drezner outsourcing

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The Outsourcing BogeymanDaniel TVDrezner

THE TRUTH IS OFFSHOREWHEN apresidentiallection earcoincides ith anuncertain conomy,campaigning oliticians nvariablynvokean internationalconomic

issue as a dire threat to thewell-being of Americans. Speechwritersdenounce the chosen scapegoat, themedia provides blanket coverage ofthealleged hreat,ndlegislatorscurry o introduceupposed emedies.The causeof thisyear's ommotion is offshoreoutsourcing-theallegedmigration ofAmerican jobs overseas.The depth of alarmwasstrikinglyllustratedy the firestorm f reaction o recenttestimonyby N. Gregory Mankiw, the head of President George W. Bush'sCouncilofEconomicAdvisers.No economist eally isputedMankiw'sobservation that "outsourcing isjust a newway of doing internationaltrade,"which makes it "agood thing." But in the political arena,

Mankiw's comments sparked a furor on both sides of the aisle.Democratic presidentialcandidateJohn Kerry accused the Bushadministration of wanting "to export more of our jobs overseas,and Senate Minority Leader Tom Daschle quipped, "If this is theadministration's position, I think they owe an apology to everyworkerin America." Speaker of the House Dennis Hastert, meanwhile,

warned that "outsourcing can be aproblem forAmerican workers andtheAmerican economy."

Critics charge that the information revolution (especially theInternet) has accelerated the decimation of U.S. manufacturing andfacilitatedheoutsourcingf service-sectorobsonceconsidered afe,from backroom call centers to high-level software programming.

DANIELW. DREZNER isAssistant Professor of Political Science at theUniversity of Chicago and the author of The SanctionsParadox.[22]


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TheOutsourcingBogeyman(This concern feeds into the suspicion that U.S. corporations areexploiting globalization to fatten profits at the expense of workers.)They are right that offshore outsourcing deserves attention and thatsome measures to assist affected workers are called for. But if theirexaggeratedlarmism ucceeds nprovokingprotectionistresponsesfrom lawmakers, itwill do farmore harm than good, to the U.S.economy and toAmerican workers.

Should Americans be concerned about the economic effects ofoutsourcing? Not particularly.Most of the numbers thrown aroundare vague, overhyped estimates.What hard data exist suggest thatgross job losses due to offshore outsourcing have been minimal whencompared to the size of the entire U.S. economy. The outsourcingphenomenon has shown that globalization can affect white-collarprofessions,heretofore mmuneto foreigncompetition, n thesameway that it has affected manufacturing jobs for years. But Mankiw'sstatements on outsourcing are absolutely correct; the lawof comparativeadvantageoesnot stopworkingjustbecause 01(K)lansare nvolved.The creation of new jobs overseas will eventually lead to more jobsand higher incomes in theUnited States. Because the economy-andespecially job growth-is sluggish at themoment, commentators areattempting to draw a connection between offshore outsourcing andhighunemployment. ut believingthatoffshoreoutsourcing ausesunemployment is the economic equivalent of believing that the sunrevolves round heearth: ntuitively ompellingbut clearlywrong.Should Americans be concerned about thepolitical backlash to outsourcing?bsolutely. necdotesofworkersaffected youtsourcingrepoliticallypowerftil,and demandsforgovernment rotectionalwaysincreaseduring economic slowdowns. The short-term political appealof protectionismsundeniable. capegoating oreignersordomesticbusiness ycles ssmart olitics,andprotecting omesticmarketsgivesleaders the appearanceof taking direct, decisive action on the economy.Protectionismwould not solve theU.S. economy's mploymentproblems,althoughitwould succeed nprovidingmassive subsidiestowell-organizednterestroups. nopenmarkets, reater ompetitionspurs the reallocation of labor and capital tomore profitable sectorsof the economy. The benefits of such free trade-to both consumersandproducers-are significant. ushioning thisprocess ordisplaced

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Daniel W Dreznerworkersmakes sense.Resorting to protectionism o halt theprocess,however, is a recipe for decline. An open economy leads to concentrated costs (and diffuse benefits) in the short term and significantbenefits in the long term. Protectionism generates pain in both theshort term and the long term.

