Wednesday, March 17, 2004
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The lack of correlation between jobs and trade
Brink Lindsey has a policy brief on the relationship between employment and trade over the past few years, particularly in the manufacturing sector. From the abstract:
Read the whole thing.posted by Dan on 03.17.04 at 11:51 AM
"All of those ... are a painful but necessary part of the larger process of innovation and productivity increases that is the source of new wealth and rising living standards."
That's what the North Koreans say about having to eat grass and bark.posted by: Jon H on 03.17.04 at 11:51 AM [permalink]
“That's what the North Koreans say about having to eat grass and bark.”
The pathetic thing is that you think you are being so profound and witty. Alas, it’s the appropriate time for me to play the role of Simon Cowell and tell you the truth: you haven’t the foggiest notion of what you’re talking about. You are definitely not ready for prime time. Brink Lindsey wrote a fantastic book, --Against the Dead Hand--. Even Brad DeLong had a few nice words to say about it:
I strongly advise you do some serious reading before posting any more of your comments on economics. Dan Drezner has recommended a number of fine works. You should listen to him. I have some major disagreements with the previously mentioned DeLong---but he’s at least on the reservation. You are just a stark raving loony bird. Sorry to be so blunt, but that’s the way it is.posted by: David Thomson on 03.17.04 at 11:51 AM [permalink]
“Even in good times, job losses are an inescapable fact of life in a dynamic market economy.”
Absolutely correct. Nobody’s job is safe even in the best of times. And yes, this includes educated Yuppies. An individual possessing advanced degrees behind their name may indeed wake up one morning and be out of a job. This is, by the way, what happened to numerous folks in the oil industry. The new methods of searching for oil forced many to return to school. As matter of fact---the faster the economy grows---the less stable is the employment picture! Job Hopping will be the norm. Anyone telling you something different is either an utter fool or a liar.posted by: David Thomson on 03.17.04 at 11:51 AM [permalink]
In fairness to people like Dan who have taken some criticism for talking as if job losses from outsourcing or incomes were a figment of the collective American imagination (or were being replaced by increased employment that somehow escapes the attention of the people who measure employment), those who favor some governmental action to prevent job losses have to make some kind of case that the actions they favor would do any good.
This they have not done. John Kerry certainly has not. At the moment he has not quite made the transition from primary mode (where you get to speak to people who will mostly vote for anyone your party nominates in November) to general election mode (where you have to talk to everyone). In the primaries cheer lines about Benedict Arnold executives and tax breaks for outsourcing go unchallenged, but sometime between now and November Kerry is bound to be asked what they mean, what he proposes to do about them and what good he expects the steps he proposes to do.
I don't think he knows, on any one of those three points. We'll see if he does over the next few months.posted by: Zathras on 03.17.04 at 11:51 AM [permalink]
John Kerry certainly has not. At the moment he has not quite made the transition from primary mode (where you get to speak to people who will mostly vote for anyone your party nominates in November) to general election mode (where you have to talk to everyone).
He can't. He's now suffering from how far left he swung during the primaries. He can't swing back now without taking heat for contradicting himself from the right, and for abandoning his core, from the left.
This is a factor I already predicted last January.posted by: Bithead on 03.17.04 at 11:51 AM [permalink]
It is true that "international trade contributes modestly" to job turnover. However, the impact this has on living standards and working conditions in the US is much larger than the turnover numbers would indicate.
As workers are thrown out of manufacturing jobs, it increases the supply of labor to other sectors putting downward pressure on wages even for people in unaffected industries. Unlike other industrial countries with better developed safety nets, benefits in the US are typically tied to the industry in which one is employed. So, a former manufacturing worker can look forward to earning less, with more expensive (or no) health insurance.
Moreover, a broad litterature shows that just the threat of a company moving jobs overseas is enough to keep people from claiming the pay they deserve and speaking up against employer abuses.
Overall (both for workers in trade-competing and unaffected industries), international trade counts for 15-25% of the increase in inequality in the past 30 years.
