Thursday, August 02, 2012
Economic change unleashes powerful forces. We can
stubbornly resist them and cling to the status quo, but at best, that ushers in
a slow but inevitable decline. A better approach lies in understanding the
forces that periodically remake the economy, so we can seize the emerging
opportunities they bring. This strategy has worked in the past, and it will
work today.
A significant force in recent decades has been
globalization. It has brought with it a surge in outsourcing, the shorthand
term for businesses’ cutting jobs in the United States and moving production
overseas to gain access to lower-cost labor. Many Americans view this development
as a scourge, meaning the business practices of Mitt Romney’s private-equity
firm, Bain Capital, have become fodder for the presidential campaign’s
mudslinging.
Outsourcing makes for perfect political posturing — a
quick-jab sound bite, serving up big business and foreign workers as villains
and unemployed Americans as victims. But the economic reality of outsourcing
isn’t so black and white. The issue goes far beyond the simple fact of job
losses and touches on the broader realities of trade, basic human rights, and
economic progress.
In economic terms, outsourcing jobs differs little from
importing goods. Both involve using labor abroad rather than at home — so
there’s no logical consistency in cursing one while tolerating the other. In
2011, America imported $2.6 trillion in goods and services, suggesting that
outsourcing has just a tiny share of the effect foreign trade overall has on
American jobs.
But people also commonly consider imports bad, calling
them job killers, and consider exports good because they create domestic
employment. In reality, that view is incomplete. When goods and services come
from overseas, foreigners work and Americans consume, so imports contribute to
higher U.S. living standards. Our exports go to foreigners, so we work and they
consume.
Some lament America’s trade deficits, but they’re only
part of the country’s international balance sheet. In 2011, our red ink in
goods totaled $738.4 billion, offset by a services surplus of $178.5 billion
and foreign-investment inflows of $559.8 billion. As a matter of strict
accounting, all countries’ international transactions balance — so nobody is
taking advantage of anyone else.
Within the overall international balance, countries have
trade surpluses in the industries they’re relatively good at, and deficits in those
they’re not good at. Turns out, America’s surpluses are in high-value-added
manufacturing and sophisticated services, where wages are high. Our deficits
are in low-skilled manufacturing, where wages are low. With or without
outsourcing, the U.S. economy is exporting low-wage labor.
Once we accept that payments balance, it becomes
difficult to sort out trade’s overall impact on U.S. jobs. Imports displace
U.S. production and jobs, but exports and capital flows increase the country’s
economic activity and stimulate employment. We shouldn’t just focus on the job
losses from trade and conclude that it hurts the economy.
Moreover, trade is a question of individuals’ freedom to
choose. Countries don’t trade, individuals and companies do. They buy foreign goods
and services because of price, quality, availability, tastes, or any number of
other reasons. These are voluntary transactions between individuals,
distinguished only because the nationalities of the buyers and sellers differ.
Free trade among individuals is a basic human right. Protectionist
interventions that attack imports or outsourcing rob Americans of a piece of
their economic freedom.
Freer trade and cheaper communications have spurred
globalization in recent decades, exposing once-insulated parts of the economy
to foreign competition. Americans can’t cling to the jobs of the past. We need
to find the best opportunities in the global economy. In the new international
division of labor, we can be the managers, consultants, and even facilitators
of outsourcing.
Trade and new technologies are a lot alike. They both
upset the existing economic order, undermining some products, industries, and
professions while giving rise to new ones. America’s prosperity has been built
on wave after wave of such upheavals, with new jobs continually replacing old
ones. That’s why American workers are insurance salesmen and dentists, not
blacksmiths and buggy-whip makers. We don’t have to know exactly where the new
jobs are. We only need faith in the American people and the capitalist system.
Politicians’ attacks on outsourcing won’t work any better
than the Luddites’ assaults on technological innovation. If their argument
prevails, it is a path to decline. America will be better off if we grab the
opportunities arising out of globalization. That is the only thing that will
work.
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