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. The governments and societies of the developed world must start preparing, and fast.
To the Editor:
Alan Blinder tells us that the eventual dimensions of "offshore outsourcing" may be "staggering" ("Offshoring: The Next Industrial Revolution?" March/April 2006). He seems optimistic, however, that the U.S. economy will be able to adapt successfully. A number of considerations suggest that such optimism is unwarranted and that extremely difficult times are ahead.
Blinder pins the United States' salvation on its ability to develop an economy that specializes in jobs that are safe from offshoring, such as truck driving, teaching, cleaning, hair styling, and government work. In effect, he is suggesting that Americans can prosper in the era of globalization by taking in one another's washing. But such jobs do not produce exports that will pay for imports.
The real source of Blinder's optimism is his adherence to the theory that trade invariably brings gains. But David Ricardo's explanation of this claim, which has held the field since 1817, is a story about two individuals, both producers of goods, some of which are consumed by the maker, while the other goods are traded to the other party. If one of the individuals stops making a good and starts "importing" it from the other party, it is because he has more valuable ways to occupy his time, and so trading makes him better off. But a country is not an individual, and many of its citizens may be unable to engage in more valuable activities. Moreover, a country's prosperity may depend on its ability to dominate in certain types of production, and it may suffer when it loses its lead.
Blinder says that U.S. educators will have to plan for schools that do better at fostering creativity and imagination in their students. If the future of the United States depends on their achieving that, heaven help us. Blinder also suggests strengthening the (very modest) U.S. social safety net. That is a good idea, but a weak economy with a strong safety net is still an economy in trouble. Is there anything else that can be done? Certainly: impose tariffs on manufactured goods and on services imported through electronic means and prescribe criminal penalties for violators, levy heavy taxes on corporate importers and use the proceeds to increase the income of consumers, and control illegal immigration, which is just another form of job outsourcing.