Globalization And Outsourcing Again

WSJ.com – We Are the World
I know I’ve been obsessing over this lately, but it’s a big issue and promises to get bigger.

The author of this article has an interesting take on globalization: our economy can be viewed as a business that supplies labor to ourselves and the rest of the world economy. Other countries do the same for us. Framed this way the question becomes how we make our labor market more attractive to other countries.

One way to do that would be reduced wages, which many opponents of globalization use as an argument against globalization. This seems doubtful, though, given the increases in productivity we’ve been experiencing. Productivity makes us more competitive in the world labor market, though it does increase unemployment when the economy is not growing faster than the productivity increases.

One could also argue that our labor market flexibility is in itself an advantage when compared to other countries. When companies invest here they do so knowing that there will be minimal regulations that turn employees into liabilities rather than assets. Lifelong education is another way we can make our country’s labor market more attractive.

I doubt that the government can stop outsourcing in any case and that’s a good thing. Just as allowing capital to migrate to its most productive uses makes us better off, the same can be said for labor.

One of the big issues shaping up for the 2004 election is “globalization,” or more specifically, why globalization is bad for American workers. Almost every day there is an article or a speech somewhere about the U.S. “jobless recovery.” In many cases, they are accompanied by expressions of concern about “exporting” jobs to India, the negative trade balance with China, unfair trade practices on the part of other countries, and the like. They normally include suggestions that we need to do something — usually couched in terms of making these other countries adhere to U.S. rules and regulations, but really aimed at making them less competitive.

Politics aside, let’s examine the facts: The U.S. is the largest consumer market in the world; it is both the largest importer and exporter in the world; it has the highest GDP in the world; and among the lowest unemployment rates in the world. So the questions are: Is job movement out of the U.S. really bad for the economy? If so, should it be reduced by government action? To be sure, there are negative aspects of globalization. Individuals do lose their jobs, companies do fail or fall behind, but would we really be better off if we created barriers to prevent these outcomes? I think not. Instead of trying to reduce the competitiveness of others, we should strive to increase U.S. competitiveness in world labor markets.

As a nation, we have always imported people, capital, raw materials and finished goods. The so-called globalization phase started with our export of manufacturing jobs to markets around the world, first for local production serving foreign markets, then for foreign production serving U.S. markets. The initial emphasis was on jobs with a large percentage of labor content, like clothing manufacturing or parts assembly, and the trend is now being extended to service jobs and jobs with large amounts of intellectual content — so called “good jobs.” (I would argue that, in an upwardly mobile society, there are no “bad jobs,” but I’ll leave that argument for another day.)

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Hence, a better question would be: What policy actions, if any, would make the U.S. a more attractive labor market?

By all means strive for a fair trading system globally. But do nothing at the governmental level aimed at creating barriers to the mobility of capital or labor. To ensure that we maintain a competitive advantage, we should adhere to the policies that have worked for more than two centuries: Reduce the unnecessary intrusiveness of government in the choices people make, improve the effectiveness and reduce the costs of needed government services, fundamentally eliminate governmental price controls, and restore equity in our legal system.

Even with these actions, some jobs will move overseas. I certainly hope so. Our policy goals ought to be to improve the environment for growth. By remaining flexible, we will create more jobs here in numbers large enough to require us to export even more jobs or to import more people. Either way, both we and the rest of the world benefit.

For more on outsourcing look here, here and here.

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