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The Politics of Offshoring

In This Section:
The Corporation and Bush Administration Defense
2. Free Trade Theory Won't Pass the Real-Life Test
3. Backlash Against Offshoring in Politics and Media

The Corporate and Bush Administration Defense

In February 2003, a casual remark by President Bush’s chief economic advisor helped ignite already simmering political tensions about America’s jobless recovery. In releasing the annual Economic Report of the President, the chairman of President Bush’s Council of Economic Advisers, N. Gregory Mankiw, called the offshoring of U.S. service jobs "just a new way to do international trade."

With media attention to outsource offshoring at unprecedented levels, and even traditionally solid "free trade" allies splitting on offshoring issues, representatives from over 200 ideological and corporate pro-offshoring organizations launched a public relations campaign in its defense. These defenders of offshoring have held up their sound bite antennas, often invoking themes of history, change, adaptability and faith. One economist, for example, has produced a new study which focuses on how offshoring will spawn a "second wave" of economic growth. This report has been used as the de facto empirical reinforcement for the corporate campaign.

In discussing offshoring, Federal Reserve Chairman Alan Greenspan warned against protectionist impulses and said that "we need to discover the means to enhance the skills of our work force and to further open markets." Other defenders of trade liberalization theory have hit the op-ed pages in abundance. Jagdish Bhagwati, an economist who advised the founding staff of the WTO, has argued that the practice of offshoring "only adds to the overall economic pie and improves the competitiveness of American companies. In a world economy, firms that forgo cheaper supplies of services are doomed to lose markets, and hence production. And companies that die out, of course, do not employ people."

In his annual report to the House Ways and Means Committee, U.S. Trade Representative Robert Zoellick arrived ready to condemn Democrats opposing the CAFTA on the grounds of inadequate worker and environmental protections, as "economic isolationists." In Ohio, Treasury Secretary John Snow was asked by a local newspaper if he thought offshoring made the U.S. economy strong. Snow affirmed, "It`s one aspect of trade and there can’t be any doubt about the fact that trade makes ... America strong."

Further reading:

Free Trade Theory Won't Pass the Real Life Test

Corporate proponents argue that the benefits of trade liberalization in lower costs for consumers outweigh the costs to individuals of losing jobs and being paid lower wages. However, as job losses have spread from manufacturing to "back office" and service-sector jobs, and now into the information and telecommunications and other professional fields, this free trade cost-benefit assumption is once again being called into question. Even if cheaper imports create a broad welfare gain in the form of lower prices, if a large number of people lose a greater amount in wages due to increased inequality, the net result is broad losses. It does not matter how much cheaper a product is if consumers do not have sufficient income to buy it. Furthermore, a significant drop in disposable income could trigger a "crisis of demand," where there are too few buyers for too many goods.

Economists Mark Weisbrot and Dean Baker, co-directors of the Center for Economic and Policy Research, have shown that the increases in income inequality that are both predicted by trade liberalization theory and now an empirical reality have cost the three-quarters of U.S. workers who do not have college degrees as much as 12.2 percent of their current wages. For a worker earning $25,000 a year, this loss would be slightly more than $3,000 per year. As the range and volume of jobs sent overseas continues to expand, a growing number of workers will see their wages stagnate, thus increasing the costs of trade liberalization relative to the benefits. For a middle class that is struggling under the weight of child care, health care and college costs, further stagnation of wages could slow the high levels of consumer spending that have been fueling both the U.S. and the global economy – with potentially disastrous results for both.

Further reading:

Backlash Against Offshoring in Politics and Media

Outraged Democrats issued statements criticizing Mankiw and the White House, but even loyal Bush Republicans were upset. Speaker Dennis Hastert (R-IL) rebuked Mankiw for his remarks. "We can’t have a healthy economy unless we have more jobs here in America." Rep. Donald Manzullo (R-IL) called for Mankiw’s resignation, and in a speech to manufacturers in Illinois, called Mankiw a "clown."

Although the White House did not publicly criticize Mankiw, initially it did back away slightly from his stark statement. Three days after Mankiw’s remark, in Pennsylvania, a state President Bush lost in 2000 and has visited 25 times since taking office, the president acknowledged the importance of the offshoring issue. “There are people looking for work because jobs have gone overseas. We need to act to make sure there are more jobs at home and people are more likely to retain a job,” Bush told a full high school auditorium in Harrisburg.

Much has been made of CNN evening host Lou Dobbs' "Exporting America" series, which includes a nightly update of U.S. companies that have sent jobs offshore. Writers at The Wall Street Journaland economists at American Enterprise Institute are among those who have lamented a respected, mainstream news anchor for actively investigating the loss of jobs to offshoring and illustrating its effects on American communities. Meanwhile, Dobbs is continuing to attract increasing numbers of viewers with his anti-offshoring perspective.

Further resources and reading:

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