The Great Outsourcing Hoax

In Wednesday’s Washington Post, Robert J. Samuelson revisits the bogeyman of “outsourcing” or “offshoring” that was supposed to destroy our lives and economy.

Remember the great “offshoring” debate? It was all the rage a few years ago. Modern communications allowed white-collar work to be zapped around the world. We faced a terrifying future of hordes of well-educated and poorly paid Indians and Chinese stealing the jobs of middle-class engineers, accountants and software programmers in the United States and other wealthy nations. Merciless multinational companies would find the cheapest labor and to heck with all the lives ruined in the process.

What happened? Well, not much.

Every so often, it’s worth revisiting old controversies to see whether the reality matches the rhetoric. In a recent paper, Jacob Funk Kirkegaard of the Peterson Institute for International Economics did just that for offshoring (a.k.a., overseas “outsourcing”). He reviewed many studies. His conclusion: “The heated public and political debate . . . has been vastly overblown.”

For the United States, Kirkegaard examined a survey on “mass layoffs” from the Bureau of Labor Statistics to see how many stemmed from offshoring. The answer: 4 percent. That included both manufacturing and service jobs.

In 2004 and 2005, the BLS counted almost 1 million workers fired in layoffs of 50 or more. That isn’t a huge number in a labor force of about 150 million. Moreover, most causes were domestic. The largest reason (accounting for about 25 percent) was “contract completion” — a public works job done, a movie finished. Other big categories included “downsizing” (16 percent) and the combination of bankruptcy and “financial difficulty” (10 percent). Only about 12 percent of layoffs stemmed from “movement of work” — a category that would include offshoring. But two-thirds of those moves were domestic.

Remember that much like the hype about global warming this was a fait accompli since there was no debate about the scope of the problem – everyone could see that “the science” was settled. American jobs being shipped overseas had all the makings of the next great pandemonium; right up there with the Japanese buying all of America’s commercial real estate in the 1980’s and the imminent collapse of the U.S. computer industry in the 1990’s due to overseas manufacturing. Of course you remember those right? Outsourcing as an economic bogeyman will soon go the way of those – as hysterical historic footnotes.

Ironically the very day Samuelson’s piece ran John Edwards was in the news using the outsourcing bogeyman to woo union voters.

Edwards told the crowd that as president he would ban permanent hiring of replacement workers, end tax breaks that encourage foreign outsourcing and tighten labor standards in trade agreements.

Edwards, the candidate of trial lawyers and labor unions, will solve a problem that hardly exists in either of his two Americas. That hedge fund experience really is serving him well…

A question of ethics
Was Osama right?