Offshore Outsourcing: Good or Evil?

From Mitt Romney in the 2012 presidential race to David Perdue in Georgia’s crowded Republican primary to fill Saxby Chambliss’ senate seat, former businessmen entering politics today are continually criticized from both right and left over their companies’ choices to move any portion of their operations to overseas markets where the cost of doing business is lower. Fortunately for such businessmen, reason is on their side: there is nothing morally wrong with offshore outsourcing [i], and it is ultimately good for both the company and the United States. Unfortunately for them, they tend to be shamed into silence on the issue and seek to avoid it rather than defend themselves on principle.

What is the nature of a private executive’s position in a corporation? The role of the executive is to represent the interests of his shareholders and to maximize the return on their investment. Period. End of story. Like an attorney who represents his client, the executive is an agent hired to secure his employer’s interests. It is well understood that for the legal system to function properly and objectively, an attorney cannot betray his client’s confidence or act against his interests in pursuit of a higher justice. Difficult though it may be, a criminal attorney with knowledge of his client’s guilt must still represent his interests to the best of the attorney’s ability. To do otherwise would be a violation of the client’s right to a fair trial.

No less sacrosanct than a defendant’s right to trial is an individual’s right to property– in the case of a stockholder, the right to his share of a business. No less binding than the trial attorney’s obligation to represent his client’s interests, the executive cannot rightly sacrifice his shareholders’ investment in the interest of other causes, as has become so popular to suggest today with the ideas of ‘corporate social responsibility’, Affirmative Action laws requiring a business to employ individuals based on demographic quotas regardless of qualification, and nationalistic beliefs about employers having an obligation to only employ Americans,

When American executives decide to move their operations overseas or to contract with a foreign company that will perform the required work overseas, they are acting in the interests of the only party to whom they have a legal and moral obligation: the shareholders who employ them. It is not the responsibility of executives to work to lower the United States’ unemployment level or to raise its overall GDP.

Certainly, with such companies succeeding in the US, yielding returns and dividends to their investors, those things will naturally follow. Profits lead to reinvestment and put downward pressure on interest rates that will allow other parties throughout the economy to borrow and create or expand businesses of their own, hiring employees and purchasing goods and services that can only be produced efficiently for them at home in the US. Not to mention the lowered cost of goods and services then available to American consumers!

However, it all begins with executives who are free and willing to make the most economical decisions for the businesses they manage. Not only is making such decisions not a cause for shame, it is cause for commendation—not explicitly for the fact that an executive outsourced labor overseas (doing so may not always be the most economical decision), but for the fact that he saw beyond false obligations to his true ones and made a decision that he knew might be unpopular.

In the end, is that not the kind of person who we would want in elected office: someone willing to suffer the blows of unpopular decisions in order to represent the interests of those he was hired to protect? Perhaps we should not be shaming such people for their decisions but admiring them. And if we find ourselves disappointed by a shortage of good jobs in the US and lagging economic growth, let us not blame the businessmen who are affected by it as well but rather a political system that persists in strangling this recovery through onerous regulations, petty partisanship, and bad ideologies.

Note: I rediscovered an editorial in Forbes by Harry Binswanger from the 2012 elections that shows the irrationality of both right and left on the economic and moral nature of offshore outsourcing. As with so much of Dr. Binswanger’s work, I cannot recommend it highly enough.

 

[i] It is, in fact, ‘offshoring’ or ‘offshore outsourcing’ to which most critics refer when they discuss the issue and not simply ‘outsourcing’, which can just as easily refer to contracting within the US with an outside company to perform a set job.

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