Bush Endorses Overseas Jobs

Are these people on another planet, or are they just so firmly painted into a corner that any spin goes, no matter how ridiculous?--CA


February 10, 2004

1. Bush Endorses U.S. Jobs Moving Overseas
   
   On Labor Day, President Bush said, "I want people to understand that when somebody wants to work and can't find a job, it says we've got a problem in America that we're going to deal with. We want everybody in this country working."1 But yesterday, President Bush directly contradicted himself, releasing a report which "supports the shift of U.S. jobs overseas."2 When asked about the report and how it contradicts the president's supposed concern about job losses, the president's top economic adviser said, "Outsourcing is just a new way of doing international trade."3
   
   With more than two million jobs lost since President Bush took office, newspaper headlines across the country told readers of the White House's new support for the practice of wealthy corporations eliminating U.S. jobs and shipping them to lower-wage countries. The Seattle Times headline read, "Bush report: Sending jobs overseas helps U.S."4 The Pittsburgh Post-Gazette said, "Bush Economic Report Praises 'Outsourcing' Jobs"5 and the Arizona Republic said, "Bush Report Lauds 'Outsourcing' Jobs."6
   
   And while this may be troubling to the millions in the United States who are out of work and suffering from stagnating wages, it was celebrated in India, where thousands of good paying, white-collar U.S. jobs have moved.7 The headlines in India read, "Bush Aides: Outsourcing win-win for India." The story said the Administration believes exporting jobs to India and other lower-wage countries "is a win-win for both exporter and importer"8 - failing to explain how this is a win for American workers who the president just months ago purported to care about.
   
   Sources:
   
2. President's Remarks on Labor Day, 09/01/2003.
   
3. "Bush Supports Shift of Jobs Overseas", Los Angeles Times, 02/10/2004.
   
4. "President Calls Economy 'Strong and Getting Stronger'", New York Times, 02/10/2004.
   
5. "Bush report: Sending jobs overseas helps U.S.", Seattle Times, 02/10/2004.
   
6. "Bush economic report praises 'outsourcing' jobs", Pittsburgh Post-Gazette, 02/10/2004.
   
7. "Bush report lauds 'outsourcing' jobs", Arizona Republic, 02/10/2004.
   
8. "More job searchers just quit looking", USA Today, 02/09/2004.
   
9. "Outsourcing win-win for India, US: Bush aides", [i]Indian Express, 02/09/2004.

• I think this is so unbelievable, such an extraordinary demonstration of how misguided the Bush people are, that I cannot believe I am having to bring it back up! Am I really the only one here who finds it mind-boggling that losing jobs to other countries is seen as a positive thing for our country?

[Brian Olewnick]

I don't know whether or not, all things considered, it's a positive or not for the US, but it is a positive for those countries (and the citiznes therein) gaining the jobs, no?

• Very funny, Brian (I assume that you are not serious). Of course America's unemployed can relocate to India in search of their lost jobs. I think the Bush people have made such a mess of things that they are now forced to come up with absurd rationales. Bush himself makes a big mistake painting a rosy picture that has no foundation in realities--didn't his father do the same thing? If so, and considering the outcome then, I guess we should be encouraging the wearing of rose-colored glasses.

[Brian Olewnick]

No, I'm actually not joking (much). I'm not a big nationalist at all on these sort of affairs (not necessarily about what Bush is pushing today, but on job migration in general). I would think those on the left would generally be in favor of anything that more equitably distributes salaries around the globe. If, compared to the global market, US workers are being overpaid, I don't have any particular problem with jobs going elsewhere. I don't think a US worker has any particular right to a job more than a Bangladeshi one. Those Indian workers taking tech calls for Dell have certainly had their lot improved; so have their families and, presumably, their environs in general due to the influx of jobs (jobs "taken"--I don't think that's the proper term--from American workers who used to do it). I think that's great, actually. Moreover, I think it's a natural function as people worldwide become more educated. We've (the Western world) had something of a monopoly on tech brains for quite a while. It wasn't going to last forever and there's really no reason it should. If our (relatively) bloated standard of living suffers a bit and others improve theirs a bunch, is that a bad thing?

btw, I don't think the above is Bush's rationale for what he's doing. I think this is a trend beyond any given president, simply an economic fact of life that we're going to be dealing with for the foreseeable future.

That's amazing, Brian.

[Brian Olewnick]

Amazing? I dunno. Do you think a US citizen has some inherent right to a job at a certain level of salary that an Indian citizen doesn't? I'm trying to look at this dispassionately. Obviously, it's nice for me and mine to benefit from our system and history and self-interested motives would want it to stay that way. But if I'm an 18-year old Indian kid, that's not exactly my point of view. I see a culture that has pretty much held a monopoly on high tech jobs since they've been around. Do you expect that to continue on forever? I don't think knowledge works that way--it gradually seeps out. (btw, I think we, in the US, have enough of a cushion to last us quite a while, anyway)

If you have an average annual income in one area of (I'm making up the figures) $40K and have equally educated people in another area with an average income of $1K, don't you expect things to eventually move toward evening out? Wouldn't you, as a progressive, want them to?

