Brain Gain

Before we move on from the topic of outsourcing to discuss the international monetary order, here's one last view on outsourcing to India. Have a look at this article on the BBC.

Enjoy -- and decide for yourself whether this is (a) not too big a deal, or (b) something that should make Americans very afraid.

Differing views on Boeing...

Interesting to note that today Trey and David have quite different reads on Boeing's situation. Go have a look. David notes a recent decline in profits and a potential conflict with the Pentagon (its most important customer), while Trey notes several important orders coming in for commercial aircraft. All big news for America's biggest exporter.

Little did we know when we started spring term how fascinating the fortunes of a single company could be...

Differing views on pharmaceutical costs

We discussed in class today the relative costs of research & development vs. marketing in pharmaceutical companies. Happily, views ranged dramatically -- from asserting the importance of protecting pharmaceutical patents as a long term industry necessity to the urgency of epidemics facing millions in thedeveloping world today.

With regard to the specific issue of costs, I had heard reports that marketing comprised a substantially higher portion of costs, but the evidence is mixed. One scholar puts R& D costs at roughly the equal of marketing costs, while the industry claims R&D is much greater and critics say marketing is much greater. Undoubtedly, I heard information (through major media) taken from the "critics", and you may have reasons to discount this information accordingly. See this PBS Frontline report on the industry for more.

The most relevant section follows (though you might also look to the surrounding information on profitability and comparisons of international prices, if you are interested):

What percentage of industry revenue is spent on R&D? How much is spent on marketing and advertising?

Uwe Reinhardt, an economist who studies the U.S. health system, says that R&D accounts for about 13 percent of pharmaceutical companies' revenue. Twenty-eight percent, he says, is spent on manufacturing, packaging and quality control, and 13 to 15 percent on administration and marketing.

Since companies are not compelled to make public a breakdown of their marketing and advertising costs (almost all companies combine administration and marketing costs), it's hard to pinpoint a figure for marketing expenditures. Industry spokesperson Marjorie Powell estimates that drug companies spent twice as much on R&D as on ads and marketing -- roughly $15 billion in 2002 on advertising and marketing, and about $30 billion on R&D.

However, industry critic Marcia Angell reverses that ratio, estimating that the industry spends about twice as much on marketing as they do on research. She tells FRONTLINE, "by their own figures, over a third of their employees are in marketing. Not marketing administration, but marketing. So I think it's safe to conclude that somewhere on the order of 30 percent -- over twice the R&D costs -- are marketing."

The widely divergent views of the costs in R&D vs. marketing almost certainly depend on how costs are defined and parsed out. For what it's worth, I will show my own bias and say that I am inclined to take the study by Uwe Reinhart as the most even-handed assessment. (Not least because we all liked the guy in graduate school.)

"American" companies and Singer

Several of you have taken to the issue of outsourcing. Excellent -- I am glad some of the themes seem to have struck a chord, and I look forward to hearing more of your thoughts. I will try to bring in another piece or two, perhaps on Friday, that we might look at.

In terms of foreign and domestic production, I have been thinking about an issue that has not yet come up in our discussions, but may in the future when we talk about MNCs in week 4. The issue is, what is an "American company"? Does an MNC have a "home country"? Toyota and Honda have factories in the U.S., employ American workers, and have American shareholders owning a piece of the company. Similarly, Ford and GM have factories, employees, and shareholders in Brazil, Canada, Europe, and elsewhere. This makes it interesting to think about what is an "American" car -- or more generally, American product -- in the age of globalism. Should it be measured just by where the corporate headquarters is? The majority of the shareholders (i.e., where its profits go)? Where most of its employees are (i.e., where its wages go)?

Generally, is there any truly "American", "Japanese", or "German" car?

This seems to be one more area to which we can extend Singer's logic. Let's assume for the moment that Toyota and Honda are as intricately intertwined with the welfare of the world economy as GM. Is there a reason to favor one of these companies over the other?

Outsourcing radiology

Hmmm...

Extending Trey's logic on Freeman

Trey has posted something interesting on Freeman's logic and the U.S. Auto industry, saying that employees of GM & Ford will need to consider accepting lower wages or will wind up having their jobs outsourced. He asks whether current high incomes are reasonable or sustainable.

