- 26
- JAN
- 2011
Offshoring: harming the economy and fuelling inequality?
Author: Ben Ngobi - Categories: Outsourcing
A recent blog by the PIU has sparked a lively discussion on the costs and benefits of offshore outsourcing and whether it has been destructive to the wider community. Procurement departments have been partly responsible for the gradual erosion of jobs away from their home nations to countries further afield in the hope that offshoring creates value in the sourcing process. However, offshoring creates problems and some of these are bad for economic growth - they create inequalty and the associated negative effects damage social cohesion and economic stability.
Governments around the world are being encouraged by IMF Chief Dominique Strauss-Kahn to take a strong approach to dealing with inequality, as it could potentially become a key global risk over the next decade.
Until now, governments have been hoping that as economies perform better, markets automatically redistribute wealth to the poor as well as making the rich even better off ("the invisible hand"). As a result, society in general becomes well off, with previously inactive people becoming included within the mainstream economic system. However, this has proved not to be the case and, furthermore, the financial crisis may have helped to reinforce this view.
Potentially, this may lead to the introduction of government taxes or other incentives that reduce the need for businesses to offshore jobs. It is not necessarily about protectionism but more about a need to improve failures within market structures. I therefore disagree with some of the economic drivers for offshoring. It creates unemployment and the benefits often take a long time to accrue ceteris paribas.
If there is an economically active pool of labour, why should businesses go through the expense of relocating their call centres to the Far East purely for the theoretical labour gains? Businesses should consider the merits of setting up such labour-intensive activities within their home countries. For instance, we see an increasing trend of locating call centres within the UK than was the case in the past. The same applies to basic manufacturing roles, which are labour intensive, as well as agriculture.
Government policy should start focussing on reducing income inequality by encouraging the private sector to utilise low-skilled labour. This will have the effect of reducing polarisation in society, leading to lower unemployment and thereby overall economic growth.
