Is Outsourcing Trade – Or Dispossession?
In a recent cover story Business
observed that economists haven`t begun to fathom the
implications of outsourcing for the U.S. economy.
Economists don`t understand globalism because they don`t
think about it. They simply assume globalism to be the
beneficial workings of free trade.
Most economists take for granted
that the benefits of free trade offset its costs. For
example, the lower prices consumers pay for imports give
more benefit than the harm done to the workers who lose
their jobs in inefficient domestic industries. Any
questioning of globalism raises the specter of
protection–the prevention of resources from flowing to
their highest valued use.
If a person can run an indefinite
trade deficit with his local supermarket, why does it
matter if a country runs the same endless deficit with
All of these rhetorical questions
(and many more) can be found in the Economists` Book of
Mantras. Economists use these questions to reassure
themselves so that they don`t have to think.
Let`s ask a new question: Is
What is being traded when a U.S.
firm or industry relocates its capital and technology in
China, where it employs Chinese labor to produce goods
for the U.S. market?
Adam Smith`s argument for free
trade is an argument against self-sufficiency in all
goods and services. It is not an argument for exporting
a country`s productive capability to countries with the
lowest labor costs.
In the Smithian model, countries
have different endowments. Differing climates give
advantages to the production of different crops.
Differing histories and inclinations result in different
advantages in finance, skills and manufacturing.
If each country specializes in
areas where its advantages are greatest or disadvantages
are least, the gains from trade will make each country
better off than it would be if it remained
But, if there are no given
endowments because business know-how, capital and
technology are globally mobile, the advantage lies with
countries with untapped pools of educated and skilled
low-wage labor. The advantage increases with the absence
of tort lawyer extortions and harassing and fining IRS,
EPA, OSHA, EEOC and other regulatory bureaucracies,
whose budgets demand a never-ending supply of wrongdoers
to be penalized.
To return to the question: Where is
the trade in outsourcing?
Trade implies reciprocity. It is a
two-way street. There is no reciprocity in outsourcing,
only the export of domestic jobs. That`s why the U.S. is
currently running a $125 billion trade deficit with
China alone, a third world country. That`s why the U.S.
is turning over $1.5 billion per day in its accumulated
wealth to pay for all the outsourced goods and services
that return to our markets as imports.
One reason that trade between
countries is not the same as trade within a country is
that more than one currency is involved. A country that
runs persistent trade deficits dispossesses itself of
its wealth and the future income that flows to the new
owners of that wealth.
A second blow falls when foreigners
find themselves satiated with dollars, or overweight
U.S. investments. Then the dollar devalues, and the
outsourced goods and services on which the U.S. is
import-dependent become expensive.
An economy can, of course, stand
But when goods and services in
general are outsourced, where is the economy?
The enormous untapped labor pools
in China, India, Indonesia and the Philippines exceed in
size the U.S. population. They are sufficiently large to
hold down living standards and wages in those countries
until all U.S. manufacturing and information technology
jobs have been outsourced in order to boost corporate
A country devoid of high
productivity jobs is a poor country. Is the U.S. on the
outsourced path to becoming a third world country?
The Bush administration should
think about this question before it gratuitously attacks
Iraq. The consequences of war in the Middle East are
The Bush administration should also
think about the rapid rate at which outsourcing is
dispossessing the U.S. of its accumulated assets,
including the domestic supply chains that are the
backbone of American productivity.
How long will foreigners accept an
annual outpouring of $500 billion before they force a
devaluation of the dollar?
What becomes of the living standard
of a people whose jobs and careers have been outsourced,
people who are dependent on imported goods and services,
and whose currency loses its value?
Protection is not a solution.
Protection is a strategy to protect domestic producers
from foreign ones. But U.S. global firms and firms whose
profits benefit from outsourcing are not domestic
producers. Protection would require the U.S. to erect
tariff and quota walls against the products of U.S.
firms who use foreign labor to produce for U.S. markets.
Do Americans possess enough
national identity to have a shared national interest?
Are government and economists
capable of recognizing that the global labor market is a
threat to U.S. living standards and political stability?
Craig Roberts is the author with Lawrence M. Stratton of
The Tyranny of Good Intentions : How Prosecutors and
Bureaucrats Are Trampling the Constitution in the Name
of Justice. Click
here for Peter
Magazine interview with Roberts about the recent
epidemic of prosecutorial misconduct.