Trade, outsourcing and truth about jobs

Steve Chapman

I read a grim news story about the economy the other day, which noted the strange phenomenon of “a nearly jobless recovery.” Reported the Chicago Tribune, “If this were a normal recovery, the economy would have added 3.5 million jobs since it hit bottom 22 months ago. … Instead, it has missed that goal by 3 million.” The job market has been particularly bleak for white-collar workers, it said. And the economic weakness, everyone agreed, presented a major challenge for President Clinton.
Yes, President Clinton. The story ran in March 1993, two years into the last economic recovery.
One thing we learn from history is that we usually don’t learn from history. Today, with the economy generating few new jobs, pessimism abounds, and a lot of Americans have blamed our troubles on international trade. But the problem today is the same as in 1993 — recoveries sometimes take their time in boosting employment. That one eventually generated jobs, and this one will, too.
These days, if you say a nice word about free trade, someone will inform you that “free” is a four-letter word. But scapegoating global commerce for the poor job market is silly. Bill Clinton presided over one of the longest and strongest economic expansions in our history — while doing more to remove trade barriers than any president since Franklin D. Roosevelt.
Clinton and FDR are revered by most Democrats. But many Democrats have disowned the cause their heroes championed. Even John Kerry, the least protectionist of the Democrats who ran for president this year, often panders to those who want to pull up the drawbridge.
The job market is not good, but it’s not as bad as commonly depicted. The official unemployment rate is 5.6 percent, which a few years ago would have been considered low. It’s still considered low in Western Europe. In January, according to the Organization for Economic Cooperation and Development, the average unemployment rate among the 12 countries in the Euro currency zone was 8.8 percent — far above the 7.4 percent the OECD calculates for the United States.
Kerry, however, laments the loss of manufacturing jobs and vows to stop it. But we can’t blame underpaid foreigners for the decline. As Cato Institute economist Alan Reynolds notes, “Manufacturing jobs could not possibly have moved to another country, since every industrial country has lost manufacturing jobs since 1995 — particularly China, Japan and South Korea.”
So what accounts for the shrinkage? The chief explanation is rising productivity, which allows companies to increase output with fewer workers. This is not a sign of weakness but a sign of strength, since it means lower costs and ultimately higher wages. It’s one reason the U.S. auto industry built 24 percent more cars and trucks in 2003 than in 1990.
A lot of the complaints about the job market come from people in computer-related fields, where the story is different. During the unsustainable dot-com boom of the 1990s, companies bid furiously for workers, but when the bubble burst, it took a lot of jobs with it.
The fear is that all those jobs are being shipped off to India. But a study by the Institute for International Economics says that while 70,000 computer-programming jobs have vanished since 1999, some 115,000 more lucrative jobs have been added for computer software engineers. “Higher-paying IT occupations have generally expanded since 1999,” says the report.
The problem with trade is not that it destroys jobs, but that the jobs it destroys or threatens are visible, while those it creates are hard to spot. When we see call-center jobs being outsourced to Bangalore, we want to know where new jobs will arise to make up for these losses. That, however, can’t be known in advance — which puts defenders of free trade at a disadvantage.
“It’s very hard to foresee where jobs will appear,” said Jagdish Bhagwati, an economist at Columbia University and the Council on Foreign Relations and author of “In Defense of Globalization.” “You can’t think of anything, so you get depressed and say nothing is possible. When I was in the Indian government and trying to think of what we could export, all we could think of was jute and textiles. But we weren’t entrepreneurs.”
Luckily, plenty of people are, especially in the United States. In a free and open economy, capitalists will find new consumer needs to fill and new jobs for American workers to do, serving markets abroad as well as at home. If we take steps to shut our economy off from the world, of course, that won’t be so easy.

Steve Chapman writes for Creators Syndicate.