Personally, I look forward to the disappearance of national boundries (not that I expect this to happen anytime soon). I think it would help solve many of the world's problems. Holding on to ideas like "we" need to protect ourselves economically from "them" doesn't help matters. Citizens of the world, baby.

[Uli]

I actually don't disagree with Ollie. I don't think that there is anything that a president should do to stop that trend. What he should have done however is creating some economic programs to create some jobs here as well instead of distributing all that surplus to his rich buddies.

[crawjo]

Originally posted by Uli
I actually don't disagree with Ollie. I don't think that there is anything that a president should do to stop that trend. What he should have done however is creating some economic programs to create some jobs here as well instead of distributing all that surplus to his rich buddies.

As I mentioned in another thread, Bush has actually increased spending on job training. What else should he do? How can a president "create jobs?" By helping the economy to improve. Do you guys who oppose the tax cuts believe that tax cuts somehow *hurt* job recovery? If so, what helps create new jobs?

[john williams]

Originally posted by Brian Olewnick
(btw, I think we, in the US, have enough of a cushion to last us quite a while, anyway)

Personally, I look forward to the disappearance of national boundries (not that I expect this to happen anytime soon). I think it would help solve many of the world's problems. Holding on to ideas like "we" need to protect ourselves economically from "them" doesn't help matters. Citizens of the world, baby.

National boundaries are one of the great banes of the world IMO. The US is sure protecting itself from superior Australian farming practices. Due to the Australia-United States Free Trade Agreement (AUSTA) which was signed this week, Australian domestic sugar prices will rise while prices to the consumer in the USA will fall. Australian agriculture will be subjected to potential takeover by US-based agribusiness companies meaning a systemic challenge to the less intensive farming methods in Australia. Protectionism is fine as long as its the US and that's being protected.

[Uli]

Originally posted by crawjo
As I mentioned in another thread, Bush has actually increased spending on job training. What else should he do? How can a president "create jobs?" By helping the economy to improve. Do you guys who oppose the tax cuts believe that tax cuts somehow *hurt* job recovery? If so, what helps create new jobs?

I certainly don't believe that Bush's tax cuts helped the economy. Cash benefits for lower income classes help the economy more as the cash flows back into it almost immediately. And I certainly don't believe that Bush's huge deficit helps the economy. Public works, spending on infrastructure etc helps the economy.

February 11, 2004
OP-ED COLUMNIST

• Watching the Jobs Go By
  By NICHOLAS D. KRISTOF
  
  To be permitted to read the rest of this column, you must first click here and answer the question correctly:
  
  Go on, try it. After all, 83 percent of Japanese high school seniors got it right (though only 30 percent of American seniors). The correct answer is (c). If you answered incorrectly, though, keep reading — think of it as a social promotion.
  
  The topic today is the growing furor over the outsourcing of jobs to India — and, more broadly, educational lapses here. One reason for the jobless recovery in the U.S. is that it doesn't make much sense to have an American radiologist, say, examine your X-ray when it can be done so much more cheaply in New Delhi.
  
  Indeed, why should computer software be written, taxes prepared, pathology specimens examined, financial analysis done or homework graded in the U.S., when all of that can be done more cheaply in Bangalore? I.B.M. is moving thousands of jobs to India and China, and Reuters says it will have Indian reporters cover some U.S. companies from there.
  
  All this is unsettling. But to me the alarm seems overwrought — and dangerous, for it is likely to fuel calls for protectionism. A dozen years ago, there was a similar panic about high-tech jobs going abroad, and people said that Asia would be making computer chips while Americans produced potato chips.
  
  Instead, free trade worked. Some autoworkers lost their jobs, but America emerged stronger than ever. Studies by Catherine Mann of the Institute for International Economics suggest that it is the same this time. Outsourcing raises American productivity, gives our economy a boost, increases foreign demand for U.S. products and leaves us better off.
  
  Yet, as an Indian friend, Sunil Subbakrishna, pointed out to me, there is one step we should take in response to this wave of outsourcing: bolster our second-rate education system.
  
  Mr. Subbakrishna, a management consultant specializing in technology, notes that in his native Bangalore, children learn algebra in elementary school. All in all, he says, the average upper-middle-class child in Bangalore finishes elementary school with a better grounding in math and science than the average kid in the U.S.
  
  I saw the same thing when I lived in China and interviewed college applicants there. The SAT wasn't offered in China, so Chinese high school students took the Graduate Record Examinations — intended for would-be graduate students — and many still scored in the 99th percentile in math.
  
  The latest international survey, called Trends in International Mathematics and Science Study, found that the best-performing eighth graders were, in order, from Singapore, South Korea, Taiwan, Hong Kong, Japan, Belgium and the Netherlands. The U.S. ranked 19th, just after Latvia. (India and China weren't surveyed.)
  
