SOCIOLOGY 101
Global Stratification
The Economy |
Offshoring can be positive, or it can be painful
By Andrew Cassel
Philadelphia Inquirer Columnist Sunday, September 3, 2006
Some things don't really change.
In the 1830s, French inventor Barthelemy Thimonnier patented one of the first workable sewing machines. It was so successful that he received a contract to sew uniforms for the French army. But after he installed 80 of his machines in a Paris factory, it set off a riot. Tailors, fearing the new technology would put them out of business, attacked the plant and destroyed every machine.
Thimonnier was ruined, but of course sewing machines didn't go away. And it would be pretty hard to find anyone, even in Paris, defending those rioting tailors today.
Yet that same smash-the-machine spirit lives on. You can see it in the antiglobalization mobs that show up at international trade meetings, and you can hear it in the rhetoric of the populists on TV and radio.
It's easy to understand the appeal. Change is hard, and when technology changes life as dramatically as it has in the last 20 years, resistance and backlash are probably inevitable.
Recently, much of that resistance has focused on offshoring - the relocation of production and jobs to different locations around the world. As the trend has intensified, so has anxiety about its impact here at home.
If U.S. firms can hire Asians or Eastern Europeans to staff call centers, program software, or keep medical records, won't that mean fewer jobs or lower wages - or both - for Americans?
Not necessarily. At least that's the answer two Princeton University researchers give in a paper presented last month to members of the Federal Reserve Board.
According to Gene Grossman and Estaban Rossi-Hansberg, offshoring by U.S. firms can actually help grow both American jobs and wages. The key is boosting productivity.
Just as sewing machines caused a quantum leap in both the quantity and quality of garments (as well as making formerly high-priced fashions cheap enough for millions to afford), today's technology creates new demand while driving down costs.
The result is a proliferation of goods and services - and an increasingly complex network of production channels that make it harder to even define the meaning of "domestic" and "imported."
What we used to think of as international trade - ships laden with finished goods such as toys or automobiles crossing the ocean - is being replaced with "task trade," parts and jobs traveling from country to country in a complicated logistic web.
For example, consider the journey of a Barbie doll. A refinery in Taiwan produces plastic pellets that are formed into the doll's body in a plant in Indonesia, using molds and designs from California, nylon hair made in Japan and clothing sewn in China.
How can this be good for American workers? When each piece of the job is performed wherever it can be done most efficiently (or cheaply, if you prefer) the result is a low-cost, high-quality product or service - and growing demand around the world.
Just as happened when sewing machines lowered the cost of clothing, Grossman and Rossi-Hansberg say the net effect will be more jobs and better wages - even for lower-skilled workers - than would exist otherwise.
That's not to say offshoring is painless. Globalization in all its forms can be disruptive, threatening power relationships and long-standing traditions. Even where the benefit to the wider economy is clear, some may pay a serious price.
That is why many pro-global economic thinkers - Fed Chairman Ben S. Bernanke among them - say adjusting to globalization deserves much more of public and official attention.
Sharing the benefits of technological progress and open markets needs to be at the top of policymakers' priorities.
If not, it's not unthinkable that we could wake up some morning and find our latter-day sewing factories in ruins.