Offshoring and the Growing Income Gap

income-inequality

There’s nothing wrong with globalization in general.  In many ways, it’s a great thing. Millions of people around the world are constantly sharing ideas and interests thanks to communication methods and technology like smartphones and the internet. We’re learning about each other as a people more than ever before.

Globalization has had some interesting economic impacts here in the US.  When manufacturing as an entire sector was sent overseas, (offshoring) we experienced some far reaching changes to our national economy and culture.  One such outcome is a growing income gap – let’s examine this.

Offshoring Explained

Offshoring according to Wikipedia, is the relocation of a business process from one country to another—typically an operational process, such as manufacturing, or supporting processes, such as accounting.  The economic logic is to reduce costs, sometimes called labor arbitrage, to improve corporate profitability. When looking at the practice from an ecological point of view, many factory-based companies move their manufacturing plants to countries like India or China to create cheap goods in non-regulated environments.  This cuts their costs drastically and gives them freedom from environmental regulations which tightened over time here in the US.

Income Gap

When we think about “income inequality,”  here in the US, most often the shrinking middle class is a term used and most often capturing the minds of many.  But this trend has been going on for sometime and coincides with a trend beginning in the 1960s to move our manufacturing overseas.  Let’s look at some of the statistical data.  Since the late 60’s, the loss of manufacturing has resulted in a 33 percent decline in jobs according to some sources, when we adjust for population or workforce increases.  This equals 5.8 million jobs lost to date. Simultaneously, the average pay for a CEO increased by nearly 1000% (onethousand). This is also taking into account inflation.  While company owners save money by moving companies off of national soil, workers lose jobs.  As it stands currently, the ratio of a CEO’s salary to the money the average employees make is 303 to 1.  So the conclusion is that offshoring or outsourcing of our entire manufacturing sector has resulted in the rich getting richer and the poor becoming poorer here in the US.  

The Negative Impact

Income inequality and its impact has been studied extensively.  Researchers have asked, are large or growing income gaps really bad for our country and the people on planet earth?  To answer this question let’s turn to a study and Ted Talk by Richard Wilkinson, Professor Emeritus of Social Epidemiology at England’s University of Nottingham.  He concluded using the Index of Health and Social Welfare, that the greater the income disparity, the greater a society suffers.  This correlation does not carry over when we compare different societies to each other but only holds up when viewed from within a distinct national identity.   Not surprisingly the USA scored both the highest on income disparity and poorest index o f health.  So we humans tend to be happy and healthiest when incomes increase in an evenly distributed manner and conversely regardless of a nation’s level of wealth compared to that of another country, when income levels rise unevenly, social problems worsen.  

Why it Matters

We at Purse for the People are working to bring back our US manufacturing sector while working with international partners to have a positive local and global impact.  We believe that doing business better means making sure everyone benefits from wealth creation and economic prosperity, not just the people at the “top”.