The Great Hollowing-Out Myth_Economist_2-19-04

The Great Hollowing-Out Myth_Economist_2-19-04 - The new...

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The new protectionism The great hollowing-out myth Feb 19th 2004 | CHICAGO AND WASHINGTON, DC From The Economist print edition Corbis Contrary to what John Edwards, John Kerry and George Bush seem to think, outsourcing actually sustains American jobs EARLIER this month the president's chief economic adviser, Gregory Mankiw, once Harvard's youngest tenured professor, attracted a storm of abuse. He told Congress that if a thing or a service could be produced more cheaply abroad, then Americans were better off importing it than producing it at home. As an example, Mr Mankiw uses the case of radiologists in India analysing the X -rays, sent via the internet, of American patients. Mr Mankiw's proposition, in essence, is the law of comparative advantage, first postulated by David Ricardo two centuries ago and demonstrated to astonishing effect since. Yet the Republican speaker of the House of Representatives, Dennis Hastert, joined Democrats in their rebuke of Mr Mankiw for approving of jobs going overseas; another Republican called for his resignation. The White House gave Mr Mankiw only lukewarm support—unsurprisingly, since George Bush recently signed a bill forbidding the outsourcing of federal contracts overseas. And the Democratic presidential contenders? Mr Mankiw had just written their attack ads. As if to underline the point, this week's Wisconsin primary was dominated by the subject of jobs, and the failure of the Bush administration to do enough to protect them from going off to India. In John Edwards, who wants to rewrite the North American Free-Trade Agreement, the American left may have found its cuddliest protectionist yet; support for the southerner surged after he spent much of a debate
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drawing implicit comparisons between his own skills as a jobs-defender and those of John Kerry, who has stuck to free trade only a little more loyally. The Democratic front-runner defends NAFTA , but rants about “Benedict Arnold” bosses betraying American workers by moving jobs overseas (presumably to boost returns for fat-cat investors, like, er, Mr Kerry's family). As for what might be called the business lobby, this is in disarray. “Tech jobs are fleeing to India faster than ever,” moans the cover of Wired . Watch “Lou Dobbs Tonight”, America's main business show, and every factory-closing is hailed as proof of America's relentless “hollowing-out” at the hands of dark forces in China, India and indeed the White House. Strangely, no mention is made of the fact that a pretty tiny proportion of all jobs lost actually go overseas. So what is really happening? Three themes emerge: •Although America's economy has, overall, lost jobs since the start of the decade, the vast majority of these job losses are cyclical in nature, not structural. Now that the economy is recovering after the recession of 2001, so will the job picture, perhaps dramatically, over the next year. •Outsourcing (or “offshoring”) has been going on for centuries,
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This note was uploaded on 03/02/2010 for the course BUAD 350 taught by Professor Safarzadeh during the Spring '07 term at USC.

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The Great Hollowing-Out Myth_Economist_2-19-04 - The new...

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