• Outsourcing Outsourcing Anybody who believes that honesty is the best policy has no business in politics. Just look at what happened to poor Gregory Mankiw. Mankiw is chief economic advisor to the president. Asked a question, he gave an
• Outsourcing
Outsourcing
Anybody who believes that honesty is the best policy has no business in politics. Just look at what happened to poor Gregory Mankiw. Mankiw is chief economic advisor to the president.
Asked a question, he gave an honest answer. Sending American jobs to foreign countries “is probably a plus for the economy in the long run,” Mankiw said.
That’s economic truth, as nearly every economist will tell you. But saying so is dumb politics in an election year where job losses are a monster issue. So Mankiw was righteously slapped around for it. Democrats denounced him. Even Republicans called for his head, and President George W. Bush performed a deft side-step. So much for honesty.
Mankiw was talking about the “law of comparative advantage,” an accepted principle of economics for two centuries. Boiled down, the law says this: if someone can make a product cheaper than you, you should buy it from him, then spend your own time on the things you make better than anyone else. That’s your comparative advantage. Do that and everybody prospers.
Catherine Mann of the Institute for International Economics in Washington gives an example of how this works across borders: America dominates development of computer technology, but much of the computer hardware manufacturing moved to Asia in the 1990s. That cheap Asian labor accounted for 10 percent to 30 percent of the amazing drop in computer prices during the last half of the decade. Americans used those cheap computers to vastly improve the efficiency of factories and offices, which helped launch the greatest economic boom of the past century.
America created 24 million jobs in the 1990s, and cheap Asian computers helped.
Mann’s group strongly backs free trade. But her view is mainstream gospel. “Outsourcing does not reduce the total number of jobs in America,” says Robert Reich, former labor secretary under President Bill Clinton and a political liberal. “If other countries can do something cheaper, we ought to let them do it and concentrate on what we can do best,” he told The New York Times.
The shocker today is that outsourcing is moving into the white-collar service sector and up the education and pay scales.
First it was customer-service jobs. Dell, the computer maker, has a support center in India, and Delta Airlines has moved reservation jobs to the Philippines. Now computer-software and engineering jobs are heading to India and Asia. America may have lost 400,000 to 500,000 information-technology-processing jobs to overseas suppliers over the past few years, according to Laura D’Andrea Tyson, former economic adviser to President Clinton. A study by Forrester Research predicts that 3.3 million service jobs and $136 billion in wages will be moved overseas by 2015.
We could outlaw this, of course, but we’d be shooting ourselves in the foot. Tell an American manufacturer that it can’t buy cheap Indian software, and you raise the cost of making things in America. That’s poison in an era of global competition. Not to mention that the world’s greediest consumers — us — want more stuff, and we want it cheap.
We could build tariff walls around the United States. But that would raise prices for consumers, enshrine inefficiency, and cost American jobs as foreign nations retaliate against our exports.
The answer is for America to stick to the formula that made it great: we are the world’s center for innovation. We invent the things the world will need tomorrow, and we produce them with great efficiency. Ultimately, that’s our comparative advantage.
To keep that advantage, we must emphasize education and retrain the victims of outsourcing. Those are the best investments this nation could make. “The protectionist cures being advanced to address these hardships will make matters worse rather than better,” said Federal Reserve Chairman Alan Greenspan. The answer to outsourcing “is to boost the skills, and thus earning potential, of those workers lower on the skill ladder.”
At some point, maybe the Missouri Legislature, Congress and even the White House will get the message. We’ll know when our leaders make as big a fuss about funding for public education and job training as they do about preserving tax cuts and loopholes for the rich.
ST. LOUIS POST-DISPATCH
