The Outsourcing Tragedy
Ernest Partridge, Co-Editor
The Crisis Papers
August 5, 2008
My computer and I have been through a bad spell these past
couple of weeks.
First, my router/modem developed a terminal malfunction, and then my new
anti-virus software failed to install. Thankfully, three very capable and
patient gentlemen at various technical support facilities found solutions.
These three gentlemen were, respectively, from India, the Philippines, and
once again, India.
If you or someone in your family is about to graduate with a degree in
computer science, don’t expect to find a job in the U.S. any time soon.
Amidst my computer worries, I bought a dozen or so electrical supplies from
the local hardware: a surge protector, extension cords, a phone, that sort
of thing. Glancing at the labels, I found that each and every one was made
in China. And a new hard drive? From Malaysia.
No need to go on with this, you know about it already. It’s called
Damned greedy capitalists are dismantling our manufacturing base and
shipping it overseas!
Were it as simple as that, it would be a waste of my effort writing about
it, and of your time reading yet another complaint about that which is
But outsourcing, and the consequent loss of millions of American
manufacturing and service jobs, is not the plain and simple result of
corporate greed. It is, instead, an inevitable result of a combination of
the successful enactment of
the right-wing dogmas of
“the invisible hand” and “trickle down,” namely the conviction that
individual entrepreneurs and corporations will, by seeking only their
own economic gain, obtain the best results for society at large.
These are "dogmas" because they are "proven," not by historical evidence
or practical experience, but rather through repetition.
the corollary libertarian dogma that government has no
justification whatever in interfering with the economic activities of
private individuals and corporations. In the words of Milton Friedman,
“There is nothing wrong with the United States that a dose of smaller and
less intrusive government would not cure.”
fiduciary responsibility: the legal requirement that
the primary responsibility of the corporation is to its stockholders, not
Thus the necessity of outsourcing is beyond the control of any
single corporation’s executives or board of directors. It is a thus a tragedy,
in the sense defined by the philosopher Alfred North Whitehead: a consequence of
“the remorseless working of things.” (See Garrett Hardin’s
of the Commons.”). As long as these conditions obtain, jobs will gravitate
toward the individuals accepting the lowest wages, i.e., those abroad, and the middle
class will wither as wealth flows from those who create the nation’s wealth to
those who own and control the wealth. These are conditions that are destined to
ruin the economy of the United States.
“As long as these conditions obtain...” The obvious solution, then, is to change
The Problem of Fiduciary Responsibility
So why don’t corporate executives simply behave like good Americans, and keep
those jobs stateside?
Because, quite frankly, if they were to do so, they would be taken to court by
the stockholders and sued. And they would lose.
Near the close of the Nineteenth Century, railroad tycoon William Vanderbilt
famously said, “The public be damned, I work for my stockholders.” And in 1970,
The New York Times Magazine published an article by Milton Friedman, “The Social
Responsibility of Business is to Increase its Profits.” The title says it all.
The knee-jerk liberal response is that these quotations are expressions of plain
lousy attitudes. Sadly, it's much worse than that.
It’s the law!
The fiduciary responsibility of corporations, first and foremost to their stockholders, has been articulated in numerous court
decisions, and in the statutes of several states. And so,
as Daniel Brook writes in Huffington Post
“Corporations have a fiduciary responsibility to maximize
profits even if it means betraying the nation, trashing the environment, or
fomenting unconscionable levels of inequality. Nothing is unconscionable for
a corporation because they don't have consciences; they're not really
people, whatever the courts may say.”
Accordingly, my internet service provider and the company that
makes my anti-virus software simply had no choice: they had to hire tech support
workers in India and the Philippines and to fire their American technicians. Had
they not done so, they would have been put at an insurmountable competitive
disadvantage with their rivals who have no qualms about outsourcing. The profits
and stock value of the “socially responsible” corporations would drop, causing
losses to their stockholders – i.e., those to whom they owed “fiduciary
And then the company would find itself in court, facing a
winning suit by the stockholders.
Obviously, corporate activity affects more than managers, employees and
stockholders. Corporations also involve customers who are entitled to be
protected from fraud and from defective products. Civil courts exist to
reimburse customers for damages from corporate abuses, and few if any
libertarians would object, in principle, to the exercise and enforcement of
civil law. Because civil suits can be costly and impact upon the corporate
bottom line, corporations have a fiduciary responsibility not to engage in fraud
or to sell defective products. (Unfortunately, as the recent Supreme Court
decision on the Exxon Valdez suit reminds us, corporate-friendly courts can
reduce civil settlements to trivial sums, "the cost of doing business," that fail to deter corporate
In addition to injured customers, there are unconsenting third parties,
“stakeholders,” who are affected by corporate activities. These include persons
residing downwind and downstream from industrial polluters, teen-agers “hooked”
on cigarettes leading to a shortened life of addiction, taxpayers who pay for
the public health costs of smoking, ecosystems damaged by pesticides, citizens
whose government is corrupted by corporate lobbying and campaign contributions,
and humanity at large the future of which is imperiled by global climate change.