THE SKY IS FALLINGOUTSOURCING occurswhen a firm subcontracts abusiness functionto an outside supplier.This practice has been common within the

U.S. economy for some time. (Witness the rise of large call centersin the ruralMidwest.) The reduction of communication costs and thestandardization of software packages have now made it possible tooutsource usiness unctions uchascustomer ervice, elemarketing,and document management. Other affected professions includemedical transcription, taxpreparation, and financial services.

The numbers that are bandied about on offshore outsourcingsound ominous. The McKinsey Global Institute estimates that thevolume of offshore outsourcing will increase by 30 to40 percent ayearfor the next five years. Forrester Research estimates that 3.3millionwhite-collarjobswillmove overseas y 2015. ccordingtoprojections,the hardest hit sectors will be financial services and informationtechnology (IT). In oneMay 2003 surveyof chief information officers,68 percent of IT executives said that their offshore contracts wouldgrow in the subsequent year.The Gartner research firmhas estimatedthat by the end of this year, 1out of every io ITjobswill be outsourcedoverseas.Deloitte Researchpredicts theoutsourcingof 2millionfinancial-sectorobsby 2009.At firstglance, currentmacroeconomic indicators seem to supportthe suspicion that outsourcing isdestroying jobs in theUnited States.The past two years have witnessed moderate growth and astonishingproductivity gains, but overall job growth has been anemic. The totalnumber ofmanufacturing jobs has declined for 43 consecutive months.Surely,many observers insist, thismust be because the jobs createdbytheU.S. recoveryaregoing to other countries.Morgan Stanley analystStephen Roach, for example, has pointed out that "this is the firstbusiness cycle since the advent of the Internet-the enabler of a new

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The OutsourcingBogeymanreal-time connectivity to low-cost offshore laborpools."He adds, "Idon'tthink it'sa coincidence that this jobless recoveryhas occurred in such anenvironment."Those who agreedraw on anecdotal evidence to supportthisassertion. NN'sLouDobbs routinelyarangues .S. companiesengaged noffshore utsourcingnhis "Exportingmerica" eries.Many ITexecutives avethemselves ontributedo thisperception.

When IBM nnounced plans to outsource 3,000 jobs overseas thisyear,one of its executives said, "[Globalization]means shifting a lot ofjobs,opening a lotof locations inplaceswe had never dreamt of before, goingwhere there's ow-cost labor,low-cost competition, shifting jobsoffshore."Nandan Nilekani, the chief executive of the India-basedInfosysTechnologies,said at thisyear'sWorld EconomicForum,"Everything you can send down awire is up for grabs." In JanuarytestimonybeforeCongress,Hewlett-Packard chiefCarlyFiorina

warned that"thereisno job that isAmerica'sGod-given right anymore."That last statement chills the blood of most Americans. Few support the cause of free trade for itsown sake,out of pure principle. Thelogic underlying an open economy is that if the economy sheds jobsin uncompetitivesectors,employmentin competitive sectorswillgrow.If hi-tech industries reno longer ompetitive, herewill newjobsbe created?

INSIDE THE NUMBERSBEFORENSWERINGhatquestion,Americansneed to separateactfrom fiction. The predictions of job losses in themillions are drivingthe current outsourcing hysteria. But it is crucial to note that thesepredictionsareof gross, not net, losses.During the1990s,offshoreoutsourcing was not uncommon. (American Express, for one, set upback-office operations in Indiamore than a decade ago.) But no onemuch cared because the number of jobs leaving U.S. shores was farlower than the number ofjobs created in theU.S. economy.

