Arnold Kling

Disintermediation and Outsourcing

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Business and Health Care Costs... Telephone Fees...

Julian Sanchez picked up from Gene Healy a Times of India story with a new twist on outsourcing.


Says a programmer on Slashdot.org who outsourced his job: "About a year ago I hired a developer in India to do my job. I pay him $12,000 out of the $67,000 I get. He's happy to have the work. I'm happy that I have to work only 90 minutes a day just supervising the code. My employer thinks I'm telecommuting. Now I'm considering getting a second job and doing the same thing."

Smarter techies are working for three to four companies at the same time, outsourcing all the coding and just supervising them for few hours a day. This way they are able to earn four to five time more than what they used to.


This looks like another example of disintermediation. Rather than having the firm outsource your job, you outsource it yourself.

Another positive story on outsourcing was spotted by Virginia Postrel. It seems that California gains from outsourcing.

For Discussion. How does health care cost disintermediation affect outsourcing?



TRACKBACKS (9 to date)
TrackBack URL: http://econlog.econlib.org/mt/mt-tb.cgi/111
The author at Ashish's Niti in a related article titled Outsourcing creates jobs in more ways than one writes:
    Outsourcing reduces price of products and thus is bound to raise demand for those products as well as complimentary products. In many more ways, outsourcing results in more jobs in US. [Tracked on August 24, 2004 7:05 PM]
The author at The Club for Growth Blog in a related article titled Wednesday's Daily News writes:
    Relevant News and Commentary How to Heal Health Care - Bill Frist & Hillary Clinton, Wash Post The Appeasement Disease - W. Williams, Townhall.com Cementing Florida - P. Gessing, NRO Women Win from Lower Tax Rate - L. Filkins, IWF... [Tracked on August 25, 2004 8:43 AM]
The author at The Club for Growth Blog in a related article titled Two Good Examples of Disintermediation writes:
    From Rocky Mountain News (thanks to James Surowiecki at Marginal Revolution for the pointer): Former Nebraska star [running back] Lawrence Phillips was seen in Las Vegas recently pawning one of his Big Eight championship rings — reportedly for $2... [Tracked on August 25, 2004 3:34 PM]
COMMENTS (7 to date)
Bernard Yomtov writes:

Quibble: Isn't this intermediation? When the company finds out, and gets rid of the guy, that would be disintermediation (or maybe even defenestration), wouldn't it?

Xerxes G writes:

This sounds a little far-fetched. I've worked in various software companies for 12 years, and it's usually not possible to telecommute to the extent that you can hire someone else to do your job. Other people (other programmers, supervisors etc) need to know how you did something, or quibble with you in great detail about whether a bug originates in your code. You're usually not in a position to discuss something to that extent unless you wrote the code yourself.
At the very least, the example quoted here is a little unusual and therefore not a significant factor at a macro level.

Brad Hutchings writes:

I agree with Xerxes. This Slashdot attestation sounds like a bad boasting ritual in an Irish pub. IT jobs are so overloaded with non-competes, IP contracts, etc. Not that half the contracts are even enforceable or legal in most states, but still. This seems like total suicide. And what of the tax implications? Does this guy claim the Indian salary as a business expense or does he just eat the taxes?

We can find better examples to make the case for outsourcing. I don't know if I've mentioned this here, but I have a friend who has a medical transcription business. Doctors call up with their reports in the afternoon and get HIPA compliant transcripts in the morning. How does this magic work? Through the magic of globalization and the Internet, there are people who work during the day while we sleep. Turnaround time is the key value of his service.

dsquared writes:

Small typo, Arnold; you've written "this looks like an example of disintermediation" when you presumably mean "this looks like an example of disinformation"

Lawrance George Lux writes:

Both articles appear in an Election season, where neither Candidate seems to possess any policy on Outsourcing of rigor. The horrors of Outsourcing will probably appear the day after the Election. Ther first article has never heard of Computer tracking, though he is a Programmer? The Second article simply states in final analysis that California Taxpayers may have to pay more taxes, unless they outsource.

Health Care is a different matter! American Drug Companies are doing everything they can to insure outsourcing does not enter their market. We have endured in the invasion of foreign Health Care Providers--my entire family have put up with foreign doctors for years. None of it did anything to limit Costs. The question lacks for relevance. lgl

Bruce Cleaver writes:

I also agree with Xerxes. The Slashdot boaster is just that.

Lawrance George Lux -

How do you know for sure foreign docs didn't hold down costs? I am sure the costs still rose steeply, but it's possible the foreign docs at least lowered the slope of those cost increases.

Lawrance George Lux writes:

Bruce,
Those foreign Doctors would not be immigrating to the United States, except that medical costs were increasing faster in the United States, to the point, that immigration was not only financially feasible but rewarding. The shortage of Doctors without immigration would have entailed Doctors cut out two or three of their daily Golf games. lgl

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