Add to this, American workers who lose their jobs to outsourcing; victims of
“collateral damage” resulting from the fiduciary responsibility of corporations
to reduce labor costs and thus to increase profits and the return on the
investments of the stockholders.
Who Speaks for the “Stakeholders”?
Who else, but the government?
Many, and perhaps most, corporate executives, when confronted by the economic and
social devastation brought on by outsourcing, might reply: “Yes, it’s horrible!
But what can I do about it? If I insist on hiring American workers at American
wages, my firm will go broke or, before that happens, the Board of Directors
will fire me. I’m helpless!”
Sad to say, they are right.
Alternatively, one might bring together the CEOs of all the competitors, and try
to persuade them to agree not to outsource. Problem is, that might be collusion,
which is illegal. Or if not, there would be no sanctions against violating the
agreement, and enormous advantages would be gained by any renegade firm that did so.
It's a paradigm case of the tragedy of the commons:
that which is good
for all is bad for each. Without the enforcement of sanctions there is
an irresistible temptation to defect from the agreement.
In any case, missing from that assembly would be delegates representing those
unconsenting but seriously affected third parties, the “stakeholders.” Their
claims against the corporations would exact costs that would adversely affect
“the bottom line:” profits and returns on investments. And the corporations, by
law, have that fiduciary responsibility to maximize the bottom line.
Leave it to the unregulated free market, the profit motive, and fiduciary
responsibility, and the stakeholders, which is to say the general public, is
screwed. Given these conditions, there is no escape from this “remorseless
working of things.” It is a tragedy.
So the solution is compelling: abolish the conditions that bring about the
The stakeholders must be given a place at the table that determines corporate
And there is one and only one institution qualified to represent the
stakeholding general public. That would be a representative government, such as
that established by the founders of our republic.
“To secure these rights, governments are established among
men, deriving their just powers from the consent of the governed.”
"We the people of the United States, in Order to form a more perfect Union,
establish Justice, insure domestic Tranquility, provide for the common
defence, promote the general Welfare, and secure the Blessings of Liberty to
ourselves and our Posterity, do ordain and establish this Constitution for
the United States of America."
How strange and sad it is that we have allowed the right-wing
dogmas of market absolutism, libertarianism, “the invisible hand” and “trickle
down” to cause us to forget the founding principles of our republic, and to
forget the lessons learned from a difficult history since that founding.
laissez faire capitalism, and each time it has failed all but
a very few wealthy and privileged individuals, and eventually those too when the
We learned from the crash of 1929 and the depression that followed, that
corporate greed, unconstrained and unregulated, can lead to a ruined economy.
Then we recovered, not by abolishing capitalism, but by reforming it and
regulating it with agencies of government acting in behalf of "we the people,"
i.e. the stakeholders.
Through tax incentives, tariffs, and other laws and regulations, the government
can end and reverse the outflow of jobs from the United States. Goodness
knows there's abundant work to be done within our borders. The physical
infrastructure of the U.S. is in an advanced state of decay, and only government
appropriations can repair it, with jobs that by their nature can not be
outsourced. Like it or not, the petroleum age is on its way out, opening the
necessity for the development and implementation of alternative and sustainable
energy sources. Here is a compelling opportunity to re-establish our dismantled
manufacturing base. And be assured that if we don’t take the lead in ushering in
the solar age, some other country will do it and we will be left behind.
The lessons of history notwithstanding, we have tried market absolutism and
minimal government once again, and they are failing once again. The United
States of America is near bankruptcy, our currency is in decline, we are
massively in debt to our rivals, our manufacturing base has been dismantled, and
we are despised the world over.
“When you are in a hole, the first thing to do is stop digging.”
Time to stop digging and to start climbing out.
For a further and more extensive elaboration of these issues, see my
“The Scorpion, The
Frog, and The Corporation,” (The Crisis Papers, September 12, 2006 ),
Failure: The Back of the Invisible Hand” (The Crisis Papers, June 19,
by Ernest Partridge
Ernest Partridge's Internet Publications
Conscience of a Progressive:
Partridge's Scholarly Publications. (The Online Gadfly)
Dr. Ernest Partridge is a consultant, writer and lecturer in the field
of Environmental Ethics and Public Policy. He has taught Philosophy at
the University of California, and in Utah, Colorado and Wisconsin. He
publishes the website, "The Online
Gadfly" and co-edits the progressive website,
"The Crisis Papers".
His e-mail is: firstname.lastname@example.org .