February 04, 2008
Against offshoring alarmism
Fresh policy brief from J. Bradford Jensen and Lori G. Kletzer of the Peterson Institute on "'fear' and offshoring":
Commentators, including Princeton University’s Alan Blinder, estimate 40 million jobs could be at risk of being offshored over the next 20 years and suggest American workers should specialize in services that can be delivered face-to-face. In contrast, Jensen and Kletzer expect the process of globalization in services will proceed much as it has in manufacturing: They estimate only 15–20 million jobs are at risk of being offshored to low-wage, labor-abundant countries; approximately 40 percent of these jobs will be in the manufacturing sector, long considered “at risk.”They expect these losses to be offset by job gains in high-wage activities from services exporting. The United States will retain its comparative advantage in high-skill, high-wage production and increase these activities in tradable service industries as trade barriers diminish. While the loss of low-wage activities that are offshored and the gain from high-wage service exports will cause dislocation, the globalization of services production is likely to have productivity-enhancing effects similar to the impact of globalization in the manufacturing sector, offering significant potential to improve living standards in the United States and around the world.
More thoughts after I read it this evening.
Posted by Dingel at 04:04 PM | Comments (0)
January 27, 2008
Tax breaks for offshoring companies?
Barack Obama's victory speech in South Carolina included the following line:
The Maytag worker who is now competing with his own teenager for a $7-an-hour job at Wal-Mart because the factory he gave his life to shut its doors - he needs us to stop giving tax breaks to companies that ship our jobs overseas and start putting them in the pockets of working Americans who deserve it.
Presumably this refers to the United States not collecting corporate taxes on unrepatriated overseas earnings, which encourages investment abroad when foreign corporate tax rates are lower. Is it really a tax "break" if those taxes have never been collected? Significant structural changes in the global economy are driving recent outsourcing and offshoring trends, not the tax code.
And how will Obama remedy this problem? He can't tell Democrats the fix is to lower the US corporate tax rate, and imposing taxes on foreign-incorporated subsidiaries would likely encourage parents to go abroad too.
As best I can tell, this an applause line that bears little relation to the economic issues Obama would actually need to address as president.
Posted by Dingel at 04:12 PM | Comments (1)
December 22, 2007
Globalization discomforts
From a story in the Minneapolis Star Tribune today:
Sure, outsourcing is part and parcel of 21st century life; even the Star Tribune has started to have some of its advertising work done in India...But still. There's just something... off about having "Minnesota Nice" sweatshirts with "Made in Pakistan" on the label or "Up North" t-shirts from way down south (Honduras).
What's off?
Posted by Dingel at 05:22 PM | Comments (0)
October 20, 2007
To Boise!
Andrew Leonard says Indian call centres are so last year:
Azim Premji, Wipro's chairman, raised eyebrows on Wall Street when he talked this year of setting up divisions in Idaho, Virginia and Georgia -- U.S. states he said were attractive because they were "less developed."
Posted by Dingel at 05:32 PM | Comments (0)
June 28, 2007
Globalization & iPods
Hal Varian in the NYT:
Who makes the Apple iPod? Here’s a hint: It is not Apple. The company outsources the entire manufacture of the device to a number of Asian enterprises, among them Asustek, Inventec Appliances and Foxconn.But this list of companies isn’t a satisfactory answer either: They only do final assembly. What about the 451 parts that go into the iPod? Where are they made and by whom?
Varian summarizes research (pdf) that traces the production of an iPod across the globe:
Ultimately, there is no simple answer to who makes the iPod or where it is made. The iPod, like many other products, is made in several countries by dozens of companies, with each stage of production contributing a different amount to the final value.
The researchers - Greg Linden, Kenneth L. Kraemer and Jason Dedrick - calculate value-added for each step of the production process. Read the full column.
[HT: Arnold Kling]
Posted by Dingel at 02:40 PM | Comments (0)
May 28, 2007
Coping with offshoring
FT:
A contentious €500m ($672m) European Union “shock absorber” fund to help workers who lose their jobs to global competition has received just two requests for aid since its launch, raising questions about the extent of “delocalisation” of European jobs.The low level of take-up from the fund, created at the end of last year, has prompted claims from liberals in the European Commission that the threat from the offshoring of jobs to Asia and elsewhere has been exaggerated...