  "For too many graduates, the American high school diploma signifies only a broken promise," declares a major new study released yesterday by three education policy organizations. Called the American Diploma Project, it found that 60 percent of employers rated graduates' skills as only "fair" or "poor."
  
  The broader problem is not just in schools but society as a whole: There's a tendency in U.S. intellectual circles to value the humanities but not the sciences. Anyone who doesn't nod sagely at the mention of Plato's cave is dismissed as barely civilized, while it's no blemish to be ignorant of statistics, probability and genetics. If we're going to revere Plato, as we should, we should also remember that his academy supposedly had a sign at the entrance: "Let no one ignorant of geometry enter here."
  
  In 1957, the Soviet launching of Sputnik frightened America into substantially improving math and science education. I'm hoping that the loss of jobs in medicine and computers to India and elsewhere will again jolt us into bolstering our own teaching of math and science._

[Brian Olewnick]

So, Kristof's sensible solution (or reaction, anyway) is to propose better education standards and areas of concentration here at home. Fine, I doubt many would dispute this. I'm still interested to understand your reaction, Chris, to the general migration of certain jobs to poorer areas of the world. It seems that you're against this trend and I'm curious to understand why.

Solidarity, Uli! First agreement on the abortion/Death penalty issue, now this! Watch out, eai-thralldom is right around the corner......

[Uli]

I herewith pledge, that I never (read never) will agree with a rater's approach to artistic expression.

[Brian Olewnick]

It's so cute when you play hard to get.

[jesus marion joseph]

Outside of the New Deal, I wonder if any US president has ever been able to directly manipulate (pro or con) the "creation" of jobs through federal legislation?

[Uli]

Clinton, jmj!

[walto]

Just wanted to add my support to Brian and Uli's comments here. (Surprised Gordon hasn't chimed in--this is his favorite issue!)

You really can be a "progressive" without endorsing Smoot-Hawley-Gephardt, Chris!! The anti-Nafta gas heard all around Democratic debates lately is most just crass sucking-up to labor--for all the good it did Gephardt in Iowa.

[Monte Smith]

I'll chime in here to agree with Brian in some respects. Certainly the loss of jobs at home is going to pain US workers, but it really is inevitable in a global economy. Workers are no longer competing with just the locals. If a foreign nation can produce skilled workers and technology can reduce the costs of sending work to them and receiving it back, then those workers are going to get jobs and our higher-paid workers are going to lose them. Over the long term, things will come to an equilibrium--though that doesn't much help those hurting in the short term. One big bonus to America, though, is that foreign workers with good jobs and rising standards of living are probably not going to launch a resentful jihad against New York office towers. Yippee.

But assume a lot of jobs are going to Bangladesh and that that sucks. So are you going to move to Bangladesh? I doubt it. Opportunities are still pretty plentiful in the USA with 5.6% unemployment.

[Sand]

new thread

[Gordon B]

The Economy | Remember the great fear of offshoring?

By Andrew Cassel
Inquirer Columnist

We can't let February slip by without noting an important anniversary. Not another presidential birthday - this month marks the third year since the Great Offshoring Scare of 2004.

Remember? It was this month three years ago that Americans woke up to the shocking realization that many of the voices on the other end of the tech-support help line were in India, or Ukraine, or the Philippines. The news hit like a rock, and life was never the same again.

OK, I'm exaggerating. A lot of us actually knew about offshoring before then. And as for life never being the same... well, you decide.

February 2004, however, is definitely when offshoring peaked as an issue.

That month, Wired magazine, which keeps its finger on the pulse of the information-technology community, published a cover article about the spreading revolt of American tech workers against firms that filled programming and other jobs overseas.

One of Wired's key interviews was with Scott Kirwin of Wilmington, who had lost his job doing back-office tech work for a bank in Delaware. The experience had shaken Kirwin's faith in American business and prompted him to start a grassroots activist group to lobby for protection against offshoring.

"Politicians are not aware of the problem that information workers are facing here," Kirwin told the magazine. "It's not just the IT people. It's going to be anybody. That really worries me. Where does it stop?"

Then, on Feb. 9, the White House released its annual Economic Report of the President. Buried deep on Page 229 of the report was a paragraph noting the growth of offshore outsourcing by U.S. businesses and suggesting this was basically no different from other kinds of international trade:

"The basic economic forces behind the transactions are the same... . When a good or service is produced more cheaply abroad, it makes more sense to import it than to make or provide it domestically."

Gregory Mankiw, who oversaw that report as chief White House economic adviser, didn't think it was very inflammatory. Neither did most of the reporters who covered the report's release. But the next day, a headline in the Los Angeles Times read "Bush supports shift of jobs overseas." And off we went.

Mankiw was taken to the White House woodshed. House Speaker Denny Hastert demanded a personal apology. Democrats went ballistic - it was an election year, after all.

