How to Respond to Outsourcing and the Zero-Sum Economy Trap

This article will require you to stretch your thinking a bit. I'm looking for a way to respond to the negative effects of business outsourcing. At the same time, I am looking for a way to help local and state economies break the hold of the "zero-sum economy trap," which is a non-sustainable strategy for growth and development as economies worldwide continue to integrate and grow new connections.

First, some definitions. Outsourcing is a business strategy that is designed to help companies remain competitive and increase profitability by sourcing goods and services from external suppliers that are located either in the U.S. or offshore. It's far from a new idea. Outsourcing, in the minds of most business executives, is a response to global competition and the need to position themselves for global market opportunities.

The "zero-sum economy trap" is the prevailing model of local and state economic development that is based on the view that local economies must defend and advance their economic interests at any cost, including fighting globalization and other processes that are transforming local economic landscapes everywhere. The model assumes that community X, in many cases, must satisfy its economic needs, at the expense of other communities' economic needs. This is simplistic "win-lose" thinking. "Win-win" solutions are possible, but they require us to think and act differently than we are right now.

Most economic developers across the country have outsourcing on their brains. It affects everybody, and little can be done about it. Chalk it up to productivity and global competitiveness as most companies do, but there is a local job loss to pay by communities for most off-shore business outsourcing decisions. While outsourcing is a real issue in its own right, it is a component of a much larger process called "globalization." Understandably, most economic developers are looking for a way to solve job and business loss problems created by the business solution called "outsourcing." They should be giving more attention to the larger globalization issue.

In my assessment, outsourcing is a phase of business adaptation we are going through, and nobody knows what things will really look like on the other end once we complete the phase. Businesses will continue to outsource goods and services as long as it creates more benefits than costs for them. Most community officials fear that outsourcing will cause them to have fewer manufacturing and service jobs in the future. Some see outsourcing as a malicious plot by large corporations to take their economic base away from them. China-bashing has become fashionable, even in economic development circles. From the business perspective, outsourcing is not the end game, rather it is a means to a larger end. Communities should recognize that outsourcing is occurring because broader economic and business forces are driving it.

History says that there is a counter-trend to every trend out there. I suspect that is the case with outsourcing in business. Only so much can be shifted to China, India, Mexico, Singapore and other developing nations. I suspect that political risk, social instability, and rising costs will be the counter-trends in this case that eventually put the brakes on outsourcing. In my judgment, these countries are rife with conflict and still prone to sudden change. When these developments occur, businesses will pull up stakes and seek greener pastures elsewhere.

Look at what has happened in Korea in recent years, which everyone expected to become the next Japan. Korea is in pretty bad shape right now. Political and social problems have hobbled the country. Business investors are not comfortable with the country right now. And yes, look at Japan. Few expected Japan to tumble as hard as it did in the 1990's after its miraculous growth in the 1970's and 1980's. Political and social problems led the way to Japan's economic decline in the past decade. Mind these words: "Japan is rebuilding itself."

As I put the outsourcing phenomenon in perspective, I see outsourcing as one of many prices that corporations and America are paying for the unbridled and reckless growth we saw through most of the 90's. Yes, we made too much to do about nothing. The Internet was and will remain a major source of growth for many industries. In my view, we simply attacked the Internet opportunity the wrong way. Too many bad investments in flimsy tech startups that promised the world and delivered no discernible or sustainable value. We have to be very careful not to do the same thing with the life sciences--the poster child industry of this decade.

The other thing that happened in the 1990's is that the United States became increasingly disconnected from the rest of the world--a situation that changed suddenly with 9/11 and subsequent events. No longer can we afford to have a distant relationship with the rest of the world. Outsourcing is an evolutionary process that re-connects us to other parts of the world.

The U.S. market remains the most stable, the most integrated and the easiest to serve of all markets worldwide. I don't think that is going to change very much in the next decade. As long as our local and state economic development strategies don't cause a "mass polarization" of states and regional economies. That is an issue we need to think about in economic development. While every community, region and state across the country wants to advance its economic base, every local economy must assume some responsibility for sustaining the "whole," or the overall marketplace. Our local political economies can only continue to survive if we maintain a strong integrated market.

I read an interesting article this morning about how outsourcing is perceived in New Jersey. I was struck by how similar the views and ideas about outsourcing are to other places across the country. The article concluded also that little can be done to stop the outsourcing trend, other than help workers to adjust.

What should we do? I suggest that we try a new brand of economic development strategy to respond to the outsourcing issue. Let's try what I call the "interdependent growth model," which says that the growth of local economies nationally and even internationally to a degree requires interdependence and collaboration. Until now, we have relied upon businesses to serve as the "bees" that cross-pollinate local economies across the country and the world. They will continue to do that very thing. Is there a role for the economic development organization to serve as a cross-pollinator that ensures local economies across the world make the right connections to support their future growth in a productive manner? I think there might be.

Where do we begin? We have spent the last decade creating a greater consciousness of "clusters" as economic frameworks to build local competitive advantage in a national and global context. Clusters are a global phenomenon. Nearly every nation has some focus on clusters as growth engines for the future. Now that we have this global network of clusters in place, perhaps the next step is to utilize that network to create new business, technology and job collaborations among and between clusters. That seems to me a way to ensure local economies remain connected to each other, and it could also create greater balance in which parts of local economies are shifted (outsourced) to other world locations.

Can national and international cluster collaborations overcome all the problems discussed above? Not hardly, but I think they can put us on the right path in building more sustainable local economies that can ride the global waves and survive and grow in the future because they have stronger connections around the world. This is a starting point.

As always, I welcome your thoughts on this ambitious idea.