Michael Bell, in his blog, LPO Source: The Source for Legal Process Outsourcing, has called to our attention an interesting Wall Street Journal article by William S. Cohen, former U.S. Secretary of Defense in the Clinton Administration. Cohen cites persuasive, recent studies demonstrating that despite all of the usual anti-outsourcing political rhetoric, "the fact is that for every job outsourced to Bangalore, nearly two jobs are created in Buffalo and other American cities." Cohen also points out that the new U.S. jobs enabled by outsourcing are "higher-skilled and better-paying—filled by scientists, engineers, marketing professionals and others hired to meet the new demand created...." Here's an excerpt from the article:
Most people treat outsourcing as a zero-sum game—one foreign worker replaces one American worker. But this is not how the dynamic global economy works. In 2007, Matthew Slaughter, an economist at Dartmouth's Tuck School of Business, published a comprehensive study of the hiring practices of 2,500 U.S.-based multinational companies.
He found that when U.S. firms hired lower-cost labor at foreign subsidiaries overseas, their parent companies hired even more people in the U.S. to support expanded operations. Between 1991 and 2001, employment at foreign subsidiaries of U.S. multinationals rose by 2.8 million jobs; during that same period, employment at their parent firms in the U.S. rose by 5.5 million jobs. For every job "outsourced" to India and other foreign countries, nearly two new jobs were generated here in the U.S.
Those new U.S. jobs were higher-skilled and better-paying—filled by scientists, engineers, marketing professionals and others hired to meet the new demand created by their foreign subsidiaries. Todd, the American call center manager transferred to India in "Outsourced," keeps a framed picture of an executive suite back home on his desk—a reminder of the more prestigious job he is working towards. That job is more likely to be created because of the call center in India.
In another article, this one by Kieth Pounds in The Times and Democrat, the author points out that the lower prices caused by outsourcing also create more American jobs by creating more consumer demand, and he observes that the number of jobs being "insourced" to the U.S. by foreign companies is growing at a faster rate than the number of jobs outsourced abroad:
There are two primary reasons why U.S. companies consider outsourcing jobs to a foreign country: global competition and information technology. Globalization has created a vast network of new customers and suppliers, but it has also created increased competition. Information technology has made the coordination of services and manufacturing with foreign countries much easier, and cheaper.
Because outsourcing decreases production costs, consumers who wouldn't have been able to purchase the products are suddenly able to afford them. A most fundamental concept of economics is that "lower prices" lead to more jobs and higher standards of living for consumers.
While many politicians are outraged with outsourcing, they most often neglect to mention the parallel concept of "insourcing," which is the process by which foreign countries hire workers in America. Just ask the 3,400 or so employees of South Carolina's BMW plant. They can tell you all about it. In fact, the number of jobs being "insourced" from other countries is growing at a faster rate than those being outsourced.
On the legal process outsourcing front, we've been showing, from direct experience, how legal outsourcing, especially high-end, legal services KPO (knowledge process outsourcing), creates law jobs in the West, as deals previously undone, and litigations previously settled, due to excessive legal costs, are suddenly affordable. Michael Bell makes a similar point in another post on his LPO Source blog:
Are the projected 5000 new jobs in the LPO industry directly correlated to a 5000 job “shift” (read lost, redundant, right-sized, etc.) at top US law firms? Is it economically sound reasoning to assume that economic interactions are tit-for-tat? In short, no.
Does the increase of LPO mean that there may be marginally less demand for legal support staff for certain low-value service areas? Perhaps. Alternatively, doesn’t allowing firms to offer new services so clients can economically litigate and conduct transactions also increase the demand for the services of law firms, and thus the demand for lawyers? Absolutely.
In this political silly season, when outsourcing is tossed around like a hot coal, with the aim of burning opponents and firing up the electorate, with arguments untethered from the facts, it is great to see commentators with the wisdom and the guts to set the record straight.