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Outsourcing Everything

May 31st, 2010

For the last few weeks my flatmate and I have been discussing various things such the effects of monetary policy, the Wal-Mart Effect and it’s local equivalent, The Warehouse, local manufacturing and it’s various advantages and disadvantages, tarifs, globalisation, and New Zealand’s free trade agreement with China, the 800 pound gorilla of manufacturing.

Then John Key announced the budget, and then it seemed like everyone was discussing these things. In all probability, this has been a hot topic for quite some time, and I’ve only just woken up to it now.

Previously, I was largely oblivious to wider impact of government policies. The few instances of outsourcing to IT to India that I have been privy to were so catastrophic that any future outsourcing projects were simply vetoed. At the time, it seemed that baring a large culture change in India, that my job was safe from outsourcing.

Perhaps it is, but that job does not exist in a vacuum. Unless the rest of New Zealand has a viable economy, nobody is going to have any money for my services. At a purely survival level, it is in my best interests to see that the rest of the population as well employed as I am.

So, it is with some trepidation that I read commentary in the NZ Herald by the CEOs of F&P Healthcare and Next Window.

While it’s a nice idea to think that New Zealanders are much smarter than everyone else, and that our much lauded number-eight wire mentality and ingenuity will give let us enjoy the benefits of first world living standards – without actually doing any of the work – it unfortunately does not coincide with reality.

Quite apart from the major details that a large quantity of people are simply not cut out to be ‘knowledge workers’, and that the smart people who do naturally have high mobility and therefore having this annoying habit of moving to where the pay is better – experience in the USA shows that if you do not have good native manufacturing capability, then you will burn money overseas while you struggle to bring your own countries languishing manufacturing capability up to speed. In the meantime, your company has essentially funded the training, and built the plant for it’s competitors, without even the small side benefit of keeping that money in your local economy, where it can be spent on your products.

If New Zealand wishes to halt it’s decline of quality of life, it is imperative that we rebuild our local manufacturing capability. Since New Zealand simply cannot compete on a worker for worker basis with underpaid, subsidized Chinese competition operating without substantial or equivalent worker rights and environmental controls, we must compete on other terms. In the article above, Al Monro of Next Windows says most Kiwis wouldn’t want to carry out the work of “relatively low-skilled labour, working with tweezers and soldering irons … its laborious, painstaking” to build the products of his company. Of course not. It’s the 21st century. He is talking about the kind of work that is, can be, and should be, automated. Instead of innovating, and doing things better and smarter, his company has taken the cheap way out and chosen human, rather than mechanical slave labour to carry out the monotonous industrial work.

That’s not to say that financially, that it wasn’t a good decision. Indeed – anything else may not have been an option. Right now, I doubt that there are three people in New Zealand who could competently discuss the intricacies of designing an automated production line. I suspect that more and more countries have discovered that it’s simply cheaper to hire and treat foreign labour to act like robots, rather than buying the real thing.

In the long term, this strategy isn’t good for anyone. Factory workers who have spent five years or more doing the same thing over and over again for 80 hours a week at 43 cents per hour are unlikely to transition well to being technicians where they must diagnose and repair complex machinery. The more credible reality is that Chinese labourers who are not dead from exhaustion will be simply marginalised and bypassed. If so-called-Communist China would like to know the long terms results of systematically forcing people into permanent unemployment, they could ask New Zealand. After all, we’ve been doing it for decades now.

* – I could move to Australia right now, and dollar for dollar, earn 50% more than I do now. If I factor in the exchange rate, it’s even better.

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