Logic of Outsourcing
by Gary North: Setting
the Government's Agenda
I wrote an article
on why every business that has an in-house staff of video production
specialists should shut down the department. I argued that it would
be far better to encourage the staffers to create their own video
production company. Then the business can let the newly created
company bid on projects.
There is no
question that this would be better for the business. But would it
be better for the now-unemployed staffers? If they are talented,
yes. If they are not, yes.
Why "yes" in
the second case? Because unemployment, like one's looming execution,
focuses one's attention marvelously. The earlier that a person who
is unsuited for a career finds out that a salaried position has
been shut to him, the better it is for him. He has time to shift
gears. He can find a new line of work.
to the first case, where a talented person loses his job, starting
a small business could be his liberation from the limited opportunities
he was given in his salaried job. I speak from experience. In 1976,
I got fired. It was the first time I ever got fired. For six months,
I scrambled. I had money saved. I had no debt. I had a frugal wife.
I had a small newsletter publishing business that brought in money.
But it was tough going.
later, a subscriber hired me. His name was Ron Paul. He had just
been elected to Congress. I became his research assistant.
later, Dr. Paul got fired by about 150 swing voters out of 180,000.
On January 1, 1977, I was back on the street again. I thought of
something my friend Steve Gillette had written a decade earlier,
which had made him a pile of money.
back on the street again
Gotta stand on my own two feet again
I'm walking that lonely beat again
Remembering when, woah-oh, remembering when
I still had my newsletter. Within a few weeks, I got hired by Howard
Ruff to work with The Ruff Times. He had started his newsletter
a few months after I started Remnant Review. His operation
was taking off. I got to enjoy the ride. I stayed with him until
late 1979, when I quit to run my own business full time. I also
quit my one-semester job teaching free market economics at Campbell
College. I never worked for anyone else again, other than for my
Had I not been
fired, my career would have been very different. It would not have
been nearly so profitable financially. I would not have the audience
I have now. I think my ex-boss had made a mistake. I was learning
the basics of direct-mail advertising, all by myself. He lost me
about a year and a half before I finally learned how to write copy
that sells. I had been writing the ads for his publications. He
never found another copywriter.
In the list
of the best things that ever happened to me, getting fired twice
in one year probably rank in the top five. Winning 3 million 1986
dollars in the FCC lottery for cellular phone spectrum was lower.
Those two gut-wrenching events forced me to branch out on my own.
Like a young bird that gets pushed out of the nest, I had to fly.
So, I flew.
If I had been
in debt, my goose would have been cooked. I understand the pressure
that people feel today when their mortgages are more than the market
value of their homes. They face eviction if one of the breadwinners
gets fired. Mobility is gone, too. In both cases when I lost jobs,
I also had
a second income. A small home business that was not tied to geography
let me move to where I got offers.
debt always brings uncertainties. Before the Federal Reserve's
master of leverage, Alan Greenspan, sucked tens of millions of American
families into a debt trap that Ben Bernanke then sprang on them,
leverage was seen as a one-way ticket to Easy Street. Then came
the detour. A lot of people did not see the detour sign, and either
crashed or went off the road into a ditch.
In the two
jobs from which I was fired, there was no profit-and-loss statement.
The first job was working for $1,000 a month for a non-profit foundation.
The second was working for Congress. There was no profit-and-loss
system based on open entry and customer satisfaction. I was at a
competitive disadvantage. I could not prove my worth to the organizations
by way of a profit-and-loss statement.
I can now.
I say this
to anyone who has recently been fired. I say it also to anyone who
is thinking about firing someone. The person who counts most is
the customer. He wants people to serve his wants, because he is
paying to be served. He who pays the piper calls the tune, at least
in a free market.
To the person
who has lost his job, I say this. There are customers out there
who would like to hire you . . . at some price.
To the person
who is considering firing someone, I say this. There is a customer
out there who wants a better deal, and if you don't give it to him,
he will hire someone else.
with money. People respond to offers of money. Not everyone responds,
but some do. Customers can therefore get deals. So can those who
sell to them.
final results. They are not self-consciously buying a system of
production. They are buying the output of a specific system of production.
So, if you have been fired, then either the customer did this through
your ex-boss, or else your ex-boss made a mistake. If it's the first
case, don't blame your ex-boss. Blame the customers. If it's the
second, the customers will blame him eventually. You don't have
to. Move on. Forget about it.
manual offers a secret of success. Here is mine: find out what people
want to buy, and sell it to them.
college-certified people in Silicon Valley who have no jobs, and
who have been unable to find work for over two years, are unemployed
for reasons of their own making: too much mortgage debt, too much
specialization, too little confidence in the power of wage competition,
and too little mobility. I
think the co-founder of Sun Microsystems is correct: the days
of wine and roses are over for Silicon Valley, where it costs $3
million to buy a middle-class house, and unemployment is over 10%.
bright people need street smarts. They need to pay attention to
customers. It is not enough to have marketable skills. You have
to locate the market where these skills are in demand. Then you
have to meet its demands.
Labor is the
most unspecialized of all production assets. People are versatile.
They adjust. Specialization produces high income for a time, but
when demand for specialized labor falls at yesterday's price, specialization
is a liability. Like a wildly popular singer who faces changing
musical tastes, the specialist has to adjust. A refusal to adjust
do not regulate the job market, there is little long-term unemployment.
