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Vietnamese workers earn a living by making Nike shoes: This is
not the outsourcing that Americans are most concerned about.
HO CHI MINH CITY: Most economists believe that trade benefits
the economy in the long run. An unemployed worker whose job has
been outsourced to a foreign factory or back office in Asia might
argue differently, however. In the long run, they might say, we
are all dead. During this election year, political battles in
Washington will rage and complicate the issue.
But in economic terms, the story remains quite simple. In places
like Vietnam, hundreds of thousands of workers get better jobs
than they had, produce goods more cheaply, and are able to buy
imported goods.
The race for the White House has sparked a debate in the US about
the desirability of increased economic integration. In recent
years, liberal economic policies have facilitated trade and also
outsourcing, in which companies relocate certain operations to
countries such as Vietnam where labor is cheaper. In the past,
mostly blue collar factory jobs went abroad. Now, white collar
workers, who previously benefited from cheaper goods, are bidding
their jobs bon voyage.
Regardless of the type of work affected, the US must find a way
to help its citizens who work hard and play by the rules maintain
a decent and reasonably secure life.
Most economic studies indicate that trade is only a secondary
cause of job losses and gains, however. Even in the recent past,
it has been technology that primarily destroys and creates jobs.
While production of labor-intensive products such as shoes or
garments does move out of the US due to cheap labor in places
like Vietnam, these are seldom the quality jobs critics and workers
are most concerned about.
One thing that needs to be sorted out is whether it is still
true that technology accounts for most "lost" jobs.
For example, call centers represent a major class of outsourced
jobs. But counting each call center job in India as a "lost"
US job might be quite wrong. Moreover, the alternative could be
"voice mail hell," in which automated responses reduce
human labor, though at a great increase in annoyance. If technology
still accounts for most displaced workers, then the anger directed
at trade and outsourcing is misplaced, and measures to restrict
trade or outsourcing would raise costs without much helping those
workers.
Regardless of why people are losing their jobs, public policy
could do much more to help the losers. The US government currently
gives tax breaks to investment through accelerated depreciation.
This is, in effect, a subsidy to capital. If it instead gave medical
insurance subsidies to those who lost jobs, this would make the
cost of labor cheaper. It would make it possible for a new firm
to set up in a depressed area and enjoy lower labor costs, offsetting
training and setup costs.
Suggestions of this sort, including wage insurance, are better
than the current trade adjustment assistance. This assistance
is narrow restricted to those displaced by trade - and extends
unemployment compensation and provides training programs, though
most of those have failed to be very effective. (Wage insurance
would pay a worker some share of the difference between her old
job and her current one, if the new job's wages were lower. It
would be for a period of time and allow a more gradual search
for better jobs or training.) By changing the relative prices
of capital and labor, especially displaced labor, it should be
possible to reduce the pain inflicted upon those that are displaced.
Another perspective on the jobs issue one removed from the current
election year comes from the demographic facts that Alan Greenspan
alluded to last week. In a few years, a lot of Americans will
begin to retire. The growth rate of the US workforce will fall
sharply. The elderly will need many labor-intensive services.
In that time frame, there may well be a need for outsourcing lower
productivity jobs that can be done remotely. It is hard to think
of the gains from outsourcing when job growth is so slow. But
if we need even more high-touch jobs and do not want to increase
immigration, outsourcing call center or basic computer programming
jobs will become an economic necessity.
Even this potential benefit does not wholly dispel the fear that
smart people in poor countries will discourage US workers from
upgrading their skills. What good is it to become a US computer
whiz if someone in India will do the same work for $1500 a month?
A few points might be made here.
First; A lot of the pain from recent IT job losses came from the
popping of the Internet bubble, not from India. Outsourcing does
have implications, but not for the entire computer industry.
Secondly; There are limitations on the ability of companies to
use remote labor for these high-end purposes, and it is uncertain
how fast wage costs will increase in places like India.
Finally; It is important to remember that if overall output increases,
it should be possible for gains to offset losses. Since we are
prone to worry about terrorism and development in poor countries,
allowing outsourcing to proceed has benefits well beyond only
narrow economic ones.
Most commentators urge workers to get skills. President Bush's
recent suggestion to better fund community colleges is a step,
albeit an inadequate one, in that direction. However, few believe
that the US education system provides an adequate basic knowledge
set at least if relatively low math and science scores in international
tests are any indication. Endowing students with a fundamental
skill and knowledge base, which means educational reform , is
another necessity that will probably get little but lip service
in the next few months.
The Economist made a point in a recent article on outsourcing
and trade. The US economy, it noted, destroys and creates a huge
number of jobs each month , their estimate was two million or
more. If technology and globalization are creating even more economic
change, it will necessarily create a response from those who are
hurt by it, no matter how accustomed workers are to the fluctuations
of the US job market. If public policy does not find a way to
reduce the pain of adjustment, the injured will attempt to slow
down the perceived cause of their insecurity. A concentrated dollar's
worth of injury might create more political pressure than several
dollar's worth of gains that are widely spread among consumers.
While we have learned something from the Smoot-Hawley tariffs
and trade collapse of the 1930's that caused a world depression.
It is nearly certain that those who wish to see globalization
raise living standards around the world need to pay more attention
to those who are currently left behind. These injured groups include
factory workers and white-collar professionals in the US, and
also poor farmers and workers in many countries with far fewer
resources to deal with change.
Unless some of the rough edges are taken off globalization, the
average gains will not persuade governments that the game is worth
the candle. For those workers who do benefit, in Vietnam and elsewhere,
the costs of backsliding would be very high.
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Why George Bush will Lose
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