Outsourcing Social Cost or the "Socialization" of Cost!
Farid A. Khavari, (Ph.D.) Economist
In 1993, the Miami Herald asked me to express my opinion about the NAFTA (North American Free Trade Agreement), which was just getting off the ground. I was against it back then, and I am even more against it now. I wrote:
"" Mexico is going to provide no more of an increased market to the United States than East Germany did to West Germany after the unification. As the economy moves towards full employment, projects like NAFTA can be implemented and implemented successfully for all nations involved. NAFTA, in its current form, could well result in innocent and dedicated workers moving from the upper middle class to the welfare rolls. What is accomplished if Wal-Mart or Chrysler hits the jackpots only at the expense of the working people of both nations?"
(The Miami Herald, November 17, 1993, Page 27A)
Of course, we know what NAFTA has done to our country ever since. What we did as a nation was increasingly outsourced our "social profits" and our "social benefits" to the other countries, depriving American citizens from enjoying a prosperous standard of living! We had instead imported the "social cost" of the low-cost labor nations, which is now reflected in increased unemployment numbers with the economic downturn within the United States. On the other hand, those countries started to prosper to the point that we as a nation are now in the process of switching our leading position with these low-cost labor nations. Even though Wal-Mart is reaping tremendous profits in this chess game, which has been witnessed, it has not assisted companies such as Chrysler nor GM; Chrysler and GM ended up being bailed out or they were headed towards oblivion.
Since NAFTA's inception, many other American companies did not see benefits from the agreement either. The United States is now starting to make the same grave mistake by outsourcing work to India as we did in the Nineties with China. The simple fact is that each time we engage in these types of outsourcing matches with the low-cost labor nations, we give away our social profits and our social benefits! What we must do is outsource our "social costs" instead of our "social profits" and our "social benefits."
Politicians, economists and CEOs must take serious consideration outsourcing our manufacturing jobs to over 2 billion people with a tremendously lower standard of living worldwide versus our roughly 320 millions people with higher standard of living. This could lead only to one result--lowering the standard of living of our people by having no way out in a "losing match" with these low-cost labor nations when outsourcing happens. The American people will continue to lose economically until they reach a much lower standard of living, most likely worse off than those individuals in these low-cost labor nations. One scenario is obviously clear, that in the long-run both sides will lose. However, by outsourcing "social cost" as we will see, both sides will gain from it, and increase the standard of living of both parties without disadvantaging one group against another.