Samasource works with entrepreneurs in developing countries like Jon Grosier in Kenya. Photo: Appfrica (flickr)

Students around the world face a particular paradox these days: what's the good of an education if there's no work to be found afterward?

Samasource — a small non-governmental organization based in San Francisco, California — is hoping to change this. They are partnering with U.S. companies and connecting them with people looking for work in places like Kenya and Pakistan using a several different methods, among them crowd sourcing website called CrowdFlower through which workers are paid small amounts for tiny increments of work (such as a few cents for filling in one blank in a spreadsheet).

As Samasource tells it, it’s a win-win situation: the cheap labor allows U.S. firms to cut costs, while providing higher wages for their 500 or so beneficiaries than they would likely have earned otherwise. So far, Samasource has focused on work in developing countries like Kenya (where the organization works with Somali refugees), Zambia and Pakistan — but also plans to expand into Mississippi, the poorest state in the U.S., notes the web magazine Reality Sandwich.

In all cases, Samasource's efforts hinge on the idea that work — not handouts — is what changes lives. "When you look at what the developing world really needs, it's a connection to markets," says Janah on the blog "Boing Boing." Markets provide an outlet for skills like English and computer literacy that students around the world have worked hard to obtain, and a livelihood for those who can put them to use.

Workers at a footwear factory in Dongguan, China. Photo: clayirving (flickr)

Made in China.

It's a label you might associate with cheap labor and mass production — but a recent study featured in BusinessWeek says that China's products may no longer be the best bargain for U.S. companies.

Outsourcing to mainland China has several "hidden costs" related to rising labor and currency rates, the report reveals. In the last three years, the yuan has gained ground on the weakened U.S. dollar and factory workers wages are going up. This translates to a drop in the average price gap between China and U.S.-manufactured products — from 22 percent to 5.5 percent.

And when you add in the costs that come with producing goods halfway around the world — storage fees, shipping delays and the price to repair or replace high-tech product parts — the ultimate savings are minimal. "A couple of years ago, outsourcing to China was a no-brainer," says Stephen T. Maurer, director of AlixPartners, the firm that led the study. Now, he tells BusinessWeek, manufacturers are thinking twice about where to send their business.

Some U.S. companies are turning to Mexico, where manufacturing rates are cheaper than China's and suppliers across the border are more accessible.

That doesn't necessarily mean that the label "Made in Mexico" will replace "Made in China." Low wages for factory workers still make China a top competitor when it comes to labor-intensive products like toys and clothes.

A call center in India. New U.S. policies against outsourcing jobs overseas will hurt India's IT sector the most. Photo: David Robinson (flickr)

In spite of the global recession's painful effects on most of the world's economies, India has managed to stay stable. The country even expects its economy to grow by 5 percent this year. However, this prediction came before President Obama announced that his administration would be cutting tax breaks and refusing bailout money for companies outsourcing jobs overseas.

Rising unemployment in the U.S. has renewed the political and economic debate over shipping jobs abroad. More than 1,000 U.S. firms that have outsourced jobs abroad are being criticized for taking jobs away from Americans. Countries like India — which gets more than 60 percent of its outsourcing work from U.S. businesses — will likely be hit the hardest by the Obama administration’s protectionist approach to reviving the U.S. economy.

President Obama also announced a hiring ban on foreign workers for companies receiving federal bailout money. Of the 65,000 H1-B work visas that the U.S. issues annually, 21,667 have been for Indian citizens who mostly join the information technology industry. These non-immigrant visas are granted to educated and skilled foreign workers.

But the U.S. is not alone in adopting policies against outsourcing jobs and limiting foreign workers. In Persian Gulf countries like the United Arab Emirates, millions of Indians who are employed in the construction and banking industries have been laid off and forced to return home. In the United Kingdom — where Indians are one of the most prevalent immigrant groups — the government has announced plans to potentially limit foreign workers to sectors of the economy that have documented labor shortages.