Similarly,most current predictions are not asominous as they firstsound once the numbers areunpacked.Most jobswill remain unaffectedaltogether: close to 90 percent of jobs in the United States requiregeographicproximity.Such jobs includeeverything rom retailandrestaurants tomarketing and personal care-services that have to be

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Daniel W Dreznerproducedand consumed ocally, ooutsourcing hemoverseas s notan option. There isalso no evidence thatjobs in thehigh-value-addedsector aremigrating overseas.One thing that has made offshore outsourcing possible is the standardization of such business tasks as dataentry,accounting,and ITsupport.The partsof productionthataremore complex, nteractive,r innovative-including,butnot limited- to,marketing, research, and development

aremuch more difficult to shift abroad.As anInternational ata Corporationanalysisontrends nIT ervices oncluded,"theactivitiesthatwillmigrate offshorearepredominantlythose that can be viewed as requiring low skillsince process and repeatability are key underpinnings of the work. Innovation and deepbusinessexpertisewill continue to be deliveredpredominantly n

shore."Not coincidentally, these are also the tasks that generate highwages and large profits and drive theU.S. economy.

As for the jobs that can be sent offshore, even if the most diresounding forecasts come true, the impact on the economy will benegligible. he Forrester redictionf 33million lost obs, orexample,is spread across 15years. That would mean 220,000 jobs displaced peryearby offshore utsourcing-a number hatsounds mpressive ntilone considers that total employment in theUnited States is roughly130million, and that about 22million new jobs are expected to beadded between now and 2010.Annually, outsourcing would affect lessthan .2percentof employedAmericans.

There is also reason to believe that the unemployment caused byoutsourcing ill be lower hanexpected.Gartner assumed hatmorethan 6o percent of financial-sector employees directly affected by outsourcing would be let go by their employers. But Boston UniversityProfessorNitin Joglekarhas examinedthe effectof outsourcingonlarge financial firms and found that less than 20 percent of workersaffected by outsourcing lose their jobs; the rest are repositioned

within the firm. Even if themost negative projections prove to becorrect, then, gross job loss would be relatively small.Moreover, it isdebatablewhether actual levels of outsourcing willevermatch currentpredictions. Despite claims that the pace of onshore

Protectionismwoulddo farmore harm thangood, to theeconomyand toworkers.

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The OutsourcingBogeymanand offshore outsourcingwould quickenover time, therewas noincreasein 2003. In fact,TPIInc., an outsourcing advisory firm,even reportsthat the total value of businessprocessoutsourcingdeals in the United States fell by 32 percent in 2003.There is no denying that the number of manufacturing jobs hasfallen dramatically in recent years, but this has very little do withoutsourcingandalmosteverythingto dowith technological nnovation.As with agriculturea century ago, productivitygainshaveoutstrippeddemand, so fewer and fewerworkers are needed formanufacturing.Ifoutsourcingwere in fact thechief causeof manufacturing losses, one would expect correspondingincreasesinmanufacturingemploymentindevelopingcountries.An AllianceCapitalManagement studyof globalmanufacturingtrendsfrom1995 to 2002, however, shows that this was not the case: the UnitedStates saw an 1l percent decrease inmanufacturing employmentover the courseof those seven years;meanwhile, China saw a 1ipercentdecrease and Brazil a 20 percent decrease. Globally, the figure formanufacturing obslostwas identical o theU.S. figure-ui percent.The fact thatglobalmanufacturingoutput increased y 30 percentin that sameperiod confirms that technology,not trade, is theprimary cause for the decrease in factory jobs.A recent analysis ofemploymentdata fromU.S. multinationalcorporations y theU.S.Departmentof Commerce reached he sameconclusion.

