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Who benefits from these income losses suffered by Americans? Clearly, the beneficiary is the foreign country to which the production is moved. The other prominent beneficiaries are the shareholders and the executives of the companies that offshore production. The lower labor costs raise profits, the share price, and the “performance bonuses” of corporate management.

Offshoring’s proponents claim that the lost incomes from job losses are offset by benefits to consumers from lower prices. Allegedly, the harm done to those who lose their jobs is more than offset by the benefit consumers in general get from the alleged lower prices. Yet, proponents are unable to cite studies that support this claim. The claim is based on the unexamined assumption that offshoring is free trade and, thereby, mutually beneficial.

Proponents of jobs offshoring also claim that the Americans who are left unemployed soon find equal or better jobs. This claim is based on the assumption that the demand for labor ensures full employment, and that people whose jobs have been moved abroad can be retrained for new jobs that are equal to or better than the jobs that were lost.

This claim is false. Offshoring affects
all
tradable goods and services. The nonfarm payroll data collected by the US Bureau of Labor Statistics makes clear that in the 21st century the US economy has been able to create net new jobs only in nontradable domestic services. Such employment is lowly paid compared to high value-added manufacturing jobs and professional services such as engineering. (Tradable goods and services are those that can be exported or that are substitutes for imports. Nontradable goods and services are those that only have domestic markets and no import competition. For example, barbers and dentists offer nontradable services.)

Moreover, even domestic services, such as school teachers and nurses, which cannot be offshored, can, and are, being performed by foreigners brought in on work visas.

The growing number of displaced and discouraged unemployed Americans is an external cost inflicted by offshoring firms on the displaced workers themselves, on taxpayers who provide unemployment and welfare benefits, and on the viability of the American political and economic system. The costs inflicted on the economy, taxpayers, and the displaced workers far exceeds the benefits to a few corporate executives and shareholders. The imposition of external costs on society in order to reward a very few is a powerful indication of the failure of laissez faire capitalism.

Some offshoring apologists go so far as to imply, and others even to claim, that offshore outsourcing is offset by “insourcing.” For example, they point out that the Japanese have built car plants in the US. This is a false analogy. The Japanese car plants in the US are an example of direct foreign investment. The Japanese produce in the US in order to sell in the US. The plants are a response to Reagan era import quotas on Japanese cars and to high transport costs. The Japanese are not producing cars in the US for the purpose of sending them back to Japan to be marketed. They are not using cheaper American labor to produce for the Japanese home market. At least not yet.

However, as US wages are driven down by offshoring and work visas for foreigners, the US will find itself with an excess supply of labor that can, therefore, be employed at a wage less than labor’s contribution to output. When this occurs, more prosperous countries, such as Japan, possibly could begin ruining their own economy by exporting jobs to Third World America.

Other apologists imply that H-1B and other work visas are a form of “insourcing.” They argue that the ability of US firms to bring in foreigners to compensate for alleged shortages of US workers allows the corporations to keep their operations in America and not have to move them abroad. This false claim, which a
Washington Post
editorial (March 2, 2009) endorsed, was rebutted by Senators Charles Grassley and Bernie Sanders, who observed that “with many thousands of financial services workers unemployed, it’s absurd to claim that banks can’t find top-notch American workers to perform these jobs” (
Washington Pos
t, March 5, 2009).

Senators Grassley and Sanders could have made a stronger point. The work visa program is supposed to be for specialized, high-tech skills that are allegedly in short-supply in the US. In fact, the vast majority of those brought in on work visas are brought in as lower-paid replacements for American workers, who are dismissed after being forced to train their foreign replacements.

The practice of replacing American employees with foreigners brought in on work visas is reported more at the state and local level than nationally. For example, on March 30, 2009, a Charlotte, North Carolina, TV station, WSOC, reported that Wachovia Bank (now Wells Fargo) was cutting labor costs by bringing in foreign replacements for American employees.

Congress forbade banks that receive bailout money from hiring foreigners to replace American employees. But the H-1B visa lobby got its hands on the legislation and inserted a loophole. The banks cannot directly hire foreigners as replacements for US employees, but they can hire contractors to supply “contract labor.” The bank pays the contractor, and the contractor pays the workers.

Computerworld
(February 24, 2009) reports that the H-1B visas are becoming the property of Indian contract labor firms, such as Tata, Infosys, Wipro, and Satyam.

These firms contract with American employers to supply reduced-cost labor from abroad with which to replace American employees.

The combination of offshoring and work visas is creating a new kind of American unemployment that cannot be cured by boosting consumer demand.
Business Week
(March 9, 2009) reports that JPMorgan Chase is increasing its outsourcing to India by 25 percent.
Computerworld
(February 24, 2009) reports that Nielsen Company, which measures TV audiences and consumer trends for clients, is laying off American employees at a Florida facility after announcing a 10-year global outsourcing agreement valued at $1.2 billion with Tata.
Computerworld
quotes Janice Miller, a city councilwoman: “they are still bringing in Indians, and there are a lot of local people out of work.”

The
New York Times
(March 6, 2009) reports that IBM is laying off US employees piecemeal in order to avoid compliance with layoff notice laws. According to the
New York Times
, “ IBM’s American employment has declined steadily, down to 29 percent of its worldwide payroll.”

The American population is being divorced from the production of the goods and services that they consume. It is the plight of a third world country to be dependent on goods and services that are not produced by its work force. The unaddressed question is how can Americans who are either unemployed or employed in low wage domestic services purchase the foreign made goods and services that are marketed to them?