Most famously, then-candidate John Kerry issued a statement denouncing what he called "Benedict Arnold CEOs" who shipped U.S. jobs overseas. The airwaves and cables fairly hummed with angry talk about offshoring.

And what happened next? Nothing.

Nothing, that is, like the massive outflow of jobs that many feared. Employment growth, which had been notably slow after the 2001 recession, picked up in the United States. (We've gained more than five million jobs since early 2004.) Recruiters who specialize in information-technology workers say they have more openings than they can fill.

And as a hot-button headline issue, offshoring appears to have gone the way of Y2K and the Red Menace. File it under N, for Not as Big a Deal as We Thought.

Yes, some still see offshoring as a threat, sort of. A Brookings Institution report last week said some metropolitan regions with lots of high-tech employment could see as many as 4.3 percent of their jobs go overseas. (Philadelphia isn't so vulnerable - the Brookings report estimates our potential losses at 2.5 percent at the most.)

But most economists who've looked at the issue rate the long-run economic impact of offshoring as either (1) minimal, or (2) positive. Using overseas workers to save money or boost productivity generally results in better or cheaper services, which in turn leads to more competition, more innovation, and growth.

But you don't have to take my word for it. Listen to Scott Kirwin, who made a return appearance in December to Wired magazine. Things have changed. He shut down his anti-offshoring Web site in 2006 and has since found himself a better job in the software business. "I don't view outsourcing as the big threat it was," he told the magazine. "In the end, America may be stronger for it."

[rollhead]

In a weekly column for CNN.com, Lou Dobbs wrote:

But in none of the attacks on my position on outsourcing has a single columnist or news organization seen fit to deal with the facts.
Number one: We’re not creating new jobs in the private sector, and that’s never happened before in our history. . . . Number two: We haven’t had a trade surplus in this country in more than two decades, and our trade deficit continues to soar. Number three: We’ve lost three million jobs in this country over the last three years. . . . That seems to me, at least, to be more than sufficient evidence for all of us.

This is what Dobbs had to say about Cassel:

"And, Andrew, you and your ilk are nothing more or less than corporate supremacists, and your mindless faith-based understanding of economics is what got this country in this mess in the first place."

[rollhead]

“Executive Excess 2004” profiles the CEO pay practices and political contributions for the 15 companies that outsourced the most US service jobs: United Technologies, Citigroup, Oracle, Bank of America, Cognizant Technology Solutions, Morgan Stanley, Intuit, SBC Communications, Conseco, JP Morgan Chase, Sprint, Bank of New York, Time Warner, General Electric, and American Express.

Bank of America, for example, cut nearly 5,000 US jobs while outsourcing up to 1,100 jobs to India in 2003. In July 2004, the firm announced that it planned to cut another 12,500 U.S. jobs in the next two years. Meanwhile, CEO Kenneth Lewis received $37.9 million in compensation in 2003, nearly 110 percent more than in 2002. Bank of America’s PAC has made $576,319 in contributions in the 2003-2004 election cycle.

The outsourcing of service jobs to low-wage countries has further widened the pay gap between workers and their bosses. Currently, the pay gap between U.S. CEOs and American call center workers is 400:1, while the gap between U.S. CEOs and Indian call center workers is 3,348:1.

Authored by Sarah Anderson, John Cavanagh, Chris Hartman, Scott Klinger, and Stacey Chan, “Executive Excess 2004” is the eleventh annual CEO pay study by the Institute for Policy Studies and United for a Fair Economy. The Institute for Policy Studies is an independent center for progressive research and education in Washington, DC. United for a Fair Economy is a national organization based in Boston that spotlights growing economic inequality.

[rollhead]

Originally Posted by walto

Just wanted to add my support to Brian and Uli's comments here. (Surprised Gordon hasn't chimed in--this is his favorite issue!)

You really can be a "progressive" without endorsing Smoot-Hawley-Gephardt, Chris!! The anti-Nafta gas heard all around Democratic debates lately is most just crass sucking-up to labor--for all the good it did Gephardt in Iowa.

First, Walto, I never confused you with a real progressive.

And your comments (along with Brian's and Uli's) are just more unthinking, "fuck the worker first" nonsense.

If offshoring is at all successful, (i.e., raises national income, which is questionable at best), it won't benefit the average worker.

But don't take my word for it ... according to the Economic Policy Insititute:

"even if this offshoring does increase national income, American workers will still likely miss out on many of the benefits. Mainstream international economics is equally clear that international integration redistributes more income than it creates. If total U.S. GDP is raised by offshoring, but American workers lose at the expense of corporate profits, then workers are wholly justified in resisting offshoring, at least until they receive some compensation for their losses. Good economic policy should not rest on insisting that American workers sacrifice their own self-interest in terms of lower wages to the larger national interest of increased national income. Policy should also not be driven by studies that mask the costs of offshoring while providing inflated estimates of its benefits. If proponents of offshoring want to reap the potential efficiency gains it offers, a new social contract needs to be proffered to American workers to insure them against the very real risks offshoring poses to their living standards."

