If offshore outsourcing is unfair, so is obsolescence
When I started working in journalism, strips of copy had to be physically cut and pasted onto boards, which were then photographed to make printing plates. Today, thanks to cheap, powerful computers and desktop publishing software, this whole process is handled electronically: Instead of assembling and transporting boards, you create and transmit files.
The shift to electronic composing has reduced the manpower, time, and cost involved in putting together a publication. At the same time, it has eliminated all the jobs associated with literal cutting and pasting.
Was that fair? The question can't really be answered, and the reason goes to the heart of the ongoing debate about offshore outsourcing of jobs by U.S. companies. Fairness, a concept appropriate in resolving schoolyard disputes and adjudicating legal cases, does not apply to market outcomes, which are not dictated by a referee or judge but arise spontaneously from the interactions of myriad individuals engaged in voluntary, mutually beneficial exchange.
Like the people who used to work in newspaper composing rooms, call center employees replaced by lower-wage workers in India don't "deserve" to lose their jobs. But that does not mean they have a right to keep them, any more than candle makers had a right to block electric lighting or blacksmiths had a right to prevent the introduction of the automobile.
In all of these cases, the need to make a profit in the face of competition drove people to produce better goods or services or to produce them more cheaply. The upshot of this process has been lower prices, higher productivity, and a standard of living unparalleled in history.
Economic progress requires a constant shifting of resources to their most productive uses, and inevitably that means disrupting people's lives. As Brink Lindsey, director of the Cato Institute's Center for Trade Policy Studies, notes in a recent paper, "Total U.S. private-sector jobs increased by 17.8 million between 1993 and 2002. To produce that healthy net increase, a breathtaking total of 327.7 million jobs were added, while 309.9 million were lost."
Amid this perpetual churning, offshore outsourcing, the latest focus of anxieties about economic change, does not amount to much. "The single most important factor explaining lagging job creation is the astonishing gains in labor productivity that have been achieved in the U.S. economy in the past few years," Federal Reserve Gov. Ben Bernanke observed in a speech on March 30. "Outsourcing abroad simply cannot account for much of the recent weakness in the U.S. labor market."
In any case, a job lost because of foreign competition is no more of a misfortune than a job lost because of productivity-boosting technology. Neither is it a stronger justification for crying foul and demanding the sort of government intervention that John Kerry seems to be contemplating when he promises to review all free trade agreements and faults President Bush's "secret plan to send more American jobs overseas."
That "secret plan" is neither secret nor a plan. As N. Gregory Mankiw, Bush's chief economic adviser, noted in February, it is simply "the latest manifestation of the gains from trade that economists have talked about" since Adam Smith: "When a good or service is produced more cheaply abroad, it makes more sense to import it than to make or provide it domestically."
In this light, Mankiw said, "Outsourcing is just a new way of doing international trade. More things are tradable than were tradable in the past, and that's a good thing."
For making an observation with which any economically literate person would agree, Mankiw was pilloried by both Democrats and Republicans. He quickly apologized for not emphasizing that "it is regrettable whenever anyone loses a job." Regrettable but unavoidable, if we want to enjoy the benefits of a free market, which over the long term creates more jobs than it eliminates.
It is therefore troubling to hear Bush talk about "free and fair trade." If he means the legal ground rules for trade should be fair, with no tariffs, quotas, subsidies, or government-protected monopolies, he is being redundant (not to mention hypocritical, given his support for steel tariffs and agricultural subsidies). In this sense, free trade is fair by definition.
But it seems the president is suggesting that the consequences of free trade will be perceived as fair. That false promise stokes the unjustified resentment underlying "the old policy of economic isolationism" that Bush rightly calls "a recipe for economic disaster."