Former Wired editor’s perverse defense for outsourcing jobs

Chris Anderson argues offshoring is good for our workers and our education system. He's wrong on both accounts

Topics: Mexico, Tijuana, Foxconn, New York Times, Wired, Apple, iPhone,

Former Wired editor's perverse defense for outsourcing jobsIn this May 26, 2010 file photo, staff members work on the production line at the Foxconn complex in the southern Chinese city of Shenzhen, southern China (Credit: AP Photo/Kin Cheung)

The story of Chris Anderson’s conversion from talented technology journalist to executive at a company that mass markets surveillance drones is cartoonish enough to be somewhat interesting (read: depressing) unto itself. It would, in fact, be a perfect hard-hitting exposé for Anderson’s old magazine, Wired. But it is nothing compared to the story of him becoming a political activist echoing now-standard corporate talking points that call for more American jobs to be outsourced — or in his sanitized, Tom Friedman-esque portmanteau, “quicksourced.”

This is the subject of Anderson’s New York Times Op-Ed this weekend about how his San Diego-based company is shifting its production production to Tijuana, Mexico.

An essay on such a critical topic could, of course, go in many different directions. After recent warnings about the military downsides of high-tech offshoring, it could raise questions about the potential national security implications of shifting drone technology production to a neighboring country where drug cartels run rampant. Instead, Anderson makes an economic argument for a whole new economic “model (that) might hold the long-sought answer for how American manufacturers can compete” in the global economy.

To make his case, he begins by taking us on a fantastical tour that somehow presents Tijuana as a 21st century nirvana. “Good doctors are cheaper and easier to find in TJ, as are private schools … the border feels more like the notional borders of the European Union,” he gushes, somehow not mentioning U.S. State Department warnings and near-20-percent poverty rate.

Then, with no irony intended, he raves about Dell sending work to Juarez’s Foxconn factory — the same Foxconn, Anderson eagerly reminds us, that manufactures Apple’s iPhone and iPad, as if that is supposed to be a good thing. Again, not mentioned is Juarez’s status as “murder capital of the world,” nor his own magazine’s report on Foxconn’s rampant mistreatment of workers.



From there, it goes downhill as Anderson lays out the economic case for why American companies should move their domestic production facilities — and their existing Asian production facilities — to Mexico. He essentially asserts that it is all about a more efficient and shorter supply chain.

Geography-wise, the argument seems at first to make sense, thanks to Mexico’s proximity to the United States. However, it makes sense only if the underlying assumption is that production shouldn’t or cannot actually be in the United States. After all, the most efficient supply chain of all for an American-based company selling products to Americans is one in which production is geographically located in America and, thus, as close as possible to the customers.

That raises the big question: What is the true motivation for moving production to Mexico or any other developing country? If, compared to a domestic facility, the reason cannot be supply chain efficiency, then what is the real reason?

The answer is that Mexico offers a typical factory wage that is lower than even today’s historically low minimum wage in the United States.

Citing a Boston Consulting Group study, McClatchy recently reported that “average factory wages in China this year have hit about $4.50 an hour – including benefits and other costs – and are likely to climb to $6 an hour by 2015.” By comparison, Mexico’s National Statistics Institute “says average manufacturing wages stood at $3.50 an hour.”

“We’re at that point where Mexico is now getting wages that are lower than in China,” said a Boston Consulting Group partner, adding that such a reality is “pretty favorable to Mexico” in terms of attracting production facility investment from American corporations.

In Economics 101 vernacular, tariff-free trade policies (i.e., trade policies that eliminate tariffs between countries of hugely varying wage, labor and environmental standards) encourage developing world countries to try to create a perverted form of comparative economic advantage over one another. It is perverted because it isn’t a comparative advantage anchored in exploiting natural advantages (in David Ricardo’s terms, soil, climate, etc.) or in improving human capital (spending on education, job training, etc.). Instead, the comparative advantage is in engineering the lowest, most exploitative labor conditions possible. As that Boston Consulting Group official says, the lower the wages in a developing country, the more “favorable” the conditions are for foreign investment by companies that do not want to pay even America’s minimum wage.

Like most business executives who try never to publicly admit that their business model is about exploiting wage differentials, Anderson scoffs at the idea that Mexico’s comparatively low wages, and the additional profits that can be gleaned from such wages, have much to do with what he is proposing. As supposed proof, he floats what I’ve for years called the Great Education Myth.

“The notion that Mexico offers only cheap labor is just plain off the mark,” he writes. “Mexico graduates some 115,000 engineering students per year — roughly three times as many as the U.S. on a per-capita basis. One result is that some machine specialists are typically easier to find in TJ than in many big American cities. So, for that matter, are accountants experienced in production economics and other highly skilled workers.”

The allegation here — which is so often repeated as fact in the national media — is that the United States education system isn’t producing enough science, technology, engineering and math (STEM) graduates to meet employment demand. This Great Education Myth asks you to believe that companies like Anderson’s are unable to find skilled American employees. From there, you are supposed to conclude that, as much as they supposedly might want to keep production in the United States, companies are nonetheless all but forced to go to Mexico to keep up.

If that sounds like a wholly unsubstantiated sob story, that’s because it is.

A few months ago, Discover Magazine did a great job of debunking the Great Education Myth, noting that 1) offshoring happens because “people in many other countries simply do their jobs for less money” and that 2) it is ridiculous for American executives to blame a supposed STEM shortage in America for offshoring when “it’s often the ordinary grunt work that’s being outsourced, which makes the ‘we even need mediocre scientists’ line especially wrong-headed.”

But even if you somehow believe Anderson’s suggestion that most factory work requires employees with advanced STEM education, just consider three facts that disprove Anderson’s insinuation that there is a shortage of such employees in America:

  • In 2010, Rutgers and Georgetown researchers found that “in the United States actually graduate many more STEM students than are hired each year.”
  • In 2012, after President Obama embarrassed himself by making blatantly absurd comments about engineering employment, the Washington Post noted that the 2011 unemployment rate for “architecture and engineering occupations” was 5.1 percent. While that was better than the 8.9 percent national rate at the time, the Post noted “the situation has clearly deteriorated” from 2006 when “engineering unemployment stood at a lowly 1.7 percent.”
  • In 2012, Sloan Foundation researchers reported that “Unemployment rates in the science and engineering labor force are also up sharply.” They note that “between 2007 and 2010, the unemployment rate for those in science and engineering occupations more than doubled, from 2.6 percent to 5.6 percent.”

The same kind of statistics no doubt apply to Anderson’s catch-all phrase “highly skilled workers.” Simply put, the data prove there is no shortage of well-trained Americans ready and able — and, in many cases, desperate — to work in the high-tech economy.

If, in fact, there is any shortage at all, it is in the number of high-tech companies ready to pay Americans something other than slave wages. With their profits enhanced by their exploitative business model, many of those companies use campaign contributions to create a corresponding shortage of American politicians willing to legislate fair trade policies — the kind that protect American workers from having to compete with slave wages in the first place.

Yet as demonstrable as these facts are, they are rarely acknowledged. Indeed, rather than admitting these politically inconvenient truths, corporate executives — from Bill Gates to Chris Anderson — deliver a persistent stream of mythology designed to make us believe offshoring is both good for American workers and the fault of the American education system, even though on both scores, it most certainly is not.

David Sirota

David Sirota is a staff writer at PandoDaily and the best-selling author of the books "Hostile Takeover," "The Uprising" and "Back to Our Future." E-mail him at ds@davidsirota.com, follow him on Twitter @davidsirota or visit his website at www.davidsirota.com.

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