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Last Wednesday, at Harvard, former Federal Reserve governor and current Princeton economics professor Alan Blinder engaged Jagdish Bhagwati of Columbia University in a debate on the costs and benefits of the phenomenon known as offshoring the tendency of companies legally domiciled in one country—usually a rich one—to shift production capacity to another country—almost always poorer, often considerably so—in order to reduce production costs.
Blinder has been in the center of controversy regarding the topic since he published last March in Foreign Affairs. In the article , he claimed that his research indicated that the susceptibility of jobs to offshoring could no longer be correlated to levels of education and income higher education and income being less correlated to offshorability as had been the case hitherto; instead, correlations were increasingly being made with the mere capacity of work to be rendered or transmitted digitally.
Accordingly, he noted, large segments of the workforce in the US are becoming—at an alarmingly rapid pace—vulnerable to job dislocation; and those affected are increasingly more politically active higher-earners. The article attracted a good deal of discussion and criticism attacks on offshoring and other presumably efficiency making measures being generally looked at as heretical in mainstream economics , but the debate was re-ignited in late March when the Wall Street Journal did a front-page profile of Blinder which centered on his controversial thesis: Opposing Blinder was Jagdish Bhagwati, one of the most renowned trade theorists in the world, who has over the years developed a reputation as a fire-and-brimstone, if sophisticated, advocate of free trade.
In the Ricardian formulation, labor is the only relevant factor of production—and a relatively anchored one at that—and gains from trade tended to be long-term and cumulative. The debate, despite the fact that the topic generates so much apprehension in the wider society, was a decidedly lighthearted affair: Clearly, the Harvard crowd did not share the fears of many of the rest of us, no matter what side of the academic debate they found themselves on.
Blinder led off by making it clear that he had no quarrel with the notion of comparative advantage, and did not favor the implementation of any policies which would restrict trade in any way; he was only concerned with developing measures which would ease the transition for those adversely affected by trade rather than artificially protecting their jobs. He then laid out his claim and touched upon the rationale of his study.
Based regression modeling, he came up with a figures that astonished even as conventional a macroeconomist as he: He sees two forces of unprecedented power driving this phenomenon: These forces act in the following way: That being the case, policy responses must be developed now.
Economists and policymakers are in for a real shock if they fail to do so, now. As for actual policy proposals, Blinder mentions three: It amounted to the claim that there is simply no hard evidence that the costs of offshoring have outweighed the benefits, or will do so in the future.
He accused Blinder of simply equating mere offshorability with actual job losses, an absurd claim given the fact that Blinder had just gone to some pains to explain the distinction between personal and impersonal services. He did make the important point that huge price differentials exist between markets for complicated and even unknowable reasons, and hence that offshorability will not necessarily translate into nearly as many job losses as might be apparent.
For some reason he felt no compulsion to voice these concerns in any detail at Harvard. Instead, he noted that, in important respects, trade flows between the developed and undeveloped worlds are decidedly one-way: All the more reason not to fear offshoring in particular, and globalization in general: This suggested nonchalance about the vulnerability of the working classes in the developed countries that bordered on the crass.
But he outdid this by actually saying that there was no need for additional measures to aid the displaced in the US because a safety net has existed for those adversely affected by trade since the Kennedy administration. Blinder had just finished showing how that this legislation, and other half-measures adopted since then, can hardly be taken seriously in terms of their adequacy, then or now.
Maybe that was in keeping with the valid point that workers even in the US have something to fall back on, something that workers in developing countries can only envy. But, again, he resisted the chance to bring the plight of the poor world into the discussion.
Never mind the idea of-God forbid-looking at the interests of the poor and disadvantaged in both the rich and poor countries as one, rather than as diverse and competing. What Bhagwati did recommend by way of policy initiatives differed from Blinder in an important respect: That two of the most prominent economists in the world can disagree so fundamentally something so basic in both their prescriptions suggests strongly that education is far too important a matter to be left to economists.
Four commentators were chosen to give their impressions of the opposing viewpoints. But she confirmed the 40 million figure concerning the number of jobs susceptible to offshoring. She noted that statistics regarding job change are notoriously primitive, more appropriate to the age of factory production and widget counting than commerce at the speed of light and multitasking.
Her talk provided a much—needed reality check, and was probably the high point of the entire event. Freeman, bizarrely if refreshingly attired in a fedora during the entire debate, started by making a point that should be obvious to everyone, but is often overlooked: He went further and noted that an appropriate level of protection will not come cheap; and that elites disproportionately benefiting from globalization should be put on notice that increases in taxation-big increases-will be an opportunity cost for their outsized gains.
Not that this is likely to happen, needless to say. One is left with the impression that these economists are more interested in shunting disadvantaged workers out of the way and keeping them quiet than engaging them in a globalization that benefits all, as they claim to be doing. I left the debate with a number of questions there were no questions taken from the floor, as time allotted for that purpose had lapsed. And this is no mere academic quibble: By catering to these people—who would represent the most stable demand for high end services in the economy—and providing them with everything from healthcare to recreation and education and mere timesaving devices, service workers are essentially giving them the means to increase their competitive advantage over everyone else, many of whom are finding the same services, if provided publicly, failing in quality—if not absent altogether—or skyrocketing in price.
In this sense, the developments and measures regarded as most positive for working people by our economists will prove doubly regressive: Where qualifications turn into privilege is the way a sociologist I forget which one recently put it. Another question I had concerned productivity. The usual illustration goes like this: For the shift to services would mean a decline in productivity, and hence, if not augmented by longer hours, in living standards.
For a country with current account and budget deficits the sizes of ours, any loss of productivity and hence attractiveness to foreign investors financing the deficits should be quite worrying to economists, one would think. Indeed, a further question for Blinder would be this: And, if not, why? Indeed, could such a difference with impersonal services be quantified or measured in the first place?
Finally, I would ask all the participants about some of the odder aspects of globalization: At the end of the day, the debate was really a klunker. I should have known.
In fact, the thing is a perfect allegory. Unlike the distinguished participants, and most of the audience, I had to take time off from work to go to the event, and had to make up the time by working three extra hours the next day. So, by substituting my time—and the compensation I would receive for it by working—my warm body in a seat at Harvard potentially increased in a miniscule way, but one subject to network effects and the increasing returns characteristic of the latter, the social and intellectual capital of the participants, who were being paid—directly and indirectly free publicity for their books, etc to be there.
What better illustration of the world the economists and elites have in store for us is there? Leave a Reply Cancel reply. Up against the charros and the changarros.
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