The World is Flat

[lockmat]

Has anyone read this book by Thomas Friedman? I've heard it's very good and intend to read it soon.

For those who have read it, what do you have to say about it? Do you agree?

[ricco67]

I haven't read it, but the topic is interesting.

Not necessarily an economic geek, but I'm tellin' ya it might seem to have some valid points, so I might buy it and skim over it. As much as you CAN skim over a book like this.

[lockmat]

I haven't read it, but the topic is interesting.

Not necessarily an economic geek, but I'm tellin' ya it might seem to have some valid points, so I might buy it and skim over it. As much as you CAN skim over a book like this.

As opposed to reading it thoroughly? Or just because it's gonna be a difficult read?

[ricco67]

It seems like it's a weighty topic that might, at certain points put me to sleep. It just depends on how it's written.

[lockmat]

It seems like it's a weighty topic that might, at certain points put me to sleep. It just depends on how it's written.

Oh, well an engineer who's getting her Phd told me about it, so maybe so.

I'm surprised more people haven't read it. You'd think people who are interested in many of the subjects we discuss here would be interested or educated in economics.

Edited January 18, 2007 by lockmat

[ricco67]

Oh, well an engineer who's getting her Phd told me about it, so maybe so.

I'm surprised more people haven't read it. You'd think people who are interested in many of the subjects we discuss here would be interested or educated in economics.

actually, I think you'd be surprised at education level here. Someone in Economics I wouldn't consider being on this system unless they were also a Developer or engineer.

While there are those of us who are highly trained and knowledgeable (some more than others) engineers, I would hazard a guess that a substantial number of us are simply those that have a passing interest in the various quirks this city has. Once they have gotten on board this system, it had merely blossomed to something more.

Learning is forever, and to quote someone, "A day in which you learn something new is not a wasted day."

[lockmat]

I would hazard a guess that a substantial number of us are simply those that have a passing interest in the various quirks this city has.

That's me! hah. Although, I've seriously been considering going back to get my Masters in Urban Planning, focusing on transportation. Hah, I'm sure some people here would strongly consider I don't. But of course then I'd be educated, and not just a layman who's read a few books.

[TheNiche]

That's me! hah. Although, I've seriously been considering going back to get my Masters in Urban Planning, focusing on transportation. Hah, I'm sure some people here would strongly consider I don't. But of course then I'd be educated, and not just a layman who's read a few books.

Go for it!

[lockmat]

Go for it!

I'll have to let you guys know what I decide. If I do, it won't be until spring '08 or fall of '08, depending on if they let you start in the Spring. I feel like I've committed myself to my current job until at least the end of summer, that's why so late. Tentative plans are to come back home when I'm done here.

We'll see. Thanks for the encouragment though

[lockmat]

Well, I finally checked out the book and started reading it. Some of the broad facts, people already know about, of course, such as outsourching and offshoaring.

But my question is this. All of our American companies are doing these things in China, India and other places to stay competitive b/c the costs of operation are so much lower there. But are we seeing a ripple effect here in America? Basically, are our purchasing prices getting lower, or are the pockets of CEO's just getting fatter?

[TheNiche]

Well, I finally checked out the book and started reading it. Some of the broad facts, people already know about, of course, such as outsourching and offshoaring.

But my question is this. All of our American companies are doing these things in China, India and other places to stay competitive b/c the costs of operation are so much lower there. But are we seeing a ripple effect here in America? Basically, are our purchasing prices getting lower, or are the pockets of CEO's just getting fatter?

There are two answers: short term and long term.

In the short term, companies operating within competitive markets that are able to engage in efficient outsourcing to developing countries are able to reduce their expenses while being price-takers. Their corporate profits will increase. That's the complicated thing, though, because it doesn't end there. American employees are laid off, which is a cost to our economy, but whoever owns shares in that company is made better off by some amount. If it is predominantly-owned by Americans, then the costs and benefits to the greater economy is unclear. It could go either way...and of course, don't forget that when the wealthy earn money, part of it gets consumed and another part gets invested, and that doing so creates more jobs domestically and overseas (although the precise geographic distribution is essentially unpredictable/unknown). I think that generally speaking, the costs of outsourcing probably outweigh the benefits in the short run.