What about the service sector? Again, the data contradict thepopularbelief thatU.S. jobs arebeing lost to foreigncountrieswithout anything to replace them. In the case of many low-leveltechnology obs, thephenomenonhas been somewhatexaggerated.For example, a Datamonitor study found that global call-centeroperations are being outsourced at a slower rate thanpreviouslythought-only fivepercentareexpected to be locatedoffshoreby2007. Dell and Lehman Brothers recently moved some of theircall centers back to theUnited States from India because of customercomplaints.And doneproperly,the offshoreoutsourcingofcall centers createsnew jobs at home. Delta Airlines outsourcedi,ooo call-center obs to Indiain2003,but the $25million in savingsallowed the firm to add 1,200 reservation and sales positions in theUnited States.

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Daniel W DreznerOffshore outsourcing s similarly ounterbalancedy job creationin thehigh-endservice ector. n Institute orInternationalconom

ics analysis of Bureau of Labor Statistics employment data revealedthat the number ofjobs in service sectorswhere outsourcing is likely actually ncreased,even though total employmentdecreasedby 1.7percent.AccordingtotheBureauof LaborStatisticsOccupationutlook andbook, the number of IT-relatedjobs is expected to grow 43percent by 2010. The case of IBMreinforces this lesson: although criticshighlighttheoffshoreoutsourcing f 3,OO0 T obs, they fail tomention the company's plans to add 4,500 positions to itsU.S. payroll.

Large software companies such asMicrosoft andOracle have simultaneously ncreased utsourcing nd domesticpayrolls.How can these figures fitwith thewidespread perception that IT

jobs have left theUnited States? Too often, comparisons aremade to2000, an unusual year for the technology sector because Y2Kfears andthe height of the dot-com bubble had pushed employment figures toan artificially high level.When 1999 is used as the starting point, itbecomes clear that offshore outsourcing has not caused a collapse inIThiring. Between 1999 and 2003, the number ofjobs inbusiness andfinancial perationsncreasedy14percent.Employment ncomputerand mathematical positions increased by 6 percent.It is alsoworth remembering thatmany predictions come from

management consultantswho are eager topush the latestbusiness fad.Many of these consulting firms are themselves reaping commissionsfromoutsourcing contracts.Much of theperceivedboom inoutsourcingstems from companies' eagerness to latch onto the latestmanagementtrends; likeDell and Lehman, many will partially reverse course oncethe hidden costs of offshore outsourcing become apparent.

If offshore outsourcing is not the cause of sluggish job growth,what is?A study by the Federal Reserve Bank of New York suggeststhat the economy isundergoing a structural transformation: jobs aredisappearing from old sectors (such asmanufacturing) and beingcreated in new ones (such asmortgage brokering). In all such transformations, the creation of new jobs lags behind the destruction ofold ones. In otherwords, the recent recession and current recovery areamore extreme version of the downturn and "jobless recovery" ofthe early 1990s-which eventually produced the longest economic

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TheOutsourcingBogeymanexpansion of the post-World War II era.Once the structural adjust

ments of the current period are complete, job growth is expected tobe robust. (And indeed, current indicators areencouraging: there hasbeen a net increase inpayroll jobs and in small business employmentsince 2003 and a spike in ITentrepreneurial activity.)

Offshore outsourcing is undoubtedly taking place, and it willlikely increase over the next decade. However, it is not the tsunamithat many claim. Its effect on the U.S. economy has been exaggerated, and its effect on the U.S. employment situation has beengrosslyexaggerated.

THE UPSIDE OF OUTSOURCINGTo DATE, the media's coverage of outsourcing has focused on itsperceived costs. This leaves out more than half of the story.Thebenefitsof offshoreoutsourcingshouldnot be dismissed.The standard case for free tradeholds that countries arebest offwhenthey focuson sectors inwhich theyhave acomparative advantage-thatis, sectors that have the lowest opportunity costs of production.Allowing countriesto specializeaccordingly ncreases roductivityacrossallcountries. his specializationranslatesntocheaper oods,and a greater variety of them, for all consumers.

