Outsourcing, Environment, Economy: Understanding the Big Three
I’ve been involved in, and writing about, outsourcing for over a decade. For as long as I have been involved in outsourcing, it has been a hotbed of controversy. The last couple of decades have been about the wave of jobs moving out of big cities, and then moving out of America, and Europe. Big cities and Western countries have lost jobs, and other areas of the world have gained. New jobs, new industries and new revenue have shifted the world’s economy towards China, India and other “go-to” outsourcing locations.
Waves, however, don’t just flow in one direction. Everything that flows out eventually flows back in. Now that we’re in the early 21st Century we’re seeing jobs flowing back into America. This flow of money and industry shapes the world we live in. The return of jobs to America… on-shoring… may bring a new age of prosperity, but it could also bring devastation to the environment.
When we moved jobs offshore, especially in heavy industry, we moved a lot more than jobs. We moved the power consumption, pollution, industrial accidents, political issues and carbon costs as well. When we move the jobs back to America, all of this forgotten baggage is going to move back home. But are we ready for it? Let’s take a look at what’s happening right now in On-shoring…
OIL: Malcolm Gladwell’s “Tipping point” tells us that things happen very slowly for a long time, and then suddenly move very quickly. Less than a decade ago, oil prices were at the highest level ever, and politicians looked desperately for a solution. The eventual answer, especially on the conservative side of Congress, was, “Drill Baby, Drill!” This became the mantra of the energy industry. It meant that we would find any form of oil we could and get it in production as soon as we could. New Fracking technology was available, huge Tar Sands deposits were in Canada accelerated their production, and we started taking about “clean coal”.
On the liberal side, a less aggressive but nonetheless significant campaign was launched to fund renewable and non-traditional energy sources (solar, ethanol, wind, etc.). All of these efforts were based on the idea of expensive oil.
The economic details of Fracking and Tar Sands are confidential, but it is generally believed that the break-even price for Tar Sand based oil, is around $75 per barrel and domestically Fracked oil at around $50 per hour. Alternative energy has various break-even costs, depending on a great many factors.
In 2008, when the price of WTI (West Texas intermediary or Light Sweet) oil was $141.38 per barrel, it made a lot of sense to invest and encourage all of these energy sources. As of January 9th, 2015, the price had fallen to $48.36. Now, the cost of oil is far below production. The jobs that have moved backed to the US to produce more energy are now in danger. Production needs to fall. Or we need to encourage more energy use, to burn off excess fuel supplies.
Tell us how your view of on-shoring!
Does the rise of American oil production make your future better or worse?
POLLUTION: A lot of energy is used in the manufacturing we sent offshore. When we moved the manufacturing of goods offshore, we reduced domestic pollution, industrial accidents, transportation “costs” (carbon footprint for fuel, accidents, disposal of tires and warn parts, etc.), domestically. These “costs” didn’t go way, they just went somewhere else. We moved all of our industrial “negatives” offshore, largely to China.
Keeping in mind that building brand new factories in China over the last couple of decades means that these new factories would be efficient, far more so than the older ones that they replaced in America and Europe. What has been the result, massive pollution across China! Air pollution, as well as pollutants in the water and soil, is being commonly reported in areas that never reported pollution problems. Rampant air pollution has become a common issue and an irrefutable one as whole cities are shrouded in visible pollutants.
What about the US? By every measure that he US Environmental Protection Agency (EPA) tracks, America has fewer pollutants… such as carbon dioxide, sulfur dioxide and lead… today than in 1980 when offshoring was just getting started in the US. While not all America’s reduction in pollution resulted from offshore outsourcing, we can assume that some portion of the improvement in our environment came from the removal of pollution laden manufacturing. We can also assume that moving industry back onshore will increase pollution levels. When oil is cheap, it becomes desirable to move all sorts of manufacturing back on shore that uses oil, either directly or indirectly.
Consider all of the industries that use plastics, and synthetic fibers, which are created by converting oil into chemicals needed for plastic production. Other manufacturing may not only directly use oil as a component of manufacturing, but power may be a large component of the manufacturing process. The production of steel, copper and aluminum… or any products that use these materials… are particularly power intensive.
From just 2005 to 2011 China built 2 new coal power plants a week, as well as many new power plants that used other fuel sources. Just how many new power plants will need to be built in the US if a significant amount of manufacturing returns to the US?
Rise in Coal Use in China
ECONOMY: There will be a cost to our domestic environment for returning manufacturing to America. But there will also be positive benefits. We will gain jobs, and money will flow into the US. We might be able to mitigate the cost to the environment by using green technologies as manufacturing expands. But is that what is happening? Complaints are building up about Fracking from the communities where the oil is actually produced.
Studies are finding that Fracking causes considerable pollution. Local protests are growing and politicians are listening. But the protesters are not a clear majority. There are others who want the revenue and jobs more than having a pristine environment. With domestic oil production, and the possibility of manufacturing returning to struggling US towns, we now have a battle between different American factions on what we should do with our “oil windfall”.
Oil is returning to the US, and with it manufacturing. The “Fracking Boom” may not last, or a new technology may arise in the next decade that will make oil far less important to the world economy. But the more likely path, at least for the next decade or so, is that we will continue to rely on oil as a primary energy source, and the lower the cost the slower we be to invest in and develop alternatives. The history of outsourcing is about to turn a new page as the tide of outsourcing moves work back to the US and Europe. The tide of returning outsourcing, working with a falling price of oil, may well be the most significant event in the 21st Century for the US economy. At Least, that’s my Niccolls worth for today!