Hope for Lou Dobbs?

How about some substance faultolerant? I'm not sure the tone of responses is worth discussing.

Russell,

"Bottom line: learn more economics before you try to criticize economists."

Geez, can you get any more arrogant and still fit that monster ego of yours through doors....or is it airplane hangars now?

Economics ain't rocket science - and even rocket scientists are wrong sometimes. To wit: Two shuttles down and how many more to go?

Economists aren't faultless, never have been, never will be. If they were, wouldn't there be more consensus in this "dismal science" and less backbiting and argumentation?

Maybe you should talk TO and WITH people instead of attempting to talk down to them. To paraphrase your snottiness: Bottom line, you should learn to act like a human, otherwise, real humans will just shake their heads at you.

Russell,

Never meant to say all economists are bad. What I said was that when businesses make a bad decision, they could fail. When economist hold a questionable position, they find selective support... as do most of us.

You may disagree with me on specifics, but "sadly shaking your head" is not a rebuttal.

I believe I was quite clear in my positions that the issue of outsourcing is not black or white, but that there are questionable decisions made by businesses based on questionable assumptions that cause hardship to their employees and their companies.

Outsourcing simple manufacturing versus complex engineering or software programming are two different types of subcontracting and carry different risks. If you are arguing that those who think that way are bad economists... okay. That's hardly an insult.

I'll wait for your specifics.

Bruce, I'm the first to criticize bad economists. Any economists who doesn't consider quality in comparisons is simply put: a bad economist. However, to look at the bad economists and conclude that all economists are bad is ridiculous. It's lazy thinking. Moreover, it's not plausible criticism.

Bottom line: learn more economics before you try to criticize economists. Otherwise the Real Economists are just going to shake their heads sadly at you.

Ben,

Eventually, the market tends to correct bad decisions... eventually.

Certainly, government interferrence is not the answer unless there is some chicanery involved... you know, currency manipulation that makes labor artificially cheap, etc.... and that is always hard to proved.

And even if not-too-subtle practices are employed by some nations to grab a large global share of development and production of low to high tech products and services... we all benefit eventually.

So, Ben, I agree with you completely.

Let's talk about sports.

"My point is simply that believing that outsourcing is a money saving proposition may or may not be realistic. How much potassium can you toss into water without getting burned? I don't know. How much outsourcing can you do without someone getting burned? I guess it depends on how far removed from the "water" you are."

Agreed. Does it not follow, Bruce, that when you have a situation where various suppliers each decide how much to outsource, that the firm that gets it closest to right will be rewarded, and that others will soon follow or go out of business? If so, shouldn't we expect the problems you have cited - over-eagerness to outsource and short sightedness - to be at most temporary phenomena, possibly exemplified by Dell's u-turn? i.e. doesn't the market provide protections against the problems you raise?

"The difference, as I perceive it, is that the Scott Kirwins are caught in the experiment. If Dell's Scott Kirwins are "outsourced", they suffer significant economic harm... at least for a while. Dell, on the other hand, suffers a minor setback and regroups handily."

This is probably true. At the same time, a more protectionist policy will create Scott Kirwins in other countries, as well as increasing costs to consumers and company stockholders, all average joes themselves.

There are always negative effects. We're not talking about Pareto efficiency here--quite often we're talking about processes that may be painful for various individuals for lengths of time, through no fault of their own.

The problem, as I view it, is that those concerned for these individuals always jump for extreme policies. In Tim Harford's words, the economy is truth: it reveals the true preferences of millions of individuals interacting with each other. Sometimes this truth is ugly. His example: Elderly people in England going without heat in the winter because they cannot afford high gas prices, and subsequently freezing to death.

So what, when we don't like the truth, should we do? If it is our plan to lie, to fool the market into producing a lie, it is always better to tell little white lies than big whoppers. It's better to subsidize English elderly than to establish a price cap. It's better to expand the EITC or institute a negative income tax than to raise the minimum wage. It's better to provide free job retraining to unemployed individuals than to establish protectionist tariffs.

As a libertarian I may disagree that little white lies are necessary, but I can certainly admit that they're superior, that the misallocations they result in are less inefficient, less unjust. Unfortunately they are not what make it through as policy proposals, quite often because the inefficiency they cut off is the very profit that special interests seek.

Any discussion that gets both as wide ranging and generalizing as this one has no real benefit.

