Matters Of Debate | Issue 24

Matters Of Debate | Issue 24

Large companies who leave an area should pay the costs of any resulting structural unemployment

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Affirmative, by Mojo Jojo

If and when a company chooses to outsource to another country, that decision is made with the best interest of its shareholders. Those shareholders are able to receive higher dividends and higher share prices as a result of moving of a country with lower labour costs, or easier regulatory burden.

If a company chooses to do that there’s nothing major a nation can actually do to stop them. Nor should they – it’s accepted in international business that companies should be able to base themselves wherever. It’s also important to acknowledge that outsourcing has created millions of jobs in developing countries and massively improved wellbeing.

That outsourcing isn’t without costs though.

When companies leave regions, cities suffer. People lose their jobs, and find it difficult to adjust to a new industry: especially when all the skills they’ve built up over decades of hard work become meaningless in the flash of an eye. Even if employees are able to find new work, often those new jobs have much lower salaries. Also even when these employees have plenty to offer the job market, people in their late fifties often find it difficult to convince new employers to take them on – there’s an expectation that they could retire soon, and so investing in them is a high burden to take on as an employer.

No one here is acting maliciously—they’re making a simple economic calculus. But that choice has a cost, and it’s important to make sure that it’s covered. Companies who create structural unemployment should pay generous redundancy packages to those who lose their jobs, and also enable and fund retraining or skills programmes for those who need it. That’s a simple common sense policy that’s family friendly, and removes the worst excesses of poverty that outsourcing can cause.

Negative, by Mr. Bean

Moving on can be tough to do, but society never became better by staying in the past. When industries shut down because they become unprofitable, or when they choose to leave to other countries, it’s because economic conditions have changed. The problem with this policy is that it pretends we can halt change. We can’t.

A company might choose to leave for lots of different reasons: wages are becoming too high; perhaps technological change is making their business model uncompetitive. When that company leaves it creates new opportunities for people where it’s going to: outsourcing has pulled millions of people out of poverty in the developing world. In the short run, people lose their jobs at home—but typically the skills they have are extremely flexible. Further, it forces people to innovate, learn new skills, and become more productive. That’s valuable because that process of the accumulation of new ideas, new ways of doing things, new businesses, is the process by which we have enriched ourselves in the developed world for the last hundred and fifty years.

The problem with this policy is that it intentionally slows down the process of innovation and change. It tells taxi companies that they are obliged to pay unemployment benefits to taxi drivers if they have to leave central Auckland and Wellington —all because Uber is creating a better product. It would have forced New Zealand’s horribly inefficient car manufacturing plant in the 1980s to pay unemployment benefits to people who were well meaning, but frankly we’re never going to compete with the Japanese auto manufacturing industry. 

This policy slows innovation, and slows change. If you stand for a world that keeps the British mines open, and pretends the taxi industry is going to survive—then go for it. In the real world it’s an inhibitor on growth.

This article first appeared in Issue 24, 2016.
Posted 11:32am Saturday 24th September 2016 by Otago University Debating Society.