In the monthly "Ethical Inquiry" series, we examine ethical questions, highlighting a broad array of opinion from journalism, academia, and advocacy organizations. Our intent is to illuminate and explore the complexity of some of the most vexing ethical questions of our time.

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Ethical Inquiry: April 2013

Outsourcing


The Ethics of Outsourcing Labor

Many businesses “outsource” labor to other countries. 

Why is this happening? Three of the primary reasons given for outsourcing are profitability/lowering costs, finding expertise, and finding people willing to do jobs that are not wanted at home.

Critics suggest that some businesses are trying to skirt labor and environmental protections ­– and even environmental protections – at home.

In this “Ethical Inquiry” we explore the ethical implications of the outsourcing of labor, particularly in the case of businesses in developed nations outsourcing to developing nations.

ARGUMENTS IN FAVOR OF OUTSOURCING


Boosts profits and strengthens businesses 

Economist N. Gregory Mankiw, former chair of President George W. Bush’s Council of Economic Advisers, writing with Phillip Swagel of the American Enterprise Institute, argues in “The Politics and Economics of Offshore Outsourcing” that there is a net increase to U.S. income of 12-14 cents for every dollar of work offshored to India (which is the specific case study looked at), and a total gain of 33 cents for every dollar of U.S. outsourcing on the part of India.

Some have argued that companies must outsource. If they do not, they are wasting valuable resources ­– time, capital, and intellect – on issues or sectors that could be outsourced and benefit both parties. By operating at a competitive disadvantage, these companies could go out of business, harming even those to whom they would have outsourced work.

Some say that outsourcing improves efficiency, and is less about wage savings. Outsourcing allows businesses to focus on higher-level strategy, and research and development, which would lead to more jobs for everyone.

A related argument is that outsourcing not only makes products cheaper and more accessible to consumers, it actually increases the number of jobs available to both countries. If a company saves money it's not just going to just send that money straight to the profit margins, it will invest in other higher tier jobs (R&D, etc.) and thus create jobs. 

Outsourcing sends jobs where they are wanted

Some argue that outsourcing is helping to create world where everyone is moving up the labor ladder. Jobs that might be considered dirty, menial, too low-paid are sent to places where these jobs are viewed as well-paid opportunities.

David Bornstein writes in The New York Times, that “Outsourcing Is Not (Always) Evil

“[I]t’s not just Americans who need jobs” he writes; “people around the world are suffering in poverty. And an earnings increase that would be barely significant in the U.S. context ― say, $3 a day ― can, in a country like India or Kenya, mean the difference between families eating well, having decent clothing, and being able to send their children, especially daughters, to school.”

Daniel Drezner supports the outsourcing trend, arguing that US jobs are high skill and thus mostly untouched by outsourcing. He also contends that the majority of outsourced jobs fall below the U.S. average wage.

In “Outsourcers Go Global (Time) Michael Schuman reports on Indian companies that serve clients in the developed world setting up their own “major local operations around the world, in the process hiring thousands of Brazilians, Chinese, Eastern Europeans and others.” This might suggest that the impact goes beyond a transfer of jobs from the developed world to the developing world; it continues from those countries to others with even further development to go.

CRITIQUES OF OUTSOURCING


Enables businesses to operate with weaker labor and environmental safeguards

A major critique of outsourcing – and of moving jobs overseas within the same company – is that it is used to lower pay, benefits and conditions for workers, and environmental protections.

In “IBM offers laid-off staff jobs in the East Business Standard reports that IBM laid off workers in the U.S. and Canada, while giving them the option to move to offices in countries including India, China, Nigeria, or Brazil where there are lower costs (insurance, social security, etc.) as well as stricter performance monitoring. 

In “Offshore Outsourcing: Implications for International Business and Strategic Management Theory and Practice” Jonathan P. Doh suggests that stricter environmental and international labor standards would be needed to resolve many of these concerns. 

A report from a Scandinavian research institute finds that following outsourcing, in the majority of cases, given the nature of fragmentary contractual work, working conditions are marked by a reduction of employee control over their situation, an increasingly negative work environment, and a loss of power.

Others raise the concern that outsourcing destroys production capacity and skills, as well as innovation in the home country. Writing in Forbes, in “Why Amazon Can’t Make a Kindle In the USA” Steve Denning contends that as a result of outsourcing, the United States has lost important industries and can no longer operate in certain manufacturing areas. Companies have lost the ability to innovate, he argues, as a result of a short-term effort to lower costs. 

Quality, safety and security of goods and services may suffer

Some argue that there are hidden costs to outsourcing, including decreased customer satisfaction as well as management issues that come from restructuring overseas.

Examining the case of Boeing’s new 787 Dreamliner, Michael Hiltzik writes in the Los Angeles Times that “it's immoral to abandon your loyal American workers in search of cheap labor overseas. But the real problem with outsourcing… is that it can wreck your business and cost you a bundle.” He points to issues of quality, coordination and lack of oversight.

Writing in 2011, Kyle Peterson reports to some of the same issues in “Special Report: A wing and a prayer: outsourcing at Boeing.”

Observers have also raised security concerns about outsourcing,including a report on fraud at outsourced call centers, suggesting that issues may resulting from systems put together too quickly, or because of cost-cutting measures taken in attempt to meet promised profit margins.

Societal damage

In “A World on the Edge” and “Markets, Democracy, and Ethnic Conflict” Amy Chua discusses unintended societal consequences of outsourcing labor, specifically in terms of the deepening of ethnic divisions and hatred as a result of the resulting economic and political power dynamics.

Final Thoughts

Even while outsourcing continues to generate both support and criticism, there has been some movement in the United States towards “reshoring” – bringing production and jobs back to the “home” country. Yet while some may see this as a boon for workers in developed nations, others raise concerns about those left behind in developing nations.

Is there a way forward that addresses all of these concerns: profitability, the well being of workers, cost, safety, societal impact, growth, innovation, environmental impact?

What do you think?

Have suggestions for additional content that looks at the ethical issues surrounding outsourcing? Let us know:

This installment of "Ethical Inquiry" was produced with research support by Ariana Hajmiragha ’13.