[rollhead]

Originally Posted by Gordon B

[Gregory Mankiw, who oversaw that report as chief White House economic adviser, didn't think it was very inflammatory. Neither did most of the reporters who covered the report's release. But the next day, a headline in the Los Angeles Times read "Bush supports shift of jobs overseas." And off we went.

Mankiw was taken to the White House woodshed. House Speaker Denny Hastert demanded a personal apology. Democrats went ballistic - it was an election year, after all.

It should be pointed out that the self-proclaimed 'deep thinker" Gordon B blindly follows all the drivel of Greg Mankiw, who is his hero.

BUT there are other points of view:

Editor's Note: In a statement at the White House on February 9, 2004 N. Gregory Mankiw, Chairman of the Council of Economic Advisers, stated:

"I think outsourcing is a growing phenomenon, but it's something that we should realize is probably a plus for the economy in the long run. Economists have talked for years about trade, free international trade, being a positive for economies around the world, both at home and abroad. Outsourcing is just a new way of doing international trade."

We asked Michael Sarfatti '76, SM '78 (MIT) if the trend of outsourcing/offshoring jobs should be of economic interest to the United States? Below is his response.

The benefits of offshoring, are justified on a dated 19th century economic concept: "comparative advantage."1 The benefits often largely accrue to investors and management elites; the costs are increasingly borne by workers and middle class professionals. In the geopolitical realm, a world power that loses it manufacturing capacity no longer is a world power. Unrestricted use of outsourcing conflicts with the long-term U.S. national interests. Gregory Mankiw drew a chorus of criticism from Congress and quickly backpedaled. Searching the web, it seems the economics profession supported Prof. Mankiw's position. But why is the general public (April 2004 Harris Poll) skeptical about the benefits of outsourcing, a facet of "free" trade?

Free Trade
"Free" trade means: Trade or commerce carried on without such restrictions as import duties, export bounties, domestic production subsidies, trade quotas or import licenses. The basic argument for free trade is based on the economic theory of comparative advantage: each region should concentrate on what it can produce most cheaply and efficiently and should exchange its products for those it is less able to produce economically.

Does the U.S. engage in "free" trade? Yes and no. While a leading exponent of "free" trade, the U.S. nevertheless subsidizes agriculture, lumber (cheap leases of publicly owned forests), occasionally protects steel production (in key steel industry states) and regulates some financial industries. Other countries (e.g., Korea and China) with which the U.S. runs massive trade deficits, are based on the "Export-Led Growth Model" invented by Japan, the world's second largest economy, one not operated on the supposed universal laws of western economics. Hence, realists see "free" trade as an idealization, often honored in the breach. So public chariness about "free" trade may be as much prudence as protectionism (the dreaded tag-word). Public opinion notwithstanding, Mankiw's views are particularly important since he has the ear of the President.

Prof. Mankiw lectured at the Stanford Institute of Economic Policy Research in late April 2004. Obtaining a videotape of his talk, I viewed it carefully. He addressed the outsourcing/"free" trade issue that gained him notoriety; about one third of the questions related to outsourcing. To summarize, "free" trade is good for everyone although the induced economic changes produce "painful dislocations." The basis for this belief is David Ricardo's comparative advantage theory (1817), a concept that is "true without being obvious."

He noted, "Economists are reasonably unanimous on 'free' trade and that is why George Bush sends Bob Zeollick (U.S. Trade Representative) around the world to do trade agreements...George Bush is convinced about 'free' markets and he is a 'free' trader." Prof. Mankiw duly observed, "Admittedly, not everyone is as convinced (of the benefits of 'free' trade) as the economics profession." Why not?

First, who was David Ricardo? He could be described as the George Soros of the age (1795 to 1815) of Britain's struggles with Napoleon. He became immensely richer by betting correctly on the outcome of the Battle of Waterloo. He promptly retired and began a second career. His Book, "Political Economy and Taxation" (1817) contained novel concepts including "comparative advantage" (how Portugal and England were better off specializing in production of wine and cloth respectively with trade rather than both producing both these commodities). But other dated concepts of that age have been abandoned or modified (e.g., unfettered laissez faire of Adam Smith, population economics of Malthus, etc.) but not comparative advantage, which still motivates key economic policy makers. Why?

One explanation is an uncritical spiritual belief in Ricardo's comparative advantage, regardless of practical consequence to society or the economy. Heretic Nobelist and economist (and MIT Ph.D.) Joseph Stiglitz argues that belief in globalization (AKA, "free" international trade) amounts to "market fundamentalism" (that is, a "free" market solves all problems flawlessly).