At this point the best data suggests that service outsourcing/offshoring is still pretty small. But anyone can see that this is going to grow very, very fast. These are the post-industrial economy jobs that were supposed to replace the manufacturing jobs lost due to trade liberalization under NAFTA and the WTO.
This notion in itself is rather misguided. Manufacturing is the real prize, and the real high technology sector--which even Adam Smith could tell you. At that point, to argue that the 3/4 of the labor force in the US with at most the educational attainment of a high school diploma would easily transition into new knowledge-intensive jobs was simply disigenuous.
To think now that the US will be comparatively advantaged in knowledge-intesnive industries because we have a relative abundance of skilled labor (i.e. our 75% compared to 90-95% in most developing countries) is just naieve. Now almost everyone's job is at stake. (Especially untenured professors...sorry Dan). In sheer numbers, China's and India's 5 percent outnumber America's 25%...not to mention that at this level, they have better science and math achievement than we do.
We are shifting from world trade based on comparative advantage to a world of absolute advantage-based trade. Unless we do something different, we're really going to be f*@#ed! The answer may not be to erect protectionist walls around fortress America. But to pretend that there is really no problem is certainly a greater folly.posted by: Adam on 03.17.04 at 11:51 AM [permalink]
“This is a factor I already predicted last January.”
So did I. The Howard Dean campaign compelled John Kerry to embrace positions which attract only the hard core ideologues in a primary---but are losers in the general election. The result is that the winning Democrat nominee must be both a job protectionist and a dishonest pacifist. It’s indeed to late to go back to the center. This is why the Massachusetts senator is falling in the polls. President Bush should win by a minimum of 6 %. A double digit victory of 12 % is even a good possibility.posted by: David Thomson on 03.17.04 at 11:51 AM [permalink]
You are (unfortunately) correct. The economies are already mostly running on absolute advantage. As increasingly other countries can do anything that we can do, the specialization of comparative advantage gives way to the price competition of absolute advantage. The difference in population sizes as well as the structural legacies of those economies and the entrenched international economic system means that economic equilibrium and per capita purchasing parity is unlikely to be reached without a significant fall (50%+ easily) in American standards of living.
That intellectual property rights are not protected, international markets remain non-transparent and non-standardized, and vastly differing environmental and labor regulations are in place only exacerbate the structural imbalances and unequal market liberalization built into our illiberal trade treaties.
The sad thing is that the story seems to be changing every week. First it was that jobs were being created, but it was just that they weren't registering. When that argument got blown out of the water, by the Fed no less, they turned to the automation and productivity argument. Only it turns out that productivity gains miscount offshored job losses as gains in productivity - otherwise we'd have to believe that companies are increasing capital equipment purchases into the teeth of a recession when reports on Wall Street still msotly say they're delaying capital equipment purchases.
Now the argument is to try to mix it all together and claim at the same time, that job loss is normal. This is true, but it woefully neglects the suppression of job growth. It's the lack of job-growth that is the real story.
If we had a current accounts balance that was near zero, then it would be true that jobs would merely be shifting from import industries to export industries. However, we do have a trade deficit. This deficit means that the dollars that are coming back are coming in the form of financial investment and speculation in Treasury notes, already issued stocks, etc. This form of financial investing is much less likely to end up in the form of business expansion, start-up, or improvement that would create real capital investment.
If a German company wants to open up shop in America and hire Americans, that's great! Kelli gave such an example a while back. However, such anecdotes are the exception rather than the rule.
A brief look at the productivity numbers and just some back of the envelop calculations indicate that a few million manufacturing jobs may have been lost to offshoring and disguised as productivity gains. So where is the job-growth then? Recent reports indicate that even the service sector is sluggish, and the only growth area of the economy seems to be government bureacracy, temp jobs, and below the radar odds-and-ends kinds of jobs.
Personally the oldman likes being his own boss, but the vast majority of the population as pointed out above simply doesn't have the capacity to transition to a high-education freelancing kind of work. To imagine that this is the new wave of the future is rather rose-tinted a speculation to say the least.
