August 03, 2004

John Cassidy on Outsourcing

John Cassidy in the New Yorker writes about outsourcing. He ultimately gets to an entirely reasonable place, but it takes him quite a while:

[the United States] will have to insure that its scientists are the most creative, its business leaders the most innovative, and its workers the most highly skilled.... A truly enlightened trade policy would involve increasing federal support for science at all levels of the education system; creating financial incentives for firms to pursue technological innovation; building up pre-school and mentoring initiatives to reduce dropout rates; expanding scholarships and visas to attract able foreign students and entrepreneurs to these shores; and encouraging the development of the arts. In short, insuring our prosperity involves investing in our human, social, and cultural capital. But don't expect to see that slogan on a campaign bumper sticker anytime soon.

The only bone I have to pick with the final paragraph is that you do see this--not on bumper stickers but in the Democratic platform. All of it (with the exception of greater arts funding) is what you hear in standard Democratic speeches on dealing with globalization. This was, for example, Robert Reich's wish-list program when he was Secretary of Labor--but there wasn't the money to seriously start it in 1993-1994 and, after 1994, Newt Gingrich, Bob Dole, and company had no interest in funding more than a trivial part of it.


Along the way, Cassidy quotes a bunch of stuff that Steve Cohen and I have written:

Thinking About Outsourcing: Archive Entry From Brad DeLong's Webjournal: A huge, new swath of our jobs will become vulnerable to foreign competition over the next years. This new set of potentially tradeable jobs are in many cases jobs held by people who are not accustomed to layoffs. Often they are high paying, clean, good jobs. Some are the best jobs. The people who hold them are quite convinced that they are on top--that they have these jobs and that these jobs are well paying--because they are the best people who deserve to have them: they are smart and industrious...

Thinking About Outsourcing: Archive Entry From Brad DeLong's Webjournal:On the one hand, economists will say that the gains from trade will thereby be that much greater for the economy as a whole. On the other hand, the potential downward pressure on loser workers in rich countries will be that much greater as well...

The quotes are accurate, and the lines quoted are good ones. But I must admit to the dissatisfaction that comes when somebody else pulls small pieces out of what is a complicated and nuanced argument. Read the whole thing.

Posted by DeLong at August 3, 2004 10:13 AM | TrackBack | | Other weblogs commenting on this post
Comments

Is this what the world has come to? "Eminently quotable" means "fits into sound bites?"

Posted by: Linkmeister on August 3, 2004 10:27 AM

____

I suggest that we boycott comments on outsourcing posts. I am getting tired of them. Bloggers just use these posts to get a lot of comments.

Posted by: Hi on August 3, 2004 11:03 AM

____

Why aren't elite economists more supportive of "wage insurance" and other techniques to support trade-dislocated workers displaced by outsourcing ?

Posted by: bhaim on August 3, 2004 11:04 AM

____


I have the reputation here of being anti-free-trade, but I'm not really. I'm skeptical about the way NAFTA etc. were rushed through. Chapter 11 bothers me. The overall environmental effect looks bad.

On the other hand, there's a highly-specialized local company here (chain-saw chains) which has been expanding all throught the downturn because of international sales. It employs several hundred people. Just an anecdote.

Politically, however, having Part One go through without Part One (the stuff listed in the article) was a disaster. It damaged part of the Democrats core constituency. The progrm was bipartisan, but the pain was felt more by Democrats, I think. (Correct me).

The common responses to this I get from New Dem types is that there aren't very many of those people, there are fewer every year, and they're all bigots and homophobes anyway. This does not strike me as a shrewd political response.

If both parties primarily represent the middle class, that leaves a large number of unrepresented voters. Even if the middle class is relatively bigger than it used to be (and the working class smaller), there's something wrong with leaving that many people out. We seem headed to an increasingly stratified society with a considerable underclass (which no longer is the traditional "vast majority", but still pretty hefty).


Posted by: zizka / John Emerson on August 3, 2004 11:07 AM

____

Brad DeLong writes:

"All of it (with the exception of greater arts funding) is what you hear in standard Democratic speeches on dealing with globalization. This was, for example, Robert Reich's wish-list program when he was Secretary of Labor--but there wasn't the money to seriously start it in 1993-1994 and, after 1994, Newt Gingrich, Bob Dole, and company had no interest in funding more than a trivial part of it.