Agnostic economist, Paul Craig Roberts (Treasury official during the Reagan Administration) argues the underlying assumptions of Ricardo are wrong in the modern context. Ricardo assumed that a country's labor, capital and technology must not move offshore. But the factors of production now can, so comparative advantage ceases to be as meaningful.

Outsourcing then, a feature of "free" trade per Prof. Mankiw, is driven in some Asian countries by "an absolute advantage because of a vast excess supply of skilled and educated labor." Hence, outsourcing is largely "labor arbitrage" that leaves many workers in the First World at a loss. Continued pursuit of comparative advantage in a world where absolute advantage primarily matters, risks leading this nation to "Brazilianize" (per author Michael Lind), to become a nation with a small class of extreme wealth and a huge underclass and greatly reduced middle class. Few economists would endorse Brazilianization, but they endorse Ricardo theory, which seems to allow this outcome.

Returning to Mankiw's talk, he suggests that First World economies will maintain themselves by continual "innovation." As work moves offshore, "U.S. Ingenuity will bring new jobs as market forces respond." When asked what these new jobs or industries might be, he demurred. He felt that "public policy makers should not make such determinations." He did mention federal funds for retraining. But again questions arose: in what field, biotechnology, nanotechnology etc.? He didn't know. Also can't most of the jobs, for which workers retrain, also be outsourced? Why not? So, where is the comparative advantage?

Key to the use of the Ricardian theory is the creation of "new and better jobs" to fill the outsourcing void (which isn't clearly happening). This often leads defenders of outsourcing to hit the "R&D Button," or to call for more government funding of research and development. Or it can also lead them to hitting the "Education Button" to encourage more U.S. college students, skeptical about employment prospects, to major in science and engineering in spite the outsourcing risk.

Craig Roberts points out, it has been years since the U.S. economy has created any "net new" jobs in export/import-competitive industries. The projected job growth over the next decade, per February 2004 Bureau of Labor Statistics (BLS)14 for seven of the top 10 occupations, lies largely in menial areas that can be learned without a college degree. So the government's own projections suggest the creation of largely low-tech rather than high-tech jobs over the next decade. (Recent U.S. job growth in February thru April 2004 has indeed been concentrated in these low-end service occupations.) So innovate we must.

The "innovate" gambit, however, poses intellectual property (IP) issues when the manufacturing is outsourced offshore. Two key domiciles for outsourced U.S. production, India (IT) and China (low cost manufacturing), do not follow patent and copyright treaties. The struggle over intellectual property is a significant trade issue between the U.S. and China. Intel declined to ship its Wi-Fi chipset for use in China. One stated reason was the Chinese use of its Wired Authentication and Privacy Infrastructure (WAPI) standard (vs. global IEEE 802.11i standard). Were Intel to adopt China's (WAPI) standard, they would be obligated to share their IP with Chinese companies. Deborah Wince-Smith, President, Council on Competitiveness notes, "There's been a tremendous amount of outright theft, where a U.S. design has actually showed up in a competing Chinese product." So, running faster with more innovation (Prof. Mankiw's nostrum) is a risky game as the U.S. innovators have little IP protection to earn a long-term return .

Ms. Wince-Smith further observes, as have other economists and technologists, offshoring is accelerating the emergence of China and India as first-tier competitors in many of the most advanced, high value economic activities. In the process of outsourcing, U.S. companies may be creating their own competition. But such "externalities" seem to be excluded from the traditional economic analysis.


Geopolitical Realism
In Ricardo's day, economics was known as the "political economy" with good reason, as many economic issues have political or national interest dimensions. Often modern practitioners of economics neglect the political dimension. Turning to a prominent political scientist, Prof. John Mearsheimer (University of Chicago), who accurately forecast many trends following the dissolution of the Soviet Union, now posits that China and the U.S. are destined to engage in an intense security competition reminiscent of the Cold War. Similar thoughts emanate from Prof. Samuel Huntington at Harvard. Therefore, the "precautionary principle" alone argues, for geopolitical reasons, against a policy that risks losing a substantial part of the U.S. manufacturing capacity, especially to countries where the U.S. interests will most likely conflict.

But haven't numerous studies forecast significant economic benefits to the U.S. from outsourcing? Of course, but astute readers must wonder to whose advantage was each study produced? The McKinsey Global Institute finds that "Every dollar a U.S. company spends on offshoring to India, the U.S. economy gains $1.12 to $1.14." Really? The problems with this study were articualted by Prof. Ronil Hira of the Rochester Institute of Technology and the IEEE-USA's Chair on the Career and Workforce Policy Committee.

First, the report fails to disclose that McKinsey has had NASSOM (Indian Software Services Industry Association) as a long-standing customer and that McKinsey sells offshoring consulting services. The study itself is drawn from case studies done by McKinsey consultants; the data are unavailable for review.

Most importantly the study assumes that workers, displaced by offshore outsourcing, will be "redeployed" soon at substantially the same wages. Such redeployment (Exhibit 6 of the MGI study) accounts for about $0.45 of the $1.12 to $1.14. Without re-employment in "new" industries, much of $1.12 to 1.14 benefit for $1.00 cost goes away!

