Delivered-To: [EMAIL PROTECTED] Date: Tue, 06 Jan 2004 12:58:10 -0500 From: John Parmater <[EMAIL PROTECTED]> Subject: Exporting America To: David Farber <[EMAIL PROTECTED]>
Dave,
I�ve been thinking about this and decided to write something about it. Perhaps it should appear as a blog somewhere, but I�ve never blogged and don�t know where to place it. So I�m sending it to you. If you don't want to print it, perhaps you can suggest where I might place it.
What got me to think about writing this was Lou Dobbs�s incessant harping on �The Exporting of America.� For a man who makes a living reporting financial news, I�m finding it hard to believe he has so little understanding of economics. Mr. Capek�s letter helped me reach my tipping point. Here�s my article.
Why exporting jobs doesn�t hurt our economy.
I�ve been reading for years about the battle between those who fear international trade, who say Buy American, and those who say it makes most sense to manufacture a product wherever in the world it is cheapest, that our standard of living is actually higher when we buy VCRs made in Japan or Korea and when our cars have components from so many countries that it�s hard to define what a �domestic� car is.
History has proven year after year, decade after decade, that American jobs continue to grow, no matter how many products or services we import, how many factories American firms build overseas, or how much technology we export. A long list of products used by Americans today, products which were once made only in America, is now made almost exclusively overseas. Yet our jobs continue to grow. How can that be?
Traditional economic theory explains this. In fact, it�s explained in Econ 101 in most colleges. Yet most Americans, although many are college grads, don�t seem to have a grasp of this idea. Indeed, many highly educated folks don�t seem to understand it either. Witness the letter reprinted below from Peter Capek of IBM�s Thomas J.Watson Research Center. Mr. Capek says: �Would we rather live in a country where everything is 10% cheaper, or where most people are employed? I believe it ultimately is pretty much that simple.�
I�m not sure it is that simple. Even though Mr. Capek points out that . �Jobs which are offshored, whether manufacturing, call center, or technology related, don't create a multiplier effect as the earnings are spent in this country, don't pay taxes in this country,�
it seems that lowering the cost of producing or delivering a product or service ripples through the US economy. It keeps prices growing at a slower rate than they otherwise would. It sometimes even lowers prices. That allows consumers to keep more money in their pockets or spend it on other products, which someone must then manufacture and deliver, which creates jobs.
There is a list of advantages of giving work to India, too. If India has more money, it will spend it. Part of the spending will go to the USA. Part will go to other countries, which, when richer will spend more domestically and overseas, part going to the USA.
It�s hard to make the case for having the High Cost Producer produce any product or service. It makes more sense to have the low-cost producer produce each product, then trade with the low cost producer of another product. Take an example of two people who make a simple product or service that they can trade. Suppose most people in town can paint a house in three days. Suppose you can paint a house in two days. You are the low-cost producer. And suppose most people can put a roof on a house in three days, but I can put a roof on in two days. Wouldn�t it make sense for me to hire you to paint my house and you to hire me to put your roof on?
If we buy from each other, we each save a day�s work that we can then spend doing something useful such as painting another house or putting another roof on.
Likewise in trading with India. If India can answer the telephone more cheaply and the US can produce engineering services more cheaply, we have something to trade which will make us both richer. (And if India is richer, they can buy more of Mr. Capek's employer's computers and chips, can't they?)
If this argument is correct, why is there so much pain and why is the counter argument put forth? Because, when workers are displaced, they feel the pain of lost wages until they find a new job. But, you say, they may never find a job paying as much as they were earning. Sorry, that�s the nature of things. The market is not always willing to pay as much for a product or service as it once was. Myriad products decrease in market value every year. Alas, so do some job descriptions.
Sincerely,
John Parmater
I�m not an economist, but I do have an MBA from the University of Cincinnati with a major in finance.
-----Original Message-----
From: Peter G Capek <[EMAIL PROTECTED]>
Date: Mon, 05 Jan 2004 23:09:13
To:[EMAIL PROTECTED]
Subject: Re: [IP] Maybe there's no mystery after all
A propos of the offshoring issue...
I think a recent letter in the NY Times summarized it well: Would we
rather live in a country where everything is 10% cheaper, or where most people are employed? I believe it
ultimately is pretty much that simple. Jobs which are offshored, whether manufacturing, call center, or technology
related, don't create a multiplier effect as the earnings are spent in this country, don't pay taxes in this country, and,
of course, don't generally adhere to the safety and human rights standards which we believe are important.
Even if the difference were 50% cheaper (it's not!), it still seems to me an easy decision. Unfortunately, the nature of the
competitive system is such that, once one business in an industry has proceeded this way, it's difficult for the others
not to follow in order to compete. Indeed, doesn't the fiduciary responsibility of a (publicly held) company require it to
behave so as to maximize the return on its investors capital, consists with the company's bylaws? When the decision is,
say, between building a new plant or advertising a current product, there's room for a lot of opinions in making the decision.
But when the issue is as (apparently) straightforward as paying $X/hour or paying 15 or 20% of that amount, as the business
manager, I won't be concerned with the secondary issues of taxes, multipliers, employment and so on. Those won't have
effect until at least next quarter.
Peter Capek
Peter G. Capek
IBM Thomas J. Watson Research Center
Yorktown Heights, NY 10598-0218
(+1 914) 945-1250 IBM Tieline: 8-862-1250 Fax: X 4426
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John
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