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Thursday, May 10, 2007
Alan Reynolds :: Townhall.com Columnist
Blinder's Blunder
by Alan Reynolds
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Economist Alan Blinder wrote in The Washington Post that "offshoring of service jobs from rich countries such as the United States to poor countries such as India may pose major problems for tens of millions of American workers over the coming decades. In fact, I think offshoring may be the biggest political issue in economics for a generation."

The telling phrase is "political issue."

"To be marketable in the political arena," Blinder once explained, "an idea must be short and snappy enough to be emblazoned on a T-shirt. But ... any economic idea expressed that tersely is almost certainly wrong."

"Offshoring" is short and snappy enough to attract nativist and protectionist interests, left and right. Blinder's speculations were recently praised by William Greider in The Nation, for example, and by Phyllis Schlafly in The Conservative Voice.

"Nowadays," says Blinder, "a growing list of services can be zapped across international borders electronically. ... We're all familiar with call centers, but electronic service delivery has already extended to computer programming, a variety of engineering services, accounting, security analysis and a lot else."

Blinder is speculating about the next "decade or two," yet the phenomenon he describes is going on "nowadays." Infosys, India's biggest software outsourcing firm, began in 1981 and now employs more than 72,000 worldwide, including employees in 16 U.S. offices. Wipro employs 66,000, including 11 offices in the United States. Perot Systems employs 5,000 of its 22,000 workers in India. If such offshore outsourcing of business services actually risked the loss of "tens of millions" of U.S. jobs, we should have seen some sign of it by now. But we haven't.

In a paper for Princeton's Center for Economic Policy Studies, Blinder selects 22 major occupations in services (out of 291 lesser jobs, which include manufacturing) ranked into four groups according to their "offshorability." In contrast to his press interviews and popular articles, the academic paper makes it clear that he is "guesstimating the number of jobs that might be offshorable, not the number that actually would be offshored. ... Only a fraction of these offshorable jobs will actually be offshored."

His purely subjective list makes it very clear, however, which service jobs are supposedly most threatened. And that, in turn, makes it possible to test his theories against actual job change between 2002 and 2005. I had to estimate the 2002 figure for "business operations specialists, all other" because that classification did not exist until 2004. Those offshorable jobs increased 8.2 percent between 2004 and 2005, but I assumed only a small increase from 2002 to 2004.

The total Blinder list of the 22 most offshorable major jobs totaled 15,732,670 in May 2005. That was up 7.7 percent from 14,603,140 jobs in May 2002. Employment increased in 18 of the 22 job groups, and wages increased in all of them.

The two most vulnerable jobs on Blinder's list are the most plausible, and the ones most often mentioned -- computer programmers and telemarketers. They are followed in the same top tier by computer systems analysts, bookkeeping clerks, consumer software engineers and systems analysts.

The second, less risky category includes accountants, but also several jobs that do not seem easily "zapped across international borders electronically." The group includes welders, for example, plus production worker helpers, packaging and filling machine operators, machinists, inspectors and even "first-line supervisors/managers."

In the third group, we are asked to believe that "sales managers" may soon be relocated to foreign countries. Customers may get an e-mail or phone call, but don't expect lunch or a handshake.

Employment increased between 2002 and 2005 in 18 of the 22 job categories supposedly threatened by electronic delivery of services. Employment did decline 4.5 percent among telemarketers, a loss of nearly 19,000 jobs, but that is an unpleasant low-wage job, and the job drop is largely explained by the national "do not call" registry. To put that loss of about 6,000 jobs a year in context, the United States routinely loses about 30 million jobs each year, yet gains even more. The net gain is why the unemployment rate is just 4.5 percent.

Employment among computer programmers fell by 68,000 jobs, nearly 15 percent. I am not unsympathetic, since my son John is a PHP programmer of online applications (in New York, not India). Most software professionals in India are just coders, a rote job requiring little creativity. Besides, employment in four other computer-related "offshorable" U.S. jobs, such as computer software engineers, increased by 210,570 between 2002 and 2005, far outstripping the loss of mostly low-end programming jobs.

