offer incentives to large companies for the same reason. Concentration of the economic windfall into their particular locality. For the local county or city, suddenly there's a large increase in tax income. For the other counties or cities that lost the bid, too bad. The economics are the same, the only difference is concentration.
The first rule in economics is there is no free lunch. Somebody somewhere is paying for your benefit. That is why it doesn't matter how small or large your company, the benefits and drawbacks are essentially the same, only scaled appropriately. That is why a large number of small businesses affect the economy in the same way as a single large business. The only difference is concentration. Instead of a single sheet of grey cloth, you're stuck with half white and half black, possibly patterned.
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I would also like to point out that larger companies tend to have richer severance programs and there is a much greater chance of getting retraining paid for by a big company. Unless they go completely under, they also tend to pay all their bills. Little comapnies are more likely to vanish and not pay their bills.
In general, small companies create many more jobs than large companies do. Pay and benefits tend to be better in large companies.
Small companies tend to be private and there is a different mindset than in larger, public comapnies. Since their owners tend to live locally as well, they may be willing to make less profit and not outsource.
----
On a different note, there is another outsourcing model that I haven't discussed. TSMC is a good example of that. Instead of owning a fab in the USA, a chip design company can use TSMC's fab in Taiwan while having a staff of engineers in the USA design the chip. Management (non-engineers) also would tend to be in the USA.
The pressure on this model (fewer but much more desirable jobs in the USA) is that you can do that type of design work just about anywhere. There is more and more chip design being done outside of the USA and Europe.
Michael
In general, small companies create many more jobs than large companies do. Pay and benefits tend to be better in large companies.
Small companies tend to be private and there is a different mindset than in larger, public comapnies. Since their owners tend to live locally as well, they may be willing to make less profit and not outsource.
----
On a different note, there is another outsourcing model that I haven't discussed. TSMC is a good example of that. Instead of owning a fab in the USA, a chip design company can use TSMC's fab in Taiwan while having a staff of engineers in the USA design the chip. Management (non-engineers) also would tend to be in the USA.
The pressure on this model (fewer but much more desirable jobs in the USA) is that you can do that type of design work just about anywhere. There is more and more chip design being done outside of the USA and Europe.
Michael
Interesting reading so far... the front page of last Sunday's paper was "jobs are back..."
Basically, during the last two years, many small startups outsourced their engineering jobs to india. As a result, the work can be done around the clock, and the saving from the cheaper labors allows the companies to make some profits and to expand. Today, these startups has grown to +500 employees companies in the bay area. In these examples, the founders do not considered moving the companies to India or China, even though they were Indian, or Chinese. One of the startup even cease their engineering efforts aborad.
I believe that same thing is happening in the large company as well. Eventually jobs are required domestically. Are there more marketing jobs? executive jobs? or engineering jobs? I do not think the propotion would be too much different from today, or couple years ago. That is why recent drop of enrollment from academic engineering department makes many hi-tech executive unease. Most friends and colleagues I know got scared too quickly. I was, too. After some researches, I become more optimistic about oursourcing.
Originally posted by: chess9
Michael:
I agree that American education at the post-secondary level is strong. The problem is Americans aren't going into the technical fields in college in the numbers they once did. MIT could fill its Freshman class this fall entirely with CHINESE or INDIANS and probably raise the average SAT score of its Freshman class. How many adults do you know that understand the scientific method, know simple biological concepts, can solve a simple quadratic equation, know the chemical symbol for water or helium, to say nothing of such "difficult" concepts as differentials/integrals or Avogadro's Law? I was talking yesterday at my race with a lawyer friend who made the blunder of saying that he didn't understand how biologists could believe in evolution when they have no proof life was formed out of the primeval ooze.
So, as I see it, we will move more and more manufacturing jobs abroad, and the average guy will have no job to go to because he never got a high school education in the first place and technology has outpaced his education. We have already dropped below the 60% high school graduation rate and the numbers are FALLING. Unless we want a blue collar revolt of BIBLICAL proportions, we need to get this problem straightened out pronto. I would not want to be the President who has to deal with 2-5 million out of work guys who listen to C-W and maintain a small armory in their garages.
-Robert
Native Americans (as in our domestic students) may not be going into technical fields, but we recruit people from overseas who become Americans.
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