Rage against offshoring
March 26, 2004
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As part of PBS' By The People election 2004 coverage, Wall $treet Week with FORTUNE's March 26 broadcast takes a look at the hot-button issue of off-shoring. Should America fear the movement of jobs to other countries?
The job market almost always rears its head as an issue during U.S. presidential campaigns -- especially if there's a recession in recent memory -- and the 2004 contest is no exception.
Sen. John Kerry (D-Mass.) has been pressing the employment button almost continuously in speeches that include lines railing about job losses. He now uses "Benedict Arnold companies" as his standard description for corporations that move work such as software development to developing countries and says he would, among other things, "close every single loophole that gives companies incentives to move jobs abroad, including stopping American companies from setting up virtual headquarters in foreign countries just to avoid paying U.S. taxes and stop tax breaks for companies that move jobs abroad."
Democrats got unwitting help in February from the honesty of President Bush's chief economic adviser, N. Gregory Mankiw, whose Congressional testimony did nothing more than reiterate a line from Economics 101: "When a good or service is produced at lower cost in another country, it makes sense to import it rather than to produce it domestically."
Politicians from both sides of the aisle initially backed away from the statement, although almost anyone with an economics Ph.D believes it. Federal Reserve Chairman Alan Greenspan, perhaps emboldened by the fact that he's not up for reelection, last month criticized attempts to staunch overseas job movement. Fears about offshoring are nothing new, Greenspan noted:
"Jobs in the United States were perceived as migrating to low-wage Japan in the 1950s and 1960s, to low-wage Mexico in the 1990s, and most recently to low-wage China. Japan, of course, is no longer characterized by a low-wage workforce, and many in Mexico are now complaining of job losses to low-wage China.
"To be sure, many of our fellow citizens have experienced real hardships in our economic environment, which is becoming ever more internationally competitive. But the protectionist cures being advanced to address these hardships will make matters worse rather than better.
"The loss of jobs over the past three years is attributable largely to rapid declines in the demand for industrial goods and to outsized gains in productivity that have caused effective supply to outstrip demand. Protectionism will do little to create jobs; and if foreigners retaliate, we will surely lose jobs. We need instead to discover the means to enhance the skills of our workforce and to further open markets here and abroad to allow our workers to compete effectively in the global marketplace."
Even economists Brad DeLong, who worked for the Clinton administration, and unabashed liberal Paul Krugman, who uses his New York Times column as a platform for almost non-stop criticism of the Bush administration, defend the practice of moving jobs overseas.
"The lofty moral tone of the opponents of globalization is possible only because they have chosen not to think their position through," declared Krugman in his essay, "In defense of cheap labor."
Republicans found their economic spine a few weeks after Mankiw appeared before Congress and recast themselves as the defenders of free trade. Now President Bush regularly blasts off-shoring critics as misguided do-gooders who would penalize businesses and hold down the U.S. economy.
"We can't isolate ourself from the world and expect to have a growing economy," Bush said in a Thursday speech to a group of Latino business owners. "If you're a person looking for work, you want the United States of America selling products and services from our country. It's good for job creation. ... In other words, we've opened up our markets. And it's been good for consumers, frankly, that people are able to sell in the markets."
But being economically sound from a global perspective does nothing to ease the very real anger of workers whose jobs are now in India, China, Vietnam and the Philippines being done by someone willing to accept a far lower salary. To people raging against off-shore movement, it's too easy for economists to pontificate about sound policy -- after all, they're employed, so what do they have to worry about?
"Bush is in danger in a lot of the battleground Midwestern states," poll expert Karlyn Bowman told FORTUNE magazine. "The jobs issue here will be very important."
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