If news reports are correct, even the lowest level American jobs are subject to outsourcing. The fast food chain, McDonald’s, is experimenting with having drive-up window orders routed to India via a VoIP internet connection. The person in India then posts the order to the kitchen and sends the billing to the cashier. If this works for McDonald’s, the laid off software engineers, IT workers, and former bank employees will not even be able to get a job at a fast food restaurant.

Indeed, Americans already experience difficulty in finding restaurant jobs because of “insourcing.” Young people from abroad are brought in on temporary visas and supplied by contractors to restaurants where they wait tables and do food prep work. In pharmacies, they serve as assistants. In grocery stores they are employed as checkout clerks. Mexicans have a large share of construction and agricultural jobs. Americans are finding occupation after occupation closed to them.

The United States is unable to deal with its serious economic problems, because powerful interest groups benefit from the continuation of the problems. As long as narrow private interests can cloak themselves in free trade’s claim of increased general welfare, the American economy will continue its relative and absolute decline, and American taxpayers will continue to bear the cost of workers displaced by offshoring and work visas.

Prices are efficient allocators of resources only if prices reflect all costs of production. In theoretical writings, economists have dealt extensively with “external costs,” which are costs that the producer does not incur but which are imposed on third parties. However, in the real world external costs are a large and growing problem. Often what economists and businesses describe as “lowest cost production” is production that imposes very large costs on third parties, costs that are not reflected in the prices of the products. These “external” or “social costs” of production are costs that businesses inflict on society.

Regulation is one way of dealing with external costs. However, as economist George Stigler pointed out several decades ago, regulatory agencies are captured by the industries that they regulate. Stigler could have added that universities and research institutes financed with industry funds are also captured. Therefore, both regulation and studies of its effects have proven to be imperfect tools for controlling external costs.

Information is coming to light that genetically modified seeds such as those that produce crops resistant to herbicides, thus lowering the cost of weed control, have massive external costs. In 2011 Purdue University professor Don Huber, a plant pathologist and soil microbiologist, wrote to the US Secretary of Agriculture about the unintended consequences of GMOs. Among these are adverse effects on critical micronutrients, soil fertility, and the nutritional value of foods. The impairment of metabolic pathways that is associated with GMOs prevents the ability of plants to accumulate and to store minerals, such as iron, manganese, and zinc that are important for liver function and immune response in animals and people.

Toxic effects on the microorganisms in the soil have disrupted nature’s balance. One result has been a sharp increase in plant diseases. Another is livestock deaths from botulism. Yet another is a sharp increase in animal reproductive problems. And another is premature animal aging.

As the human diet has transitioned to GMO crops and meat produced with genetically modified, corn, soybeans, and alfalfa, there has been a sharp rise in human infertility.

In an interview, Professor Huber said that the power of Monsanto and agri-business has made it almost impossible to do research on GMOs, that we are flying blind, and might be in the process of killing ourselves. Regulatory agencies are dependent on the industry’s own studies and have no independent objective science on which to base a regulatory decision.
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If we add up the external costs of GMOs--reduced nutritional value, rise in plant and animal disease, human and animal reproductive problems, and other problems of which we might not be aware--it seems obvious that the external costs are far greater than the savings from the lower cost of production made possible by herbicide resistant crops.

Another problem with herbicide resistant crops is the active ingredient, glyphosate, in Monsanto’s Roundup herbicide with which the GMO crops are sprayed. According to the US Environmental Protection Agency, 30 grams of glyphosate is a fatal dose for adults.

The Internet site OpEdNews reported on December 22, 2011, that a new study in the journal,
Analytical and Bioanalytical Chemistry
, reported that 41% of 140 groundwater samples taken from Catalonia, Spain, contained unexpected levels of glyphosate. This is an indication that glyphosate is accumulating in the environment instead of breaking down.
http://www.opednews.com/articles/How-Did-This-Weedkiller-En-by-Sayer-Ji-111219-801.html

The US Geological Survey reports that glyphosate is now “commonly found in rain and streams in the Mississippi River Basin.”
http://www.usgs.gov/newsroom/article.asp?ID=2909
Considering the toxic effects of glyphosate, the external costs of GMO crops might be unprecedented in scale.

Energy production is a source of large external costs. The BP oil spill in the Gulf of Mexico, for example, destroyed fisheries and soiled beaches, leading to income losses for large numbers of people. People who lost income from the spill received some monetary compensation, but the natural environment remains polluted. Nature does not have a representative and, therefore, becomes the depository for the wastes of profit making corporations.

Untreated acid discharges from coal mining have made many streams lifeless. Fracking, a new process by which huge amounts of water with chemical additives are pumped into the earth to aid the extraction of oil and gas, together with discharges from coal mining, have created high salinity levels in which golden algae (prymnesium parvum) thrives. This algae destroys all aquatic life. The costs of polluted streams and destroyed aquatic life are external to the corporations that inflict the costs.
http://www.alternet.org/story/153449/the_mysterious_death_of_dunkard_creek%3A_is_fracking_to_blame_for_one_of_the_worst_ecological_disasters_in_the_east

Another external cost of fracking is the drop in water levels of streams when water is withdrawn for use in fracking operations. The drop in water flows make the streams less able to survive pollution from other sources.

Pollution from energy production is not limited to America. It is world-wide. Amnesty International (Fall/Winter, 2011) reports that between 9 and 13 million barrels of oil have been spilled in the Niger Delta region of Nigeria by the multinational petroleum industry. Fishing and farming communities have been devastated. The Nigerian government is bought-and-paid-for and, thus, fails to hold accountable the international corporations,