As for alternatives, I for one have clearly put out multiple concrete proposals on the table here. It is not for lack of proposals that we languish. It is for lack of political vision and will, and the complacency of those so convinced that the present system is the best of all worlds they cannot address the simplest criticisms.posted by: Oldman on 03.17.04 at 11:51 AM [permalink]
What people have to remember is that on the one hand there are economic shocks and on the other there are economic shock aborbers. Shocks are inevitable as every agrees when really pressed on the point but given a government that is totally opposed to redistribution the shock absorbers just aren't there to help people.
by June Kerry's policy will be something like this:
1) If there is an economic incentive to outsourcing that's fine but don't pile tax loop holes on top of that.
2) If people need extra unemployment to find new work give it them.
3) If people need to be retrained, don't just say you will retrain them, retrain them.
4) If unemployed people have no health care help them get it.
5) Since trade generates all of these benefits then lets redistibute some of them so we can pay for this stuff.
Essentially, if America isn't going to get split in two (again) - it's not enough that winners can afford to bribe losers and still be better off (pareto efficiency) they actually need to do it.posted by: Micheal Carroll on 03.17.04 at 11:51 AM [permalink]
David, behavioral economics seems to show that a significant percentage of the population (I think 30 percent is reasonable rule of thumb) does not behave rationally. (No surprise P.T. Barnum was right.) They will not save adequately for retirement, they do not adequately account for risks, they do not adequately value education, nor do the adequately fund health care and other basic needs. Even those who do behave rationally will make mistakes, suffer bad breaks, fall victim to unperceived risks, etc. At the same time, our Constitution provides that we must govern in the best interests of all our people.
I am not a socialist. I understand very well the risks to freedom political control of resources presents. Nonetheless, it appears we must provide a reasonably strong social safety net or a good portion of the population should rationally object to increased trade integration or frankly any loss of job. This portion of the population will not be freer under a Ann Rynd world. Thus, I believe your point on increasing economic dynamism appears to be a serious argument against radical Libertarianism. Mandated savings with personal control and a tax supported poverty insurance program would appear much more Libertarian than the Libertarian agenda. In a similar way, I have tried to point out that taxing inheritance transfers to prevent accumulation without effort also seems more Libertarian than the Libertarian credo.
Zathras, Bithead, why is Kerry's position on free trade less secure than Bush's? As far as I can tell there is nothing particularly protectionist about reviewing free trade agreements for compliance. In fact if non-compliance with the agreements is hindering trade, his position could end up more pro-trade than Bush's. I see no rational argument for subsidizing offshoring.
Adam, you cite figures. Can you provide sources? FWIW, they seem to be around where I assumed. I believe reductions in middle management combined with overcompensation of top executives has had the largest impact on increased inequality. The shift of tax burden down the income scale over that time period has also played a role.
Nonetheless, though 25 percent is nothing to sneeze at, it is still only a quarter of the total. At the same time trade has kept wages down it has also kept prices down. What is the net effect? Likely very positive for the vast majority of Americans. There is also the question of how best to address the inequality problem. Regardless of the practices other countries' engage in, protectionism only makes companies less competitive. Making companies less competitive isn't going to increase employment or income equality.
Oldman, have you determined how opportunity costs fit into the theory of comparative advantage or do you still wish to hold that comparative advantage has nothing to do with costs?posted by: Stan on 03.17.04 at 11:51 AM [permalink]
Hmm. This is amusing.
Yes. I see my mistaken ways now. I can see that outsourcing could never be a problem of any kind.
what a day, what a day.
25 percent of tech jobs to be outsourced by 2010: survey
NEW YORK (AFP) - One out of every four high-technology jobs in developed countries today may be outsourced to emerging markets like India by 2010, according to a report by the research firm Gartner Inc.