The current trend of outsourcing business processes overseas iscomparative advantage at work. The main driver of productivitygains over the past decade has been the spread of informationtechnologyacross the economy.The commodificationof simplebusiness servicesallows those benefits to spread further,makinggrowthevengreater.The data affirm this benefit. Catherine Mann of the Institutefor InternationalEconomics conservativelyestimates that theglobalization of ITproduction has boosted U.S. GDPby $230 billion over the past seven years; the globalization of IT servicesshould lead to a similar increase. As the price of IT services declines, sectors that have yet to exploit them to their fullest-suchas construction and health care-will begin to do so, thus lowering their cost of production and improving the quality of their output. (For example, cheaper ITcould one day save lives by reducing

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Daniel W Dreznerthenumberof "adverse rugevents."Mann estimates that addingbar codes toprescriptiondrugsand institutinganelectronicmedical recordsystemcould reduce the annualnumberof such eventsby more than 8o,ooo in theUnited States alone.)McKinseyGlobal Institute asestimated hat orevery ollar pent noutsourcingoIndia, heUnited Statesreaps etween$1.12nd$1.14nbenefits.Thanks tooutsourcing, .S. firmssavemoney and becomemore profitable,benefitingshareholders nd increasing eturnsoninvestment. oreign acilities oost demand orU.S. products, uchascomputersand telecommunicationsquipment, necessaryor their utsourcedunction.

And U.S. labor can be reallocated to morecompetitive, etter-payingobs; or example,although 0,000 computer rogrammersosttheir obsbetween1999and2003,more thanuS,ooo computersoftwareengineersfoundhigher-paying obsduringthatsameperiod.Outsourcingthusenhances hecompetitivenessof theU.S. service ector which ccountsfor30 percent f thetotalvalueofU.S. exports). ontrary o thebeliefthat theUnited States is importingmassiveamounts f servicesromlow-wage ountries,n2002 it rana$64.8billionsurplus n services.Outsourcingalsohasconsiderableoneconomic enefits. t isclearlyin the interest f theUnited Statesto reward thercountriesor reducingtheirbarrierso trade ndinvestment. ome of thecountries hereU.S. firms have set up outsourcingoperations-including India,Poland, and the Philippines-are vital allies in thewar on terrorism.JustastheNorthAmericanFreeTradeAgreement (NAFTA)elpedMexicodeepen its democratic ransition nd strengthen ts ruleof law,theUnitedStatesgainsconsiderablyrom hepolitical eorientationpurredbyeconomic rowthandinterdependence.Finally, hebenefits f"insourcing"houldnot be overlooked.ustasU.S. firmsoutsource ositionstodeveloping ountries, irms n othercountriesutsourceositions o theUnitedStates.According otheBureau f LaborStatistics, henumber f outsourcedobs increasedrom6.5million in 1983to lomillion in 2000. The number of insourced jobsincreasedvenmore inthe sameperiod, rom2.5million to6.5million.

The United Statesgains considerablyfromthepolitical effects ofeconomic growth andinterdependence.



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TheOutsourcingogeymanPOLITICAL ECONOMY

WHEN ITCOMES to tradepolicy, there are two iron laws of politics.The first is that the benefits of tradediffuse across the economy, butthe costs of trade are concentrated. Thus, those made worse off byopenborders ill formthemoremotivatedinterestroup.The secondis thatpublichostility toward rade ncreasesuringeconomicdownturns.When forcedto choose between statistical videnceshowingthat trade is good for the economy and anecdotal evidence of joblossesdue to import ompetition,Americansgowith the anecdotes.Offshoreoutsourcing ddstwoadditional oliticalpressures.hefirststemsfrom the fact thattechnologicalnnovation asconverted

what were thought to be nontradeable sectors into tradeable ones.Manufacturingworkershavelongbeen subject o therigors f globalcompetition. hite-collar service-sectororkersarebeingintroducedto these pressures for the first time-and they are not happy about it.

