Offshoring

Offshoring as a rational response to globalization

During the American presidential campaign, opponents of Hillary Clinton claimed that she was inconsistent in saying she wanted to fight the outsourcing of American jobs abroad. Such critics took particular note of her declaration, during a Congress in India in 2005, that trying to stop this process was a “dead end,” and that “there is no way to legislate against reality.”^[1] This type of fatalistic rhetoric [2] is far from being confined to the failed US presidential candidate; it reflects a particular conception of corporate offshoring and outsourcing, a conception that conceives of them as expressions of a purely economic rationality. From this point of view, there is little to understand with respect to global investment strategies and power relations, as multinational enterprises are assumed to operate the way they do because of environmental constraints on their actions. And with little to understand there is correspondingly little to be done.

Such rhetoric explains the increased use of offshoring since the 1990s — and the changes in employment that it has engendered — by referencing the changing economic environment. One decisive change that is almost always mentioned when this is discussed is the increased integration of markets around the world: markets for products and services, markets for capital, and markets for labor – all of which we typically describe as economic globalization. Additionally, technological change is repeatedly evoked as facilitating globalization, particularly through massive reduction of the costs of information and transportation that it allows. For example, in the introduction to The Oxford Handbook of Offshoring and Global Employment its authors assert that “technological change, the other iconic phenomenon of our times, has been closely intertwined with the impacts of globalization.” [3] By this logic it is the combination of globalization and technological change that have driven multinationals to deploy their resources across the globe in search of profit. Corporations “choose” locations for investment not by choice, but according to an inescapable economic logic. All of this produces a paradigm within which environmental constraints and multinational strategies are consequently apprehended in a one-way causal relationship; strategy is shaped by and is subject to the environment.

Thinking the Other Way Around

Not all researchers are convinced, however, by such explanations – explanations which are sometimes characterized as tautological. With regard to technological progress, for example, Ha-Joon Chang deplores the fact that “in the last twenty years or so, many people have come to believe that whatever change is happening today is the result of monumental technological progress, going against which will be like trying to turn the clock back.”[4] A similar observation may be made with respect to the claim that globalization explains offshoring patterns. Even economists, who often characterize globalization as an ineluctable process, have in recent years admitted that multinational enterprises account for the vast majority of trade flows. For many European countries, the top 10 percent of exporters account for 80 percent or more of their total exports. [5] To the extent that it is multinational enterprises that produce globalization, explanations of their investment behavior in terms of globalization indeed are tautological.

William Milberg and Deborah Winkler, among others, have a markedly different view, one takes account of human actors and power relations. For these authors, it is the organization of production around “global value chains” and related business strategies that are essential to understanding the recent changes in international investment and employment. By globalization they mean “not simply a quantitative increase in international economic activity,” but also “a qualitative shift” by which “production has become increasingly organized within global value chains (GVCs), led by large firms based typically in the industrialized countries, and relying often on complex networks of suppliers around the world.” [6] In a similar vein, William Lazonick speaks of the role of liberal or neoliberal ideology in the construction of global markets. In his eyes, the desire to maximize shareholder returns, and the strategies to “downsize-and-distribute” that it generates, is responsible for recent forms of offshoring and their social consequences.[7] Unlike the passive rhetoric of inevitable processes, all of these authors emphasize the role of power relations. They do not consider globalization and the responses of firms to it to be an ineluctable evolution; it is a choice that has been made – and which can be unmade.

Reassessing the Ineluctability Rhetoric through History

We must look to history in order to denaturalize what has become for a common rhetorical link between the recent wave of globalization and the offshoring process.[8] The first thing an historical perspective reveals is that the “ineluctability” of offshoring is far from new. However, this issue was problematized in different ways at different times and in specific social and political contexts. Ironically, offshoring was traditionally linked to protectionism and disintegration of markets, [9] which is the exact opposite of contemporary interpretations of globalization. In the past, firms mainly presented offshoring as a second-best option: since exporting from their home economy was not possible, they argued, offshoring was required to avoid trade barriers (tariffs, quotas, patent laws, etc.). While this way of thinking was particularly valid for the interwar period, it has remained one of the causes of offshoring up until the present day.

