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May 07, 2007
Alan Blinder on Offshoring
Well, yes, I see what he's getting at (usefully elucidated here) but:
It's also going to be large. How large? In some recent research, I estimated that 30 million to 40 million U.S. jobs are potentially offshorable. These include scientists, mathematicians and editors on the high end and telephone operators, clerks and typists on the low end. Obviously, not all of these jobs are going to India, China or elsewhere. But many will.
Large? Really? Well, I guess so in one way, 20-30% of the US working population isn't it?
In another way it's really rather small. No one, certainly not Blinder, is suggesting that this change will happen all at once, nor is anyone stating that those who lose jobs will never work again. Rather, it's a movement over some decades (as manufacturing has been) and those losing one job will find another. It's an adjustment in, not an end to, a working life.
So, in terms of those who already need to make such adjustments, is it a large number or not? I've got at the back of my mind that the monthly turnover of jobs in the US is 3 million a month. So the numbers being talked about here are that over some (unknown) number of decades the US will have to absorb an extra ten months of labour force turnover, the destruction and creation of jobs.
Although I'm willing to be corrected on any of the above on that basis I don't see it as a large problem, no.
May 7, 2007 in Economics | Permalink
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As for the economic welfare issues, the first question is will the gainers from the change be able in principle to over-compensate the losers? The next question is whether income distribution will be made more or less equitable by the change - once we have agreed what "more equitable" means. If not, can income distribution in practice be made more equitable through redistributive fiscal policies?
There is no logically compelling prescriptive recommendation from economics that justifies a change which improves economic efficiency (meaning that in principle gainers can over-compensate losers) if the eventual and inescapable outcome is an unacceptable deterioration in income distribution. But we had better be very sure that if there is an efficiency gain that we cannot address the problem of inequitable income distribution.
A recurring problem with many public debates about these issues is the making of facile assumptions with little justification. As a case in point, in the 1980s, Brazil imposed high tariffs on imports of computer products on the presumption that the policy would promote the growth of indigenous computer related industries - or, in other words, hiking trade barriers on computer products would promote import substitution. It seemed such a good idea at the time.
By the early 1990s, Brazil came to recognise that the policy had failed - the outcome was that computers and related products had indeed become more expensive as the result of the raised trade barriers with the result that computers were therefore used less and the economy was tardy in ascending the learning curve for the emerging IT revolution. Tough cheese.
Btw there are immense, if not intractable, practical difficulties with restricting offshoring when the imported deliverables consist of information or data transmitted over telephone lines. Presumably, the authorities would have to monitor telecoms traffic in order to apply the necessary trade restrictions. ROFL!
Posted by: Bob B | May 7, 2007 8:09:44 PM
During the course of the 21st Century, the prevailing political mood of Western nations will turn away from straightforward acceptance of economists' pronouncements towards a greater focus on what those nations and their peoples' perceive to be their national interests.
This will be no bad thing - indeed, in some cases it might even result in a 'Kommerzkampf' against the level of political access, and influence in the political process, afforded to business interests.
Posted by: Martin | May 7, 2007 9:52:30 PM
Tim - I wholeheartedly agree with you. (as does Greg Mankiw, who wrote a paper on the issue after leaving the CEA, among other things documenting how small the 'problem' actually is).
This, however, does not mean that we are not faced with a massive communications problem. Yes, there is only a small probability your job will be offshored - but there is an even smaller one that your plane is going to go down and people are still shitting their pants.
And to be a bit pedantic on the numbers you quote, keep in mind that in some respects they can be misleading. A turnover of 3 million jobs a month sounds like a lot, but a large proportion of these will be youth moving from one McJob to another, or women on maternity leave being temporarily replaced, or people in well-planned career moves. Only a few of these will represent genuine hard-ship and end up being a political issue, or else it would take only a few months to get rid of American (and for that matter, European) farmers and end the mad subsidies, butter mountains, wine lakes and the like. We are nearing half a century and we are hardly closer to achieving that, which creates the potential for off-shoring to become a real headache.
