William Hackos, Jr., PhD.
Vice President, Comtech Services, Inc.

Because of my scientific background, I have always been fascinated with the concepts of positive and negative feedback. If you are not familiar with these terms, I’ll give you some examples.

Negative feedback is stability. As we eat, we become less hungry, eventually resulting in our stopping. Between meals we become hungrier and hungrier, eventually resulting in our looking for food. Without this seemingly simple negative feedback system, we would not be able to survive. Many other examples occur in nature. As the number of rabbits increases in a natural area, there is more food for predators, resulting in an increase in the number of predators. This increase causes a decrease in the number of rabbits, resulting in fewer predators. The result is that the ratio of rabbits to predators is nearly constant or varying within limits. We are so used to negative feedback systems in nature that we sometimes refer to them as “the balance of nature.”

However, nature is full of positive feedback as well. Positive feedback is instability. A common example occurs during conferences when a microphone gets too much sound from a speaker. The speaker sound is amplified, resulting in even more speaker sound to the microphone. The sound level quickly increases in volume, eventually overdriving the amplifier, resulting in that awful squeal we all hate. Another example is much more ominous. Global warming in the arctic is melting some of the sea ice in the Arctic Ocean. The open water left by the melting is much darker than the sea ice, resulting in increased solar warming. Eventually, the entire arctic ice cap may melt, allowing a flood of heat into the arctic. Will this event set off any other positive feedback effects?

We may be at the beginning of a frightening positive feedback event involving offshoring. American corporations have been hiring outsourcing firms in India, China, and elsewhere for manufacturing, administration, engineering, programming, call centers, as well as technical writing. The result is a negative balance of payments in which the US buys services in these countries but sells far fewer products and services than it buys. The wealthy in these countries are accumulating US dollars. They have to do something with their dollars. They invest in US government securities or equity in American corporations.

Gradually, the ownership of American corporations is becoming more and more Chinese and Indian. These foreign stockholders are nationalistic. As they gain control of the American corporations, they exert increasing pressure to do more and more offshoring. An additional positive feedback effect results in the skills the Indians and Chinese gain through offshoring. As their skills increase, the pressure on American corporations to offshore increases. This is a perfect positive feedback situation. The more offshoring American corporations do, the more pressure there is to increase the amount of offshoring.

Instabilities don’t go on forever. Offshoring is no exception. Three effects of increased offshoring result in negative feedback that will stop the increase.

The first effect is that offshoring will raise Indian, Chinese, and other salaries and lower American salaries, not only in those disciplines that are offshored, but across the board. At some point, the salary differential will be low enough that offshoring will be less cost effective. Some corporations will stop offshoring altogether or at least not increase it.

Second, with lower American salaries, sales of some products involved in offshoring will drop, resulting in more competition and less profit for the outsourcing companies. Fewer employees, including offshore employees, will be used by these corporations.

Finally, technology improvements will result in needing fewer employees to accomplish the same work, particularly for the less skilled jobs that are easiest to offshore.

You are probably not thrilled with the effects that finally bring offshoring back into equilibrium. What can we do? I don’t have all the answers. We can establish a program of negative feedback well before the positive feedback gains momentum. We might increase taxes on companies that choose to outsource or eliminate their current tax incentives. We might promote nationalism in the same way other countries do, urging citizens to buy products made at home. We might also eliminate the advantages of outsourcing by finding better ways than salary reduction to decrease costs within our organizations. We should not wait while the pressure becomes increasingly difficult to avoid.