Another prominent study commissioned by the Information Technology Association of Americareports, "Outsourcing may create U.S. jobs." A review of the ITAA study by U.C. Davis Professor of Computer Science, Norman Matloff, points out the report says explicitly that IT jobs will decline as a result of offshoring, while jobs in construction and financial services (low tech) will increase. Fine, but a Ph.D. in EE or CS isn't necessary for those occupations.

One occasionally hears of "insourcing" (countervailing source of jobs to the U.S) but deconstruction of these numbers shows few really net new jobs since foreign companies insourcing to the U.S., often grew by acquisition. Some authors attribute the massive loss of U.S. manufacturing jobs since 2001 primarily to productivity growth. But other periods of high-productivity growth (say the 60's, or late 90's) have coincided with robust U.S. job growth. Why isn't this pattern happening now?

The first attempt of the Bureau of Labor Statistics to measure outsourcing by looking at mass layoffs suggests only a few thousand jobs were due to outsourcing (2.5% of the 182,456 layoffs in 2004 QI). The BLS admits an undercount. It further fails to address jobs created offshore by American companies without any corresponding U.S. layoffs. A number of other researchers produce much higher estimates29. U.C. Berkeley's Fisher Center for Real Estate and Urban Economics released a more comprehensive report30 that estimated about one in ten jobs in the U.S. is at risk for outsourcing, and the jobs are concentrated in certain industries.

"Face-Off on Offshoring" appeared in the May 10, 2004 Wall Street Journal, pitting Dr. Paul Roberts (Ricardo agnostic) against Prof. Jagdish Bhagwati of Columbia University. The latter generally agrees with the Mankiw position. Roberts however, argues Bhagwati should temper his optimism with realism, because if offshoring becomes big, the U.S. risks losing jobs requiring higher levels of education and intellectual power, and only gaining in jobs requiring much lesser levels. Dr. John Steadman, President of IEEE-USA lays out the position of this engineering society. Both Roberts and Steadman posit the outsourcing issue will peak if deterioration continues in the U.S. labor market and will ultimately be settled by political action rather than economic debates.


Conclusion
Prof. Mankiw's comment that "outsourcing is just a new way of doing international trade" has deeper implications than he appreciated. The bigger question is, what in total are we trading away and getting in return? While a majority of the economics profession may assure us of net benefits, I recommend Mark Twain's aphorism: "Whenever you find that you are on the side of the majority, it's time to pause and reflect."

[walto]

Originally Posted by rollhead

First, Walto, I never confused you with a real progressive.

And your comments (along with Brian's and Uli's) are just more unthinking, "fuck the worker first" nonsense.

If offshoring is at all successful, (i.e., raises national income, which is questionable at best), it won't benefit the average worker.

But don't take my word for it ... according to the Economic Policy Insititute:

"even if this offshoring does increase national income, American workers will still likely miss out on many of the benefits. Mainstream international economics is equally clear that international integration redistributes more income than it creates. If total U.S. GDP is raised by offshoring, but American workers lose at the expense of corporate profits, then workers are wholly justified in resisting offshoring, at least until they receive some compensation for their losses. Good economic policy should not rest on insisting that American workers sacrifice their own self-interest in terms of lower wages to the larger national interest of increased national income. Policy should also not be driven by studies that mask the costs of offshoring while providing inflated estimates of its benefits. If proponents of offshoring want to reap the potential efficiency gains it offers, a new social contract needs to be proffered to American workers to insure them against the very real risks offshoring poses to their living standards."

I don't know whether I'm a progressive or not, Rollie. I never claimed that "offshoring" would benefit the average American worker, and I don't think it would. It benefits the average American consumer, probably at the expense of the average American worker. As you may not remember, I think other things should be done to make sure that average American workers aren't hurt by what the libs call (but I deny is) "free trade." Where you an I disagree, I guess, is that I don't think that protectionism is the answer for U.S. Labor. But I don't agree with the libertarians, that nothing at all should be done either.

[guy]

Originally Posted by rollhead

[/I][/B]Number three: We’ve lost three million jobs in this country over the last three years. . . . That seems to me, at least, to be more than sufficient evidence for all of us.

Cassel says there has been a gain of 5 million jobs over the same tiem period -- which guy is right? I'm guessing Cassel, but am too lazy to do my own research.

Guy

[guy]

Originally Posted by rollhead

In the geopolitical realm, a world power that loses it manufacturing capacity no longer is a world power. Unrestricted use of outsourcing conflicts with the long-term U.S. national interests.

I've read this before, but without any backup. Why the sanctity assigned to manufacturing? It's just one type of economic activity. FWIW, manufacturing has still grown in dollar value -- the US hasn't lost its manufacturing capacity. It's employment in manufacturing that's decreased, because production is much more mechanized/capital-intensive than it used to be.