It strikes me that part of the reason we have heard so much more about "outsourcing" of jobs to Asia in recent years is that this phenomenon has begun to affect white collar workers more. It used to be that blue collar workers, such as people working on assembly lines, were the ones threatened by globalization and having their jobs getting "shipped overseas". All of a sudden, as Queen Deviant notes, the low cost of shipping information (with broadband cables around the world, e.g.) means that outsourcing is now affecting people working in (God forbid!?) law firms, software companies, and maybe even investment banking firms.

Let's consider Trey's thoughts in an international perspective. Many people in India and China might say something like the following: not only should American auto workers not be paid so much, but there is also no reason for American professionals to get paid so much. What will happen when Wall Street finds they can hire very proficient investment analysts in Calcutta for $40,000 a year instead of three times that for someone living in Manhattan?

So, to extend the logic, here is the question I would ask: if we look at things globally, are American white collar workers overpaid too? Will our professionals find themselves trapped by the same logic Trey has outlined for GM and Ford workers? If not, why not?

Finally, as probable future professionals yourselves, do you feel the U.S. should protect America's highly educated, highly skilled workers? Would you feel differently if you were born in Calcutta? (Singer would suggest you shouldn't...)

-- jtd

Thomas Friedman on Geo-Greening & Outsourcing

Postings on Res Severa Verum Gaudia and Queen Deviant both reminded me of Thomas Friedman, currently a columnist for the NY Times and author of several books, including The Lexus and the Olive Tree (which made the short list for inclusion on our syllabus, but which I left out in favor of Bhagwati because of the latter's focus on the effects of various economic aspects of globalization). Friedman recently visited VMI, as part of a tour promoting his new book The World is Flat.

If you use the Lexis-Nexis access through Leyburn, you can do a search for Friedman's recent articles on his "Geo-Green" strategy. As I note in a comment on Res Severa, Friedman deems oil conservation essential to national security. If you do the L-N search, have a look at "No Mullah Left Behind", or any of his other articles on the Geo-Green phenomenon. In "No Mullah", he says the following:

[T]he Bush energy policy is: ''No Mullah Left Behind.''

By adamantly refusing to do anything to improve energy conservation in America, or to phase in a $1-a-gallon gasoline tax on American drivers, or to demand increased mileage from Detroit's automakers, or to develop a crash program for renewable sources of energy, the Bush team is -- as others have noted -- financing both sides of the war on terrorism. We are financing the U.S. armed forces with our tax dollars, and, through our profligate use of energy, we are generating huge windfall profits for Saudi Arabia, Iran and Sudan, where the cash is used to insulate the regimes from any pressure to open up their economies, liberate their women or modernize their schools, and where it ends up instead financing madrassas, mosques and militants fundamentally opposed to the progressive, pluralistic agenda America is trying to promote. Now how smart is that?

Friedman also has a great deal to say about outsourcing and foreign direct investment. One of his articles previews his new book; it talks about how suddenly American white collar workers are competing with computer programmers in Bangalore, India, for instance. Queen Deviant has touched on this issue.

Provocative stuff... thoughts?

On Debt Relief

Thanks to all of you on the IPE blogroll for developing your sites. Here is an item out of the news today that discusses the wealthy G7 countries and the prospects for debt relief for poor nations.

Whether or not you think debt relief is a good idea -- and it is something we can talk about this term, if you wish -- it strikes me that politically it is easier to support something like debt relief in principle (at least for those deemed "deserving" of it) than it is to follow through on it.

One also wonders what the best criteria are for providing debt relief to poor countries. Should it be based on economic principles, such as openness to free markets and fiscal austerity (which we will talk about later)? Should it be based on political decisions and, say, something like "support in the war on terror"? Should it be based the number of people living in poverty in a given country? To put it in terms of another form of financial aid: should it be need-based, or merit-based?

Maybe only he knows...

(I can't believe the news today
I can't close my eyes and make it go away...)

-- jtd

International Political Economy (Spring 2005)

This weblog will serve as a point of departure for our course. You will see links to various news sources and to your weblogs on the right-hand side of the page. Please feel free to link to this page in your own weblogs.

While I am not a technology expert, I am happy to help you with the basics of setting up your page. The Blogger help page may be of use to you as well.

Enjoy. I look forward to reading your commentaries.

-- JTD