"Global sourcing is becoming a mainstream delivery model," said Ian Marriott, vice president at Gartner, at a Barcelona symposium and released by Gartner Wednesday.posted by: ed on 03.17.04 at 11:51 AM [permalink]
Ed, when was the last time you brought in the crops? We lost thousands of jobs in agriculture yet somehow we all managed to find work. Oddly enough the efficiency gains even made us better off. You'd think there would eventually be fewer Luddites. I wonder how many centuries of this it will take? Yeah, the paranoia about outsourcing is amusing.posted by: Stan on 03.17.04 at 11:51 AM [permalink]
Ed, my last post is very dismissive. I honestly didn't mean it to read like that. Although I feel your concerns are generally misplaced, my post reads like there can be no rational reason for concern. As I was trying to point out to David above, I do not think that is true at all. Even if I did feel that way, my response would still not reflect my thinking. I don’t believe I am infallible. My apologies.posted by: Stan on 03.17.04 at 11:51 AM [permalink]
"Meanwhile, despite the new offshoring trend, the Department of Labor is forecasting a 35 percent increase in computer-and math-related jobs over the next decade."
How DoL is motivated to give as precise estimate as possible? Do they get a bonus if increase will be 34-36%?
Will they get fired if increase will be 2%?
What will happen to them if increase will be -10%?
Answer: In all these cases they will get an annual salary increase and a Xmas bonus.
Here is a much better estimate of the future of USA IT industry:
At the Massachusetts Institute of Technology, the premier engineering school, enrollment in electrical engineering and computer science fell 33 percent in two years.
Who do you believe, a unionized goverment employee who does not gove a shit or a young very bright guy who looked at the things and gave thumbs down?posted by: Mick on 03.17.04 at 11:51 AM [permalink]
"... those who favor some governmental action to prevent job losses have to make some kind of case that the actions they favor would do any good.
This they have not done. John Kerry certainly has not."
I have never voted for a Dem in presidential elections and I'm voting for more than 20 years.
I'm looking for an excuse to vote against Bush, but Kerry, so far, didn't give me one. The only concrete proposal he put down was about 90 days notice to outsourced workers, a rather small and pathetic measure.
To get my vote Kerry must do much more.
You ask about opportunity cost. If in a declining marginal cost industry, capital were invested in factors of production in a higher return yeilding industry this would indeed result in the classical case of absolute competition in one market leading to comparative advantage capture through exploitation of another.
However, this does not hold if (a) the capital is invested in another venture overseas instead of one here (b) the money is returned in the form of financial investment or speculation that yeilds little capital investment or (c) absolute competition extends across the board and leads to a systematic current accounts deficit.
Otherwise if there were a near zero current accounts balance, then indeed trade would merely shift production and services from one industry to another. However, there is not. Therefore the classical jobs being destroyed but created elsewhere doesn't hold.
Like the "jobs are really there but you can't see them", or the "we'll lose manufacturing jobs but other jobs will be created", or the "these missing jobs are being reduced by productivity increases brought about by automation - even though that would mean intensive capital purchases into the teeth of a recession rather than offshoring cost-savings" or the "it's really a surge in free lancing as a new trend in employment!" or the "every dollar spent overseas has to come back -completely neglecting dollar hegemony and that not all dollars returned have the same capital bang for the buck" ...
all of these arguments, as a pro-trade person, I have found wanting.
Sorry Stan, but no cigar today if a measley quip on opportunity cost is all you have to offer. Opportunity cost means that there is actually a domestic capital investment alternative that starts, improves, or expands business, services, and production here in America for export overseas. Ain't seeing it.posted by: Oldman on 03.17.04 at 11:51 AM [permalink]
My prediction? Catherine Mann stated that over the past three years, computer and math jobs grew a measley 6%. So over the next six years I project they grow another 12%. If that. But let's just say for the sake of argument, 12%. Now to be believe the government numbers, you'd have to believe that the rate of hiring would essentially triple.
