Embracing today's global economy.

• Author: Challenger, John A.
• Position: Economics

CENTURIES AGO, a group of Peruvian Indians were looking out from the ocean shoreline. Something appeared far away that they did not recognize. Seeing the sails of Spanish invaders on the horizon, they talked about it and, lacking a better answer, explained what they saw as a freak of nature and went on about their business. Their limited life experience did not include sailing ships. So, they screened out what they failed to understand--and let disaster in.

As we see the sails of the global economy on the horizon, will we screen out what we do not understand (or accept) and just go about our business, or will we anticipate what is happening and adapt ourselves to a world that is changing right before our eyes? The answer will make all the difference in making the most of the opportunities that lie ahead.

The issues arising out of the wowing global economy are highly emotional. They are about jobs and livelihoods, as well as feeding our families and ensuring their safety and well-being in a world that presents threats, but also great opportunities.

As a start, let us discuss what really is happening in outsourcing and why. Countries such as India and China have vast pools of skilled and well-educated workers available to the U.S. and other countries. The first trend is for U.S. firms to source jobs abroad rather than at home. The second trend is companies taking advantage of advanced computer technology to import services from other nations, like having radiologists in Bangalore read X-rays taken in Boston.

Companies are outsourcing jobs and importing services to cut costs, increase productivity, and meet their customers' demands for low-price, high-quality goods and services. In doing this, they are saving money and investing some of it in research and development to improve products and services as well as create better-paying jobs.

All of this makes good sense. With the tree flow of information available to us, we are able to shop around and select the best companies to provide what we want, when we want it. These enterprises produce high quality and low price. They attract more customers and top-notch employees--and they create jobs.

Sometimes those jobs are created in the U.S.--and sometimes offshore. This gives me the chance to dispel one prevalent myth: that when a U.S.-based company creates jobs offshore, we are losing American jobs. The fact is, these ,jobs would not have been created domestically in the first place. These are jobs that are created in those markets, or not at all. If IBM is going to penetrate international markets, it cannot do that unless it is part of those markets. They must be close to their customers if they are to be successful, and that means sourcing outside the U.S. and inside those markets. That does not mean, however, that IBM will not be creating jobs in the U.S. as well, which, in fact, it is doing.

Fears of job loss are nothing new. This keeps surfacing in different forms. There was permanent job loss when we moved from an agrarian to an industrialized economy. In the 1980s, we saw manufacturing jobs lost and service jobs gained. In the 1990s. companies were going to de-layer middle management and bureaucracy forever. A few years later, we panicked about e-commerce and dot-coms annihilating old-economy jobs. At present, the monster in the closet is outsourcing. Fear is growing that there will be significant and permanent loss of highly-skilled jobs to the rest of the world.

Outsourcing debate

The emotional debate about outsourcing has obscured the fact that it is a natural and normal part of a free market system and a fundamental component of competing successfully in the global economy. Yet, when we lose our job or see a colleague lose his or hers, it is easy to feel overwhelmed and traumatized. The hard troth, however, is...