In the long term, outsourcing is good, and there is absolutely no effective counterargument. Once the entire industry (rather than just a handful of firms) begins outsourcing, the costs of comparable goods gets bid down through competition. The savings are passed on to consumers and the corporations earn zero economic profit. If any firm refuses to outsource, it will receive negative economic profits and be eliminated from the industry over time. The benefit to consumers is invariably in excess of the cost to the laid off employees. In fact, the idle labor will be assigned to its next highest and best use, mitigating much of the cost of layoffs within a reasonably short period of time. Based upon the outcomes of the long-run outcomes, it would be feasible for government to tax consumers by whatever amount of total costs were endured by laid off employees of firms engaged in outsourcing, pay those former-employees full compensation, and the tax on consumers would still not eliminate all consumer benefit.

[lockmat]

There are two answers: short term and long term.

So if I understand you correctly, short-term, the corporations are pocketing some of it and investing the rest. As of now, they're pocketing way more (b/c they're beating out the companies who are not yet outsourcing), but in the future, all companies who want to be competitive will also outsource. B/c everyone will be outsourcing, it will once again level the playing field (unless someone can find another country who will do it for even less or more efficiently), and the benefits of all this will finally come to the consumer. But as of now, the consumer is not seeing the benefits because the companies can afford to maintain their price for their services since not everyone is outsourcing, making the playing field unequal.

To sum up, companies who are outsourcing/offshoring now are banking and the customer sees no benefits yet. When all companies are outsourcing in the future, competition will lead to the consumer finally seeing benefits.

Hope I got it right.

[TheNiche]

So if I understand you correctly, short-term, the corporations are pocketing some of it and investing the rest.

Corporations don't really 'pocket' anything. Funds earned by corporations are either distributed to shareholders, invested, or taxed. The shareholders consume, invest, and get taxed in some combination.

As of now, they're pocketing way more (b/c they're beating out the companies who are not yet outsourcing), but in the future, all companies who want to be competitive will also outsource. B/c everyone will be outsourcing, it will once again level the playing field (unless someone can find another country who will do it for even less or more efficiently), and the benefits of all this will finally come to the consumer.

But as of now, the consumer is not seeing the benefits because the companies can afford to maintain their price for their services since not everyone is outsourcing, making the playing field unequal.

To sum up, companies who are outsourcing/offshoring now are banking and the customer sees no benefits yet. When all companies are outsourcing in the future, competition will lead to the consumer finally seeing benefits.

Perhaps in some industries, but we're far enough along in most cases that the downward price pressure has already taken effect. In consumer goods manufacturing, for instance, Wal-Mart led the way, demanding such low prices from vendors that they basically had no choice but to make the most efficient labor decisions. Now, that's pretty standard among most discounters and even some middle- and upper-class retailers.

In contrast, there is still opportunity in medical services, where many surgeries that would be excessively expensive in the States can be performed at a reasonable price and low risk in places like India or Thailand. There are operational differences between this kind of operation and the act of outsourcing, but the effect is very nearly the same.

It is really too complicated of a process to sum up so concisely.

[dbigtex56]

Corporations don't really 'pocket' anything. Funds earned by corporations are either distributed to shareholders, invested, or taxed. The shareholders consume, invest, and get taxed in some combination.

You seem to have left out salaries, golden parachutes, stock options and other modern robber-baron techniques.

[TheNiche]

Corporations don't really 'pocket' anything.

You seem to have left out salaries, golden parachutes, stock options and other modern robber-baron techniques.

Employees of the Corporation ≠ The Corporation

Labor markets (even at the highest levels) are competitive as well. These things are all just regarded as subsets of employee compensation. They are an anticipated cost (and in some cases risk) associated with doing business.