The focus originally was on Scott Kirwin and his issue with U.S. companies using Asian programmers. For some jobs, it makes perfect sense... especially when they do not require much communication and clarification. Nevertheless, you have to acknowledge the risk with the reward. As faultolerant attempted to point out with an example, good looking plans based on accepting those risks can backfire, to wit: Dell.

The issue isn't black and white. If any of you are actually businessmen, you recognize that focusing on costs without a commensurate focus on product can spell ruin. I use product in the larger sense of the customer's product experience. Outsourcing labor for wingnuts is probably a winner. Outsourcing technical development may be more problematic... may be.

So, Ray, I agree with much of what you say... even though it may sound as if I disagree. The difference, as I perceive it, is that the Scott Kirwins are caught in the experiment. If Dell's Scott Kirwins are "outsourced", they suffer significant economic harm... at least for a while. Dell, on the other hand, suffers a minor setback and regroups handily.

Economics and business rely on judgments without perfect information... and yes, some of those businesses fold... not too many economists though.

My point is simply that believing that outsourcing is a money saving proposition may or may not be realistic. How much potassium can you toss into water without getting burned? I don't know. How much outsourcing can you do without someone getting burned? I guess it depends on how far removed from the "water" you are. Scott Kirwin wasn't very far, I guess.

And then the picture is some guy rowing a boat with Hindu/Indian style architecture in the background.

Absolutely hilarious.

Bruce Hall wrote:

"The problem is that too many companies operate on the basis of "I saved a bundle on labor costs THIS QUARTER"... and will attempt to deal with problems later. Meanwhile some dubious decisions get made along the way."

Bruce, think about it for a second. Firms that outsource usually operate in competitive markets (no, not perfectly competitive, imperfectly competitive is sufficient here). Therefore, if you are correct that some firms are short sighted, then the only possible outcome is that those firms will lose market share to any far-sighted competition. Why else, all else being equal, would customers stick with firms that give bad service when far-sighted companies can come in and take the market? We should not expect to see too many short sighted firms in the market because, if being short sighted means sacrificing more quality than it is worth in order to save a few dollars, those firms necessarily cannot compete. They will either correct their mistake (examples have been provided) or go under.

As a general statement I do not think the claim that firms which have to compete are short sighted can be true in any general sense because it implies a large and highly profitable gap in the market being left unfulfilled.

I suspect you are mistaking less-than-perfect service for short sightedness. Surely the alternative, that some customers don't care where their customer support comes from enough to pay the higher cost, is at least a possibility in your mind.

Here's an interesting interview with Peter Singer.

http://www.reason.com/news/show/27886.html

If you don't know who he is, just read the interview. It's applicable here because he had made the statement at one time that no one should make more than $30K a year. The interviewer asked him, while sitting in his nice Manhattan apartment why he obviously was not following his own admonition. Very interesting reading.

Addressing several posts together here.

It really is rather naïve to assume that economists in general, and many large companies in particular do not take into account the various things cited here; quality, low-labor costs and their trade offs, etc.

A good company will always be looking for ways to minimize overhead, and total costs. If they can save money, and it entails a lowering of quality, they will allow the quality to be lowered to whatever level they feel is acceptable. (Or find is acceptable the hard way through customer feedback).

When discussing a hypothetical coffee shop the other day with a friend, I had to point out where she was over-emphasizing the need to undercut competitors on a cup of coffee. There is a particular type of customer one needs to make a coffee shop successful, and it is not the type of person who would scoff at paying 20 more cents for a cup of coffee. Those people prefer Folger’s, and wind up getting their usual coffee at Circle K.

Thus, some companies specialize in one customer, some companies the other. But to say that one company’s lack of attention to a specific segment of the market is ignorance or stupidity is, well, ignorant.

To the overall idea that companies are bad because “it’s all about the buck” that is of course absurd. Bruce’s sons charge as much as they can get away with, not because they are evil or corrupt, but because that is only natural. Likewise, Dell and whomever else will be charging whatever the market will allow, while looking for opportunities to lower overhead where they can get away with it.

If it’s bad for Dell to make as much money as legally possible, it’s bad for anyone to make as much money as legally possible. That goes for economists, programmers, Bruce and his sons, et al. If one company should take a lower profit so that more Americans can have jobs, all companies should take lower profits for the same reason. I nominate Bruce and his family to start the ball rolling. Go ahead guys, maybe you’ll start a fad.