Free Trade
"Free" trade means: Trade or commerce carried on without such restrictions as import duties, export bounties, domestic production subsidies, trade quotas or import licenses. The basic argument for free trade is based on the economic theory of comparative advantage: each region should concentrate on what it can produce most cheaply and efficiently and should exchange its products for those it is less able to produce economically.

Does the U.S. engage in "free" trade? Yes and no. While a leading exponent of "free" trade, the U.S. nevertheless subsidizes agriculture, lumber (cheap leases of publicly owned forests), occasionally protects steel production (in key steel industry states) and regulates some financial industries. Other countries (e.g., Korea and China) with which the U.S. runs massive trade deficits, are based on the "Export-Led Growth Model" invented by Japan, the world's second largest economy, one not operated on the supposed universal laws of western economics. Hence, realists see "free" trade as an idealization, often honored in the breach. So public chariness about "free" trade may be as much prudence as protectionism (the dreaded tag-word).

Well, the argument usually isn't only that free trade is good, but that free-r trade is better than less-free trade. So just because we don't live in a world where all trade barriers are abolished doesn't mean that putting up more trade barriers is a good idea.

Agnostic economist, Paul Craig Roberts (Treasury official during the Reagan Administration) argues the underlying assumptions of Ricardo are wrong in the modern context. Ricardo assumed that a country's labor, capital and technology must not move offshore. But the factors of production now can, so comparative advantage ceases to be as meaningful.

This statement is misinterpreted. All this means is that the gains from comparative advantage are potentially eliminated through factor movement -- in other words, as countries become identical in technology and/or factor endowments, there are no gains from trade.* It doesn't mean that trade is bad in a world with perfect factor and technological mobility, just that it's superfluous.

Of course, we don't live in a world with perfect factor mobility or identical technology. So the gains from comparative advantage still exist.

*This isn't entirely true due to gains that accrue from economies of scale exploited through trade -- these exist even in a world with economies of identical factor endowment and technology.

Outsourcing then, a feature of "free" trade per Prof. Mankiw, is driven in some Asian countries by "an absolute advantage because of a vast excess supply of skilled and educated labor." Hence, outsourcing is largely "labor arbitrage" that leaves many workers in the First World at a loss. Continued pursuit of comparative advantage in a world where absolute advantage primarily matters,

I don't understand why he is bringing in absolute advantage here.

risks leading this nation to "Brazilianize" (per author Michael Lind), to become a nation with a small class of extreme wealth and a huge underclass and greatly reduced middle class. Few economists would endorse Brazilianization, but they endorse Ricardo theory, which seems to allow this outcome.

The "Brazilianization" is a possibility, I suppose, though it seems a bit extreme given the data. That said, dealing with distributional issues is generally less economically costly using domestic taxes and transfers than by blocking trade.

Returning to Mankiw's talk, he suggests that First World economies will maintain themselves by continual "innovation." As work moves offshore, "U.S. Ingenuity will bring new jobs as market forces respond." When asked what these new jobs or industries might be, he demurred. He felt that "public policy makers should not make such determinations." He did mention federal funds for retraining. But again questions arose: in what field, biotechnology, nanotechnology etc.? He didn't know. Also can't most of the jobs, for which workers retrain, also be outsourced? Why not? So, where is the comparative advantage?

I don't think it's possible to predict which industries will be a country's comparative advantage with any certainty.

Alright, I'm tired and maybe will continue responding to the article tomorrow.

One last thought -- Paul Krugman once came up with the thought experiment of an inventor who comes up with a wonderful method/technology of producing steel (or whatever good/service you prefer) with only half the resources as before (production at half the cost). He's publicly commended for this technological breakthrough. Then one day, it's discovered that his "breakthrough" in fact involved taking the resources in question, shipping them abroad, and using the money to import steel. Does he all of a sudden turn from a genius into a villain?

Taking advantage of the gains from trade and the gains from technology are no different. Both, while generating overall gains for society, sometimes generate winners and losers (including people who lose their jobs because of technological breakthroughs). But I've almost never heard anybody argue that we should stop adopting technological breakthroughs -- why argue that we should block trade? (Maybe because it involves foreigners?)

[walto]

I think the important point here is that to the extent that protection helps American workers (and big businesses--let's not forget who else is always pushing for protection) it does so at the expense of American consumers. It's therefore a very regressive tax. The only reason any "progressive" can support it is that this subsidy is a hidden one, paid largely by poor people who are unlikely to notice. If Americans should subsidize American workers--and a case can be made that we should-- the only reason I can see for doing it via tariffs or other protection is that it's easy to hide/forget what's happening and who's actually paying.

[walto]

But I've almost never heard anybody argue that we should stop adopting technological breakthroughs

There's actually been quite a bit of that sort of advocacy since the industrial revolution. That's exactly what the Luddites were famous for.

I enjoyed your post very much, by the way. A lot to chew on there.