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Do Investors Support Outsourcing?

by Dennis Jacobe

Conventional wisdom seems to be that most economists support the outsourcing of jobs to foreign countries as part of international trade and free market optimization. Wall Street gives its support because outsourcing increases productivity, corporate earnings, and stock prices. And while many employees oppose outsourcing because they are worried about their job security, one might assume that most investors also support it.

Surprisingly, April's UBS/Gallup Index of Investor Optimism survey* shows just the opposite. Most investors not only oppose outsourcing, but also support strong actions to limit its use by corporate America. As a result, outsourcing may become a much more important election year issue than most political observers currently expect.

Most Investors Know About Outsourcing

Nearly 9 in 10 investors say they have heard a great deal (56%) or a moderate amount (32%) about the issue of outsourcing, in which U.S. companies hire workers in foreign countries rather than workers in the United States.

Most Investors Think It Is Bad for the Economy

Two-thirds of investors told Gallup that they think outsourcing is bad for the economy. Only 15% think outsourcing is good for the economy, while 14% believe it does not have any effect on the economy.

Investors Think Outsourcing Will Cost Jobs

Nearly one in four investors are "very worried" (10%) or "somewhat worried" (13%) that they or someone in their households will lose a job because of outsourcing. Twelve percent of investors say they are "only a little worried," while the majority -- 64% -- are "not at all worried."

Investors Support Actions to Inhibit Outsourcing

Investors overwhelmingly support most proposals to limit outsourcing, saying they would be at least somewhat effective. About three in four investors say they believe that improving education in the United States (76%), requiring all government-related jobs to be performed in the United States (76%), reducing the cost of healthcare to companies (76%), and creating tax penalties for companies that move jobs out of the country (72%) would be either "very effective" or "somewhat effective" ways to deal with the issue of outsourcing. Much more surprisingly, two in three investors (67%) say they think placing tariffs on goods produced overseas in order to discourage manufacturers from moving plants outside the United States is also an effective way to deal with outsourcing.

Bottom Line

These survey results should be of considerable concern to economic policy-makers, corporate executives, and Wall Street. When a quarter of investors fear for their families' job security because of outsourcing, and two-thirds support tariffs as an effective way to deal with the problem, there is a clear disconnect between economic policy and public opinion.

Of course, some supporters of outsourcing may quibble that because investors say they think policies to limit outsourcing would be effective doesn't necessarily mean they support such policies. Others may suggest that most investors -- and the public in general -- simply do not understand international trade and the role of outsourcing in it. Regardless, it appears that Federal Reserve Board Chairman Alan Greenspan's fears that outsourcing could lead to a reduction in the "flexibility" of the global economy are well-founded.

A populist uprising against outsourcing during a presidential election year could lead to significant restrictions being placed on international trade. This heightening of the political risk associated with outsourcing would not be good for the global economy, nor for the companies currently using outsourcing to increase their productivity.

*Results for the Index of Investor Optimism -- U.S. are based on telephone interviews with a randomly selected U.S. sample of 802 adult investors, aged 18 and older, with at least $10,000 of investable assets, conducted April 1-18, 2004. For results based on these samples, one can say with 95% confidence that the maximum error attributable to sampling and other random effects is ±4 percentage points. In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.

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