Quality eLine Newsletter
September 2004
Vol. 6, No. 9

Six Sigma and More: 
David Schwinn addresses outsourcing, Six Sigma, and greed

by David R. Schwinn

Earlier this week, I was watching an interview with Lou Dobbs, anchor and managing editor of CNN's "Lou Dobbs Tonight" and author of Exporting America: Why Corporate Greed is Shipping American Jobs Overseas (New York, Warner Business Books, 2004). The dictionary defines greed as "excessive, inordinate, or rapacious desire, especially for wealth." I agree with Dobbs' premise that excessively stock-price-dependent CEO compensation may be leading to greedy behavior that is causing the export of American jobs. However, I don’t think it is a simple cause and effect relationship. I believe it is a more complex relationship that deserves further examination.

First, let me reinforce that the problem is real. We have lost nearly three million jobs over the last three years with no end in sight. Our current unemployment level is 15 million jobs. We have not had a trade surplus in this country for more than two decades. The situation is comparable on a personal level to buying more than you produce--for the last twenty years. Something has to give. That is why, in addition to job exporting, the real per capita income of most, although not the wealthiest, Americans has been declining during that same period.

Furthermore, Rory L. Terry, associate professor of finance at Fort Hays State University, argues on the same website that "Our labor force is not better trained, harder working, or more innovative than our competitors." I can personally attest to that when many of my brightest college students come from overseas. Higher education is, in fact, one of our biggest exports. Terry argues that, as a result, "Most of our high-paying jobs can be exported." His list includes doctors, mathematicians, accountants, financial analysts, engineers, computer programmers, architects, physicists, chemists, biologists, and researchers of all types. If you didn’t see your job in the list above, add first line and middle managers, jobs we all know are going away in droves.

Now, let's talk about greed. Sure, it exists. But, I think we must add two simple-to-understand but difficult-to-overcome concepts.

First, CEO's are driven by the bottom line, profit. We all know, as Six Sigma professionals, that in order to improve profit we must increase sales or reduce costs. We also know that decreasing costs is the more efficient and effective approach of the two. Terry also argues that outsourcing jobs is a powerful way to reduce costs. Besides the obvious advantage of extremely low wage rates, his list of incentives includes:

  1. The circumvention or avoidance of organized labor;
  2. No Social Security or Medicare benefit payments;
  3. No federal or state unemployment tax;
  4. No health benefits for workers;
  5. No child labor laws;
  6. No OSHA or EPA costs or restrictions;
  7. No worker retirement benefits or pension costs;
  8. Tax incentives provided by our government;
  9. Incentives from foreign governments;
  10. The creation of new international markets for the company’s products and services.
    There are obviously risks associated with exporting jobs as well, but this is a long and persuasive list of potential benefits.

Second, exporting jobs is an externality. Externalities are economic concepts that we learned from textbooks but forgot when the final exam was over. As I understand it, an externality, as the word denotes, lies outside the supply-demand, market mechanism model many of us have come to believe drives our economic success. Again, Terry provides a wonderfully simple explanation.

"The fact is there is no economic force, no supply and demand equilibrium, and no rational decision processes of either business or consumer that will make an externality go away. Classic examples of externalities are when a business dumps toxic waste into a nearby river and the downstream residents incur the costs of cancer. The business is able to lower its costs and pass those lower costs on to its consumers, and never pay for the treatment of the cancer patients. We have laws in this country against dumping and pollution because they are externalities – they require a legislative solution."

Now, maybe, once consumers and investors understand the situation they will stop providing the polluting business with money just because it is the right thing to do and/or because of the long-term, likely negative economic impact of the polluting process. There is, in fact some evidence that some consumers and some investors are acting in this way even though it appears to be counter to their short-term economic interests. I am personally unwilling to take the chance that consumers, investors, and CEO’s will behave in a more "enlightened" way in time.

So why don't we just legislate against the exportation of jobs? First, I think many people believe that the good old market mechanism will take care of it because they, like me, forgot about externalities…or maybe don’t believe in them. Second, I think the military-industrial complex that President Eisenhower warned us of in his farewell address has come to power. Business people believe, with some evidence, that the best regulation is no regulation. Their lobbyists, who outnumber the staffers on Capitol Hill, spend every day persuading our government that short term profit for business is best for the well-being of America. And when Bill Ford, the CEO of Ford Motor Company, suggests that the best way to reduce automobile fuel consumption and emissions is to enact stricter standards, he is attacked by his peers. This is a tough fight.

So here is this month's suggestion…no, consider it a plea. Look at the above list of potential jobs ready for export. If yours is on the list, save your job. You work for a firm that is likely driven by the bottom line or you would not be doing Six Sigma. Therefore, your job is especially ripe for export. Don’t wait to see if the market mechanism works. Develop a plan to influence your governmental representatives to legislate, in a thoughtful way, to discourage the continuing export of American jobs. Although difficult, this is not rocket science. Our principal trading partners, Canada, China, Japan, and the European Union, all typically maintain annual trade surpluses and pursue balanced trade policies. Free trade, of course, reduces the prices of consumer goods but if no one has jobs to pay for those goods, who cares?

Thanks for staying with me this month. I know this was an unusually long column. That is, I think, because it is a complex subject. But it may be instead, that I have more passion than wisdom about it. At any rate, as always, I will sincerely appreciate your responses. I’m at support@pqsystems.com.

As always, I welcome your thoughts. I’m at support@pqsystems.com


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