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Ignoring the Fear-Mongering about Outsourcing

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From the way some people talk in this political season, you’d think all the good jobs are being shipped to India, leaving nothing for Americans to do but flip hamburgers and shine shoes.

Don’t expect to hear sensible talk about economics in an election year. It doesn’t fit into sound bites. Demagogues have it easier, since their consciences don’t demand evidence for their allegations.

That said, there is reason to discount most of what is said to foment fear about “outsourcing,” “offshoring,” and the other scare words bandied about. The facts all run the other way.

Before getting to the details, let’s go over some basics. Trade is good. Why? Because it permits people to take advantage of specialization and the division of labor. As the great French economist Frédéric Bastiat wrote in the 19th century, the division of labor gives each individual access to products and services he couldn’t produce himself in a thousand years. You don’t need theory to see this. Think of all the products you used since waking this morning. How much of it could you have produced? Yet with even a modest income, you used a cornucopia of products that would have astounded the king of England a hundred years ago.

At any given moment there are things we can’t have because labor and resources are tied up making other things. That’s too bad because there is stuff we want — or would want if we knew about it. How can we get it? By becoming more efficient and freeing up labor and resources. One way to do that is to hire less-expensive labor to make things and perform services. When we do that, the money saved is available for new investment and jobs. Progress is always attended by the shifting and destruction of jobs. (Who cries for the unemployed slide-rule makers?) The time to worry is when jobs don’t change. That’s stagnation.

All of this is true even if the lower-cost labor is located in India or China or Mexico. National boundaries, at least in this sense, don’t matter. Any time we can have what we want at lower cost, labor and resources are liberated for additional things to make our lives better. We can have more for equal or less expenditure. Wealth is created. Remember this when you hear Lou Dobbs, Ralph Nader, and John Kerry trying to scare you.

Those folks are not only wrong in theory, they also are wrong on the facts. No one knows precisely how many jobs have been outsourced. But we do know some things. One is that there is much “insourcing;” that is, foreign companies are over here hiring lots of Americans. According to the Organization for International Investment, more jobs are being created by foreign companies here than by home-grown firms. In 2001, 6.4 million jobs were created in the United States by foreign companies, 34 percent in manufacturing. Walter Wriston, the former chairman of Citibank, is convinced that “the balance of jobs we import from abroad greatly exceeds the jobs we export abroad.” He points out that Honda, Novartis, and Samsung are just a few examples of foreign firms setting up shop here and hiring Americans. Foreign companies with U.S. facilities don’t sell just in the American market. They export too.

Another indicator is the surplus the American economy runs in information-technology services. According to Information Week, “Despite the export of many computer-programming and call-center jobs, U.S. companies bring in far more revenue from business-technology services than they pay to foreign providers.” In 2001 the surplus in IT services was almost $2 billion. As a rule, it is silly to obsess over trade surpluses and deficits, which in themselves are meaningless. But the services surplus puts the current fear-mongering in perspective.

One more thing to consider: Catherine Mann, senior fellow at the Institute for International Economics, says that when computer jobs move abroad, more and better-paying jobs take their place.

There is something government can do: repeal all laws and taxes that make it more expensive for companies to hire workers. That’s a good idea any time.

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    Sheldon Richman is vice president of The Future of Freedom Foundation and editor of FFF's monthly journal, Future of Freedom. For 15 years he was editor of The Freeman, published by the Foundation for Economic Education in Irvington, New York. He is the author of FFF's award-winning book Separating School & State: How to Liberate America's Families; Your Money or Your Life: Why We Must Abolish the Income Tax; and Tethered Citizens: Time to Repeal the Welfare State. Calling for the abolition, not the reform, of public schooling. Separating School & State has become a landmark book in both libertarian and educational circles. In his column in the Financial Times, Michael Prowse wrote: "I recommend a subversive tract, Separating School & State by Sheldon Richman of the Cato Institute, a Washington think tank... . I also think that Mr. Richman is right to fear that state education undermines personal responsibility..." Sheldon's articles on economic policy, education, civil liberties, American history, foreign policy, and the Middle East have appeared in the Washington Post, Wall Street Journal, American Scholar, Chicago Tribune, USA Today, Washington Times, The American Conservative, Insight, Cato Policy Report, Journal of Economic Development, The Freeman, The World & I, Reason, Washington Report on Middle East Affairs, Middle East Policy, Liberty magazine, and other publications. He is a contributor to the The Concise Encyclopedia of Economics. A former newspaper reporter and senior editor at the Cato Institute and the Institute for Humane Studies, Sheldon is a graduate of Temple University in Philadelphia. He blogs at Free Association. Send him e-mail.