The mark of a regulated market is unemployment. People are not adjusting
when they can adjust technically. They are not being allowed to
RESISTANCE IS FUTILE
The free market
is like the Borg in its attempt to bring more and more people into
its circle of influence. But, unlike the Borg, the free market does
not eliminate individuality. On the contrary, it fosters individuality.
It encourages people to assess their talents and opportunities.
This way, individuals can locate other individuals who are happy
to pay them for their services.
It is the state
which operates in a Borg-like quest for conformity. It tries to
get everyone to meet its standards, despite the desire of customers
to buy something else.
In every economy,
someone has the legal authority to bid for other people's services.
When the state possesses this monopoly, it can say, "resistance
is futile." There are no alternative sources of legal income.
is the free market. Resistance to one bidder is anything but futile.
There are other bidders. Furthermore, the original bidder may find
that he is driving too hard a bargain. The potential sellers are
not interested in selling. The buyer then faces a choice: not buying
or increasing his bid.
In a free market,
resistance is never futile. There are always other bids available
. . . at some price. This is the greatest single economic benefit
of the free market. There is the moral benefit of liberty, but here
I am speaking of economics.
When the state
interferes with people's legal right to make offers, the social
order moves toward the Borg model. Any deviation from the group
is a threat to the group.
Today, we are
being told that the rate of unemployment is due to the failure of
the free market to assimilate all those sad people who are unable
to persuade anyone to hire them. We are told that greater Federal
deficits are required, or greater quantitative easing by the Federal
Reserve. In the meantime, the state sends them money, in order to
keep them from facing the consequences of heartless businessmen,
who will not pay them a living wage.
In short, businessmen
and unemployed workers are supposed to join hands under the umbrella
of Federal deficits and fiat money. This is the Borg solution to
recalcitrant people employers and workers who keep
holding out for a better deal.
What ever happened
to "let's make a deal"? What ever happened to the willingness of
people to settle for less?
INCENTIVE TO ADJUST
Great Depression, Will Rogers quipped that America was the first
nation to go to the poorhouse in an automobile.
owners of bankrupt small farms got into their cars and headed west.
They become Okies and Arkies. They figured that it could not be
worse in California, employment-wise, and the weather was better.
They were right.
provided no aid for this trek west. People made the decision on
their own. They searched for better opportunities.
In China, we
are witnessing the greatest mass migration in the history of man.
People are leaving ways of life that have prevailed, despite repeated
military invasions, a millennium of bureaucracy, and half a century
of Communism. Nothing changed those rural patterns. Yet today, because
of the offers of businessmen, hundreds of millions of farmers' sons
and daughters have moved to cities. China builds the equivalent
of Houston every month. I don't mean the notorious handful of empty
cities constructed by an irrational central government. I mean acre
by acre, apartment complex by complex, in the great cities and dozens
of new ones.
patterns of migration would have been different, had the central
bank not inflated to stimulate the economy. But the overall story
would not have changed. What centuries of coercion could not change,
the free market has changed and is changing. China will never be
the same. India is not far behind.
People do adjust
. . . at some price. Resistance to the free market is not futile.
It is merely unprofitable. The opportunities that are available
need not be taken advantage of. Like ripe fruit hanging on a vine,
no one is compelled to pick them.
government and the monetary base are growing relentlessly. The media
are beginning to publish reports on the unpleasant long-run consequences
of these growing phenomena. But the Establishment continues to announce
the same old Party Line: this is temporary, and it will be reversed
at the appropriate time, when conditions are ripe, when the financial
crisis is over, when unemployment returns to normal, when there
is no more excess capacity, when there are no more excess reserves,
and, above all, when pigs learn to fly.
expected to adjust to an annual Federal on-budget deficit of $1.5
trillion, but without asking for a higher rate of interest on money
lent to the government. Citizens are expected to adjust to the expansion
of money, but without asking for a higher rate of interest or higher
prices of consumer goods. Citizens are expected to adjust to change
we can believe in, or at least tolerate.
But what if
we decide not to adjust on these terms? Sorry. "Resistance is futile."
and Egypt in the first six weeks of 2011, the citizenry discovered
that resistance was not futile. Two dictators who had held power
for decades found that their resistance to an unseemly departure
was indeed futile. They adjusted. They were both outsourced.
is an inevitable concept. It is not a question of outsourcing or
no outsourcing. It is always a question of who gets outsourced and
on what terms.
The free market
lets people make offers. Digital technology is lowering the price
of making offers. When people are left free to respond, they adjust
. . . at some price.
fact that jobs are being outsourced to China is no more shocking
than the fact that they were outsourced to California in the 1930s.
People make offers. Other people accept them. Those whose offers
were rejected then must adjust. They must find new offers to accept,
or else they sit, hoping for a check from the government.
be a time when the government that today sends the checks will be
outsourced by citizens who will adjust in ways similar to the citizens
who adjusted in Tunisia and Egypt.
and Al Jazeera did it twice. It can happen again. . . without Al
is not futile.
North [send him mail]
is the author of Mises
on Money. Visit http://www.garynorth.com.
He is also the author of a free 20-volume series, An
Economic Commentary on the Bible.
2011 Gary North
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