03 Mar The Coming Revolution in Outsourcing
I think this has to be the right answer. Macro-economic policies look to the national benefits of a policy choice and recognize that there will be localized harm from a free trade position. But that does not mean that we ignore the threats posed by trade, including the job losses associated with outsourcing.
A recent article (sub. req.) published by Princeton economist Alan Blinder in Foreign Affairs highlights the coming revolution of outsourcing. The thesis of his article is that “economists who insist that ‘offshore outsourcing’ is just a routine extension of international trade are overlooking how major a transformation it will likely bring — and how significant the consequences could be.” Blinder argues that we are in the “Third Industrial Revolution” that will be marked by a transformation of American society as workers in rich countries find other things to do. Here is an excerpt:
“In the old days, … tradable goods were things that could be put in a box…. But as the domain of tradable services expands, many service workers will also have to accept the new, and not very pleasant, reality that they too must compete with workers in other countries…. Many people blithely assume that the critical labor-market distinction is, and will remain, between highly educated (or highly skilled) people and less-educated (or less-skilled) people — doctors versus call-center operators, for example. The supposed remedy for the rich countries, accordingly, is more education and a general “upskilling” of the work force. But this view may be mistaken. Other things being equal, education and skills are, of course, good things … But the problem with relying on education as the remedy for potential job losses is that “other things” are not remotely close to equal. The critical divide in the future may instead be between those types of work that are easily deliverable through a wire (or via wireless connections) with little or no diminution in quality and those that are not. And this unconventional divide does not correspond well to traditional distinctions between jobs that require high levels of education and jobs that do not….
[M]any impersonal services are destined to become tradable and therefore vulnerable to offshoring. By contrast, most personal services have attributes that cannot be transmitted through a wire… What is to be done about all of this?… Most obvious is what to avoid: protectionist barriers against offshoring…. [R]ich countries such as the United States will have to reorganize the nature of work to exploit their big advantage in nontradable services: that they are close to where the money is. That will mean, in part, specializing more in the delivery of services where personal presence is either imperative or highly beneficial. Thus, the U.S. work force of the future will likely have more divorce lawyers and fewer attorneys who write routine contracts… In the second place, the United States and other rich nations will have to transform their educational systems so as to prepare workers for the jobs that will actually exist in their societies. Basically, that requires training more workers for personal services and fewer for many impersonal services and manufacturing…. Contrary to what many have come to believe in recent years, people skills may become more valuable than computer skills. The geeks may not inherit the earth after all — at least not the highly paid geeks in the rich countries. Creativity will be prized.”
UPDATE: The LA Times has a story on March 6 that echoes much of my thoughts in this post. It discusses the Bush comments in India and the Blinder article regarding the need for the right kind of education.
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