You figure out who to believe, me or the government statisticians who have gotten every post-recession job projections massively wrong to the upside so far.posted by: Oldman on 03.17.04 at 11:51 AM [permalink]
Hmmm. This is amusing.
"Ed, when was the last time you brought in the crops? We lost thousands of jobs in agriculture yet somehow we all managed to find work. Oddly enough the efficiency gains even made us better off. You'd think there would eventually be fewer Luddites. I wonder how many centuries of this it will take? Yeah, the paranoia about outsourcing is amusing."
My point about farm work was to give examples of why businesses go through the expense, and a great expense it can be, to fund the R&D and implementation of automation. That's all. Just an example.
But if you really want to know, I worked on a farm from when I was 11 to when I joined the USMC at age 17. So I know, intimately, what kind of work, and how much, is involved in farming wheat, corn, taking care of sheep and cattle and in taking in the hay.
Just in case it worried you.
"Ed, my last post is very dismissive. I honestly didn't mean it to read like that. Although I feel your concerns are generally misplaced, my post reads like there can be no rational reason for concern. As I was trying to point out to David above, I do not think that is true at all. Even if I did feel that way, my response would still not reflect my thinking. I don’t believe I am infallible. My apologies."
No worries. No need for any apologies whatsoever. I actually didn't view your post as dismissive at all.
You have your belief and I have mine. The reason why I'm debating this at all is because I'm very much worried, not for myself, but for my nieces and my country. I see things, like that news post, and trends and it really makes me wonder what kind of world the next few generations will live in. We all need to remember that civilization is a very thin veneer. It doesn't take much to remove it completely. Along with that veneer are the principles that defines America. It doesn't take all that much to destroy those principles too. Look back at the Great Depression. It's hard to imagine now but the Communist party was a very very powerful force back then. Another few years of that depression and we might seriously have become a soviet system.
The primary point of it all is that I *want* to be *proven* wrong. Yet so far I don't think I have. That worries me even more.
The U.S. joblessness report for February 2004 stunned
What with downsizing, jobs being sent off-shore,
'What Color Is Your Parachute' Site, this
'Quintessential Job Hunt' Site. 'Search jobs!
These guys are good! An executive I know had just
Monster of a job site! Great resource:
Its Canadian 'twin'...
The Riley Guide: Employment Opportunities and
Job-Hunt.org 'Online Job Search Guide...your
RiteSite Executive Careers Service - looks
And if YOUR job hasn't gone to India or China
posted by: Peter Atkinson on 03.17.04 at 11:51 AM [permalink]
I believe you missed my point on agriculture. What portion of the population used to work in agriculture? What percent now works in agriculture? What happened to all of those lost jobs?
On your site you claimed that comparative advantage had nothing to do with costs. On the contrary opportunity costs determine comparative advantage. Opportunity costs are the costs associated with foregoing other opportunities with finite resources. Choosing to do A prevents you from doing B. These costs are not dependent on perfect competition.
Further, the existence of capital account surpluses doesn't somehow turn trade into an absolute advantage scenario. Your conclusion doesn't follow from anything you say below and at least one part of what you say is contradictory. (If (a) then not (b).) I suggest you try re-reading your economics texts:
"If in a declining marginal cost industry, capital were invested in factors of production in a higher return yeilding industry this would indeed result in the classical case of absolute competition in one market leading to comparative advantage capture through exploitation of another.
However, this does not hold if (a) the capital is invested in another venture overseas instead of one here (b) the money is returned in the form of financial investment or speculation that yeilds little capital investment or (c) absolute competition extends across the board and leads to a systematic current accounts deficit.
Otherwise if there were a near zero current accounts balance, then indeed trade would merely shift production and services from one industry to another. However, there is not. Therefore the classical jobs being destroyed but created elsewhere doesn't hold."posted by: Stan on 03.17.04 at 11:51 AM [permalink]
Comparative advantage indeed has nothing to do with competitive cost of production. Cost only factors in when comparing the opportunity cost of capital investment between two or more different alternatives of your own production. Thus you should do the thing you do best, or in terms of capital investment that you will get the highest yeild for investment in.