It's also a very tough sell with unions, a core democratic constituency. When Reich would pitch these ideas to AFL-CIO heads, they would basically say, "We don't want to hear about fruity 'human capital investment programs.' Our people need job security." It seems that in today's political climate, it is much easier to push policies that provide short-term relief than policies that deliver long-term benefits.

Posted by: Brad Reed on August 3, 2004 11:14 AM

____

"[the United States] will have to insure that its scientists are the most creative, its business leaders the most innovative, and its workers the most highly skilled...."

This sounds like the Lake Wobegon economy, where all the workers are above average.

Nice idea, but not realistic.

Posted by: Jon H on August 3, 2004 11:32 AM

____

Should we mention the damage that anti-terror programs have done? When over half the US tech businesses have been started by Asian or Indian immigrants, the barriers being thrown up around foreign student visas are counterproductive. The US has a history of having the most creative scientists because funding to do the most creative science has been available in the US. The best a brightest scientists in the world go where they can make the most progress. So yes, the US can have above average workers if we continue to attract the top world talent. Our home grown workers will also be better if they have better training than in other countries.

However, stupid policies like the limits on stem cell research guarantee that the US will not be the leader in emerging technology in the stem cell area. Subsidizing fossil fuels and cutting research on alternatives will ensure that the US is not a leader in alternative energy technology. Cutting funds for mass transit will ensure that the US will not be a player in this area. Failure to make higher education affordable makes our workforce less competitive.

The GI bill that sent returning soldiers to colleges to learn important skills instead of returning them to farms and rural areas with not enough jobs was the best investment this country has made in any generation. The so-called "Greatest Generation" also was the recipient of the greatest government investment. Do you think there is a relationship? The Bush administration does not get it.

Posted by: bakho on August 3, 2004 11:58 AM

____

Should we mention the damage that anti-terror programs have done? When over half the US tech businesses have been started by Asian or Indian immigrants, the barriers being thrown up around foreign student visas are counterproductive. The US has a history of having the most creative scientists because funding to do the most creative science has been available in the US. The best a brightest scientists in the world go where they can make the most progress. So yes, the US can have above average workers if we continue to attract the top world talent. Our home grown workers will also be better if they have better training than in other countries.

However, stupid policies like the limits on stem cell research guarantee that the US will not be the leader in emerging technology in the stem cell area. Subsidizing fossil fuels and cutting research on alternatives will ensure that the US is not a leader in alternative energy technology. Cutting funds for mass transit will ensure that the US will not be a player in this area. Failure to make higher education affordable makes our workforce less competitive.

The GI bill that sent returning soldiers to colleges to learn important skills instead of returning them to farms and rural areas with not enough jobs was the best investment this country has made in any generation. The so-called "Greatest Generation" also was the recipient of the greatest government investment. Do you think there is a relationship? The Bush administration does not get it.

Posted by: bakho on August 3, 2004 12:01 PM

____

And we are still waiting for those benefits Brad. You know, all those jobs that you and Catherine Mann talk about. You kow, where there are 166,000 less working in IT than 3 years ago. Maybe we should all run down and get our McJob at Walmart and then you the taxpayer can fund our healthcare.

Please don't come back with that shope worn buggy maker line either. Buggy makers went right down the street to the auto plant. Where the hell do I go???? What do I train for???

Posted by: me on August 3, 2004 12:04 PM

____

I love Dennis Hastert’s idea to eliminate the IRS.

A flat tax with exclusions for lower income folks or a national VAT would be terrific as long as it was just one or the other and it replaced ALL OTHER TAXES. My preference would be a VAT. That means savings (capital) would be totally tax free. For my generation - the baby boomers - it would really help us catch up in building up our retirement savings that most of us have under funded.

It also would suck capital out of the high tax Euro Socialists until they smartened up and modeled their economies after ours. I understand a VAT in the range of 17% to 20% would do the trick. Imagine all your savings would be TAX FREE SAVINGS. Imagine all your savings compounding tax free?

