Will remote work lead to mass outsourcing?

Also, why we need to make the right arguments for aid spending.

Thanks to everyone who signed up last week. This week I thought I’d push against two ideas I’ve seen floating around.

First, almost nobody worries about the negative impact of skilled immigration on employment in the UK, but the rise of remote work has provoked concerns about outsourcing. To me, at least, it’s inconsistent to fret about one and stay relaxed about the other, I explain why below. Second, I’m happy many people are arguing against the recently announced cut to the UK’s overseas aid budget, but I worry that some of the arguments may be counterproductive.

I hope you enjoy.

Will remote work lead to mass outsourcing?

This Monday, just like the past three Mondays, saw more good news on the vaccine front. There was a time when people started talking about a ‘new normal’ permanently changed by Covid, but many of the predictions I’ve read appear overblown. I suspect July 2021 will look a lot like July 2019. 

Yet a year of social distancing has accelerated a number of pre-COVID trends, such as the shift to e-commerce and the rise of remote work. 

Remote work, in particular, has become a new front in the culture war. There was the push to save Pret and Deutsche Bank’s call to tax remote work. There has been a degree of cultural resentment against remote workers relaxing at home while key workers risk catching coronavirus on the bus each day.

I think there’s a sense that many people feel remote work may be ‘too good to be true’. A recent Financial Times column from Sarah O’Connor expresses one part of that concern: “If I can do my job from home in London, Brooklyn or Canberra, could someone else do it more cheaply from Sofia, Mumbai or Manila?”

She’s not the first to raise this. Sunday Telegraph Editor Allister Heath puts it bluntly: “This will spectacularly derail the middle-class gravy train. Until now, upper-middle-class professionals had remained shielded from one aspect of globalisation – production and jobs transferred to cheaper, lower-pay locations – while enjoying another – earning more by selling globally. Working from home means that the great protective barrier cosseting office workers has been ripped away.”

So will what happened to manufacturing workers in the 70s and 80s happen to office workers in the next few years? There is reason to be sceptical.

Firstly, the situations are not analogous. In the long run, free trade benefits everyone as consumers’ incomes stretch further with access to cheaper and better goods. But there can be costs in transition as labour markets adjust. David Autor’s work on the China Shock suggests this process of adjustment can be slow and painful.  But part of the reason recent trade shocks have caused problems is a decline in labour mobility. In the past, workers moved to where the jobs were. They ‘got on their bike’ as Norman Tebbit put it. If a factory closed in one part of the country, they upped sticks and move to a part of the country where demand for labour was stronger. One notable study found that in the US regional unemployment rates in 1975 were uncorrelated with regional unemployment rates in 1985 as workers moved across states in response to economic shocks to find new work.

Yet restrictions on new housing development have made it harder to move to successful regions with larger labour markets. We have effectively removed the way in which workers traditionally adapt to economic shocks.

By contrast, remote work moves you, whether you like it or not, to a better labour market. The recent barriers that prevent workers from moving to where the new jobs are being created are effectively circumvented by remote work.

Uncoupling job and location entails bigger labour markets. Yes, employers will be able to choose from a larger pool of talent. But workers will also be able to choose from a larger pool of employers. That’s important because bigger markets allow for deeper specialisation and division of labour, which in turn creates new wealth. If I lived outside of London, it is very unlikely I’d be able to find work as an entrepreneurship policy researcher in the UK. Similarly, if there are only three or four data science jobs in my small town, then spending a year learning how to use the relevant software and acquiring the right skills becomes a risky investment.

For these reasons, workers are drawn to larger labour markets. They move to cities, endure crowded commutes and pay higher rents for access to them. One way of thinking about remote work is as a mass shift from say North Devon to London, or from London to a parallel universe London with a sane planning system.

Office workers should see the rise of remote work not as a threat, but as an opportunity. It’s a chance to access the employment benefits of living in a bigger city, without enduring the busy commute and eye-watering rents.

The wrong argument for aid

At the Spending Review last week, Rishi Sunak announced a cut to overseas aid spending from 0.7% to 0.5% of GDP. Beyond short-term political advantage (aid spending is unpopular), there is little to recommend about this cut. There are arguments against some forms of development aid, but they do not typically apply to the type of aid the UK gives.

If you look at the Foreign, Commonwealth, and Development Office’s DevTracker tool, you can see that the two biggest areas of spending are health and disaster relief. Aid projects are evaluated to a standard higher than any other government department. For instance, contrast the way DFID reported on a failing programme to the way BEIS tracks the impact of the £2.4bn a year it spends on business support.

