That same principle applies when it's outsourcing serving as the engine for creative destruction. Daniel W. Drezner, assistant professor of political science at the University of Chicago, discusses outsourcing in "The Outsourcing Bogeyman" (Foreign Affairs, May/June 2004). Professor Drezner reports that for every dollar spent on outsourcing to India, the United States reaps between $1.12 and $1.14 in benefits. Why? U.S. firms save money and become more profitable, benefiting shareholders and increasing returns on investment. In the process, U.S. workers are reallocated to more competitive, mostly better-paying jobs.
Drezner also points out that large software companies such as Microsoft and Oracle have increased outsourcing and used the savings for investment and larger domestic payrolls. Nationally, 70,000 computer programmers lost their jobs between 1999 and 2003, but more than 115,000 computer software engineers found higher-paying jobs during that same period. By the way, when outsourcing doesn't work, companies backtrack, as have Dell and Lehman Brothers, which have moved some of their call centers back to the United States from India because of customer complaints.
The last election campaign featured great angst over the loss of manufacturing jobs. The number of U.S. manufacturing jobs has fallen, but it has little to do with outsourcing and a lot to do with technological innovation -- and it's a worldwide phenomenon. During the seven years from 1995 through 2002, Drezner notes, U.S. manufacturing employment fell by 11 percent. Globally, manufacturing jobs fell by 11 percent. China lost 15 percent of its manufacturing jobs, and Brazil lost 20 percent. But guess what. Globally, manufacturing output rose by 30 percent during the same period. Technological progress is the primary cause for the decrease in manufacturing jobs.
What should a person do when innovation or international trade costs him his job? Do what the iceman did when Frigidaire cost him his job. Instead of calling on Congress to enact job protectionist measures, he did what was necessary to find another job.
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