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Outsourcing: Doing the math

It has become conventional wisdom that jobs outsourced to China, India, Mexico, the Philippines etc., are a terrible thing for the economies “losing” these jobs.  Politicians and pundits in the US and elsewhere score points with the public by  accusing their rivals of outsourcing jobs overseas.  The frequent recurrence of this theme has led to public opinion in the US and the EU widely accepting that outsourcing is one of the causes of the economic downturn (no jobs at home etc.).

Here are a few representative quotes or headlines from articles that result from a September 3, 2012 Google News search of “outsourcing jobs”:

This debate lacks substance, because no one (to my knowledge) has done the math.  When a job moves from (for example) the US to China in order to export a good or service back to the US, and the US loses (for example) one manufacturing  job while China gains one, there are other consequences. These consequences, which must be accounted for - but never seem to be- include:

  • The amount of water use which the US shifted to China (and which probably stretches China’s water resources)
  • The amount of energy use which the US shifted to China (energy which China doesn’t readily have)
  • The pollution which the US shifted to China (pollution which Chinese citizens are not necessarily aware of)
  • The healthcare costs which the US shifted to China (future liabilities which conveniently will emerge after most current politicians are retired)

In other words, while the US may have “lost” a job and China or India may have “gained” one, the picture is incomplete unless “natural capital” is accounted for.  (According to the International Institute for Sustainable Development, Natural Capital “is the land, air, water, living organisms and all formations of the Earth’s biosphere that provide us with ecosystem goods and services imperative for survival and well-being”).  If the math were done correctly, a completely different picture would emerge:  The economy which “lost” jobs through outsourcing would be seen to have shifted massive healthcare liabilities to the country which “gained” jobs, while banking large savings in water and energy usage.

Outsourcing contributes to an impairment of the economies “gaining” jobs, to the benefit of those “losing” jobs:  The savings achieved by the economy “losing” jobs are many multiples of the economic contribution of the jobs lost and can be re-invested to create higher-value added employment opportunities with much enhanced natural capital footprints (think clean energy for example) – if only politicians were doing the math.

This is the third article in a series about Natural Capital.  Read the first article “Natural capital: Stop abusing it and make more money at the same time” and the second one, “Global warming: Can the accounting industry please do its job.”

Assaad Razzouk is Group CEO of Sindicatum Sustainable Resources, a global sustainable resources company headquartered in Singapore.

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