By the mid 30s, the massive Dearborn Ford plant employed
about 100,000 people. Raw materials arrived by
Ford-owned ships and Ford-owned railroads. The resources
went in at one end, and cars and profits came out at the
other. Ford owned everything, including iron ore mines,
rubber plantations in Brazil, and Dearborn itself even had a
glass factory. Outsourcing was nowhere to be seen.
Profits provided more and more automation as well as design
improvements. The automation led to reduced manpower
needs; the design improvements led to increasing
complexity. The Model T started out with around 700
parts; soon there were thousands.
Complexity brought a need to outsource to specialist
companies; even the massive Dearborn could no longer handle
it. Outsourcing wasn't new of course, it has been done
since time begun, but usually it was done to give a job to a
person more skilled - to give a quality / price advantage.
Ford must have quickly realized this also: there were
savings to be made by using other companies to produce parts
and deliver to the Ford assembly line. It allowed them
to put the parts out to tender, control costs, increase
efficiency, and reduce labor costs. In Ford's case it also
brought a new focus - the core business. Ford's core
business was rapidly seen as car assembly. Why pay
people twice the going rate to do what another company could
do cheaper and perhaps, better?
And so it has ever been: there are definite advantages to
outsourcing. It increases efficiency, spurs competition
and lowers costs. The consumer benefits. Generally
speaking, everyone can see this argument - except perhaps the
people who have lost their jobs and we can all sympathize with
them. But is in fact, just competition - on which the
American economy is built upon - and should be seen that way.
So now we enter the global market, as the Ford company
ultimately did: Buying and selling goods and services
across national boundaries. Outsourcing to a foreign
country - offshoring - is very often seen as harmful.
Opponents are in effect suggesting that the savings - and
benefits to the consumer - are more than offset by the loss of
income to domestic workers. We can all understand
the sentiment behind this opinion, but it doesn't hold up in
the cold practical world of economics.
The tacit
assumption behind any real objection to offshoring is that a
main purpose in producing goods is to employ workers.
This is the communist view of course - the capitalist view is
that the purpose of production is consumption. If the
anti-offshoring view was true, the costs of production would
be the source of wealth for a country, and the higher the
costs of production the wealthier the country - which is
nonsense of course.
Serious anti-outsourcing opponents
really need to show why an economy benefits from higher costs
of production. Unemployment is usually quoted. But
the national US unemployment rate stands at about 5% - about the
same as it was 10 years ago.
Outsourcing will continue. Henry Ford saw the
benefits, and so do most of today's businesses; large and
small. It's tough - sometimes tragic - for those who
lose their jobs. But this is competition, and it's now a
shrinking world. America can compete, and so can you and
I.
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