When Bank of America outsources, does the free market win?

Wednesday, May 30th, 2012 By

View of the top of a Bank of America high-rise office building.

Bank of America is now outsourcing thousands of jobs to the Philippines. (Photo Credit: CC BY/lewisha1990/Fotopedia)

After a $45 billion bank bailout, 30,000 U.S. workers laid off and gouging customer fees that have drawn the ire of Consumer Financial Protection Bureau, one wonders what Bank of America could have done for an encore. According to Mother Jones, the answer is that America’s second-largest bank is undergoing massive job outsourcing for cheap labor in the Philippines.

Business is better in the Philippines

Bank of America is currently relocating its business support operations to the Philippines, according to majority leader of the Philippine House of Representatives, Roman Romulo. Part of the relocation will include a portion of the bank’s customer service unit.

In the Manila Standard Today, Romulo boasted that the Philippines had “secured its place as the world’s fastest-growing outsourcing hub.” He also pointed out that Bank of America was the last of the “big four” U.S. banks (including Citigroup, JP Morgan Chase and Wells Fargo) to join the outsourcing party on the island nation, which has an average family income of $4,700 per year.

‘To best serve our customers and clients

Bank of America spokesman mark Pipitone would not provide any specific details of the massive Philippine job outsourcing project, but did tell Mother Jones via email that “(Bank of America” has employees and operations where we can ensure that we best serve our customers and clients.”

If best serving customers and clients includes compromised financial data security, Bank of America is apparently right on track. In March, it was revealed in England’s Sunday Times that Bank of America call center workers in India offered to sell customer credit card and medical data to undercover reporters. Romulo claims that such things would not happen with Bank of America employees in the Philippines, yet according to Shane Larson of Communication Workers of America (CWA), India is actually ahead of the Philippines when it comes to passing data privacy laws. However, Indian call centers are strangely exempt from the law.

Shedding jobs like a summer coat

The U.S. call center industry has shed as many as 500,000 jobs over the past four years, says the CWA. That’s approximately 10 percent of the total workforce in that industry. Bank of America’s outsourcing binge may actually provoke the installation of legislation called the U.S. Call Center and Consumer Protection Act.

Many experts argue that U.S. corporations have no choice but to outsource if they are to maintain global competitive balance. IBM chief executive Samuel Palmisano went so far as to say that outsourcing is the “planet-wide” model of doing business.

The outsourcing conundrum

Are the best interests of business in the best interests of the workforce? It’s a loaded question, easily oversimplified. Yes, boosting profits overseas at the expense of lost jobs in the U.S. costs jobs may drive down income for huge swaths of the middle class, as noted by Nobel Prize-winning economist Paul Samuelson in a 2004 paper on the impact of job outsourcing. But it’s a short-term deal. Levying tax penalties against companies that outsource labor to make up the economic gap hampers free trade by blocking comparative advantage and economic gains. Harvard economist Steve Paraino has noted that the “cold calculus” of supply and demand, of outsourcing jobs to places where talent will accept less money to do the same work is essential for the long-term welfare of laborers.

“The resulting misdirection of labor and underemployment, writes Paraino, “means that overall real wages tend to fall, not rise… What labor activists see as a victory for labor is typically a victory for relatively overpaid, underemployed, union-protected workers over unskilled, unprotected workers and consumers. Nor can these unintended consequences be ameliorated by extending the same ‘protection’ from market forces to labor as a whole. Instead, such a policy would utterly destroy the very market-determined division of labor that accounts for the first-world nature of our society.”

President Obama’s attack ad against Romney’s outsourcing

http://www.youtube.com/watch?v=shJi8Ah4_gc

Sources

Bloomberg Businessweek

Ludig von Mises Institute

Mother Jones

PBS Newshour: http://to.pbs.org/KFB9tb

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