Globalization Revisited

Democrats' arguments against outsourcing are overstated -- and effective.

Thu Feb. 26, 2004 3:00 AM EST

George W. Bush wants to run this year as a "war president," but voters seem more inclined to judge him as a "jobs president." Never mind that the president actually has little sway over the business cycle; millions of jobs have disappeared on Bush's watch and the economic recovery has failed, so far, to replace them in any numbers, feeding a growing perception that the president has bungled the economy.

Naturally, Democrats have been stoking this perception. Kerry and Edwards have seized on the "outsourcing" of white-collar jobs to low-wage countries like India as an example of Bush's economic mismanagement. Kerry talks about "Benedict Arnold" corporations, Edwards about the "two Americas." Speaking in Ohio--a key swing voter state that's lost more than 300,000 jobs since Bush took office--Kerry unveiled a plan requiring companies to give three-month's notice before outsourcing.

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The White House is clearly worried. Witness the recent flap over comments made by Gregory Mankiw, Bush's chief economic advisor. Mankiw said outsourcing would create more American jobs in the long-run by raising productivity. That this is straight out of Econ 101 didn't stop Democrats from citing it as a classic instance of Bush callousness, and top Republicans from essentially disowning Mankiw.

There's an essential phoniness to these arguments, as Washington Post columnist -- and economist -- Robert Samuelson points out:

Some jobs have moved abroad. Slow foreign growth and (until recently) the high dollar have hurt U.S. exports and encouraged imports. Mark Zandi of Economy.com estimates that almost 900,000 manufacturing jobs have been lost to the higher trade deficit. By contrast, he reckons that "offshoring" of service jobs -- call centers, software design -- has cost only about 200,000 jobs over the same period. That's out of more than 130 million jobs.

Seattle Post-Intelligencer columnist Bill Virgin cautions against reductionism:

The issue of outsourcing lends itself nicely to demagoguery and John Kerry et al. have supplied plenty of it with bluster about how outsourcing is really the product of venal, greedy corporate executives. Corporate execs are convenient whipping boys and girls, and much of that whipping has been earned, but if Kerry & Co. want to be accurate, they should extend their criticism to greedy investors -- meaning all of us, grumping that our 401(k)s have been returning less than savings bonds -- and greedy consumers (meaning all of us again), who go chasing a bargain no matter what the consequences of that low price.

David Kirkpatrick of Fortune insists that America stands to gain from a global labor market:

We need to rethink our views on the global workforce. First, we should realize that the boom in part proves how much the U.S. economy achieved in the roaring '90s. Nandan Nilekani, CEO of big Indian outsourcer Infosys, pointed out in Davos that American technology companies--think fiber-spewing Global Crossing--made Internet-driven outsourcing possible. In addition he notes that the U.S. for years has pushed nations like India to free up their markets; now we're just seeing the result. The U.S. is helping the rest of the world work its way into wealth. That is in all of our interests. And it isn't a zero-sum game. American productivity, again fostered largely by intelligent use of technology, remains the highest in the world. That's likely to ensure we stay wealthy.

The Economist, makes a similar point, explaining that number of jobs moving overseas is relatively insignificant:

For a start, America runs a large and growing surplus in services with the rest of the world. The jobs lost will be low-paying ones, such as bank tellers and switchboard operators. Trade protection will not save such jobs: if they do not go overseas, they are still at risk from automation.

By contrast, jobs will be created that demand skills to handle the deeper incorporation of information technology, and the pay for these jobs will be high.

Yes, individuals will be hurt in the process, and the focus of public policy should be directed towards providing a safety net for them, as well as ensuring that Americans have education to match the new jobs being created. By contrast, regarding globalisation as the enemy, as Mr Edwards does often and Messrs Kerry and Bush both do by default, is a much greater threat to America's economic health than any Indian software programmer.

Karen Tumulty of Time magazine writes that, whatever the economics, the politics of the issue are treacherous:

Outsourcing is the ultimate nightmare issue for the White House, because it's a problem that every voter understands. It's extraordinarily difficult to solve—and impossible to solve in the short run," says Bruce Reed, president of the centrist Democratic Leadership Council, who was also Bill Clinton's chief domestic-policy adviser. And while Bush can blame many of the economy's woes on the vicissitudes of war, terrorism and corporate scandals, outsourcing is one problem that won't go away when those do.

But even as the Democrats denounce the phenomenon, the proposals they offer do little more than attack it at the margins. Kerry calls for a study to examine the problem and possible solutions. He would discourage outsourcing federal contracts and would require employees from outsourced call centers to identify their location so that consumers can respond to that information as they see fit. (His own campaign was embarrassed by a firm it had hired that was routing calls to Wisconsin voters through Canada.) North Carolina Senator John Edwards would also try a combination of browbeating and suasion: he would create a new Office for Corporate Responsibility at the Commerce Department to encourage companies to keep jobs here rather than outsourcing them.

Left out of this picture, of course, are the majority of people outside North America who are yet to feel the touted benefits of globalization.

The United Nations released a report on Tuesday warning that the global unemployment rate is at an all-time high and resources are held in fewer hands than 40 years ago.

Charlotte Denny of the Guardian says of the report's findings :

There are deep-seated and persistent imbalances in the current workings of the global economy, which are ethically unacceptable and politically unsustainable. Wealth is being created, but too many countries and people are not sharing in its benefits.

Properly managed, the faster growth spurred by integrating world markets has the potential to lift millions out of poverty. But to achieve this will require world leaders' political will to change the path of globalisation.

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