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http://tinyurl.com/2q8k6 Ease the pain, but don't stop offshoring services By William Dudley, Peter Hooper and David Resler Financial Times Published: March 25 2004 20:13 Last Updated: March 25 2004 20:13 Despite robust economic growth, the US labour market continues to disappoint. Consumer confidence has declined and Americans have begun to worry that something entirely new, and troubling, may be going on. Foreign competition has been fingered as the possible culprit. Outsourcing of manufacturing jobs has been going on for decades, but now that white-collar, service-sector jobs seem to be at risk, many more people have started to wonder whether globalisation is actually benefiting the US. What are the facts about "offshoring" services jobs? First, offshoring is only partly to blame for sluggish US hiring. The number of service-sector jobs that has been outsourced to India is quite modest - probably no more than 200,000 a year from a labour market that, over the past decade, has shown average net gains of close to 2m jobs annually. Second, the focus on outsourced jobs exaggerates the impact. What we care about is the net, not gross, effect on job creation. Jobs lost to India are offset by those generated by increased demand for US goods and services from more prosperous Indians. By offshoring some jobs, US companies reduce costs, lower prices, boost profits, and eventually hire more US workers to help meet the resulting increase in demand. Third, outsourcing is not the whole story. There is significant "in-sourcing" to the US, too. In fact, the US runs a large and increasing trade surplus in services. It is ironic that there are pressures for the US to retreat from the free trade in services, when it derives a huge net income from such activity. Fourth, conceptually there is no meaningful difference between the shifting of manufacturing production abroad and outsourcing services. Both enhance efficiency, boost productivity, and ultimately raise living standards. The problem is that the job creation engine has stalled. Productivity growth has surged as business exploits operational efficiencies first promised during the 1990s technology boom. The rising fixed costs of granting retirement and medical benefits to new workers may also be a factor in damping job growth, and the labour market may still be absorbing the excessive hiring at the height of the boom. Two other factors have amplified the uproar over outsourcing. First, while the costs are huge for those who lose their jobs, the beneficiaries either are unaware that their jobs are linked to liberalised foreign trade or do not appreciate that outsourcing is holding down the prices of the goods and services that they buy. Second, it is an election year: outsourcing is an issue that can be used to influence voters. Trying to slow the process of outsourcing is no solution. Instead, the US must make the adjustment process less painful and ensure that it has full access to foreign markets. First, the government should assist displaced workers. The benefits of free trade can only be realised if those people find alternative employment. More could be done to set up job- finding services, to make health insurance and pension plans more portable, and to provide financial assistance for severely hit local communities to attract replacement jobs. Second, the US must open foreign markets while encouraging its trading partners where appropriate to adopt policies that add to global demand. This means enforcing World Trade Organisation standards and re- invigorating the Doha round of trade talks. While stressing that the whole world has benefited enormously from trade liberalisation over the past 50 years, the US should redouble efforts to ensure fair access to cross-border markets by setting a good example with its own trade policies. Third, the US should oppose policies that artificially impede necessary currency adjustments. We favour the prescription of the Group of Seven leading industrial nations for fostering, over time, a greater degree of exchange rate flexibility. That will help restore more balanced external positions among countries. To penalise US companies by prohibiting outsourcing would be counter-productive. We need to reduce the adjustment costs associated with global competition, but not forgo the vast benefits of free trade. The labour market is likely to improve over the next year. When it does, some of the offshoring controversy will fade. But this does not mean that we can relax our efforts to tackle the inevitable - and sometimes painful - consequences of global competition. *** William Dudley is chief US economist of Goldman Sachs, PeterHooper is chief US economist of Deutsche Bank Securities, andDavid Resler is chief economist of Nomura SecuritiesInternational _______________________________________________ http://www.mccmedia.com/mailman/listinfo/brin-l
