As I was typing up a reply to bonddad's diary on outsourcing, it started to grow larger and larger. At some point, I decided it would be better to post it as another diary. I hope it isn't against the rules or anything. The rest is below the fold.
BTW, bonddad's diary is here: http://dailykos.com/story/2005/7/18/93025/1558
Competitive advantage no longer works the way it used to. Competitive advantage is based on things like climate, land type, and proximity to certain resources, not pure labor arbitrage. For example, something like coffee is grown in places like Brazil not because of labor costs (although they are certainly a major factor) but because the climate and the land are more conducive to it. If you were determined enough, you could grow coffee in Alaska. Unfortunately, you'd need a major investment in hardware to recreate and maintain the necessary climate, which will push the cost of your coffee into stratosphere, and you'll never survive against the Brazillian producers who can grow it at only a fraction of your cost. THAT is what competitive advantage is all about.
The reason why the competitive advantage model is lo longer adequate is because the capital now has nearly worldwide mobility. It's nowhere near as difficult as it used to be to pack up a plant and ship it away to wherever the labor is the cheapest. Also, a lot of exported jobs involve learned skills, which makes them almost equally accessible to any reasonably educated workforce.
Also, I think it's all right for the left not to be naive about corporate attitudes. All too many of them see individual nations the same way a vampire looks at its prey. Something to bleed dry and move on. Too many decisions are made only with respect to the quarterly numbers - the long term economic and social consequences be damned.
With that said, I think it's worth making a distinction between outsourcing and pure wage arbitrage. At the most generic level, outsourcing is delegating some operation to another organization in order to benefit from its experience and to save money. For example, I believe WalMart outsources its janitorial work to avoid the additional management overhead, save money, and the liability when it turns out the contractors hire illegal immigrants in order to turn a profit. IT is another extremely common example. A company might outsource the creation and the maintenance of its website to someone else in order to avoid the initial costs in hardware and development. Wage arbitrage is just that: shipping jobs away to whereever the labor costs are the lowest. It's commonly known as offshoring.
By now, my point should be pretty obvious. Outsourcing certain work to someone with more experience can be very beneficial when done correctly, and wage arbitrage is the bastard child of outsourcing that is extremely destructive to the workforces of developed nations.
Unfortunately, this problem has no easy solutions. Duh, we wouldn't be here bitching about it, if it did. First of all, getting healthcare expenses under control will help US businesses immensely all the way from mom'n'pop shops to the largest corporations. I'm not sure the wage differential tax break is a good idea. It might be considered an illegal subsidy under all the trade agreements United States had signed over the years and there is enough debt as it is to pile on even more. Also, there are enough documented cases where offshoring took place in spite of major tax break offers.
But I have at least some great news: we are already developing industries that are resistant to offshoring. To quote bonddad:
"The jobs we are creating are lower-paying jobs, specifically in health care and social assistance (+1,279,000 ), government (+791,000) and food service and drinking establishment jobs (+465,000)."
None of these are easily outsourced. No big coincidence there. If you work at a fine establishment like McDonalds, offshoring is probably the least of your worries. Unless, of course, you are taking orders at the drive-thru. McD is experimenting with offshoring that as well.
Speaking of solutions to this problem, history has one for you. Paul Craig Roberts mentioned it in one of his essays a while ago. He's one of the few conservatives that understand the danger of "free trade," which is anything but free. It's no coincidence that the first world countries prospered economically as did the soviet union up until the central planning system was no longer able to manage the growing economy. The world was effectively segregated into several trade zones with significant barriers between them, but only few within them. In other words, an American company would not invest in a place like India or China, even if the US government allowed it. The logistics and the risks made it a losing proposition. I believe that South and Central Americas were just about the only place where the US corporations had a significant presence (solidly backed by the CIA murder squads). But even with Mexico and South America, there just wasn't enough of a labor supply to justify firing US workers and moving out.
In essence, this arrangement largely insulated the workers in developed countries from having to compete with cheap third world labor for pennies on the dollar without resorting to outright protectionism. Once those barriers fell, workers in certain regions simply can't compete with someone whose annual gross won't even cover a month's rent of the guy who is now out of work.
Whew. That took a while to type.