The Reason for Outsourcing: Was it due to get away from Unions?

The other day I was discussing my blog with a colleague and we got to the subject of outsourcing which is only natural, because we used to make 90% of our clothes in the 1960s, whereas today we only make 2% of our clothing. He asked me, did the companies outsource in order to avoid Union labor? That is a very good question, but the short answer is mostly no.

We all know that when it comes to management and labor, there has always been animosity between the two (naturally). One group argues that unions hurt their company or decreases their profits, where the other side argues that companies/corporations make outrageous amount of money and that the workers that do all the work deserve fair wages, hours and benefits. This battle has been going on for a long time, sometimes  management has the advantage and sometimes labor has the advantage. But, now, it does seem that the management side is winning, while at the same time, some ultra-rich people are spending tons of money to get rid of labor unions in every state. So, wouldn’t it seem that management knowingly orchestrated the outsourcing movement to beat Labor? The answer to that question is actually quite interesting, no they didn’t outsource to beat Labor. But (this is the interesting part) unknowingly, their actions eventually did beat Labor, plus, it created one other unintended consequence: the income of the middle class has barely kept up with inflation since 1980, while corporations  raked up record profits year after year and the pay of CEOs and executives have skyrocketed. (In the USA in 1975, the ratio of CEO pay to its worker’s pay was 38:1 [which is outrageously high compared to other countries], compared to now where CEO to workers pay ratio is 475:1)

CEO Pay vs corporate profit vs avg. worker pay

CEO Pay vs corporate profit vs avg. worker pay

Disparity in income since 1980

Disparity in income since 1980

Answering the Question: Did Management Outsource to Beat The Unions

Back in the 1960s, imports to the United States were few and far between, because the United States was so far ahead in manufacturing. Much of the imports that did come in were considered cheap and substandard (exceptions European made). No person in their right mind would consider outsourcing at that time, even though management hated union labors. Then, in the 1970’s, exports started to become better produced such as Steel from Europe and Cars from Japan. In order, to combat imports flooding the market and to protect U.S. manufacturing, in 1974, the U.S. government (under President Richard Nixon) passed the Multifiber Agreement which put quotas on the amount of clothing coming into the United States. Other acts were passed to protect other aspects of U.S. manufacturing. Still, imported clothing was quickly and deeply penetrating the American market, while other countries were closing their doors to US clothing exports.

Back in the 1970’s, outsourcing still was a far off idea, so management took the next step. First they moved the textile mills from the union-strong states in the Northeast and moved them down South to non-union states like Georgia, Kentucky and North Carolina. And soon the manufacturing (the assembly) plants followed suit.

The Outsourcing Phenomenon

Outsourcing, moving American jobs to foreign countries, began in the 1980’s, and picked up steam in the 1990’s and 2000’s. Companies gladly left their non-union plants to the greener confines of other countries with the aiding and abetting of the U.S. government: Tax breaks for moving companies overseas; lifting of tariffs into the United States from other countries; Trade agreements with other countries (no tariffs at all) NAFTA, 1994; the Repeal of the MultiFiber Agreement via the Uruguay Round Agreements, part of the World Trade Organization Agreement of Textiles and Clothing in 1995, which got rid of all clothing quotas. The effect of the U.S. economy and particularly manufacturing was devastating as can be seen by the following graphs.

Manufacturing jobs exported (jobs lost due to outsourcing)

Manufacturing jobs exported (jobs lost due to outsourcing)

The number of U.S. manufacturing jobs since 1980

The number of U.S. manufacturing jobs since 1980

So, companies outsourced (shipped jobs to other countries) their clothing manufacturing jobs from non-union plants within non-union states. So, if companies didn’t outsource jobs to beat the Labor unions, why did they outsource? The reason companies outsource, depends on which side you ask: Management say for lower costs; Labor say to exploit under-aged and extremely poor workers, while being able to pollute the atmosphere and environment irresponsibly, and to never having to worry if workers toil in unsafe conditions.

The Future of Outsourcing

It would seem that there are no more jobs to outsource, but there still are. One thing that this recession has shown us is that being a country consisting of only service people and one that measures its economic growth on how much consumers spend is that our economy is quite tenuous. Just about all service jobs are eventually outsourcable, which is a troubling thought. Without manufacturing, our country is a prisoner to the whims of our suppliers. One credible plan to improve the long-term U.S. economy is to increase our manufacturing to 25% of what we need, just like Germany. This means stop giving tax breaks to companies that outsource and to give incentives that insource (bring jobs back to the U.S.). As the production costs in China continues to increase (due to better workers pay), we will see one of two scenarios – one is that jobs will come back to the U.S. (see Cleveland Plain Dealer article on jobs being insourced), or more likely companies will continue to move their plants from country to country to exploit that new country’s virgin-to-manufacturing-working-class until their wages go up and then it is off to next to the next new country until there are none left. (After that? maybe a clone workforce?).

An alternative scenario, is that once the U.S. consumer realizes that great profit and “cheap stuff” doesn’t justify everything, then buying slave-labor-products becomes unacceptable and then these products will sit on the shelves and not get purchased. Then, companies will finally have to pay workers a fair wage with decent work conditions in other countries or bring jobs back to the United States where these conditions are almost always guaranteed. I hope this last scenario is the future and that we see an end to outsourcing and a new and intense insourcing movement.


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