The only caveat is...

http://pep.typepad.com


Posted by: Adrian Spidle on August 3, 2004 12:17 PM

____

http://www.nytimes.com/2004/07/30/business/worldbusiness/30india.html?pagewanted=all&position=

India Hopes for Growth in Textile Exports
By SARITHA RAI

BANGALORE, India - Business is good for Dinesh J. Hinduja. In the last three months, he has added four garment units, for a total of 41 factories. And in the next few months, he says, he will add another three.

But at a recent interview in his downtown office, surrounded by designs, swaths of fabric and clothing, Mr. Hinduja was anxious. Despite the expansion frenzy, Mr. Hinduja, the director of marketing and production for the family-owned Gokaldas Exports and two sister companies - India's top garment exporters - cannot cope with the escalating demand.

'My buyers are pushing me like crazy to grow, grow, grow,' he said, 'but I have to draw the line somewhere, or my business will go totally out of control.'

Mr. Hinduja's Bangalore-based company, which runs dedicated units for major American customers like the Gap Inc. and Tommy Hilfiger, is one of dozens of textile and garment exporters racing to prepare for the end of the global textile and apparel quota system on Dec. 31.

The quota system, whose ending was devised nearly a decade ago by the World Trade Organization's predecessor, has protected the textile and garment industry in the United States and Europe by limiting imports from low-cost manufacturing countries like India.

Under the Agreement on Textiles and Clothing, the restrictions were subject to elimination in several stages over the 10-year period but the biggest impact has been left for last, and the impending end has unleashed great expectations on both sides of the Atlantic.

'Many U.S. companies had to move production away from India due to quota restrictions, despite strong relations with some Indian firms,'' said Marshal Cohen, chief garment and footwear industry analyst at the NPD Group, a market research company in Port Washington, N.Y. 'The end of the quota system will create an unlimited relationship.'

The United States and the European Union have officially notified the W.T.O. that they are moving ahead with the final phase-out by the end of this year, and a coalition of American and European Union retailers has campaigned enthusiastically for the scheduled ending.

It continues, however, to be opposed by some powerful groups. The Bush administration just rejected a petition signed by more than 100 Republican and Democratic members of Congress, including John F. Kerry, the Democratic presidential nominee, asking that the phase-out be delayed. An end to the quotas, they said, would be disastrous for the textile and apparel industry in the United States, one of the country's largest manufacturing industries, employing 702,000 people.Though Indian garment and textile makers are crossing their fingers for all to go as planned, recognition of the stiff competition from China and the fragmented state of India's textile and garment industry is tempering the optimism a bit.

Still, it is hard for Indians not to hope too much when the prospects seem so grand.

Posted by: Anne on August 3, 2004 12:24 PM

____

"A truly enlightened trade policy would involve increasing federal support for science at all levels of the education system; creating financial incentives for firms to pursue technological innovation..." -- New Yorker


What does 'creating financial incentives for firms to pursue innovation' mean? It sounds like a subsidy to me -- i.e. non-free trade.

As for education, it costs far less to train a person in India than it does here. When American engineers cost $10,000 a year, then it would make sense to train them. Until then, the market says American brains aren't worth educating.

Posted by: Carl on August 3, 2004 12:24 PM

____

I don't understand. When liberal supporters of the war claimed that they supported the Iraq Quagmire, just not the incompetent way the Bushites have performed it, Brad called them "naive" for expecting anything else.

But supporters of fair trade are supposed to be "naive", and support trade deals even when they know full well the the support the goverment should provide to the losers has no chance of ocurring?

Posted by: marku on August 3, 2004 12:33 PM

____

Brad DeLong writes: "All of it (with the exception of greater arts funding) is what you hear in standard Democratic speeches...."
Actually, Kerry just put in a local appearance here last night, and he specifically mentioned putting funding for arts & music back into the schools, so they don't have to focus on just the tested stuff. I don't know if it's in the platform, but it's at least in the speech.

Posted by: John Owens on August 3, 2004 12:39 PM

____

On 4/22004 Brad Delong said, among other things, "

...when "outsourcing" truly arrives--whether in one or two or three decades--it is likely to deliver a shock an order of magnitude larger to the American economy.

"Consider: the income gaps in the case of "outsourcing" will be much greater than in the case of trade in manufactured goods. ... gains from trade will thereby be that much greater for the economy as a whole. On the other hand, the potential downward pressure on loser workers in rich countries will be that much greater as well.