Rob Anderson

Both you and faultolerant miss the point. Bruce claims economists ignore quality. You and faultolerant correctly point out that quality matters. Economists recognise this too. The only argument here is with Bruce's claim that economists do not recognise quality. Of course they do.

Ray,

Thanks for the factitious comment (I think you were being factitious) to reinforce my position, but it is really not necessary.

We both know that there is room for quality and a reasonable cost structure in doing business. Otherwise, BMW would not be able to compete with Kia.

I think the real point in outsourcing programming is that you tend to get what you pay for. If you want low labor cost and don't consider your time... or in the examples offered up, your customers' time... a cost in dealing with difficult, long-distance miscommunication... go for it.

The problem is that too many companies operate on the basis of "I saved a bundle on labor costs THIS QUARTER"... and will attempt to deal with problems later. Meanwhile some dubious decisions get made along the way.

Saying that "it all comes down to the buck" in a derisive fashion has the ironic action of both stating something very true and basic about economics, while also confessing complete ignorance to basic economics.

Adam Smith's invisible hand, and all that.

People that spout such ignorant views do not of course accept less money than they could personally get in the open market. They only think that rich and evil corporations should lower their bottom line for Joe Sixpack.

But imagine how many lower tier workers could be helped or hired new if Bruce's sons would lower their prices as much as possible. Their corporate customers would save so much, that they could hire one new entry level employee.

But noooo, Bruce's sons are greedy. They charge full price, and claim that they deserve the money they gouge out of their customers, all while denying jobs to the lowest tiers of the employment ladder.

And how much money is Rob making? Imagine how many people could be helped at the bottom of the ladder if he'd take a little less money. But no, he's greedy, it's all about the buck, and Rob needs bucks.

To the folks arguing with Mr. Hall,

Please explain Dell. It outsourced its entire Technical Support division to India. Within a year they repatriated SOME of their Technical Support - specifically, their highly lucrative corporate support.

The rest of Dell's customers? Apparently they can go to hell, because they are still stuck with the folks in India who can barely speak English.

I believe this is PRECISELY the point that Mr. Hall was trying to make. It all comes down to the buck, and only the buck. Dell's lucrative corporate customers were screaming bloody murder over the horrendous service, so to save that portion of their business the good folks at Dell repatriated the jobs. But "regular", *less* lucrative customers were screaming just as loud, and the good folks at Dell just gave them the finger.

I'd say that pretty much proves the point.

Just a note.

I accept the assertion that some businesses factor in customer dissatisfaction or the costs of delays and poor results when assessing whether to outsource programming or technical support overseas. I was incorrect if I implied that economists do not.

However, the tenor of many other posts here (not necessarily comments on this posting) give me the impression that... in general... the primary economic emphasis... the CRITICAL FACTOR for determining where labor of any sort is to be sourced... to most participants and Drs. Boudreaux and Russell is the minimization of labor costs. Furthermore, the perception seems to be that it is more important than other considerations.

Now, if that is not the case, I owe the economists and commentors an apology. But, I'm really not sure that is not the case when dealing with technical development and support such as done by Scott Kirwin. I believe there is the mantra of minimizing direct labor costs and living with everything else pervading most thinking here.

Just to emphasize how misguided Bruce Hall's post is, there are significant branches of economics that consider quality. The dynamic competition and innovation literature is about quality. Asymmetric information problems (Akerlof's lemons, for example) is about quality. There is an entire literature on non-price discrimination.

Bruce Hall has a lot to say about economics, none of it complementary. He could take the trouble to learn a little before criticising.

Faultolertant

Read Bruce's post then read my post again. If your basic point is that it is quality, and not just the cost of labor, that matters then we are in agreement. Bruce Hall thinks that economists don't recognise this. He's wrong.

Running a company and recognising the importance of quality are not the same.

There is no ad hominem fallacy in my post.

faultolerant,

You name-drop companies that have had to scale back on outsourcing because of quality issues. You seem to miss that this is *exactly the point* your friendly internet economists are making. Contrary to what Bruce Hall suggests, companies must take into account these costs if they care about their bottom lines. If consumers are so angry about poor customer service that they will spend more dollars on another producer, the outsourcing company will lose profits.

As you noted, several companies have lost money because they ignored quality issues in their original estimates. In other words, the quality costs that Bruce Hall so worries about have been accounted for.

In the world you imagine, companies are so worried about labor costs that they will pursue low labor costs to whatever degree possible, even if it costs them all their money. Fortunately, this contradicts the very world you describe, in which companies like Citicorp realize their mistakes and correct them according to consumer desires.