Posted by: datacharmer | May 7, 2007 10:03:43 PM
"the prevailing political mood of Western nations will turn away from straightforward acceptance of economists' pronouncements towards a greater focus on what those nations and their peoples' perceive to be their national interests."
Unfortunately for that, policies deemed likely to promote the "national interest" so often turn out to be no more than cocktails of whim, gut prejudices and fashion.
At the end of WW1, many led by Lloyd George believed profoundly that the national interest was to exact punitive reparations from Germany for the war without giving much rational thought as to how Germany was expected to earn was it was required to pay or as to what the long run economic consequences would be. The eventual consequences turned out to be conditions which fostered the rise of the Nazis and led to WW2. By the end of WW2 we had learned that exacting massive reparations from the vanquished was misguided.
We used to believe that the sure way to cure an increase in the going unemployment rate was simply to increase government spending.
Many once believed that public ownership of the commanding heights of Britain's economy was the route to improving the economic performance - as in Labour's manifesto for the 1983 election.
A few years back the NHS was producing pamphlets boasting that it was the largest single employer in western Europe - which was curious when independent assessments rated France's system of healthcare as the best in Europe for healthcare consumers and France's system of social insurance is thoroughly decentralised.
Not many folk nowadays rate Friedrich List on: The National System of Political Economy:
http://socserv.mcmaster.ca/econ/ugcm/3ll3/list/national.html
And most of us regard Goering on economic policy as laughable:
"We must not reckon profit and loss according to the book, but only according to political needs. There must be no calculation of cost. I require that you do all that you can and to prove that part of the national fortune is in your hands. Whether new investment can be written off in every case is a matter of indifference."
Speech of Goering in 1936 quoted in John Hiden: Republican and Fascist Germany (Longman 1996), p.128.
Posted by: Bob B | May 7, 2007 10:40:06 PM
"many led by Lloyd George believed profoundly that the national interest was to exact punitive reparations from Germany for the war without giving much rational thought as to how Germany was expected to earn was it was required to pay or as to what the long run economic consequences would be."
Only a half truth, I'm afraid - what was far more destructive was the Allied insistence on reform of German government. If the Kaiser had been allowed to stay in office, or another monarch had been installed, it's likely that there would have been no social void forHitler to fill. This was a mistake that Allies in WWII were realy quite astute not to repeat by not insisteing on the overthrow of Hirohito.
That was the real 'consequence' that led to 'conditions which fostered the rise of the Nazis and led to WW2.'
You write,
"We used to believe that the sure way to cure an increase in the going unemployment rate was simply to increase government spending.
Many once believed that public ownership of the commanding heights of Britain's economy was the route to improving the economic performance - as in Labour's manifesto for the 1983 election.
A few years back the NHS was producing pamphlets boasting that it was the largest single employer in western Europe - which was curious when independent assessments rated France's system of healthcare as the best in Europe for healthcare consumers and France's system of social insurance is thoroughly decentralised."
Again this is true, but only half true. Such commitments were the product of socialist, not nationalist ideology - if you read Simon Jenkins' 'Thatcher and Sons' you'll see that Thatcher's conversion to privatisation was lukewarm, late developing, driven by all governments perpetual need for hard cash and resulted in publicly owned industries being hocked off at large discounts. If nationalisation was theft then to all intents ad purposes Thatcherite privatisation was handling stolen goods, an analysis perhaps borne out by this analysis from that notorious source of leftist propaganda , The Sunday Telegraph -
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2006/10/29/ccpriv29.xml
Goering might indeed be laughable - but to my mind so is Hayek.
Posted by: Martin | May 8, 2007 7:01:26 AM
[Rather, it's a movement over some decades (as manufacturing has been) and those losing one job will find another.]