"Consider: trade in services potentially affects a much larger proportion of the labor force. ...what is the upper limit to the sectoral trade deficit in long-distance document-image pushing?

"Consider: the assault by manufactured imports on American mass-production manufacturing in the 1970s and 1980s was something done to American workers and firms standing together. The process of outsourcing will look very different: it will be something done by internationalized American firms to American workers. ...

"And, conversely, consider India. Put 10 million people in India to work at $26,000 a year providing white-collar services to the industrial core, and you have boosted India's standard of living by 50%. And you have displaced only 4% of the potential target industries, for there are 240 million service-sector workers in the First World today.

"Because this is an economic transformation that is going to hit not in one shot next year but over the course of the next generation, we have plenty of time: time to build the social safety net, the education and retraining programs, the social and economic institutions needed to turn the coming of trade in white-collar services from a win-lose to a win-win affair for America and Americans; time to rebuild confidence that employment will be full and the duration of unemployment spells short. But we will need all this time, because the magnitude of the approaching economic trade shock will be much larger than anything in our historical memory."


I ask,

Will we really have the time to do what's needed to turn a win-lose to a win-win? I have serious doubts that we will have such time-luxury. We have an American working and middle-class strapped with debt like no other era in history.

I ask Brad and others how the Fed, The Treasury and others are going to avoid the predicted-by-some soon to arrive debt bomb explosion? Once the ratcheting effects of debt deflation begin to work their tragedy, it seems like the 30-year-long American fascination with credit may come to an end that the whole world will be talking about for a very long time.

Posted by: Dabbler Dave on August 3, 2004 01:00 PM

____

"A truly enlightened trade policy would involve increasing federal support for science at all levels of the education system; creating financial incentives for firms to pursue technological innovation; building up pre-school and mentoring initiatives to reduce dropout rates; expanding scholarships and visas to attract able foreign students and entrepreneurs to these shores; and encouraging the development of the arts. In short, insuring our prosperity involves investing in our human, social, and cultural capital."

And the evidence to support these claims is what?

Posted by: Patrick R. Sullivan on August 3, 2004 01:04 PM

____

I've heard Scott Baker given as the source of the term 'transcendental captital', the difference in wage rates between America and third world countries.
An American low skilled worker is paid more than what a Mexican low skilled worker is paid. A high skilled American worker is paid more than what a high skilled Mexican worker is paid. Think of the difference as low skilled workers making an extra eight thousand dollars a year and high skilled workers making an extra eighty thousand dollars a year.
Except it's worse. We are preferentially importing low skilled labor imports and low skilled workers. Until recently the low wage countries didn't produce enough engineers to add value to manufactures. We used our designs and their low skilled labor to produce products. We also imported low skill illegals preferentially to high skill illegals. It's easy for a low skill illegal to get a job as a janitor. It's not easy for a high skill illegal to get a job as a doctor. This skewed the rewards for skill levels in America.
We can argue about how much it was skewed. Or we can wait till the American dollar drops enough more to shut off our imports and discourage immigration by reducing remittances sent home from America. Then we will have results to back up our arguements.

Posted by: walter willis on August 3, 2004 01:32 PM

____

I've heard Scott Baker given as the source of the term 'transcendental captital', the difference in wage rates between America and third world countries.
An American low skilled worker is paid more than what a Mexican low skilled worker is paid. A high skilled American worker is paid more than what a high skilled Mexican worker is paid. Think of the difference as low skilled workers making an extra eight thousand dollars a year and high skilled workers making an extra eighty thousand dollars a year.
Except it's worse. We are preferentially importing low skilled labor imports and low skilled workers. Until recently the low wage countries didn't produce enough engineers to add value to manufactures. We used our designs and their low skilled labor to produce products. We also imported low skill illegals preferentially to high skill illegals. It's easy for a low skill illegal to get a job as a janitor. It's not easy for a high skill illegal to get a job as a doctor. This skewed the rewards for skill levels in America.
We can argue about how much it was skewed. Or we can wait till the American dollar drops enough more to shut off our imports and discourage immigration by reducing remittances sent home from America. Then we will have results to back up our arguements.

Posted by: walter willis on August 3, 2004 01:37 PM

____

Human capital is way over-rated. A fadish fetish.