New policies against hiring foreign workers in the U.S. may have a long-term impact that policymakers are not anticipating, according to a study by Duke and Harvard researchers. With increased job opportunities in places like India and China, more than 100,000 foreign workers could leave the U.S. for jobs in their home countries. The study found that many Indian professionals in Silicon Valley have already left, and predicts many more will leave to start businesses in India.

This is bad news for the long-term economic recovery of the U.S. because nearly half of Silicon Valley start-ups, including Google, were started by immigrants, the lead Harvard researcher tells BusinessWeek. This long-term “brain drain” will mean that “when we start recovering ... the people we need are going to be in India and China,” according to the researcher, Vivek Wadhwa.

The U.S. has historically welcomed immigrants and their innovative ideas. A reversal of policy could prove to be very harmful — hurting economic growth and limiting the expansion of key industries.

Two Indian technology firms that benefit from U.S. job outsourcing are planning to hire more Americans, according to today's Wall Street Journal.

The reasons are more political than economic. The U.S. Congress is expected to clamp down on the number of visas they hand out to skilled foreign nationals, so companies like Infosys and Winpro need to hire U.S. workers if they're to grow their operations here.

The move certainly doesn't signal a reversal of the outsourcing trend, but it is an indication of how growing protectionist sentiment in Congress could impact labor flows.

Shinjuku, Tokyo. Photo: Joi (flickr)

Previously known for its economic egalitarianism, Japan is now experiencing a widening income gap. That’s because many workers are finding themselves without a steady job as Japanese companies are relying more and more on short-term labor contracts.

Market reforms in 2004 made it easier for companies to hire short-term workers in an attempt to make the Japanese economy more competitive. With these new policies, Japan may have unintentionally increased the very inequality that it’s prided itself on avoiding.

"In order to reduce costs, big companies increased their use of part-timers, as the cost of employing these temporary workers is roughly a quarter or less than regular workers,” Tadashi Nakamae, president of the Nakamae International Research Institute, told the Christian Science Monitor.

Income inequality rose twice as fast in Japan as in other rich countries between the mid-80s and 2000, according to the Organization of Economic Cooperation and Development (OECD).

The gap between rich and poor in Japan is wider than the OECD average. The OECD's 30 members include many of the world's leading economies, such as the USA, Germany, Japan, the United Kingdom, France and South Korea.
Similarly, Merrill Lynch Japan Securities found that the top 10% of Japanese male wage earners now earn 3.2 times what the bottom 10% make; the figure had been steady at around 2.6 times in the late '90s.

Though many see inequality as negative, some economists point out that reforms to reduce labor costs may be necessary to keep some companies afloat. Even still, In a country where 90 percent of the population has traditionally considered themselves to be middle class, this growing divide must be quite a shock to Japan’s egalitarian self-image.

Globalization may be giving way to local production due to shipping costs. Photo: Think Panama

Americans can forget about avocado salads in January. The price of oil isn’t just hurting consumers at the pump — record oil prices are changing the way globalization works.

In the past three decades, the world economy has become so integrated that most products travel the world before coming home from the store. Illogical supply chains have emerged — and fossil fuels are wasted — because of price-driven production. From cars to processed foods, raw materials and labor from different countries, even different continents, are part of the production process of much of what we buy.

But cheap oil is now a thing of the past, and the cost of oil changes everything.

Higher prices are upsetting the global supply chains that until now considered cheap labor and raw materials more important than geography. Decades ago, Wal-Mart set the industry standard with this global supply chain model, but now industries that have made their fortunes through outsourcing are in trouble. Shipping a 40-foot container from Shanghai to the U.S. costs $8,000 now, compared to $3,000 earlier this decade. This increased shipping cost is the equivalent of a 9 percent tariff on all global trade, according to a recent report by Canadian investment bank, CIBC World Markets. The report states, “The cost of moving goods, not the cost of tariffs, is the largest barrier to global trade today” and “has effectively offset all the trade liberalization efforts of the last three decades.”

