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The Dangers of Offshoring

At one point in time, America was an industrial giant, making and innovating new products at an unbelievable rate.  It was possible for a man to work nine-to-five at a job in a factory and be able to comfortably support a family of four.  The word different doesn’t even begin to describe the change that has occurred in America over the past 100 years or so. The white picket fence, 2.5-child family American Dream has been all but dead since (arguably) the 1970’s.  A wide variety of factors contributed to its demise, and every expert could cite something different as the catalyst to this enormous paradigm shift of the last 40 or so years.  Although opinion is divided as it is with most economic issues, many would agree that a large part of the problem lies in offshoring, or the movement of jobs out of America onto foreign soil.  Major companies have been looking beyond the US borders for cheap labor for years, and the effects of this offshoring are finally catching up with the US economy.

In America today, the effects of this dying American Dream are coming to an ugly head.  Every day we hear more about an ever-eroding middle class, college graduates taking up positions well below their qualifications because the job market is so poor.  I’ve watched so many of my friends come out of school with degrees in their hands and hope in their naive hearts, only to find that there’s nothing for them but a pile of debt and no way to realistically pay it back.  Suddenly, entry level means 3+ years of experience in an attempt to filter out the hordes of college grads applying for limited positions every day.  Many of them have taken jobs in the service industry, jobs they were more than qualified for without an expensive education.  While service industry jobs are necessary in our society, they should not be being filled by college graduates wasting their education pouring your coffee.  How did this happen?

Well, it didn’t happen over night, that’s for certain.  People argue about the specifics of how this happened and can debate it until they’re blue in the face.  Whatever reason is attributed to this economic shift, the economic climate in the United States has drastically changed over the past 100 years, and our current economic situation is a product of this shift.  Instead of producing things we need, American companies are constantly looking for the cheaper way out.  Production, back-office work and any other job that possibly could be shifted outside the United States has been for a more attractive bottom line at the end of the year.

It seems that there are only two types of jobs in modern America; low paying service jobs, and higher paying corporate jobs.  By the time the 1990’s hit, this lack of middle ground production jobs lead to a boom in college enrollment and education.  At one time, college was reserved for those going above and beyond in their education, and there were plenty of jobs available to reward their hard work upon completion of their degree.  With the saturation of the collegiate atmosphere, that degree today is not worth what it used to be. Many fear those days are gone for good, a distant memory of a romanticized past.  Recent trends, however, are showing otherwise, and offer a glimpse into an American revival on multiple fronts.

There are two things the American economic model is good at: failing and recovering.  Countless times we’ve failed and on the other side of that failure came out stronger than we ever were.  The key to this recovery is a motivating factor that pushes the nation through the hard times and into the future.  During the Great Depression, it was governmentally motivated.  Initiatives like the New Deal and mobilization of American manufacturing for war supplies helped form America into the industrial giant it once was. This new recovery from the current recession seems to be intrinsically motivated.  When motivation comes from the people themselves, the recovery has potential to be much more stable.

For the first time since the 1990’s, college enrollment is down.  According to The New York Times, enrollment between the years 2012 and 2013 fell by 2 percent as a consequence of the recent economic recovery.  While 2 percent doesn’t seem significant, keep in mind that, as of April of 2013, there are 17,487,475 people enrolled in college institutions.  This means that almost 350,000 people entered the workforce without a college degree.  That number is staggering, considering the trends of offshore labor of the past 40 years.

The fact that that many people are going against the well established college trend speaks to both sides of the equation.  On one hand, it means that sustainable jobs are becoming available without a college education again.  About 350,000 people have put enough faith in that fact to gamble their livelihood on it.  On top of that, the remainder of the 17 million-plus students in college have made the conscious decision to stay there, seeing fruitful opportunity on the other side.  Suddenly, there is a choice again.  A large reason for this choice is a resurgence in what experts are calling “reshoring”.

Reshoring refers to the reversal of the offshoring movement of the 20th and early 21st centuries.  Just like the nature of the American lifestyle and economy, offshoring was motivated by the need for instant gratification.  Low wages, a lack of environmental restriction, lower material costs and cheaper management led many large American companies to expand their workforce beyond our own borders.  While it seemed attractive at first, the effects of entrusting the most important part of their business an ocean away are starting to be felt.

A January 2013 article featured in the Economist tells the story of a small California-based company called ET Water Systems’ venture into offshoring . In 2005, CEO Mark Coopersmith decided to move a majority of its production offshore to China.  Though the labor was cheaper, profits and innovation suffered.  ET Water Systems were fortunate enough to learn rather quickly that when oceanic, cultural and language barriers separate you from your product, you simply cannot operate efficiently, especially as a smaller company.  Five years later, in 2010, Coopersmith found that moving production back to America was only 10 percent more costly than keeping it in China.  This 10 percent placed production right up the road in San Jose, and streamlined their entire business.

Smaller companies are not the only ones bringing back their off-shored labor to the United States.  According to the same Economist article, corporate giants like GE have moved some of their manufacturing back to the United States as well.  They recently opened a plant in Kentucky to manufacture major appliances such as refrigerators, washing machines and heaters.  Even tech giants like Google are tapping into the unused U.S. job market with the manufacturing of their Nexus Q device in California.  Google has publicly said via The Huffington Post that they looked past the bottom line with the Nexus Q.

“We wanted to innovate fast. This is the first end-to-end hardware product that Google has ever put out,” said John Lagerling, Google’s senior director of Android global partnerships.  Google, like many others, felt that the speed and innovation that comes with American labor and development were well worth the cost increase.

So what does all this actually mean for the average American?  If trends continue, it means a vast resurgence in the economy, both for the middle class and beyond.  Major businesses are realizing that the advantages to hiring Americans outweigh the advantages of foreign sourced labor.  The efficiency, close hand in innovation and direct line of communication are well worth the added cost.  As new manufacturing plants open and grow, so do job opportunities for college graduates.  Administrative roles, management roles and creative roles open every time a company grows.  With this growth intrinsically motivated by long-term sustainability rather than short-term profits, America has reached a turning point in its economic plight.

If the struggling, debt laden college grad is the symbol of our past economic failings, the emerging reshoring initiative is a symbol of a bright economic future that’s right around the corner.

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