|
The Truth Comes
Out About Offshoring
By Paul Craig Roberts
06/13/07 "ICH"
--- -- On January 6, 2004, Senator Charles Schumer (D, NY)
and I scandalized the economics profession and Washington
policymakers with our New York Times article, “Second Thoughts
on Free Trade.” We noted that the two conditions on which the
case for free trade rests no longer exist in the present-day
world and that there was no basis for the assumption that
offshoring of US jobs was beneficial overall to Americans.
The Brookings Institution in Washington, D.C., organized a
conference, televised by C-Span, to subject our argument to peer
review, and we easily dominated the conference.
Business Week (March 22, 2004) was receptive to a column from me
explaining the adverse effects of offshoring, and Tim Aeppel at
the Wall Street Journal organized an online debate between
myself and Columbia University trade theorist Jagdish Bhagwati.
Aeppel hoped to test the validity of my points in the crucible
of debate with a leading academic proponent of offshoring.
However, Bhagwati evaded my argument and threatened to withdraw
his participation if my reference to the latest work in trade
theory by Ralph Gomory and William Baumol was included in the
edited version of our debate in the Wall Street Journal (May 10,
2004). In Global Trade and Conflicting National Interests
published in 2000 by the M.I.T. Press, Gomory and Baumol show
that the case for free trade is a special case and had never
been one of general validity. Their criticism is more
far-reaching than the one made by me and Senator Schumer.
Professor Bhagwati’s skill in evading my argument told most
people who read the edited version of our debate that he could
not answer me. Obviously, all was not well with the
establishment’s contentment with offshoring and “globalism.”
Paul Samuelson, in many respects the dean of American
economists, wrote an article supportive of Gomory and Baumol’s
work. But nothing happened. Economists simply closed ranks and
ignored the points that I brought to their attention as well as
the latest work in trade theory. Libertarian free trade
ideologues got upset with me. Unable to deny that the case for
free trade had lost its necessary foundations, libertarians
reduced the issue to one of economic freedom and concluded that
I was impure.
Since 2004 I have written a number of articles pointing out that
offshoring is really labor arbitrage and that if offshoring had
the mutual economic benefits associated with free trade, there
would be US employment growth in export and import-competitive
industries. Instead, employment in these industries has declined
in the US but grown remarkably in Asia. In the 21st century the
US economy has been able to create net new jobs only in
nontradable domestic services, such as waitresses and bartenders
and health and social services. Moreover, the growth in
productivity and GDP attributed to the US economy were
inconsistent with the stagnant real incomes of Americans.
Somehow productivity and GDP were growing strongly, but it
wasn’t showing up in the incomes of Americans.
Economists have found it difficult to think about the issues
that I have raised. Economists are taught that free trade is a
good thing and that anyone who disputes it is a protectionist in
the pay of some industry scheming to raise prices that consumers
have to pay. The notion that there could be any problem with
free trade is beyond the imagination of most economists.
In addition to their unexamined commitment to free trade,
economists disbelieved my analysis because they thought it was
inconsistent with statistics indicating high US productivity and
GDP growth. They thought GDP and productivity statistics trumped
my use of job data.
All of this may be about to change. Susan N. Houseman, a good
but previously obscure economist with the Upjohn Institute, has
discovered a problem in the statistical data that produces
phantom US GDP. Phantom GDP results when cost reductions
achieved by US firms shifting production offshore are miscounted
as US GDP growth. Phantom productivity increases occur when
gains from moving design, research and development offshore are
counted as increases in US productivity. Obviously, production
and productivity that take place abroad are not part of our
domestic economy.
Business Week’s June 18 cover story by MIchael Mandel explains
the problem identified by Houseman. Economist Matthew J.
Slaughter, a proponent of offshoring, says: “There are
potentially big implications. I worry about how pervasive this
is.” Business Week says the implications are big. The cover
story estimates that 40% of the gain in US manufacturing output
since 2003 is phantom GDP.
Most likely that estimate is low. Consider, for example, that
furniture imports have doubled in the past few years (offshored
production counts as imports) while US jobs in furniture
manufacture have declined 21%. US statistics, however, show that
US output and productivity rose even as US manufacturers closed
their plants and no new investment went into the industry.
My hat is off to Business Week. It requires courage for a
publication dependent on advertising from global corporations to
tell the truth about offshoring.
Dr. Roberts is an economist who has held numerous university
appointments and served as Assistant Secretary of the US
Treasury.
Click
on "comments" below to
read or post comments
Comment
Guidelines
Be succinct, constructive and
relevant to the story. We
encourage engaging, diverse and
meaningful commentary. Do not
include personal information such
as names, addresses, phone
numbers and emails. Comments
falling outside our guidelines
– those including personal
attacks and profanity – are
not permitted.
See our complete Comment
Policy and use
this link to notify us if you
have concerns about a comment.
We’ll promptly review and
remove any inappropriate
postings.
Send Page To a Friend
In accordance
with Title 17 U.S.C. Section 107, this material
is distributed without profit to those who have
expressed a prior interest in receiving the
included information for research and educational
purposes. Information Clearing House has no
affiliation whatsoever with the originator of
this article nor is Information ClearingHouse
endorsed or sponsored by the originator.)
|