It has nothing to do with competitive cost, or how expensive it is to produce goods compared to someone else. Indeed, the theory of comparative advantage dictates that you should sometimes produce what is more expensive than your competitor to produce.
Odd, but true. The benefits from comparative advantage come from specialization of production, and not from cost-savings. If someone makes shoes and socks better than you, but you can make socks better than shoes then you let them make the shoes and yourself you produce the socks even though you produce socks more expensively than the other feller. So it doesn't matter what you produce, so long as you produce what you are best and then trade back and forth.
Comparative trade is really a theory of production maximization. Instead of trying to make everything, each person picks what they are best at and then trades their production for whatever else they need. The total pie grows in such a scenario.
However, if you have a scenario where one person makes things more cheaply than everyone else and starts making everything for everybody - then this is the exact opposite of comparative advantage.
Indeed, you can calculate the total productivity lost by invoking comparative disadvantage - lost aggregate production generated by underutilized capacity.posted by: Oldman on 03.17.04 at 11:51 AM [permalink]
"I believe you missed my point on agriculture. What portion of the population used to work in agriculture? What percent now works in agriculture? What happened to all of those lost jobs?"
And your point is what exactly? There's any number of different ways of reading your statement so I'd suggest being a great deal more blunt about it. But I'll try to guess below.
That people have lost jobs before.
Yes this is true. In the past entire industries and professions were eliminated through evolving technologies. The once common job of elevator operator no longer exists. However those jobs that were lost were lost largely through technological innovation and evolution. This resulted in newer jobs that cannibalized the replaced jobs. I.e. there were new jobs created for producing elevators that did not require an operator to replace all those obsolete elevators that did need an operator.
Yet this example does not at all cover outsourcing. In an outsourced world the elevator operator not only loses his job but cannot get a job making elevators, instead those jobs are in India and unavailable to him.
So in the past we have been able to cannibalize existing industries and professions to create new industries and professions. But the drive now is to simply move work offshore, which breaks this cycle.
If I've guessed wrong then I'd suggest being more explicit. You usually can't go wrong by being explicit on a blog.
It is always said to be different this time. Technological development has been shifting jobs for thousands of years. Each time, the increased productivity has led to either improved living standards or increased population. Trade shifts jobs in the exact same way that technological change does because trade is a form of technological change. Technology makes the movement of goods and services economical. Likewise, outsourcing is itself only possible due to technological change.
Everything claimed to differentiate outsourcing seems to apply equally to all of the preceeding cases of technologically induced job shifting. The Luddites believed machines were going to take away all of their jobs. They couldn't identify where new jobs would come from so they claimed that there would be massive unemployment. NAFTA was also supposed to end all U.S. employment. Contrary to both predictions, U.S. employment levels hit an all time high in the 1990s. Now India and China are the bogeymen of the day.
Just like before nothing about jobs going to China and India prevents us from creating new jobs. Following World War II, lots of jobs went to Europe and Japan. Those countries remain some of our largest trading partners and we have become better off during the process.
With the massive number of historical cases of technologically induced jobs shifts before us, those proposing that outsourcing will lead to doom need to provide logical arguments for why we won't be able to create new jobs this time. That is what has to be different. Ignorance of what those jobs may be is not proof that they don't exist.
"Indeed, the theory of comparative advantage dictates that you should sometimes produce what is more expensive than your competitor to produce."
This part is incorrect:
"It has nothing to do with competitive cost, or how expensive it is to produce goods compared to someone else."
What you produce may in fact be more expensive for you to produce than it would be for your trading partner, but because of opportunity costs it will appear cheaper to him. Comparative advantage states that each producer must make a choice. Limited factors of production mean that we each have to make a choice when employing those factors. Because of the different opportunity costs both face, what you produce will be cheaper (lower cost for perceived value) to your trading partner than for him to choose to produce it.
