Acton Commentary

Productivity and the Ice Man: Understanding Outsourcing


Hysteria about job losses caused by overseas outsourcing ignores a crucial fact: Americans lose jobs primarily because people develop innovative ways to do things faster, better, and cheaper. In other words, human creativity is a double-edged sword, bringing productivity improvements and, very often, widespread job loss. The good news is that the net result is not fewer jobs, but more jobs—and more productive ones.

Since most job losses are a consequence of men and women cultivating Creation, we should never be surprised to hear that companies are downsizing. Neither should we dismiss the indisputable financial and emotional toll that a mass layoff or shuttered factory can cause individuals. But to really understand what’s going on we need to look at the economic fundamentals. Was the layoff caused by the introduction of a more productive technology, a smarter way to manufacture, or a shift in consumer preferences?

While the outsourcing issue has generated headlines, it is not the chief cause of job losses. Of the 2.7 million jobs lost over the past three years, only 300,000 have resulted from outsourcing, according to Forrester Research Inc., a technology research firm. Business Week Magazine reports that one percentage point of productivity growth can eliminate up to 1.3 million jobs a year.

Automation, a traditional means of boosting productivity, continues to eliminate jobs right before our eyes. The sectors most affected by automation include construction, manufacturing, retail and wholesale trade, transportation, information, and food services. Airlines have reduced the number of ticket agents because of airport kiosks, online ticket purchases, and online check-in. Grocery store clerks are on the decline with the onset of automated check-out counters.

This is nothing new. As the United States industrialized, the life cycle of entire industries was radically shortened. On July 6, 1858, for example, Lyman Blake patented a shoe-manufacturing machine. As these machines were popularized, the need for hand-made shoes quickly disappeared — and so did related jobs. The horse and buggy industry took a hit in major cities when the first cable car, patented on January 17, 1871, by Andrew S. Hallidie, began service a couple years later. The buggy business took a death-blow when Henry Ford introduced the Model T in 1908 and then installed moving assembly lines in his factory shortly afterward. This development did not portend inevitable unemployment for the thousands of worker who might otherwise have been employed making horse carriages. Instead, it spawned new industries (many carriage companies flourished as makers of vehicle bodies) and made human transportation exponentially more efficient.

The invention of Freon in 1928 and the introduction of electric refrigerators devastated the ice industry. Until this point, ice was taken from the rivers and ponds, cut into blocks and delivered to insulated storage buildings for summer use. Ice wagons, first on steel wheels and later on rubber tires, carried ice to customers’ homes. Because a 25-pound block of ice lasted only a few days, icemen kept busy making deliveries two or three times per week. These routes were so well traveled that new deliverymen in some cases simply gave free rein to the old iceman's horse, which was familiar with all the stops. General Motors’ Frigidaire “electric ice box” wiped out a whole set of occupations, including ice box manufacturers, ice gatherers, and the manufacturers of the tools and equipment needed to handle large blocks of ice. Who today would want to replace their frost free refrigerator-freezer with an ice box?

In the auto industry, General Motors today uses approximately 25,000 robots for tasks that people used to do including spot welding, painting, machine loading, parts transfer, and assembly. Robots have replaced people in electronic assembly, mounting microchips on circuit boards. Many of the jobs replaced were dangerous, dirty and tedious. Overall, North American manufacturing companies ordered 19 percent more robots from North American robotics suppliers in 2003 than in 2002 according to new figures released by Robotic Industries Association (RIA), an industry trade group. RIA estimates that some 135,000 robots are now being used in U.S. factories to do jobs faster, better, and cheaper than humans ever could. And robots need to be manufactured, sold, installed, delivered, maintained, repaired, and improved.

During technological transitions, the difficult task is providing the education and training necessary to help people use their gifts and skills in new industries. This raises important questions about the role of education and whether or not limiting students to learning only one skill or trade will help them in the long run. Quality education programs will focus on training students in such a way that transitions into new emerging industries will be less costly.

Technological advances must always occur within a sound moral framework. If consistent with genuine human flourishing, advances should be embraced as a product of human creativity rather than feared as a source of human suffering. Using other countries’ workers as scapegoats for the fallout from technological change sabotages our preparedness for such change. This type of sabotage leads to misguided policies that impede productivity improvements and innovations—which are the very things that make our lives more comfortable, safer, and healthier.