Posted by: Luke Lea on August 3, 2004 02:40 PM

____

I agree with Brad; I was kind of surprised by the weakness of that New Yorker article. It starts by hinting that the classic economic arguments for outsourcing (and trade) are simplistic, perhaps irrelevant in the real world, but then barely gives any argument, or examples, for why this would be so. (Other than the observation that it is politically naive to expect the many and diffuse benefits of trade to be redistributed to the fewer, but heavily impacted, losers).

The platitudes that end the piece (the US needs to focus on human capital investment) leave one to conclude that the author DOES actually agree with the classic econ arguments about trade and outsourcing (or at least their inevitability).

So, I'm not sure what the point of the piece was, and doubtful that it's worth a reread to try and grasp it.

Posted by: hippocopter on August 3, 2004 02:45 PM

____

"[the United States] will have to insure that its scientists are the most creative, its business leaders the most innovative, and its workers the most highly skilled."

But Brad, this is bullshit.

The fundamental thing about development is that as the third world develops (and I sure as hell hope as much of it does so as possible), there is NOTHING that the US can do to maintain any significant overall lead in creativity, innovation, and skill.

Development means the third world catching up to the first world. It is not hard for China and India to maintain higher growth than the US - because they are catching up to the state of the art, whereas the US has to advance the state of the art. It is certainly a good thing for the US to increase its innovation and creativity, but if you try and sell the idea that there are ANY policies that will keep the existing US lead over India and China (short of nuking the world), you're selling a lie.

You're selling four lies, actually: that the economic development of third world countries is a huge and unprecedented threat to the US, that the US should see itself as in competition with them, that the US is losing that competition if the skill and productivity gap between the US and the developing world decreases, and finally that there are any realistic policies that will increase US skill and productivity fast enough to keep that gap open.

Any sane and honest policy on trade and outsourcing has to start with a fundamental fact: closing the economic gap between the developing and developed world will happen, and it should be a key policy aim to make sure it happens as quickly and smoothly as possible.

The key point to make is that we've already been there over and over again. The European nations redeveloped after WW2, Japan developed into a first world nation, Taiwan and South Korea are nearly there. When it was happening people panicked - especially over Japan - but the sky never fell. The result always turned out to be steadily increasing mutual prosperity.

The negative side effect is that while this is happening, the overall US economy will benefit, and the pain comes in the details where some industries win and others lose. The winning and losing is exactly the same as from technological development or other major change, it's just easier to blame an Indian worker doing your job for less money, than to blame (for example) computerization for allowing a company to obsolete your job entirely.

The only real remedy to this dislocation comes from domestic social policies. And it is an absolutely vital point to make that social policies are KEY. Pretty much every other country in the western world is far more dependent on trade, and far more vulnerable to international competition, than the US is. Every other country in the western world has to deal with not being the biggest, most powerful economy. And yet in all these other countries, the typical worker is just as well off as a US worker, and the poor and the laid off lead significantly better lives. This is entirely because their domestic social policies mean that the workers "displaced" by change, including changing trade, have a much softer landing.

Using trade to sell education policy is non-sequitur opportunism. "It's a competitive world, we need to compete more effectively" is when you get down to it an utterly unworkable idea for the top dog nation faced with "competitors" who can easily outgrow it by virtue of starting from the bottom.

The only real solution is to turn that on its head - "it's a more competitive world, a faster world, so workers are going to lose their jobs for forces beyond their control and we need to soften the landing". This should be a key component in pushing for universal health care. It should be a key component in pushing for better unemployment insurance. It should be a key component in pushing for things like better government assistance for day care and maternity leave, for that matter.

Posted by: Ian Montgomerie on August 3, 2004 02:53 PM

____

In the New Yorker piece Cassidy mentions the work of Gomory and Baumol on comparative advantage and conflicts of interest in international trade. Are there any trade economists out there who can comment on this research?

Gomory and Baumol claim that when a developed and very underdeveloped country trade, it is clearly a win-win proposition (this sounds just like the usual comparative advantage result). But, they find that once the underdeveloped country catches up a bit further, trade and investment may be counter to the interests of the developed country. I am not sure what assumptions beyond comparative advantage lead to this conclusion.