Stated another way, your product will cost less than your trading partner's nth product of that line because he has to forego production of the nth product in another line that gives him higher returns. This is the theory of comparative advantage. You don't produce more expensive stuff. You produce stuff that he could make less expensively if he didn't have to make a choice. Higher returns in another area makes buying your product cheaper to your trading partner than choosing to produce it.
Labor may seem to be boundless in India, but capital is very expensive. Indian entrepreneurs and foreign investors cannot invest in everything. They have to choose where to put their capital. They will choose the place with the highest return. Money spent building roads is not available to build ports. Money spent building textile plants is not available to build avionics plants. Comparative advantage means that purchasing jumbo jets and pharmaceuticals from us costs less to our trading partners than investing their time, money, and expertise to produce their own. We build it cheaper because nobody can do it all. Everybody must make a choice.
Even if the theory of comparative advantage didn't hold, currency exchange would lead to a similar result. National accounts are an accounting function. Either capital and current accounts balance or the currency values have to adjust. (I've given you the only sustainable conditions for trade imbalances in another thread. Those conditions do not change the basic fact that trade balance is an accounting function.) Thus trade either balances or currencies adjust until it does. (Admittedly, since capital account transfers swamp current account transfers, this effect can take a while.) Even if you have the same currency, those you buy from have to do something with the currency. If they do not buy yours, you cannot buy theirs. It is the same effect.
Therefore in trade both opportunity costs and currency induced changes in value mean that the products being purchased are cheaper (by perceived value) to those buying them. Instead of arguing with me, please try rereading your texts.posted by: Stan on 03.17.04 at 11:51 AM [permalink]
Just in case, this link is to the comparative advantage section of Steven Suranovic's online text "International Trade Theory and Policy Analysis": http://internationalecon.com/v1.0/ch40/40c000.html
posted by: Stan on 03.17.04 at 11:51 AM [permalink]
Correction: "I've given you the only sustainable conditions for trade imbalances in another thread." I provided the only two sustainable conditions that I'm aware of. There may be more, but I'm not aware of them.posted by: Stan on 03.17.04 at 11:51 AM [permalink]
"Comparative advantage means that purchasing jumbo jets and pharmaceuticals from us costs less to our trading partners"
Two of the most protectionist, state-subsidized industries in America are our comparative advantage and a basis for supporting free trade? Very funny.posted by: buermann on 03.17.04 at 11:51 AM [permalink]
"It is always said to be different this time. Technological development has been shifting jobs for thousands of years. Each time, the increased productivity has led to either improved living standards or increased population. Trade shifts jobs in the exact same way that technological change does because trade is a form of technological change. Technology makes the movement of goods and services economical. Likewise, outsourcing is itself only possible due to technological change. "
Let me point out something that I've repeated to others on this blog and that I'll repeat here.
**Technology is largely irrelevant to outsourcing.**
Outsourcing is a business process which is a completely different from technology. Technology might be of some limited use in managing outsourced processes, but has nothing to do with outsourcing itself. Trying to tie in outsourcing with technology is a mistake and is frankly done for no other reason than as a dodge.
Technology does help executives and managers integrate operations scaled over entire continents and the world. This allows highly disparate business units to track the movement of transshipped materials, inbound raw materials and partially finished goods and outbound finished goods. This allows vendors to update the enterprise on delivery schedules of materials and customers on delivery schedules of products. This allows for a higher level of control over the business processes and gives a positive affirmation of control.
But technology has nothing to do with outsourcing itself. Outsourcing is a business decision based on production ability and cost savings. The very same technology that could be useful in managing outsourcing would also be similarly useful in managing domestic operations.
So trying to make the argument that technological shifts of past employment is somehow interrelated to outsourcing is not just wrong but completely oblivious to the actual facts.
1. Does VOIP (Voice Over Internet Protocol) make moving a call center to India easier?
Yes it does. But VOIP doesn't make available a low wage group of English speaking workers available. Nor the absence of VOIP make it impossible for a call center to be located in India.