Globalization, economists are now saying, is changing rapidly. The “neighborhood effect,” or putting factories and suppliers as close as possible to the consumer, is the newest trend. People are now becoming increasingly interested in trying to grow, produce and shop as locally as possible, particularly food and goods which take little time to make or package or are heavy and expensive to transport. Electronics companies lured to Asia by lower wages and lax environmental standards are returning to Mexico, and furniture, footwear and toy industries are returning to the United States.

A shift to local growing will cause a change in what food is available and affordable. Consumers will now be economically encouraged to eat with the seasons, given the prohibitively high costs of exotic items, like avocado or peaches during the winter.

Perhaps most significantly, American steel production is rising after decades of decline, while China’s steel exports have fallen more than 20 percent this year. Motors, machinery, car parts and appliance industries will all be affected. As Chinese factory orders plunge and its export growth slows, the Chinese economy is already slowing. Economists expect growth to slip from double digits to 9 percent this year alone.

Globalization isn't dying — just changing. Products that are light and inexpensive to transport, products that are labor-intensive and products that don't require transportation, like telecommunication and Internet-based industries, will continue to be outsourced. But the change in global trade is shifting who profits and on what. These changes will impact both labor markets and trade balance, lessening the US trade deficit with China.

In an ironic demonstration of the power of globalization, China’s troubles will be felt worldwide. Their dampened economy is one reason gas prices have recently fallen in the United States.

With this change, though, environmental economists have something to celebrate. After all, with the U.S. Energy Independence Act of 2007 setting measly policy goals — reducing U.S. emissions by just 4 percent by 2020 (compared to the EU’s goal of 20 percent) — and the lack of any international climate treaty, the imperative move to green living will have to be driven by the consumer.

Regardless of your opinion of globalization, growing, shipping and shopping local is now the option that is most affordable - and sustainable- and option.

The once-thriving practice of outsourcing manufacturing may be thwarted by rising energy costs.

According to the Wall Street Journal, many U.S. manufacturers have halted plans to build factories overseas because the costs to transport goods back home have risen. Some, such as the heater manufacturer DESA LLC, are even considering moving production back to the U.S. "My cost of getting a shipping container here from China just keeps going up — and I don't see any end in sight," said DESA retail heating division president Claude Hayes. The company now considers itself lucky to have kept its old U.S. factories.

The return of DESA's heaters to the U.S. coincides with a new report by CIBC World Markets called "Will Soaring Transport Costs Reverse Globalization?" The report argues that high energy costs could potentially reverse the outsourcing that has occurred in some areas of manufacturing. Foreign trade cannot expect the same opportunities to develop markets in India as there were 30 years ago because of today's high energy costs. This situation could give countries closer to the U.S. like Mexico a little more appeal in the future than current economic giants such as China.

But do not expect outsourcing — the major transformer of world economies in the last 30 years — to go silently into the night. As Andrew Leonard points out in his article "Who Needs Tariffs When You Have Expensive Oil?" high energy prices do not affect all aspects of global trade, including the areas of telecommunications and computers. For example, the software industry in India will continue to thrive because it thrives on cheap Internet and not natural resources. So while some manufacturing may feel the pressure of high oil prices, American companies will continue to outsource in other ways.

Energy costs won't likely come down anytime soon. Could American manufacturing make a comeback?

Photo: Mark oh! (flickr)

Steven E. Landsburg outlines a few simple ways to wrap your mind around the concept of free trade and outsourcing in the New York Times op-ed, What to Expect When You're Free Trading.

Even if you’ve just lost your job, there’s something fundamentally churlish about blaming the very phenomenon that’s elevated you above the subsistence level since the day you were born. If the world owes you compensation for enduring the downside of trade, what do you owe the world for enjoying the upside?

Internally torn about free trade vs. protectionism? Well worth the read.