“In a way we have exposed that by creating the globalisation fund,” said one. “It wasn’t set up in a way that would make it difficult to get the money.”
Posted by Dingel at 12:01 PM | Comments (0)
May 16, 2007
The price of success
"Live by becoming a base for the offshored industrial production of more advanced nations, die by offshoring your own industrial production to less advanced nations." -- Andrew Leonard on South Korea's new troubles
Posted by Dingel at 07:52 PM | Comments (0)
May 10, 2007
Crook on Blinder
Lately, though, Mr Blinder has been emphasising the downside. Perhaps he has found this arouses more interest. At the moment, as the title of his newest article indicates, he is anxious more than excited. “These forces,” he points out, “don’t look so benign from the point of view of an American computer programmer or accountant”, whose job might be at risk from foreign competition for the first time.That is true, but how benign did those forces look to factory workers 20 years ago? Do accountants have larger claims on our sympathies than steel workers? Mr Blinder used to argue that trade creates jobs as well as destroying them and raises living standards in the process. He used to say that growing imports imply growing exports. He noted the age-old error of thinking that trade raises unemployment and said it was called the “lump of labour” fallacy. Those arguments were correct then and, in Mr Blinder’s view, still are. So, again, what has changed?...
In short, when it comes to policy prescriptions, Mr Blinder’s big new view amounts to nothing. Perhaps understanding this, he defends his grave new stance as constructive from a rhetorical point of view. He says he wants to save free trade from itself. “If we economists stubbornly insist on chanting ‘free trade is good for you’ to people who know that it is not, we will quickly become irrelevant to the public debate.” Yes, that is always a risk. But is it really going to be more effective to chant “you’re right, free trade is bad for you”?
Let me suggest another approach. Keep on patiently explaining why, implausible as it seems to non-economists, liberal trade in goods and services really is good for importers and exporters alike. Explain why, odd as it may seem, offshoring really is no different. Keep arguing for policies that widen the gains and help the victims, to be sure, but never concede those main points, or suppose they do not need defending. No question, it is thankless and repetitive work, but until it can be offshored, we need Alan Blinder to pull his weight.
More along that line here.
Posted by Dingel at 01:46 PM | Comments (0)
March 27, 2007
Trade in Tasks: Logistics
FT:
Retailers and consumer goods companies in the developed world are increasingly shifting logistics operations from their home countries to China. Goods are sorted, labelled and even placed in displays for direct shipment to individual stores before leaving Chinese ports.Shipping lines, logistics companies and warehouse operators say costs spur customers to move the sorting process away from consuming countries, continuing the outsourcing trend to lower-wage economies that began with manufacturing going to China.
Posted by Dingel at 12:23 AM | Comments (0)
September 25, 2006
Globalization & Disaggregation
The Economic Council of Finland published a number of papers on globalization last week. Here's the summary of the lead article by Richard Baldwin:
Three eminent economists from Princeton University have recently argued that globalisation has entered a new phase that requires a new paradigm understand. This paper examines what is new in the new paradigm and considers the policy implications for Europe. Roughly speaking new-paradigm globalisation differs from the old in that it is occurring at a much finer level of disaggregation. Due to radical reductions in international communication and coordination costs, EU firms can offshore many tasks that were previously considered non-traded. This means that international competition – which used to be primarily between firms and sectors in different nations – now occurs between individual workers performing similar tasks in different nations. The really new feature is that deeper new-paradigm globalisation will seem quite unpredictable from the perspective of firms and sectors. Since individual tasks can be offshored, globalisation may help some workers in a given firm while harming others. Moreover, old-globalisation’s correlation between skill groups and winners and losers breaks down. Certain highly skilled tasks may turn out to be offshore-able, while other highly skilled tasks are not. Increased offshoring will therefore not systematically help or hurt skilled workers in the EU. In particular, many “Information Society” jobs are prone to offshoring so EU policies aimed at moving workers into Information Society jobs may be wasted since those jobs are only ‘good jobs’ because they do not yet face direct international competition. The paper argues that this has important implications for the EU’s competitiveness strategy, education strategy, welfare states, and industrial policy. The underlying theme is that the increased unpredictability should make EU leaders more cautious about moving workers or skills in a particular direction. Flexibility is, as always, the key to allowing Europe to seize the opportunities of globalisation while minimizing the adjustment costs.
