THAT OLD SMOOTIE:

Rethinking free trade (Robert Kuttner, September 29, 2004, Boston Globe)

WHEN PAUL Samuelson, the dean of American economists, begins questioning the benefits of free trade, it is a bit like the pope having doubts about the virgin birth. [...]

Samuelson stops short of spelling out remedies. However, his blowing open of this debate has done a profound service.

But what, then, should Americans do to defend their living standard in the face of the ability of India and China to make almost anything we make at a fraction of the wage?

First, we might insist that everyone plays by the rules, which China emphatically doesn't. China both subsidizes and protects.

Second, we might try to get them to raise their domestic wages in proportion to their rising productivity and thus produce for a more affluent domestic market (which also might buy more of our products).

On the home front, the government could invest more in the creation of high-wage service jobs that America needs and that can't be exported -- like better-paid preschool teachers and nursing home workers -- and to raise the wages of all low-paid workers through higher minimum wage laws and enforcement of the right to unionize. We could also invest in advanced technologies that create lots of good domestic jobs and export winners, like universal broadband cable and energy independence.

Mr. Samuelson's track record on questioning economic orthodoxy isn't exactly one to be proud of, as witness the 1989 beauty: "The Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive." But what's priceless here is that Mr. Kuttner's proposed response to a world in which pretty much any Third World village can produce the same quality manufactured goods at a fraction of the artificially elevated wages of a unionized workforce in the West is to boost our own wages to even less competitive levels.

MORE:
Where Did All the Jobs Go? Nowhere: In spite of the hoopla over outsourcing, it is not the great crisis that many believe it is. (DANIEL W. DREZNER, 9/29/04, NY Times)

The Government Accountability Office has issued its first review of the data, and one undeniable conclusion to be drawn from it is that outsourcing is not quite the job-destroying tsunami it's been made out to be. Of the 1.5 million jobs lost last year in "mass layoffs'' - that is, when 50 or more workers are let go at once - less than 1 percent were attributed to overseas relocation; that was a decline from the previous year. In 2002, only about 4 percent of the money directly invested by American companies overseas went to the developing countries that are most likely to account for outsourced jobs - and most of that money was concentrated in manufacturing.

The data did show that from 1997 to 2002, annual imports of business, technical and professional services increased by $16.3 billion. However, during that same half-decade, exports of those services increased by $20.5 billion a year. In 2002 alone, the United States ran a $27 billion trade surplus in business services, the sector in which jobs are most likely to be outsourced. The G.A.O. correctly stressed that it is impossible to compute exactly how many jobs are lost because of outsourcing, but unless its figures are off by several orders of magnitude, there's no crisis here.

Many companies moving jobs overseas have also received a bum rap. Lost in all the clamor about I.B.M.'s outsourcing plan was the company's simultaneous announcement that it would add 5,000 American jobs to its payroll. For the second quarter of this year, the company reported a 17 percent increase in earnings, allowing it to trim its outsourcing plan by a third and raise its overall hiring plans by 20 percent. The conclusion is obvious: I.B.M.'s outsourcing of some jobs helped it reduce costs, increase earnings and hire more American-based workers.

None of this is to dismiss the pain endured by those who lose their jobs to lower-paid workers abroad. But the magnitude of these job losses must be placed in the proper perspective. Technological innovation is responsible for a far greater number of lost jobs than outsourcing.

Aren't job protection schemes ultimately just attacks on technological innovation?

Posted by Orrin Judd at September 29, 2004 9:53 AM