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December 18, 2004

Insourcing

CNBC has a story up about a woman, Kathy Brittain White, the former CIO of Cardinal Health, starting a company called Rural Sourcing. The aim of the company? To move low paying IT jobs to the dirt-poor parts of rural America instead of to foreign countries such as India.

Now, I am not an economist, so my thoughts are those of a layman, but I see two problems;

1) Rural America is sparsely populated compared to densely populated India, so it is more of a workers market. In India it is much easier to keep salaries low since if a talented individual wants a raise you can easily fire him and find another qualified person within a day, not so in Arkansas where quality workers would be hard to find.

2) Related to the first. The closer proximity of Rural America to big population centers where the cost of living is much higher would result in an increased rate of increase in the cost of living in the said rural areas.

So, in my opinion, it is a good short-term solution but the outsourcing to India is still better in the long term. But that is my laymanís opinion and would enjoy hearing from our economist readers.

Thanks to JS Henderson at Mises Economics Blog for the tip.

Update Heh, I just had a thought. IT jobs require a certain level of intelligence and education that may be lacking in rural places such as Arkansas (no, I am not calling all Southerners stupid), so you may have an exodus from big urban centers to the rural areas. Think of it, an unemployed, college-educated, person in a big city might trade a high urban salary and the city lifestyle for a job in a place where said salary would provide a decent living. This would probably result in the 'natives' still being unemployed and the 'cultural' destruction of the rural areas by the 'city-slickers'.

Posted by scottm at 01:01 PM