Capitalism vs Wall Street : Outsourcing

A debate is raging at Harvard. If the trend toward outsourcing of critical technologies was a response to quarterly earnings pressure from Wall Street, it would stand to reason that U.S. technology companies’ R&D budgets should fall with rising dependence on outsourced components and processes.

But the opposite is true, which demonstrates that outsourcing is being employed not simply to cut costs, but as a means to direct capital to its most productive long-term uses — the very essence of free-market capitalism. So if all we care about is innovation — as opposed to the direct creation of manufacturing jobs in the U.S. — the market is working fine.

Andy Rappaport at August Capital argues if we are intent on feeding, not killing, the U.S. innovation machine, we need to be very careful about what other incentives we create.