Blinder needed a short and snappy idea designed to be "marketable in the political arena." He is trying to sell us on his public policy ideas. As the academic paper notes, "The appropriate policy responses (if any) to this problem probably depend on how many jobs might be susceptible to offshoring." He wants a large policy response, which requires a large number.

It is always prudent to be suspicious whenever wildly sensational claims are used to market any public policy.

Blinder wants more generous unemployment benefits (which discourage work) and more costly retraining programs (which almost always fail). He even expects expert central planners to redesign "our education system so that it turns out more people who are trained for the jobs that will remain in the United States and fewer for the jobs that will migrate overseas." If your children want to be computer programmers or accountants, they will simply have to adapt to the national plan.

Employment is increasing in nearly all the occupations Blinder imagines to be in imminent danger of being handled through electronic communication with some distant country. Unless the facts change, Blinder's imaginative guesstimates and policy advice need not be taken too seriously.

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©Creators Syndicate
Offshoring and High Blood Pressure
Recently I moved to a new apartment, and the telephone company did not connect my phone on the date I had specified. I called the after-hours service number and was re-directed to Bangalore, where a sing-song robot girl repeated endlessly that "your telephone will be activated some time tomorrow. We cannot tell you what time tomorrow. Your telephone will be activated some time tomorrow. We cannot tell you..." A plea for someone farther up the food chain elicited the information that if she transferred me to her supervisor I would receive the identical information.

Thank God I have a cell phone. I shouted at the girl robot who had memorized her English sing-song rote response that when my phone was activated tomorrow I intended to cancel my service and she could tell that to her supervisor. My phone was activated the next morning when I woke up.

I realize that North America is swawrming with stupid people who repeat everything by rote, but it seems to me that I am spending more time yelling at robots from Bangalore that either they solve my problem or I'm going to cancel my service, than I spend trying to persuade shops to deliver after 5:00 p.m. or on weekends.

"Outsourcing" customer service seems to me to be indicative of the new Customer Service Policy of North America: THE CUSTOMER BE DAMNED.

America's Future

These next 2 years are vital to the future of this country. For 2007 we must make certain that McCain/Kennedy or whatever it's called this year does not pass the House. It will pass the Senate. The President will sign it, followed by the Totalization Treaty with Mexico, which qualifies former illegals with just 6 qtrs(18 mo) even if worked illegally, the benefits that we had to work 40 qtrs(10 yrs) to qualify for.

In 2008 we must make the candidates address border security and immigration enforcement.
20-30 million citizens of other countries are in our country illegally, 55% from Mexico, most of the rest from other Central and South American countries. Let's not ignore the leftward voting trends of these countries. It is notable that they picked May Day, an old communist day of celebration for their marches.

Most polls show at least half of the American citizens of Hispanic descent want the borders and laws enforced. Republicans will not win by alienating their current voters to get 40% of a new small block that will grow very large, very fast if amnesty is granted. That will grow the Democrats vote larger and faster as the influx increases exponentially as the result of another amnesty. It will spell the end of the Republican Party. The people who used to vote Republican will stop voting or form a new party. Conservatives will lose political influence and we will slide inexorably towards socialism (it has already started).

Most of what you hear about this issue is political propaganda that tries to convince you to give up your country without a fight, including on Fox News. The big money players are all on board the cheap labor express, they care not that American citizens do not want another amnesty. We know the last one resulted in 10 times the number of illegal aliens and a general disregard of our laws. The next one will be equally successful.

We need Comprehensive Immigration Enforcement, not reform. We need to restore respect for the law and the faith of the American people that their government is not selling them out. Amnesty for the illegal aliens is also amnesty for the corrupt companies who have been employing them. Money trumps everything, including love of country. Multi-nationals have no loyalty to country by definition, they see us as a market, not a nation. They see people as workers, documented or undocumented, no difference. If they can't send the work to where the labor is cheaper, then they want to bring the cheap labor here. Citizenship is meaningless.

