Alex Soojung-Kim Pang, Ph.D.

I study people, technology, and the worlds they make

Offshoring as Prisoners’ Dilemma

Salon has a short essay (available to subscribers; I think you can also see if it you watch an ad or two) on the long-term disadvantages of offshoring high-tech work. The author (himself an engineer) argues that viewing engineering talent simply as a cost that needs to be driven down as low as possible is short-sighted, because

The rush to outsourcing is undermining the economic foundation on which the United States’ technology sector is built…. [T]he process of creating a product [i.e., R&D] is really the process of learning how to make a product. This knowledge may be used to build the next, greatly improved version, or even a whole new market. The accumulation of that kind of intellectual capital is crucial for the future health of a technology company and, by extension, an entire technology sector.

This is an interesting idea: that the apparent value of offshoring skilled work is based on a misunderstanding of the difference between manufacturing things, and making knowledge.

It’s also understandable in terms of a Prisoners’ Dilemma:

All technology companies benefit from a large pool of engineering talent and from a healthy university system educating students and performing basic research. But the benefit is not a direct one. If you outsource (assuming it is as beneficial as its proponents claim) and your competitor does not, you win. But if everyone outsources and the technology base dries up, everyone loses.

Put this way, offshoring sounds like a classic tragedy of the commons problem, and raises the question of whether there are policies that could encourage a longer-term view of the complicated ways skilled knowledge, experience, and economic value all work together.

I’ve been thinking about this in a different context, as a friend of mine is writing a piece for the San Jose Mercury News about Silicon Valley’s response to 9/11. This has stimulated a line of thinking that I’ll put into another post.

5 Comments

  1. It’s not quite a Prisoner’s Dilemma though, is it? The key to the Prisoner’s Dilemma (I’m channeling Mancur Olson today) is that the two prisoners *cannot* communicate, not that they don’t. The tech companies have the ability to communicate the benefits to each other, but they may not. Seeing it as a Prisoner’s Dilemma expresses the problem in terms of communication blocking from outside forces, not as an issue of voluntary (and possible) cooperation.

  2. I should have said the iterated Prisoner’s Dilemma (following Robert Axelrod), in which each player can see what the other is doing, and see how they’re doing vs. the other player. Though maybe a tragedy of the commons is the better term.

    The companies can seen the individual benefits to themselves (defection), and the benefits to others if they don’t offshore but their competitors do (the sucker’s bet). The problem is that they can’t see the long-term benefits of cooperation, nor the long-term costs of mutual defection.

    Though maybe the way to rephrase is to think of companies as one player, and the nation as another….

    This is why Axelrod calls Prisoners’ Dilemma the E. coli of quantitative social science: it infects everything!

  3. You’re right – that works much better. Making decisions based on visibility to strategy and action, without visibility to outcome, is an interesting problem indeed.

    As for the E. coli example, I would also bring up something I heard long ago: “When you’re a hammer, everything looks like a nail.”

  4. Or a flagellate or cilia, instead of a hammer.

    Incidentally, you quoted Bruno Latour saying that the only thing wrong with actor-network theory is the actor, the network, the theory, and the hyphen. Do you have a citation for that?

  5. I did not do the precise quote justice (I said “wrong” – he said “do not work”), but it’s in the speech “On Recalling ANT” from the “Actor Network and After” Workshop, Keele University, July 1997. The full text is here.

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