As far as business goes and in terms of how life is affected, I often think about macroeconomic history in three areas: 1) the Industrial Revolution, 2) the Information Technology Revolution, and 3) The Offshoring Revolution. Not necessarily the perfect model but a working model that highlights key periods delineating changes in the way things are produced.
Offshoring is a big subject that has ranged from simple areas to more complex areas like the outsourcing of innovation.
In the first two areas of revolution, the output of the United States (in terms of GDP) went up drastically. Some economists and statisticians have estimated a "productivity constant" (which directly relates the GDP to key macroeconomic factors) and have determined that substantial (non-linear) increases in the productivity constant (and hence, the GDP) have occurred due to these first two revolutions. (See the second link in this post for one example of how this was done for the IT Revolution.)
Now as for the offshoring revolution, Mike Nevens (ex-McKinsey blogging at the Sand Hill Group) highlights,
The proximate cause of the offshoring phenomenon and ensuing debate is the addition of 300 to 400 million highly educated workers to the global economy over the span of less than a decade.
That’s the "far from home" aspect. Remember that there are approximately 290 million people in the United States. Keep the numbers in perspective though – the US Department of Labour shows that only 2.5% of all job losses during the first quarter of 2004 were the result of offshoring.
Mike goes on to write:
Offshoring is simply the first step in an inevitable process as companies in highly competitive businesses seek to lower their costs by moving work to where it the value, quality, cost tradeoff is best. We are already seeing the second step: wages are rising in those countries that are the recipients of outsourcing and working conditions are improving as the demand for local workers rises …
That’s the "close to home" aspect. While the offshoring revolution may not yield the non-linear increase in the productivity constant like the other revolutions (the future lies before us), there is a significant shift in deployment of capital coming.
The "in your driveway" aspect is this … Mike continues:
I believe the third step is happening as well, but it is harder to see in the available data. The third step is stagnating or declining wages in the U.S. and other industrial economies.
Mike offers some advice that workers should make investments in education and skill building. They should make investments in areas that are less vulnerable to global market forces.
In any case, everyone needs to keep their eyes open and stay renewed. The offshoring revolution is here.
Continue reading “Offshoring: Far From Home, Close to Home, and In Your Driveway Aspects”