If we love our Constitution and our representative Republic and we intend to keep it we must not surrender our sovereignty or abandon the rule of law. Profits must not supercede security. We should not create a new path to citizenship. We have a path to citizenship, more generous than any other country, illegal aliens have ignored it and bad choices do have consequences.

THE WORLD IS FLAT, BUT...
While the world is flat and getting flatter, that doesn't mean we need to encourage the export of jobs (outsourcing) or the import of cheap computer programmers (insourcing) through our tax policies.

Our tax laws make it cheap and easy for a company to close a factory here, build it somewhere else and import the products. Hell, the laws actually encourage it.

Let's stop encouraging these practices. I'm NOT ADVOCATING punishing companies that outsources jobs; I'm advocating not rewarding them for doing so.

Let's also be careful about expanding our H1-B visas. Do we really need to import cheap foreign labor for skilled positions technical positions? If so, let's auction off the visas to the highest bidders. We'll be able to tell if there's really a skilled labor shortage or just a shortage of cheap, skilled labor.

And don't get me started on how Sarbanes-Oxley also encourages companies to move out of the US!

Outsourcing
I guess it's all right that Joe Sixpak is out of work and that his factory has moved to Rawalpindi, but I'm still waiting for Indian and Indonesian economists to start replacing American economists. (Most of whom aren't really economists, but are really business conditions commentators.)

When this happens, I wonder if we'll still hear that a flat world and outsourcing are good economics and good for the nation.

Barry

Outsourcing?
We outsource even to nations that with all cost factors, the cost is as high but, if the taxes are lower, they leave because they get to keep more of their profits.

Or, it is lower healthcare costs or lower litigation costs or lower compliance costs.

What is missing from all the "rosy economy" picture here, is that we are increasing debt in what is supposed to be a boom time. Other nations around the world are reducing debt, paying off world bank loans early, raising interest rates to slow inflation etc. We are doing nothing to prepare for the next recession.

Everybody in and out of government says we will get one sooner or later. Yet, if we can't reduce debt and government spending in a "boom" time what are we going to do in the next recession?

How will we "spend our way out of it," if the foreign nations quit loaning us as much money as we need? It isn't that they have to stop loaning money to us, just not loan us enough. Nation after nation is now moving out of dollar assets for other currencies where the interest rates are rising and higher than ours. Every dollar that goes to another nation is a dollar not being available for our deficit spending.

For those who say "good," and count on that to reduce spending, remember that we have a 50 trillion unfunded liability in Social Security and Medicare facing us we need to borrow money for. That amount if not borrowed, would total $400,000 for every full time worker according to the Government Accounting Office.

Good luck on offshoring when the next recession occurs. With the growing middle-class around the world and decline in it here, why not move and sell to the middle-class there and export back to the few remaining here?

OUTSOURCING
The outsourcing argument has been going on for a long time, in different guises. When computers first became generally powerful, in the 70's, there was much gnashing of teeth about automation. A lot of people were called Luddites. The counter argument was that productivity would go up and we would all be richer. And that time we were.

Then the first gas crunch came, and foreign cars became popular. Then it was noticed that some countries, notably Japan, seemed to have manufacturing techniques that were superior to ours. Purthermore, after the Space Race died (we won) it was noticed that Americans weren't majoring in the sciences and engineering like thay use to, possibly because they noticed that MBA's and finance types kept getting more and more money, while they got laid off because their knowledge was obsolete.

Now we have the globalists and the anti=globalists, and we are told that the larger the economy and the fewer the barriers, the richer we will all be. Something about "comparative advantage". Now I understand all that, I have an MBA in finance to go with my engineering degree.

But here's what I don't understand! Almost all research that raises productivity and/or improves lifestyle is either done by large manufacturing corporations, or paid for by them in selected research labs, some of them university based. When all the manufacturing is overseas, China say, where will all this research be done? Unlike the predictions from years ago, we will not be a service based economy, and we will have no cutting edge research to sell to the Chinese or other manufacturing countries. And we will no longer have what are still (hard to believe) the finest universities in the world.

I'd like to see Dr. Sowell, or Dr. Williams, both of whom are heroes to me, address this specific topic.
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