The Outsourcing Bogeyman

Foreign Affairs ^ | May/June 2004 | Daniel W. Drezner

[Steve Eisenberg]

When a presidential election year coincides with an uncertain economy, campaigning politicians invariably invoke an international economic issue as a dire threat to the well-being of Americans. Speechwriters denounce the chosen scapegoat, the media provides blanket coverage of the alleged threat, and legislators scurry to introduce supposed remedies.

The cause of this year's commotion is offshore outsourcing -- the alleged migration of American jobs overseas. The depth of alarm was strikingly illustrated by the firestorm of reaction to recent testimony by N. Gregory Mankiw, the head of President George W. Bush's Council of Economic Advisers. No economist really disputed Mankiw's observation that "outsourcing is just a new way of doing international trade," which makes it "a good thing." But in the political arena, Mankiw's comments sparked a furor on both sides of the aisle. Democratic presidential candidate John Kerry accused the Bush administration of wanting "to export more of our jobs overseas," and Senate Minority Leader Tom Daschle quipped, "If this is the administration's position, I think they owe an apology to every worker in America." Speaker of the House Dennis Hastert, meanwhile, warned that "outsourcing can be a problem for American workers and the American economy."

Critics charge that the information revolution (especially the Internet) has accelerated the decimation of U.S. manufacturing and facilitated the outsourcing of service-sector jobs once considered safe, from backroom call centers to high-level software programming. (This concern feeds into the suspicion that U.S. corporations are exploiting globalization to fatten profits at the expense of workers.) They are right that offshore outsourcing deserves attention and that some measures to assist affected workers are called for. But if their exaggerated alarmism succeeds in provoking protectionist responses from lawmakers, it will do far more harm than good, to the U.S. economy and to American workers.

[Steve Eisenberg]

I have been reading outsourcing articles from both sides, and IMHO this is the most honest one I have seen. A little long, so I excerpted.

[rellimpank]

--to my surprise, a few weeks ago I read an editorial piece by Thomas Friedman of the NYT with which I largely agreed. He had just returned from a trip to India where he observed that everything in the "outsourced" business office--including the bottled water,(Coke label) had an American corporation as its source--

[international american]

"It is easy to praise economic globalization during boom times; the challenge, however, is to defend it during the lean years of a business cycle. Offshore outsourcing is not the bogeyman that critics say it is. Their arguments, however, must be persistently refuted. Otherwise, the results will be disastrous: less growth, lower incomes -- and fewer jobs for American workers."

When eventually, you produce nothing, manufacture nothing, and service nothing...where are we?

[lunatic12]

More jobs are outsourced to America than from America.

[international american]

Yes and California...30 million people...is bankrupt.

[BikerNYC]

More jobs are outsourced to America than from America.

Are those jobs with foreign corporations to build products or deliver services here in the U.S. that are headed back to the home country of the foreign corporations?

Or are those jobs with foreign corporations to build products or deliver services here in the U.S. for delivery in the U.S.?

[BrooklynGOP]

California makes it very expensive to do business in.

[Reagan Man]

There is no denying that the number of manufacturing jobs has fallen dramatically in recent years, but this has very little do with outsourcing and almost everything to do with technological innovation. As with agriculture a century ago, productivity gains have outstripped demand, so fewer and fewer workers are needed for manufacturing. If outsourcing were in fact the chief cause of manufacturing losses, one would expect corresponding increases in manufacturing employment in developing countries. An Alliance Capital Management study of global manufacturing trends from 1995 to 2002, however, shows that this was not the case: the United States saw an 11 percent decrease in manufacturing employment over the course of those seven years; meanwhile, China saw a 15 percent decrease and Brazil a 20 percent decrease. Globally, the figure for manufacturing jobs lost was identical to the U.S. figure -- 11 percent. The fact that global manufacturing output increased by 30 percent in that same period confirms that technology, not trade, is the primary cause for the decrease in factory jobs. A recent analysis of employment data from U.S. multinational corporations by the U.S. Department of Commerce reached the same conclusion.

This is a highly overheated political season and the more issues the liberal establishment can turn into attacks on the Bush adminisitration, the more ammunition the Kerry campaign has to chip away at the President's credibility. Outsourcing is being made a "bogeyman" by opportunistic librats and their cohorts in the mainstream media.

[international american]

You got that right

[phil_will1]

"...technology, not trade, is the primary cause for the decrease in factory jobs."

We have a tax system which puts our own producers at a disadvantage against their foreign counterparts, not only in most foreign markets, but in our own. Until that is corrected, we will struggle in our manufacturing and agricultural sectors.

[ARCADIA]

When eventually, you produce nothing, manufacture nothing, and service nothing...where are we?

That would leave a few fat investors and zero unemployment. Sad isn't it?

[LowCountryJoe]

Great piece. Good find!

[international american]

Yep!

[navyblue]

That would leave a few fat investors and zero unemployment. Sad isn't it?

Yep! Always wondered what it was like to live in a serfdom. Guess we'll be finding out unless things start changing.

[Steve Eisenberg]

Or are those jobs with foreign corporations to build products or deliver services here in the U.S. for delivery in the U.S.?

Well, I think that with something like the Indian-owned Essel Propack plant in Danville Virginia, which makes toothpaste tubes, you are probably right that they are producing for North America. However, many foreign companies do have US-based R&D to take advantage of our skills. See for example France Telecom R&D Boston

What is it the protectionists propose that won't hurt more than it helps, especially after Washington lobbyists get done with it? Nothing I can see. Is it really going to help American productivity to put a whole big new layer of regulation on, say, IBM in India, to make sure they don't cross the line, never that clear in computers, between sales support (good) and product improvement (supposedly bad if it takes place in India). You want to write a letter to IBM protesting their center in India, go ahead. But let's keep Congress out of it.

[MonroeDNA]

Jobs outsourced are 0.3%. That's three-in-one-thousand.

Unemployment is at 5.6%, same as it was under Clinton, when he was bragging.

Sorry to lay down a couple of facts, in this emotional debate.

[anniegetyourgun]

There you go....making sense again....

[Libertarianize the GOP]

bump

[Benrand]

I dunno, do you drive a Honda?

We know three things...

1. The media hates Bush

2. Outsourcing has gone on for a looong time in all facets of ways to make a living

3. The media lie

I'm left to believe that this issue is not really an issue as much as the media is trying to make it. They're as usual attacking Bush over things he has little control over or of trends that have been going on for longer than 3 years.

[BfloGuy]

When eventually, you produce nothing, manufacture nothing, and service nothing...where are we?

This is the doomsday scenario that is constantly thrown around in this forum. The answer, of course, is that as we all become poorer and poorer (as they'd have us believe) we'd no longer be able to afford imports.

And because the dollar would be so cheap, of course then the business would return here.

But, guess what? It's already happening and we're not even poor. The dollar is declining in value relative to other currencies and our exports are increasing. Manufacturing is up. When left alone, the system is self-regulating.

The other point the protectionists don't take into account is that if I'm forbidden by law to purchase labor overseas (outsourcing), I might just shut down my business altogether.

I could take my money and simply invest over there. I don't have to keep my money tied up in plants and a labor force that aren't profitable. Maybe we have to regulate that, too?