Take this quote from a recent National Audit Office report into business support:

“Most schemes in our review lacked measurable objectives from the outset or evaluations of their impact to know if they are providing the most value or if they should be discontinued. Without such analysis, the Department cannot know if its business support is providing value for money.”

The way the UK delivers aid today is, as Sam Bowman notes, essentially a victory for past critics of aid, who argued that much aid was wasteful or even harmful if it propped up corrupt governments, or weakened their incentives to improve their countries. We are no longer paying governments to build hydroelectric dams. Instead, we are immunising children (56.4m between 2015 and 2017), killing nasty intestinal worms, and providing relief for Syrian refugees in the Middle East.

A venture capitalist’s portfolio might work as a good metaphor for aid spending. Most of the startups they fund will go bust, but if one becomes the next Google then the VC will make their money back many times over. 

The philosopher Toby Ord makes the point that if you add up all aid spending over the past century, and then double it for good measure, and assume nothing but the ~$1.5bn spent smallpox eradication had a positive impact, then aid is still a great deal: $67,000 per life saved. To put that number into context, the UK will spend that much to save just two years of life and the US will spend 100 times that to save an American life. And, in fact, we’re not just throwing away the rest of the money we spend.

What I am trying to get at is that the humanitarian argument for aid spending is extremely powerful. We can save millions of lives for a fraction of the cost we are willing to spend on our fellow citizens. It’s not asking you to subscribe to a radical moral universalist position where every life is equally valuable regardless of which bit of soil it is located on. It should still be persuasive even if you merely think the life of a non-Briton is worth 1/50th of the life of a British citizen.

Yet I have seen a different argument for aid made over the past week. Aid is not only the right thing to do, but conveniently is also in our national interest. While I can get the appeal of the argument, I’m sceptical of it for a few reasons.

I think aid is great value for money if your aim is to save and improve people’s lives. I’m less certain that aid represents value for money in furthering the national interest. To start, it’s nigh on impossible to measure. Plus, the UK is not the US or China and despite the rhetoric of Global Britain, we do not have substantial foreign policy interests in many of the places we give aid. Relative to China, the way we give aid is less likely to buy influence either. The UK may have vaccinated your child, but China built the port you owe your job to.

There’s a free rider problem too. I can buy that foreign aid makes developing nations more stable and reduces the risk of conflict, but to the extent that’s true other countries can free ride off our spending and we can free ride off theirs.

Some argue that aid serves the national interest by tackling the ‘root causes’ of migration. But even if the national interest was served by deterring migration (I don’t think it is), it is far from clear that aid is able to do this. As Michael Clemens and Hannah Postel note “successful development in almost all formerly-poor countries has produced an increase in emigration.” They cite a study finding “countries with GDP per capita of US$5,000–10,000 at purchasing power parity have, on average, roughly triple the emigrant stock of countries below US$2,000.” Why is this? Higher incomes increase the probability of attending university, which in turn increase an individual’s incentive to move to a more developed country, where they can earn more. Additionally, payments to human smugglers can cost migrants up to $10,000. Economic development makes it easier to pay those fees.

There’s a risk to the national interest argument too. If we get too hung up on aligning aid with Britain's interests then it may lead to less effective aid.

A great example is the US buying food from American farmers and then sending it to the developing world on US-flagged ships. If the US prioritised cost-effectiveness over helping US farmers and US-flagged ships then they could do the same amount of good for $300m less, allowing them to help many more people.

Many of the most effective (and best assessed) aid programmes tend not to lend themselves to win-win situations where the UK benefits directly alongside the recipient. When we provide clean water, send food packages, treat neglected tropical diseases, and immunise children, it is hard to see how we can further the UK’s commercial interests more without undermining cost-effectiveness.

To be clear, I’m not arguing that aid doesn’t indirectly benefit us by making the world wealthier and more stable. Rather, I think it is unlikely the benefits to the UK, on purely selfish grounds, attributable to UK aid are worth sacrificing 0.7% of GDP for. And trying to tweak aid spending to further broader economic or foreign policy risks undermining the effectiveness of some of our most vital programs.

If you are 99.99% convinced by the humanitarian case, then sure, let the indirect benefits of aid tip you over the edge but you risk undermining the effectiveness of aid if you make it your main focus.