TCS Daily


Exporting Lou Dobbs and John Kerry

By James K. Glassman - February 11, 2004 12:00 AM

What's gotten into Lou Dobbs? Once a sensible, if self-important and sycophantic, CNN anchor, he has suddenly become a table-thumping protectionist.

Dobbs has been running a series -- praised by the AFL-CIO's Rich Trumka as a "nightly crusade" -- called "Exporting America." Slanted and inflammatory, it decries "outsourcing" or "offshoring" -- that is, U.S. businesses using suppliers in other countries, like workers in Ghana processing New York parking tickets or programmers in India writing IBM software.

Another word for outsourcing is "trade" -- an endeavor, as economists learned early on, that benefits both parties to the exchange.

Nothing has changed since Adam Smith wrote in 1776: "It is the maxim of every prudent master of a family never to make at home what it will cost him more to make than to buy."

Still, writes Julian Sanchez of Reason magazine, "Free traders are trapped in a public policy version of 'Groundhog Day,' forced to refute the same fallacious arguments over and over again, decade after decade."

While trade can cause pain to some workers, lack of trade causes far more. Imagine if software firms did not search the world for the best labor at the best price. Consumers would pay more, and shareholders would have less to reinvest, which would mean fewer jobs for Americans.

Or imagine if Japan retaliated by taking its plants home. With 13,000 workers, Honda is the largest private employer in central Ohio. As for India, outsourcing helps lift a nation out of poverty and creates markets for U.S. goods and services. According to a study by the McKinsey Global Institute, of the $1.45 of value created from offshoring $1of U.S. labor cost, "the U.S. captures $1.12," the foreign country 33 cents.

Economists understand this, but, often the public sees only the pain. For that reason, opinion leaders have a responsibility to discuss trade in an adult way.

Unfortunately, demagogues dominate. Dobbs's website lists 250 "U.S. companies... sending American jobs overseas," as if they were wanted criminals. This rogues' gallery includes America's most innovative companies, creators of entire new industries, like Amazon.com, EMC, Google and Intel.

The outsourcing uproar is occurring as the U.S. unemployment rate last week dropped to 5.6 percent, lower than the average during the 1990s. Growth is a robust 4 percent, inflation is low (partly because trade depresses prices), and the Institute for Supply Management's closely watched Manufacturing Index is at its highest level since 1983.

Yes, manufacturing jobs are declining as productivity rises, but that's a decades-old trend. There were more factory jobs under Nixon than under Clinton. Outsourcing mainly affects tech and professional workers, whose jobs at home are now increasing as the U.S. economy recovers. Forrester Research estimates that outsourced jobs will rise to 600,000 by 2005 -- out of a total of 140 million. Hardly a menace.

In fact, the main strength of the U.S. economy is what Joseph Schumpeter called "creative destruction." Just 75 years ago, farmers were one-fourth of U.S. workers; today, they're one-fortieth, but they produce far more, and agricultural products are a big net export. Would we be better off with 30 million more farmers? It's our labor flexibility that has helped the U.S. boom. It's a big reason our GDP is greater than that of the next five countries combined.

As Fed Chairman Alan Greenspan noted last month, "A million American workers... currently leave their jobs every week, two-fifths involuntarily.... A million, more or less, are also newly hired... every week." He added, "This process is not new," and we "can be confident that new jobs will replace old ones, as they always have."

It is government's role to soften the blow through aid and retraining -- not through the restrictions pushed now in Congress. We don't want to turn the U.S. into another Germany, where rigid labor rules have helped increase unemployment to 10.2 percent.

Unfortunately, Dobbs and xenophobic politicians are out to kill the goose that lays our golden eggs. Sen. John Kerry, in his stump speech inveighs against the "Benedict Arnold CEOs [who] send American jobs overseas."

By the way, the Kerry family business, H.J. Heinz Co. of Pittsburgh, operates 22 factories in the United States and 57 in foreign countries. I don't think that Kerry should shut down The Heinz 57, but he might drop the rhetoric and talk about trade responsibly. He should support, not trade's contraction, but its expansion, like George W. Bush, Bill Clinton and every president since Herbert Hoover.


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