As Raghuram Rajan andLuigi Zingales point out inSaving CapitalismFromtheCapitalists, lobalization ndtechnologicalnnovation ffectprofessions such as law and medicine that have not changed all thatmuch for centuries.Their politicalreaction o the threatof foreigncompetitionwill be fierce.The second pressure is that the Internet has greatly facilitatedpolitical organization,making itmuch easier for thosewho blameoutsourcingortheir roublesorally ogether.nrecent ears, ountlessorganizations-withnames suchasRescueAmericanJobs,SaveU.S.Jobs, and theCoalition forNational Sovereigntyand EconomicPatriotism-have sprouted p. Such groupshave disproportionatelyfocused nwhite-collar techworkers,eventhough hemanufacturingsector has been much harder hit by the recent economic slowdown.It should come asno surprise, then, that politicians are scramblingto get ahead of the curve.During theDemocratic primary in SouthCarolina-a state hit hard by the loss of textile jobs-billboards askedvoters,"Lostyourjob to freetrade r offshoreoutsourcing et?"LastLaborDay,PresidentBush pledgedtoappointamanufacturing zartoget to thebottomof theoutflowofmanufacturing ositions.Inhisstumpspeech,JohnKerrybashes"Benedict rnold CEOSwho]sendAmericanjobsoverseas."

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Daniel W DreznerWhere presidential andidates ead,legislators resure to follow.Senator Charles Schumer (D-N.Y.) claimed in a January New YorkTimes p-edauthoredith PaulCraigRoberts hatbecause f increasedcapital mobility, the law of comparative advantage is now null andvoid. SenatorTomDaschle (D-S.D.) has observed,"GeorgeBushsays the economy is creating jobs. But letme tell you, China is onelong commute. And letme tell you, I'm tired of watching jobs shiftoverseas."enatorChristopherDodd (D-Conn.)andRepresentativeNancy Johnson(R-Conn.)aresponsoringtheUSA obsProtectionAct topreventU. S. companies fromhiring foreignworkers forpositionswhen American workers are available. InFebruary,Senate Democratsannounced their intentions to introduce the Jobs forAmerica Act,requiring companies to give public notice threemonths in advance ofany plan to outsource iSor more jobs. InMarch, the Senate overwhelmingly approved ameasure banning firms from federal contractsif they outsource anyof thework overseas. In the past twoyears, morethan 20 state legislatureshave introducedbills designed tomake variousformsof offshoreoutsourcing llegal.

SPLENDID ISOLATION?THERE ARE CLEAREXAMPLES fjobs being sent acrossU.S. bordersbecause of U.S. tradepolicy-but not for the reasons that critics ofoutsourcing believe.Consider the exampleof candy-canemanufacturers:despite the fact thatgo percent of theworld's candy canes areconsumedin theUnited States,manufacturers have sentmuch of theirproductionsouth of the border in the past five years. The attraction of movingabroad, however, has little to do with lowwages andmuch to dowithprotectionism. U.S. quotas on sugar imports have, in recent years,caused the domestic price of sugar tobecome 350 percent higher thanworld market prices. As candymakers have relocated production tocountries where sugar is cheaper, between 7,500 and lo,ooo workersin theMidwest have lost their jobs-victims not of outsourcing butof the kind of protectionism called for by outsourcing's critics.

A similar story can be told of the steel tariffs that theBush administration foolishly imposed fromMarch 2002 untilDecember 2003 (whena ruling by theWorld TradeOrganization prompted theircancellation).[32] FOREIGN AFFAIRS* Vqlume83MNo.3