2. Does an integrated supply-chain application make managing outsourced manufacturing easier?
Yes it does. But it has nothing to do with lowered wages, reduced tax burdens and eliminated environmental regulations.
If you disagree then point out specifics where technology is absolutely necessary for outsourcing. But don't include examples where that same technology is absolutely necessary for the domestic existence as well. Let's instead try to isolate specific examples of where technology can truly be the cause for the loss of domestic employment. That is after all the crux of your point.
Frankly I think you've got your work cut out for you.
"Technology is largely irrelevant to outsourcing"
"Outsourcing" is only possible due to changes in technology. It isn't a dodge. Communications technology changes have made new types of outsourcing possible.
In fact, to tell you how grounded in technology this change is and how little this time differs from the past, we have all been outsourcing for most of recorded history. Economic specialization into farmers, tanners, metal smiths, etc. thousands of years ago involved the exact same economic decisions and effects. Outsourcing metal work and specializing in farming is the exact same type of outsourcing and trade that we are looking at here. Changing the type of outsourcing and the distance of trade doesn't change the economic relationship.posted by: Stan on 03.17.04 at 11:51 AM [permalink]
Two of the most protectionist, state-subsidized industries in America are our comparative advantage and a basis for supporting free trade? Very funny.
Posted by buermann at March 22, 2004 04:03 PM
Buermann, what did you think the effect of subsidy on costs was?posted by: Stan on 03.17.04 at 11:51 AM [permalink]
""Outsourcing" is only possible due to changes in technology. It isn't a dodge. Communications technology changes have made new types of outsourcing possible. "
Of course you must be right. Why, during the era of the British Raj, Indian cotton growers *weren't* forced to outsource the production of cloth to English mills.
Damn that broadband Internet access of the 19th century! Damn it all to hell!!
Of course. Ghandi was a blogger ....
Ghandi was a very good politician but a lousy economist. Think about it. Do you think you would be better off spinning your own cloths? That was the thrust of Ghandi's answer to the British forced monopolization of cotton spinning in India. Ghandi got the problem half right and the answer totally wrong.
The real economic problem was the British monopoly. You trade for your cloths and specialize in something else instead. You do this because you have a comparative advantage in another field. The answer for spinning was competition. Most reputable Indian economists will now tell you the same thing.posted by: Stan on 03.17.04 at 11:51 AM [permalink]
"Ghandi was a very good politician but a lousy economist. Think about it. Do you think you would be better off spinning your own cloths? That was the thrust of Ghandi's answer to the British forced monopolization of cotton spinning in India. Ghandi got the problem half right and the answer totally wrong. "
Umm. He spun his own cloth as a *protest*, not as an economic answer. The reason for the protest was the forced importation of cloth and the laws against producing cloth in India. They reason why? It cost jobs in India that would otherwise have existed.
You didn't answer:
I made this point in refutation of your line of debate. You haven't answered this point at all. Answer it adequately or admit defeat.
I can now see that outsourcing jobs to other countries is absolutely GREAT for America! You guys won the battle! I'm convinced! I'm converted! I can SEE the LIGHT!
*Economy Grows at Solid 4.1 Percent Pace *
"The economy added just 21,000 jobs in February — all of them in government — a Labor Department survey of payrolls showed. Job growth has been painfully slow despite better economic activity. "
*U.S. Making Progress on China Currency *
"American manufacturers have contended that China's policy of tightly linking its currency to the U.S. dollar has made the yuan undervalued by as much as 40 percent, giving Chinese producers a huge competitive advantage against American companies."
*Greenspan defends free trade, productivity, despite shifting jobs*
"Greenspan drew on the history of rural American development to rebut protectionism amid deepening concern over the loss of US jobs to countries with cheaper labor such as India and China."
*Weekly US jobless claims rise slightly to 339,000*
"WASHINGTON (AFP) - The number of US unemployment claims rose by 1,000 in the week ended March 20, to 339,000, the Labor Department "
I must admit. You guys have a very convincing argument .....
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