Rather than criticizing free trade, you are emphasising the very point. Note furthermore that jobs which remain outsourced despite quality issues must be efficient. That is, consumers must prefer that situation to the alternative.

Ben,

Aside from your ad hominem, how about addressing where Bruce is wrong and not stroking your attack-ego?

1. MANY companies DO NOT adequately consider the qualitative trade-offs of offshoring. If that were true maybe YOU can explain why Gateway Computers (As only one example) now touts their "100% North American Customer Service". Maybe YOU can explain why Citicorp had to repatriate several thousand call center jobs back to the US from Mumbai. Yes, those call center employees were much, much cheaper than their US-based counterparts, but the impact to the total bottom line of the corporate employer was much greater than the perceived cost savings. Having been a part of that Citibank repatriation decision I can state categorically there was no consideration given, whatsoever, to quality - only to visible cost savings.

2. Before others in here assert that businesses consider quality issues and not just dollar savings, I would ask you to do some research on LEAN manufacturing techniques. You might learn that many manufacturing firms can save more through process improvement than through chasing cheap labor across the globe.

3. Lastly, I would certainly accept the assertion that economists "have no recognition of quality". Having worked in many countries, in many industries and in many roles, I've yet to encounter an economist who can think him/herself out of a wet paper bag. Yes, economists can construct and demolish straw-arguments by the thousand - but they're absolutely useless when it comes to actually running a company. Economic theorists are great, but they only contribute to the CO2 concentration and not much else.

Bruce Hall

If you believe economists have no recognition of quality then given your total ingorance on the matter you are in no position to make any comment on what they do.

Do you honestly believe businesses operating in competitive markets have missed the basic ideas you are putting forward?

You are over-estimating your thinking on these issues.

Bruce,

I recently hired a coder at www.rentacoder.com. Most of the programmers that replied to my request for bid were Indian and they were definitely the cheapest. I ended up hiring a guy in Ky instead because of the type of factors that you cite. I think most businesses do consider the quality and convenience of the services they outsource and will pay a premium for them when necessary.

I have a brother who, like your sons', runs his own programming business. He has "feared" outsourcing for several years. But he, like the Scott in the story, has now realized that his greatest strengths lie elsewhere. He now focuses on the more lucrative and critical design, QA and testing of software, and has begun to outsource the writing of code. This arrangement makes him, and his customers, much better off.

Steve

Bruce Hall,

Are you seriously suggesting that businesses and economists don't recognize that there are often trade-offs associated with going "low price"?

Anyone who's ever had to decide between McDonald's and a fancier restaurant, or between Motel 6 and a fancier hotel, knows that, often times, you get what you pay for. The only question is whether what you're getting is "enough" to satisfy your demands. A lot of companies think that the skills of off-shore workers are sufficient to satisfy their demands and the demands of their customers. They may or may not be right--as their bottom-line will eventually reveal--but it's silly to suggest that they're unaware of the non-monetary costs of out-sourcing.

Bruce Hall,

Are you seriously suggesting that businesses and economists don't recognize that there are often trade-offs associated with going "low price"?

Anyone whose ever had to decide between McDonald's and a fancier restaurant, or between Motel 6 and a fancier hotel, knows that, often times, you get what you pay for. The only question is whether what you're getting is "enough" to satisfy your demands. A lot of companies think that the skills of off-shore workers are sufficient to satisfy their demands and the demands of their customers. They may or may not be right--as their bottom-line will eventually reveal--but it's silly to suggest that they're unaware of the non-monetary costs of out-sourcing.

Outsourcing, the "smart move" for business, is driven by the cost of the services performed, not necessarily the quality of the service performed.

Think about that the next time you get "customer service" from someone who is barely intelligible. Then you might understand that some of the real cost of the services performed has yet to be realized by businesses. Then there might be more Scott Kirwins employed by U.S. companies and less Scott Kirwins writing about the stupidity of outsourcing.

Yes, some service is transparent. A wing nut is a wing nut. But computer programming is not always just computer programming. Sometimes the cost of time and miscommunication dealing with an overseas firm is more than the difference in $/hr saved.

Two of my sons run a web design business... http://infinitewebdesign.com/ ... that competes very well with similar services from India. How? High quality and incredible development speed.

The lowest price is not necessarily the lowest cost.

Now if only more businesses and economists would recognize that. Then