??? Sorry Tim, are you suggesting that the deindustrialisation of the Rust Belt in the USA was not a major social and economic phenomenon??
Tim adds: Sure it was, but it did unfild over decades, didn't it? There weren't suddenly 30 million out of work, were there, overnight?
Posted by: dsquared | May 8, 2007 7:57:36 AM
"if you read Simon Jenkins' 'Thatcher and Sons' you'll see that Thatcher's conversion to privatisation was lukewarm"
On precisely this, Mrs Thatcher paid due tribute to the guiding light and motivating inspiration coming from Nicholas Ridley:
"Free-market economics was always Nick's passion. And he had a longer, better pedigree in that respect than most Thatcherites — or indeed I may add — than Thatcher herself. His first vote against a Conservative Government bailing out nationalised industries was in 1961. To be so right, so early on, is not to have seen the light — it is to have lit it...He would have been a superb Chancellor."
http://en.wikipedia.org/wiki/Nicholas_Ridley,_Baron_Ridley_of_Liddesdale
In the present context, it is perhaps worth also recalling here the reason for Nicholas Ridley's resignation as DTI minister in Mrs Thatcher's last government:
"On July 14, 1990 he was forced to resign as Secretary of State for Trade and Industry after an interview published in The Spectator. He had described the proposed [European] Economic and Monetary Union as 'a German racket designed to take over the whole of Europe' and said that giving up sovereignty to Europe was as bad as giving it up to Adolf Hitler."
Nicholas Ridley was among the principal architects for the Selsdon Manifesto which formed the original basis for the Conservative Manifesto for the 1970 election, which the Conservatives won against most prevailing expectations at the time. One of the main charges later made against Ted Heath as the incoming PM in 1970 was that he abandoned the programme outlined in the election manifesto. Btw Selsdon is just a few miles from where I write this.
Posted by: Bob B | May 8, 2007 8:14:15 AM
[Tim adds: Sure it was, but it did unfild over decades, didn't it? There weren't suddenly 30 million out of work, were there, overnight?]
But since Alan Blinder is not claiming that this would happen, merely that it will be an event of similar importance to the Rust Belt, what is your point? In your original post you said that this would be "really rather small", "I don't see it as a large problem, no" and claimed that it would easily be taken up in the normal course of labour mobility, while at the same time suggesting it was a similar phenomenon to the decline of manufacturing in the USA. I think you're doing Blinder a real misservice here.
Tim adds: But the closing down of the Rustbelt was a small matter, did happen over decades and was absorbed by hte general turnover of jobs.
Posted by: dsquared | May 8, 2007 10:14:06 AM
Bob,
The validity of that reading of history depends on how influential the selsdon manifesto was in the first place.
To which the answer probably is, not very.
Posted by: Martin | May 8, 2007 11:27:35 AM
But Mrs Thatcher acknowledged that the Nicholas Ridley and his Selsdon manifesto with its advocacy of extensive privatisation of state-owned industries and liberalisation of markets had indeed shown the way - as it manifestly did.
Remember that it was Harold Macmillan who complained that privatising the nationalised industries was like selling the family silver.
Posted by: Bob B | May 8, 2007 12:16:08 PM
"But Mrs Thatcher acknowledged that the Nicholas Ridley and his Selsdon manifesto with its advocacy of extensive privatisation of state-owned industries and liberalisation of markets had indeed shown the way - as it manifestly did."
To whom? Read the Sunday Telegraph I piece I linked to.
To which particular 'way' are you referring? You sound like a Communist.
Thatcher acknowledged this, yes - but very late in the day, and probably more in order to 'retrocon' her ideological purity than as a result of any actual conviction.
"Remember that it was Harold Macmillan who complained that privatising the nationalised industries was like selling the family silver."
Is the relative price of utilities any cheaper now than it was? Or rail travel any cheaper? Dare we believe that, in some cases, Macmillan might have been right?
Posted by: Martin | May 8, 2007 4:31:57 PM
