Outsourcing Economics: Global Value Chains in Capitalist Development

by William S. Milberg, Deborah Winkler

Outsourcing Economics has a double meaning. First, it is a book about the economics of outsourcing. Second, it examines the way that economists have understood globalization as a pure market phenomenon, and as a result have “outsourced” the explanation of world economic forces to other disciplines. Markets are embedded in a set of institutions – labor, government, corporate – that mold the power asymmetries that influence the distribution of the gains from globalization. In this book, William Milberg and Deborah Winkler propose an institutional theory of trade and development. They find that offshoring reduces employment and raises income inequality in countries that lack institutions supporting workers. They also find that offshoring allows firms to reduce domestic investment and focus on finance and short-run stock movements. Development has become synonymous with “upgrading” in global value chains, but this is not sufficient for improved wages or labor standards.

Genres: Economics

376 pages, Paperback

First published April 1, 2013

Reviews

[Eugene Kernes]

This book's raison d’être is to bring the discussion of outsourcing to economics; a mission that the authors very effectively succeeded in doing. This book brings the reasons and affects of outsourcing to the forefront.
Some of the key determinants to a offshoring are capital investments, knowledge flows, and economic rents. Outsourcing production while maintaining the core competency allows the firm to access the global division of labor. The company will enforce that its product designs are not replicated by others which allows the company to derive economic rents. There is a huge technology gap when a country is trying to raise its productive capacity as it cannot afford to gain the knowledge and investments. The choice to outsource production is a strategic decision to transfer risk, reduce costs, and create flexibility.
The authors discuss the costs to society just as much as the benefits. Labor becomes more uncertain as the company that outsources gains more bargaining power and leverage over policies. As the choice of suppliers of components increase, the suppliers bargaining power decreases with the alternatives.
The book is generally well written, but some part are not the easiest to read. A lot of statistics and formulas are used to express the effects of outsources, these math part have a readability issue most of the time. When data exists but does not match the theoretical formula variables, only sometimes is the difference mentions. A bit more help for the reader to go through connections between the variables, formulas, and statistics would have improved the analysis.