Outsourcing lies and fear

By Billy Joe Mills

Around the time of the last election, President Bush’s Chief Economist, Gregory Mankiw, said outsourcing “is probably a plus for the economy in the long run.” John Kerry indignantly responded the next day, “Unlike the Bush Administration, I want to repeal every tax break and loophole that rewards any Benedict Arnold CEO or corporation for shipping American jobs overseas.”

Protectionist sentiments from the left and the right are the true threat to American prosperity and dominance, not globalization itself. Lou Dobbs, Pat Buchanan, many traditionalists and politicians use outsourcing as a scare tactic to sell books or win votes.

But, let us look at basic economics and the data behind outsourcing.

Nobel economist Joseph Stiglitz wrote a best-selling book entitled, “Globalization and its Discontents.” He describes the various groups of the world that are unhappy and bewildered in the globalization game.

But, in 2003, the Pew Research Center conducted a survey of 38,000 people in 44 major countries entitled, “Globalization with few Discontents?” Majorities averaging 80 percent in every country, and 78 percent of Americans, describe increased globalization as either “very” or “somewhat” good for their country. What explains these surprising findings?

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The most widely cited statistics on outsourcing come from a 2002 Forrester Research study. It projected that a scary 3.3 million jobs would be outsourced from America between 2000 and 2015, averaging about 220,000 per year. That sounds like an insurmountable figure. Imagine 3.3 million decent and hard-working Americans bumming the streets due to the ruthlessness of evil corporate profit-seekers. The study also showed that one-sixth of those jobs would be white collar IT jobs.

We need a more complete picture and perspective of American labor economics to understand the impact of 3.3 million lost jobs. The entire U.S. economy employs 137 million people. One essential part of the labor markets is the constant cycle of creation and destruction. According to the McKinsey Global Institute (MGI), it is startling to note that between 1993 and 2002 a total of 310 million jobs were destroyed. But do not fear, 327.7 million were also created for a net increase of 17.7 million.

Compared to the robust U.S. economy, 3.3 million lost jobs spread over 15 years is paltry. In fact, 3.3 million is just 1 percent of the total losses from 1993 to 2002. The Bureau of Labor Statistics has estimated that even with increased outsourcing the economy will still show a net creation of 22 million new jobs between 2000 and 2010. Current unemployment is at a historically low level of 4.7 percent.

The accounting of outsourcing shows a net benefit to America, “MGI estimates that as much as $1.46 in new economic value is created for every dollar spent by American companies offshore … America, meanwhile, achieves a benefit of at least $1.13 for every dollar spent.” Even so, MGI estimates that 90% of U.S. jobs are of a nature that they cannot be done elsewhere.

MGI estimates that U.S. firms save 58 cents for every dollar they spend offshore. Just 5 percent of the wealth created by outsourcing would be needed to re-tool displaced workers for new jobs.

Every U.S. consumer also benefits from lower prices and the ability of companies like Wal-Mart to thrive. When consumers save it gives them greater disposable income to foster demand of even more goods and services, which leads to U.S. firms hiring more workers.

It is logical to assume that globalization is leading to a diminished U.S. presence in the world. But in 1978 American gross domestic product was 25.6 percent of the world’s total GDP. Today, American GDP is 30.7 percent of the world total. Every time a trade occurs it creates more wealth for both countries – it is a positive-sum, not a zero-sum game.

The ability of the common American worker to evolve, learn and compete is unmatched. When competition looms we should not fear it but embrace it with the confidence that American workers have always been world’s best.

Billy Joe Mills is a senior in LAS. He ate U.S. grown SpongeBob baby carrots while writing this column. His columns appear on Mondays. He can be contacted at [email protected].