I’ve been meaning to write some things about outsourcing, or as it is sometimes called these days, off-shoring. I’ve also resisted doing so. One reason: it’s not exactly an issue of state-level policy, which I focus on here. There are plenty of other things to keep me occupied.
Another reason: there’s not much that can be done about it. Sure, states can make symbolic gestures–no contracts to companies that then use offshore employees for, say, call centers. Off-shoring is the continuation of ages-old process of global economic change, in which the U.S. becomes proficient in one industry, loses its edge as another country takes over, and then develops new industries in the process.
What’s got people set on edge these days, though, is the fact that global competition is becoming a fact of life for white collar workers–as when Reuters announced it would hire journalists in India to write some stories on the U.S. market. For the chattering classes, the closure of the steel mill was something to talk about. But now that their own jobs are threatened, well, now it’s a lot more of a compelling story. And of course, politicians find that railing against greedy corporations for “sending jobs overseas” is a good way to demonstrate empathy and burnish populist credentials.
Anyway, in today’s Spectator, William Tucker says that contrary to the claims of some, dead economists did anticipate today’s controversy.
The charge: in the 19th century, “major factors of production — soil, climate, geography and even most workers — could not be moved to other countries. But today’s vital factors of production — capital, technology and ideas — can be moved around the world at the push of a button.”
Says Tucker: “Did you follow that? It’s like saying force may not equal mass times acceleration anymore because Isaac Newton didn’t envision automobiles.
Ricardo never argued or even imagined that soil, climate and geography would or wouldn’t be moved from country to country. His point was that the factors of production could be duplicated.”
Tucker then draws on the history of the Corn Laws, which were a political issue in Britain at one time. They were repealed … and disaster did not strike. Markets changed, people adjusted, and overall, the country was better off. Same with off-shoring today, he argues.
Some critics of off-shoring, such as Robert Reich, former economic advisor to the president, argue that key to any response to off-shoring is getting people ready to adjust to new realities, to take on new jobs. Tucker agrees that human capital is critical, and notes “There is one danger lurking in all this, of course, and this is that competition from India and China will expose America’s glaring weaknesses in public education. … It remains an idle curiosity that we rank only 19th in math and science (just behind Latvia), but someday this is all going to come home to roost.”
Also today, the Detroit Free Press says that General Motors is eliminating some white collar contractor jobs. In itself, that’s nothing new. But the measure is drawing fire because the company recently opened a white collar work center in Bangalore, India.
Tom Bray, a Freep columnist, says it is time to “Cool the hot rhetoric about exporting jobs.” He notes that today’s unemployment rate is about the same it was 25 years ago, when off-shoring was not an issue.
Meanwhile, Bruce Bartlett of the National Center for Policy Analysis, defends a current presidential advisor who has come under fire for saying that off-shoring has some beneficial effects.
“One would have a hard time finding a reputable economist anywhere who disagrees with this analysis. No nation has ever gotten rich by forcing its citizens to pay more for domestic goods and services that could have been procured more cheaply abroad. Nations get rich by concentrating on doing the things they do best and letting others produce those things they can produce better and more cheaply. It is called the specialization of labor and it is the foundation for economic growth. That is why even Democratic economists like Janet Yellen, Laura Tyson, Brad DeLong and Robert Reich have come to Mr. Mankiw’s defense.”
Bartlett reminds us that job relocation has a long history in the U.S. — South Carolina textile firms now under competitive pressures from other countries got planted there because the work could be done more cheaply there than in New England. He concludes “It would be grossly unfair to say that it is OK to move manufacturing wherever production is cheaper, but wrong to subject information technology services to the same competition.” Given the increased accessibility of communications, he says, it’s also impossible to stop by fiat.
In other words, there’s not much government can do, except make sure that people are getting educated so that they can be more productive. As I was saying ….