What Milton Friedman Might Think About Outsourcing

Image by © Roger Ressmeyer/CORBIS

Outsourcing really isn’t anything special; it is just the free market at work, Milton Friedman would argue. Larry Elder, conservative political commentator goes even further by saying, “Outsourcing and globalization of manufacturing allows companies to reduce costs, benefits consumers with lower cost goods and services, causes economic expansion that reduces unemployment, and increases productivity and job creation.

Many people view a practice of outsourcing as evil taking jobs from America abroad. Hilary Clinton said, “Outsourcing is a problem. We have to do several things: end the tax breaks that still exist in the tax code for outsourcing jobs, have trade agreements with enforceable labor and environmental standards, help Americans compete, which is something we haven’t taken seriously.”

The losers in that game, though, really are the insourced staff who will lose their jobs because outsourced company can do the work better, faster and/or cheaper. But it’s not a matter of ethics, it has to do with this system that we are part of called capitalism; the reasons aren’t personal, they are economic. For the people who lose their jobs to outsourcing, it doesn’t matter whether their jobs went to India or Indiana, the impact is exactly the same.

I understand this well now from both sides. You see, I was responsible for getting outsourced work while employed at a company in Kiev, Ukraine, that provided cheap technology hubs in Eastern Europe. I can’t speak for factory workers in Bangladesh or India – we were in a modern building with nice offices and cubes. We were just much cheaper than US software engineering workforce and produced quality work. I made good living and so did my many colleagues. The US company enjoyed great rates and good service. In fact, I would not be here, at Pepperdine, if it was not for outsourcing. I made enough money to attend an MBA program here, and it allowed me to, in fact, contribute back to US economy. I think Milton Friedman would smile if he heard this.

What do you think? Share your comments.

Polina Melnyk, MBA Candidate 2011

Polina Melnyk, MBA Candidate 2011

Originally from the Ukraine, Polina has a master's degree in finance and is presently earning her MBA at Pepperdine University, Graziadio School of Business and Management. She aspires to enter the investment banking sector working for a private equity firm.
Polina Melnyk, MBA Candidate 2011

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Polina Melnyk, MBA Candidate 2011

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One Comment

  1. An interesting view Polina, although I think somewhat bias from the point of view of the outsource company. My experience with outsourcing is somewhat different to yours. I have both seen many jobs from my previous industry (IT) outsourced to the Philipines and India and I have also been responsible for managing a system where the code was outsouced to Lithuania. I can tell you that in every single case the work was neither better or faster, and I would argue that ultimately it proved much more expensive.
    I found the level of errors caused by lack of understanding of language, requirements and system knowledge meant that very little work was ever delivered without a significant amount of rework, not to mention the constant delays caused by time differences across the various locations.
    Where as the companies involved thought that by outsourcing they could somehow save on costs, what they actually found was that the constant delays ended up costing the company significantly in lost opportunites and apart from that, with the loss of their interlectual property to outsource companies, they were unable to do anything to restify the situation other than scrapping entire systems and starting again.

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