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Labor Outsourcing Is Not the Problem

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President Obama thinks he can score points on Mitt Romney by pointing out that companies acquired by Bain Capital outsourced jobs to other countries. The implication is that there is something unpatriotic in contracting for foreign labor. That is a strange position in this era of globalization, which Obama claims to favor.

Romney, a self-described champion of free enterprise, defended outsourcing, right? Well, no. Instead, he said first that he wasn’t running Bain at the time, and second that Obama’s administration has subsidized firms that outsource labor.

Some defender of free enterprise Romney turned out to be.

We must look at outsourcing at two levels: as an abstract concept and as it occurs in our mixed, or corporatist, economy (we do not have a free market). The two analyses will differ.

In terms of economic theory, outsourcing is simply a manifestation of the division of labor. Hardly anyone thinks the division of labor is a bad idea. Self-sufficiency is a road to poverty. Imagine what life would be like if you could have only what you and your family could produce. People once lived like that, and I’m sure almost no one would want to return to those days.

The division of labor is what makes specialization and rising productivity possible. We can all have a wider array of affordable consumer goods thanks to specialization and the division of labor.

Because of what’s known in economics as comparative advantage, we would be better off even if specialization did not lead to improved skill at our various tasks. The principle of comparative advantage points out that when people are left free, they will tend to concentrate on the work for which they have the lowest opportunity cost, leaving other work for others.

Think about a high-priced lawyer who is also the fastest, most accurate typist in the world. Would this lawyer do his own typing or hire another typist to do it? To see why he would hire a typist, notice that every hour the lawyer spent typing would cost him, say, $500 in forgone attorney fees. This would not be true of any typist he hired.

It’s similar for groups of people around the world. In a global economy, various kinds of work will be appropriately done in different locations. Should all work be done in the United States? If self-sufficiency and “buying local” are bad ways to raise living standards, “buying American” makes no more sense.

Since the division of labor is good, the more elaborate it is, the better. As Adam Smith wrote, “The division of labor is limited by the extent of the market.” That the extent of the market is essentially global today is in principle a good thing.

Rising living standards are not the only benefit. Trade is cooperation. Global trade is global cooperation. People engaged in mutually beneficial exchanges are less likely to be attracted to war. It’s bad business to kill off your customers or suppliers.

One wonders why activists for world peace and against poverty are not also vocal advocates of expanded world trade. Peace through trade was a popular cause in 19th-century Britain, when Richard Cobden and John Bright spearheaded a working- and middle-class movement to oppose both tariffs and British imperialism.

As noted above, our corporatist economy is not free, whatever Romney may think, but privilege-ridden. Thus, decisions about where to locate jobs are likely influenced by manipulative tax laws as well as policies in less-developed countries concerning land and intellectual-property, which may foreclose alternatives to working in factories. None of these policies, however, justifies interference with trade — including the outsourcing of labor. Rather, advocates of freedom should focus on the malign policies directly, pointing out how they harm people worldwide who are not politically connected.

The current high unemployment rate is also no grounds for restrictions, since it is other government policies that keep people out of work.

Trade is good; government interference with trade is bad. Allowing the market, the division of labor, and comparative advantage to guide the world’s economic activities will raise the living standards of all people. The politicians must get out of the way forthwith, because even good intentions can’t make bad policies work.

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    Sheldon Richman is vice president of The Future of Freedom Foundation and editor of FFF's monthly journal, Future of Freedom. For 15 years he was editor of The Freeman, published by the Foundation for Economic Education in Irvington, New York. He is the author of FFF's award-winning book Separating School & State: How to Liberate America's Families; Your Money or Your Life: Why We Must Abolish the Income Tax; and Tethered Citizens: Time to Repeal the Welfare State. Calling for the abolition, not the reform, of public schooling. Separating School & State has become a landmark book in both libertarian and educational circles. In his column in the Financial Times, Michael Prowse wrote: "I recommend a subversive tract, Separating School & State by Sheldon Richman of the Cato Institute, a Washington think tank... . I also think that Mr. Richman is right to fear that state education undermines personal responsibility..." Sheldon's articles on economic policy, education, civil liberties, American history, foreign policy, and the Middle East have appeared in the Washington Post, Wall Street Journal, American Scholar, Chicago Tribune, USA Today, Washington Times, The American Conservative, Insight, Cato Policy Report, Journal of Economic Development, The Freeman, The World & I, Reason, Washington Report on Middle East Affairs, Middle East Policy, Liberty magazine, and other publications. He is a contributor to the The Concise Encyclopedia of Economics. A former newspaper reporter and senior editor at the Cato Institute and the Institute for Humane Studies, Sheldon is a graduate of Temple University in Philadelphia. He blogs at Free Association. Send him e-mail.