Toward a Progressive View on Outsourcing
Whatever happened to the once-touted Great American Jobs Machine? Lately it seems to have popped a gasket. More than 700,000 jobs disappeared between the official end of the recession in November 2001 and January 2004 (the latest month available), unprecedented behavior during a supposed economic recovery. Where'd they go?
Abroad, is the standard answer, to factories in China and call centers in Bangalore. "Outsourcing" and "offshoring" are the polite ways of putting it, the words preferred by consultants and pundits. In the cruder version, it's "foreigners are stealing our jobs." In the mainstream, the major difference of opinion is whether this is a good thing or not in the long term. The President's top economic adviser, Gregory Mankiw, got into some seriously hot water the other week for saying that the phenomenon represented only the "latest manifestation of the gains from trade that economists have talked about" since the days of Ricardo, two centuries ago. To Ralph Nader and the Democratic presidential candidates, it's a bad thing that explains much of the job market's ills, one of the issues they hope to ride into the White House. Most progressives accept the analysis. The problem is that it doesn't seem to be true.
Let's look at some hard numbers. Since the peak in employment in March 2001, the US economy has lost 2.4 million jobs. But that actually understates the jobs deficit. Historical averages for normal postrecession job growth indicate that employment should be some 8 million higher than it was in January. But estimates of outsourcing, while imprecise, are in the low- to mid-six figures, suggesting that it can explain no more than a twentieth of our jobs problem. And in a more "normal" economy, the US economy would generate half a million jobs every two months. Something else is clearly awry.
The most widely cited projections for offshoring come from Forrester Research, which estimated in a November 2002 report that 3.3 million service-industry jobs would go offshore by 2015. That looks like a big number, but it needs to be put in perspective. In January the United States had 108 million service jobs. According to the Bureau of Labor Statistics, the economy should add 22 million jobs between 2000 and 2010 (almost all of them in services); if we stretch that projection to account for the additional years in the Forrester study, that's 33 million. So the best estimates we have are that the outsourcing total equals about one in thirty of today's jobs, or one in ten of the next decade's new jobs.
Of course, these are headline-level statistics, aggregating sectors and occupations. Most of the job losses in the United States in recent years have not been in services, the main focus of offshoring worries, but in manufacturing. That sector has lost 3.3 million jobs over the past six years, or one in five--far more than during the early 1980s recession, the period that gave us the term Rust Belt.
Everyone knows where those went--Mexico first, then China, right? Maybe not. A study of twenty major economies done last fall by Joseph Carson, the chief economist at Alliance Capital, found that factory employment declined by 11 percent between 1995 and 2002. Brazil lost 20 percent of its manufacturing jobs, and China, rather stunningly, lost 15 percent (mainly because gains in the new private-sector enterprises weren't enough to offset losses in failing state enterprises). Factory employment rose in a handful of countries, but mostly by small amounts. The major reason for the shrinkage, Carson and other economists have explained, is the same as it's been for decades: Machines are doing more of the work, and people, less.
There once was a time when the service sector was expanding enough to offset losses in goods production. That hasn't been happening lately. Since the end of the recession, private service employment has expanded by just 619,000.
So what's up? We can never know for sure, but it's likely that this is what a postbubble economy looks like. After its bubble burst in 1989, Japan lived through more than a decade of economic stagnation, and it was years before people realized that the problem wasn't a matter of a short-term business cycle but something more profound. It's exaggerating only slightly to say that may be what a depression looks like in these days of big governments and indulgent central banks: no outright collapse, but no strong recovery either. But despite sustained low interest rates and bursts of public works spending, the Japanese economy just flatlined its way through the 1990s, and is only now showing signs of serious recovery.
Something similar may be happening here. Driven by exuberance and easy money, the bubble inspired firms to expand and hire aggressively; when the bust came, they were badly bruised. As a result, managers remain very wary about taking on new permanent staff. Worsening the problem is heavy pressure from Wall Street to get profits up; the easiest way to do that is to squeeze the existing work force harder. Almost every employed person you talk to has a tale of surviving workers' taking on the responsibilities of employees who leave voluntarily or are laid off. Pundits cite this as evidence of a continuing productivity miracle, but the reality of it is less glamorous--working harder and longer for no increase in pay. But it's much easier to look abroad for the source of our woes than it is to investigate the home-grown reasons.
Whatever the causes, though, our treatment of the unemployed and displaced is scandalously cruel. Fewer than half of the unemployed are drawing benefits. Public expenditure on retraining and job creation is risibly small. There's plenty that could and should be done here, from classic public works projects to less traditional ones like subsidized childcare. These should be the real issues; next to them, "offshoring" is a diversion.
Doug Henwood, a contributing editor at The Nation, edits the Left Business Observer (www.leftbusinessobserver.com). His latest book is After the New Economy (New Press).