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Thursday, June 2nd, 2005


Outsourcing America: What's Behind Our National Crisis and How We Can Reclaim American Jobs


Work Out

A review by Telis Demos

It's important to know what apparently triggered Ron Hira's crusade to bring the light of truth to the offshore-outsourcing debate. Hira, according to Outsourcing America's dust jacket, is an offshore-outsourcing expert and professor of public policy who has testified before Congress on offshoring. What his bio fails to mention is that he testified before Congress as a member of the Institute of Electrical and Electronics Engineers-United States of America (a professional group) and that the jumping-off point for his testimony was the low employment rate among his profession.

Hira's new book, coauthored with his brother Anil, reads like he looked for something to blame for this rate of unemployment -- and found outsourcing. (Even though Ron himself notes in his congressional testimony that most engineers are self-employed or work for small firms, which typically don't move many jobs overseas.) Aside from the factual question of whether or not offshoring is really accelerating, a matter that is hardly settled by the book, this habit of framing offshoring as strictly a short-term jobs issue leads the authors to gloss over a more important question: Is offshoring good for the economy in the long-term? The authors constantly return to the refrain that unemployed workers can't buy new products or that innovation will simply move offshore along with jobs. But offshoring in one industry creates efficiencies in others. The Hiras don't have anything to say about how offshore outsourcing would affect new fields, like biotech or sustainable energy. They simply say that overall, the economy isn't creating many new jobs.

Seven of the ten "solutions" the Hiras propose -- things like smarter labor protections, better national education, taxing business a bit more to pay for training, increasing health care and portable retirement benefits -- are either just obvious or generally nice, offshoring or no. They only tepidly recommend adjustment assistance -- such as subsidizing retraining -- to affected workers, citing a poor record of success. But full-scale programs have barely been tried. Despite President Bush's full-throated support for extending assistance to service workers, Congress has yet to move. It's worth giving this kind of aid a real chance to succeed, because the alternative proposals the Hiras offer -- limiting guest worker visas, encouraging the U.S. government to buy American, and adopting strategic national trade policy -- are doozies, with consequences that reach far beyond job growth.

The fundamental problem with the book is that, like most self-appointed Cassandras of American economic ruin, the Hiras see free trade as an ideological abstraction and prefer more specialized, managed trade. They look longingly at East Asia's well-managed economies and think, Gosh, if only we were so bold! Except that export-promoting development, whatever good it did for, say, South Korea, also left a lot of stinkers behind. South Korea's massively promoted steel industry is expensive, bloated, and always shedding jobs; Koreans probably wish the government had never put a penny into it. And much of East Asia's 1980s export growth came as the United States, with a well-greased capital market and wide-open trade borders, was in a buying mood. Who's going to buy America's next innovation if we horde all the good jobs and businesses?

So it's hard to argue that national-interest trade doesn't come with risks of its own, or that the lessons of any other country, especially a developing one, can be applied here at home. And the potential for getting into really deep trouble -- like sustaining unprofitable firms that will make pension promises they can't keep, or slowing new growth by keeping workers and capital stuck in dead-end but highly incentivized careers or investments -- is unacceptably high. The Hiras are probably right that certain kinds of innovations are slowly shifting to the far corners of the world. But innovation in America -- once we get over our squeamishness about stem cells and our love of oil -- need not be dead forever.

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