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TheOutsourcingogeymanThe tariffs ere allegedlymeant toprotectsteelworkers.ut in theUnitedStates,steelusers mployroughly 0 timesmorepeoplethandosteelproducers. hus, accordingo estimates y the Institute orInternational Economics, between 45,ooo and 75,ooo jobswere lost becausehighersteelpricesmadeU.S. steel-usingndustriesesscompetitive.These examples llustrateheproblemwith relyingon anecdoteswhen debatingtheeffectsof offshoreoutsourcing. necdotes are incomplete narratives that fail to capture opportunity costs. In the casesof steel and sugar, the opportunity cost of using protectionism to savejobswas themuch largernumber ofjobs lost in sectors rendered lessproductive yhigher inputprices.Tradeprotectionism mounts o aninefficient ubsidy oruncompetitive ectorsof theeconomy,whichleads to higher prices for consumers and a lower rate of return forinvestors. tpreserves obsin lesscompetitive ectors hile destroyingcurrent and future jobs in sectors that have a comparative advantage.Thus, ifbarriers reerected oprevent ffshore utsourcing,heoveralleffect will not be to create jobs but to destroy them.So ifprotectionism isnot the answer,what is the correct response?The best pieceof advice is also themost difficult orelectedofficialsto follow: do no harm. Politicians never get credit for inaction, evenwhen inaction is the best policy. President George H.W. Bush, forexample, as pilloried orrefusingofollowJapan'seadbyprotectingdomestic markets-even though his refusal helped pave theway forthe1990S oomby lettingmarket forces llocate esourceso industriesat the technologicalrontier.Restraint isanathemato the politicalclass, but it is still the most important response to the furor overoffshoreoutsourcing.As RobertMcTeer, presidentof the FederalReserve Bank of Dallas, said when asked about policy responses tooutsourcing, "Ifwe are lucky,we can get through the yearwithoutdoing somethingreally, eally tupid."The problem f offshore utsourcingslessoneof economics hanof psychology-people feel that theirjobs arethreatened. he best

way tohelp those actually affected, and to calm the nerves of thosewhofear that theywill be, is to expand the criteria underwhich the TradeAdjustmentAssistance (TAA)rogramapplies todisplacedworkers.Currently, orkerscannotapplyforTAA nless overallsalesor production in theirsectordeclines.In thecaseof offshoreoutsourcing,

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Daniel W Dreznerhowever,productivity ncreases llow for increased roductionandsales-makingTAAut of reach orthoseaffected y it. Itmakes senseto reworkTAAules o take ntoaccountworkersdisplaced yoffshoreoutsourcingvenwhen their ormer ndustriesrfirmsmaintain robustlevelsof production.Another optionwould be to help firmspurchase argetednsurancepolicies to offset the transition osts toworkersdirectlyaffectedbyoffshore utsourcing.ecause heperceptionfpossible nemploymentisconsiderablyreater han heactual ikelihoodf losing job, nsuranceprogramsould impose verysmall oston firms hile relieving greatdealof employee nxiety. cKinseyGlobal Institutestimates hatsucha scheme could be created for as littdeas four or five cents per dollar savedfrom ffshore utsourcing.BMecently nnouncedhecreationf atwoyear,$25millionretrainingund or tsemployeesho fearjobosses romoutsourcing. aving theprivate ectorhandle theproblem ithout extensiveovernmentnterventionould be an addedbonus.

THE BEST DEFENSEUNTIL robust ob growth returns, he debateoveroutsourcingwillnot go away- the political temptationto scapegoatforeignersissimplytoogreat.The refrainof "this time, it'sdifferent" isnot new in the debate overfree trade. In the 1980s, the Japanese variety of capitalism-with itsomniscient ndustrialolicyandhigh nontariffbarriers-wasupposedtosupplantheU.S. system.Fifteenyears ater,hatprediction oundsabsurd. During the 199os, the passage of NAFTAand theUruguayRound of trade talkswere supposed to create a "giant sucking sound"as jobs left theUnited States. Contrary to such fears, tens of millionsof new jobswere created. Once the economy improves, the politicalhysteria over outsourcing will also disappear.It is easy to praise economic globalization during boom times; thechallenge, however, is to defend itduring the leanyears of abusinesscycle.Offshore outsourcing isnot the bogeyman that critics say it is.Their arguments, owever,must be persistentlyrefuted.Otherwise,the resultswill be disastrous: lessgrowth, lower incomes-and fewerjobsforAmericanworkers.0


drezner outsourcing

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