Economics and Compassion from Saskatchewan Federation of Labour President

Commentary, Workplace, David Seymour

Is there no economic value in having people do their work in the province of Saskatchewan? I think there is and I think that it’s wrong-headed for business and industry to ship these jobs offshore or outsource them to low wage ghettos.

Or so said Saskatchewan Federation of Labour President Larry Hubich in a recent radio interview with Roger Currie on CKRM. Hubich was referring to decision by Post Media News to have circulation calls answered in the Dominican Republic.

Rarely does anybody raise so many questions or offend so many senses in two sentences. Is there “no economic value” in outsourcing and trade, and if there is then when? Who does he refer to as “low wage ghettos” and, assuming the people living wherever that is are human too, perhaps they need the business even more considering their low wages? Should our greatest compassion be for workers in developing countries or the high wage, low unemployment environment of Saskatchewan? Or is that a false question, because workers in Saskatchewan are more likely Post Media services’ consumers than its employees so the costs and benefits for the people of Saskatchewan cancel each other out?

So far as the “no economic sense part” well of course it makes economic sense for people to be doing their work in Saskatchewan. The Saskatchewan economy has many competitive advantages in resources, agriculture, and manufacturing amongst other areas. However the real question is actually whether it makes more economic sense to outsource or stay in house.

In the particular case Hubich was referring to, it almost certainly makes economic sense, it is difficult to imagine why else Post Media would be doing it. Economics, of course, is the study of economising activity. What’s more, unless you happen to be omniscient about all of the economic conditions affecting a particular decision, it is best to assume that individuals and firms are best able to judge their own economic best interests.

Since Hubich is wrong about the economics, we can only assume that he is making an appeal to compassion. He wants “people doing their work in Saskatchewan.” But for whom should we have the most compassion? Should it be for workers in Canada (GDP per Capita $39,033, the work was previously done in Manitoba) or for workers in the Domincan Republic (AKA “low wage ghetto” where the GDP per capita is $8,647 USD PPP)?

At this point it’s worth drilling down into what might be the motives of a Labour leader in making such a statement. Unions as Henry Hazlitt has argued in “Economics in One Lesson” (chapter 19) unions are essentially a cartel on labour. By agreeing not to compete with each other, organised workers can push up the price of their labour and therefore the goods they produce at the expense of all other consumers. The trouble is that as the number of workers and the variation in their circumstances increases, the difficulty of organising and maintaining such a cartel becomes much more difficult. Workers (and consumers) again face a paradigm of competition. This is why unions think globalisation is the end of the world.

But could Hubich in fact be a spokesman for the public good, warning us that outsourcing puts us on a dangerous “race to the bottom” in which we should expect to eventually lose all jobs to poorer parts of the world until the entire planet is a low wage economy? Unlikely. For one thing trade is not a zero sum game, trade generally makes both sides better off, hence the fact that, as I recently wrote, practically every country on earth has been getting richer simultaneously since at least 1980 and the only exceptions are political basket cases. What’s more, when Canadian Dollars go overseas to pay for foreign goods and services such as call centres, they simply have to come back to Canada sooner or later. There’s nowhere else on Earth where they’re much use. If you want RIM to keep exporting Blackberries, foreigners have to sell us something so they have the CAD to pay for them. It is through this process of trade and specialization that everyone gets richer and jobs are created in Canada to replace the one lost to foreign competition.

There is also the reductio ad absurdum argument that if trade on call centre services is bad, why stop there, why not completely insulate the Saskatchewan economy from the rest of the world, then we’d all have lots of high paying jobs, right?

In conclusion, what Hubich has said is wrong on the economics in this case. On the compassion side, why the people of Saskatchewan should pay more for call centre services to benefit workers here instead of saving money and benefiting workers in the developing world is not clear. Where the sheer nastiness of calling people in the developing world inhabitants of “low wage ghettos” come from is anybody’s guess, but it’s not very nice.