I had an economics lecturer who would deliver an entire lecture on comparative advantage just so he could use the grammatically ugly but arguably correct construct “more better”. The idea is that different nations will all have things that they can do better than other nations, whether because of natural resources, climate, or just a tradition in that area. So countries in the Middle East are better at producing oil than, say, Poland, and the US is better at producing software than Belgium. It’s pretty obvious, therefore, that economically it’s best for the US to create the software and have Belgium concentrate on, uh, chocolate and bureaucracy.

Now many countries can do a range of things better than others; Western countries tend to have advanced industrial farming setups that mean they can produce food cheaper than more naturally agrarian economies. But, and here’s the bit that used to please my lecturer, the UK may be better than Spain at producing food, but it’s more better at producing financial services, so it’s more worthwhile for the UK to concentrate its resources on financial services and let Spain grow the food. It is, and just saying the following makes me feel sick, a ‘win-win’.

Currently we have a distortion in the market based on gross inequalities in living conditions. That’s what’s facilitating a lot of the outsourcing now going on; companies aren’t sending jobs to India because the Indians are better at those jobs than US workers are (a simple comparative advantage), or even because US workers are more better at something else (a complex comparative advantage); they’re outsourcing because Indians are cheaper. In the long run that’s unlikely to be sustainable. Indian wages will rise in line with demand for skilled workers, to the point where the frictional costs of outsourcing (managing multiple locations, time zone issues, language and cultural difficulties) make it no longer worthwhile.

These inequalities will last for some time, of course, but one of the side-effects of outsourcing is that it tends to raise the standard of living in the target countries (hence the wage inflation), thereby making ‘them’ more like ‘us’. Eventually they get close enough to us that the possible economies of outsourcing largely evaporate. That doesn’t mean we’ll have reached equality, just that we’ll be close enough. Taking an example from the West, it’s common for people in the US to ‘outsource’ their tax preparation (because the perceived cost of doing them yourself is greater than the cost of an accountant), but relatively uncommon for people to hire a butler (you have to be earning a lot before the price of a personal servant appears reasonable).

Having said that, there will always be two inequalities. The first are the natural ones that I referred to in the opening paragraph that lead to Italy growing olives while Florida grows oranges. But there will always be the micro-inequalities that mean I let the guy at the bike shop install my new fork, but I’ll replace the bike cables myself.

And that is the very long-winded introduction to an article from the New York Times about remote order takers at fast food restaurants. Rather than having a person sitting behind every drive-thru window, orders are taken by a central call-center that can post the customer’s selection to a screen in the restaurant. It’s transparent to the customer as they don’t see a person at the order stage anyway, and when they collect the food from the window there’s a person to hand it over.

There are two benefits to doing things this way. The first is a simple economy of scale; not every drive-thru is busy all the time, and across thousands of restaurants that can add up to dozens if not hundreds of idling employees. Centralizing that lets you get rid of most of that idle time, making things more efficient. This would be true wherever the call center was located. The second advantage comes from the comparative advantage idea. Somebody in New York could take that order for $10 an hour, or a worker in Podunk, IA could do the same thing for $8 and be just as happy due to the lower costs in the area. That frees up the New York employee to do something that depends more on them actually being in New York (i.e. exercising their comparative advantage of location).

I realize this is a nice theory, but has practical issues – the labor market isn’t infinitely elastic, so the person laid off in New York can’t just leap up and get a new job. Nonetheless, such cross-shoring (I know, I made it up, and it is an ugly faux-word) allows workers outside the island-cities common in the US to take part in an economy outside of their home town. The comparative advantage they can bring to that task, alongside the low frictional costs that come with being in the same time zone, culture, etc., outweigh the current advantages of outshoring/nearshoring, but only when those other economies have reached a level where they will be exploiting their own cross-shoring abilities.

Maybe next time: What effect this will have on the idea of ‘nation’, and can I come up with a better word than cross-shoring while still cashing in on the whole ‘shoring’ thing?