While reading Rates Blog today I came across the following statement:
7. Training your replacements - The next wave of globalisation is going to hit service sectors in developed economies that have previously been immune to outsourcing to the likes of China or India.
First the manufacturing sectors in America, New Zealand and Australia (Toyota laid off 350 workers there yesterday) were gutted. Now the services sectors face being cleaned out.
The first batttleground we are seeing across the Tasman is in financial services. The media there is up in arms about layoffs in banking as some of the big banks outsource IT services and accounting to India.
This could come here too. It has already happened in chunks of Telecommunications (tried ringing Telecom’s Philippino O18 staff lately?) and will eventually spread to the likes of IT, banking, medical services, media, insurance and legal services. The growth of the Internet is accelerating this shift.
My response? So, in the same way that they’ve lowered the cost of manufactured goods, subsidised them, and done all the work making them – they are now threatening to do the same with the service sector. So they are offering to do all the work for us? Sweet deal!
There are two things to keep in mind with all this:
- There may a concern that if they make everything we will make nothing!!! But this is a false dichotomy – in truth, if they can do these things at a truly lower cost, and decide to do it in an environment of free trade they have a comparative advantage and so prices will adjust to ensure that both they and us (with whatever we have a comparative advantage in) are better off. Now, if they are intervening to do this through subsidies it does not mean we are worse off – as their choice to subsidise is implicitly a transfer to consumers (us). The people who truly pay are the tax payers in these other countries.
- It is possible that, as globalisation in labour markets gets underway, we experience stagnant or even lower wages in the Western world. However, this is because people who are currently STARVING are now getting the opportunity to pull out of abject poverty and consumer some resources. Globalisation of labour markets will reduce global income inequality, improve the lifestyles of the worlds most poor, and increase the size of the “economic pie” – this is a great thing. As a result of this we may see a hollowing out of the middle class in developed countries in the near term – so what. We could make the argument that the middle class that was artificially holding up their claim on resources by restricting the ability of the very poor to get themselves out of poverty – when we frame it that way does your opinion about what is “morally right” change [Good post on this sort of issue on Money Illusion]