The three economists at Princeton cited by Baldwin are Gene Grossman, Esteban Rossi-Hansberg, and Alan Blinder. The two Grossman and Rossi-Hansberg papers on offshoring are available at Grossman's website. Blinder's article is his March Foreign Affairs article, with which most readers of this blog are probably familiar.
Posted by Dingel at 11:52 AM | Comments (1)
April 19, 2006
Medicine, Outsourcing, and Cartels
NYT:
Frank Levy, an economist at the Massachusetts Institute of Technology,... teamed up with two other MIT researchers, Ari Goelman and Kyoung Hee Yu, and they dug into the global radiology business. In the end, they were able to find exactly one company in India that was reading images from American patients. It employs three radiologists. There may be other such radiologists scattered around India, but Levy says, "I think 20 is an overestimate." ...To practice medicine in this country, doctors are generally required to have done their training here. Otherwise, it is extremely difficult to be certified by a board of other doctors or be licensed by a state government. The three radiologists Mr. Levy found in Bangalore did their residencies at Baylor, Yale and the University of Massachusetts before returning home to India.
"No profession I know of has as much power to self-regulate as doctors do," Mr. Levy said.
So even if the world's most talented radiologist happened to have trained in India, there would be no test he could take to prove his mettle here. It's as if the law required cars sold here to have been made by the graduates of an American high school.
From the paper by Levy and Goelman:
One could imagine international agreements that allowed radiologists credentialed in one country to practice in another. In fact, no such agreements exist for radiologists practicing in the United States, a reflection, in part, of U.S. doctors’ group power. U.S. radiologists’ power to restrict foreign competition is reinforced by malpractice insurance, Medicare reimbursement regulations, and in all likelihood, consumer preference. Software professionals have few of these protections and so face strong foreign competition. [Levy & Goelman (pdf)]
I believe it was Milton Friedman who described the AMA as the country's most successful cartel.
Posted by Dingel at 11:14 AM | Comments (0)
February 13, 2006
Indian-Americans score jobs
Interesting tidbit in the Hindu Business Line:
Guess what Ashok Leyland's Managing Director, Mr R. Seshasayee, believes to be the company's most formidable challenge? Getting skilled engineers. "There is a dearth of engineers for the middle and senior levels," he told Business Line. But that the company for sure has a plan to meet the challenge. "Our team is going to the US this summer to recruit engineers," he said.
Posted by Dingel at 11:17 AM | Comments (0)
July 23, 2005
A Word on Greenspan's CAFTA Comments
I just caught a replay of Alan Greenspan's Wednesday testimony before the House Financial Services Committee. As Bill Day of Business Express complained, much of the discussion wasn't enlightening. I just want to comment on one exchange.
Rep. Maxine Waters, in the briefest terms, asked: CAFTA will increase outsourcing. Is outsourcing good or bad?
Chairman Greenspan chose to reply by defending outsourcing as efficient and desirable. In doing so, he granted Waters' premise. But there are good reasons to believe that CAFTA will not affect, or perhaps even reduce, outsourcing!
CAFTA primarily lowers the other nations' barriers to US exports, not US barriers to theirs. Most of the six other nations' exports already have duty-free preferential access to the US market under the Caribbean Basin Trade Partnership Act program. As such, CAFTA won't introduce any new competitive pressures upon US import-competing industries. It will, however, reduce incentives for US companies to establish factories in CAFTA countries in order to circumvent (pre-CAFTA) trade barriers by allowing the US corporations to freely export their goods to the Latin American nations.
It's silly how anti-globalizers try to impose all of their arguments upon every trade deal. CAFTA is a fairly narrow agreement that opens up Latin American markets to US exports. It doesn't encourage outsourcing, doesn't significantly reduce American tariffs, and doesn't lower labor standards in our partner countries. Those that oppose free trade are using CAFTA as a proxy for globalization as a whole, ignoring that their complaints have little relevance to CAFTA itself.
[That said, I still oppose the deal, because it's a preferential agreement that will do more harm than good.]
Posted by Dingel at 04:20 PM | Comments (0)