Of course, protectionism was not a just a good excuse for offshoring, even if it was not the only incentive to relocate abroad. Labor costs and fiscal policies were already playing a role. Especially for companies housed in small European countries – companies which were forced to import their raw materials and rely on a small internal market – protectionism was a sensitive issue. But, unlike today, the role of power relations in determining the national and international economic context was evident. Companies recognized that the characteristics of markets were not natural, but were in fact mainly shaped by political decisions. It was admitted that regulations were the expression of power relationships both internal (unions, private interests, political parties, nationalism) and external (inter-state relations, international cartels, imperialism).

But it is, in fact, exactly this, the non-natural, chosen aspects of the global market, which have been occluded over the last twenty years. And the problem with our current explanations is not just that attention to history shows them to be contingent. The problem is that this interpretation has the fallacious consequence of causing us to excise debates about globalization and offshoring from the public sphere – which means removing them from our democracies. By hiding behind the ineluctability narrative, we are prevented from discussing the legitimacy and the social desirability of our choice to offshore jobs. [10]

The Inherent Contradiction

Debunking the assertions of the “ineluctability” of offshoring seems even more critical when we note that this same rhetorical device is often used to legitimate specific political agendas. Since the external forces referred to as “globalization” and “technological change” are presented as unchallengeable causes shaping firms’ strategies, nation states then seem to have no option but to adapt their economic and social models to these forces. Capitulating to this rhetorical formation, then, forces us to presume that the next logical step is to propose domestic solutions to these global, structural problems. When this logic is allowed to run its course, it seems that the only way to retain businesses and work for the common good is to be as favorable to private interests as possible. The proposed policy-package that follows such a logic is, as we know, the standard neoliberal one that includes such proposals as deregulation, the privatization of public services, tax cuts, and so on. Many countries have experienced such policies in recent decades, beginning with the emblematic Thatcher-Reagan reforms combo. More recently, countries traditionally classified as coordinated market economies [11] seem to have gradually embraced the liberal market economy model of the Anglo-Saxon countries, giving strength to the idea of an ineluctable convergence. [12]

The requests for neoliberal reforms create an inherent contradiction within the ineluctability rhetoric of offshoring practices: Firstly, multinationals are addressing a globalized, interconnected context and need to adapt their strategies in an ineluctable, mechanistic way by acting in an economically rational manner. This implies that the framework is a given and cannot be altered; similarly, corporate strategies exist outside the sphere of companies’ own actions. At the same time, their domestic economy must adapt to be more competitive in order to keep multinationals’ activities inside its borders. This second step of the argument implies that the framework can and must be changed. The ultimate implication of this inherent contradiction is that there is nothing ineluctable in the investment strategies of multinationals. Moreover, the strategic options of multinationals are concurrently used as a threat in public debate in order to argue for institutional change. The logic of the rhetoric is thus entirely circular.

For the sake of our democracies, we must come to see that issues like globalization, offshoring and the set of policies which restrain, favor, or soften these phenomena will receive the attention they deserve in our public sphere and our political debates. Even more, we cannot allow political leaders – leaders identified with either the “left” or the “right” – to hide their choices behind a rhetoric of ineluctability.

On a more hopeful note, it is possible to read some recent political events (the election of President Trump, Britain’s Brexit vote, etc.), as bearing witness to a growing, popular dissatisfaction with the rhetoric of ineluctability. It seems that the possibility of regaining agency from the supposedly unassailable phenomena of globalization and offshoring is beginning to constitute an appealing political promise for voters. This means both that defiance of the ineluctability rhetoric is likely part of the explanation for the growing distrust between the so-called “establishment” and other parts of the populations, and that such defiance might be a tool that politicians and policy makers can use to promote true democratic structures. Furthermore, acknowledging the non-natural dimension of phenomenon like globalization and offshoring opens the door to compensation possibilities for economic losers. If these processes are political outcomes that favor specific categories of actors, then redistribution claims may come to seem more legitimate.

Sabine Pitteloud is PhD Student in Economic History at the University of Geneva. Her dissertation focusses on the evolution of the rhetoric and practices of corporate offshoring in Switzerland during the 20th century. From July 2017 onward, Sabine is visiting PhD Student at the Robert L. Heilbroner Center for Capitalism Studies, New School for Social Research.

Footnotes