In their book I don't believe they claim that China or India are yet at the point where trade with the U.S. is no longer win-win. In fact, it is trade between nations like France, Germany, UK, etc. that involves conflict of interest. Unless I am mistaken this is somewhat counter to the usual anti-free-trade intuition and Cassidy slightly misrepresents the research.

Posted by: steve on August 3, 2004 03:02 PM

____

In the New Yorker piece Cassidy mentions the work of Gomory and Baumol on comparative advantage and conflicts of interest in international trade. Are there any trade economists out there who can comment on this research?

Gomory and Baumol claim that when a developed and very underdeveloped country trade, it is clearly a win-win proposition (this sounds just like the usual comparative advantage result). But, they find that once the underdeveloped country catches up a bit further, trade and investment may be counter to the interests of the developed country. I am not sure what assumptions beyond comparative advantage lead to this conclusion.

In their book I don't believe they claim that China or India are yet at the point where trade with the U.S. is no longer win-win. In fact, it is trade between nations like France, Germany, UK, etc. that involves conflict of interest. Unless I am mistaken this is somewhat counter to the usual anti-free-trade intuition and Cassidy slightly misrepresents the research.

Posted by: steve on August 3, 2004 03:07 PM

____

I entirely agree with his assessment. The following is from a post by my colleague on the John Kerry forum:

"The only way to make our workforce competitive in the long term is to invest more money into education, training, research and infrastructure. U.S. companies are still globally competitive in areas such as consulting, financial and legal services. We need to continue to build on these strengths and develop new kinds of high concept and high touch jobs that differentiate us from the rest of the world."

We cannot afford to be protectionist and perhaps more importantly, we cannot stick our heads in the sand and hope that other countries stop being competitive in this global labor marketplace.

Posted by: Outsourcing Advocate on August 3, 2004 03:09 PM

____

"In their book I don't believe they claim that China or India are yet at the point where trade with the U.S. is no longer win-win. In fact, it is trade between nations like France, Germany, UK, etc. that involves conflict of interest."

This may depend on some of the work on strategic trade that people like Krugman have done. Trade is NOT necessarily win-win for developed countries. There is a tendency for industries to "clump" geographically. If increasing trade happens to make a really major industry clump in someone else's country rather than yours, this can be a net detriment.

The big issue here is that on average you still expect the countries involved to each come out with a good mix of industries, but there is a tendency to play "strategic trade" games to attract the best industries to your country. This results in a trading competition that can become very inefficient and lose-lose. A major aim of trade treaties should be to serve in part as "arms limitation" treaties - to prevent countries from getting into a mutually destructive trade war while trying to attract better industries to themselves.

This issue has nothing to do with outsourcing and the third world. It involves the like of Boeing vs. Airbus, the Hollywoods and Silicon Valleys and their lesser brethren of geographic clumps, and so on. It's basically first world and near-first-world stuff. But there is basically no reasonable way to shut down trade with the first world - that's where all the real money is (3/4 of US trade).

Posted by: Ian Montgomerie on August 3, 2004 03:18 PM

____


One problem with the "best scientists/engineers/etc" solution is that potential scientists and engineers are intelligent, self-interested participants in the labor market.

If they see that all the jobs in a field are going overseas, they won't pursue education in that field.

If companies see people abandoning a field, they will be inclined to move work in that field overseas.

Which will further encourage people to leave the field.

Posted by: Jon H on August 3, 2004 03:26 PM

____

Ian,

I think I agree with your interpretation.

But, if I recall properly, Cassidy incorrectly cites Gomory and Baumol's work as undermining the usual comparative advantage argument for trade between developed and unerdeveloped nations.

The article is supposed to be about subtleties in the usual arguments for free trade. I thought Cassidy was going to come up with more than the usual worker dislocation costs and redistribution of gains arguments, but I guess not.

Posted by: steve on August 3, 2004 03:30 PM

____

http://www.nytimes.com/2004/08/01/international/01CHIN.html?hp=&pagewanted=all&position=

Amid China's Boom, No Helping Hand for Young Qingming
By JOSEPH KAHN
and JIM YARDLEY

PUJIA, China — His dying debt was $80. Had he been among China's urban elite, Zheng Qingming would have spent more on a trendy cellphone. But he was one of the hundreds of millions of peasants far removed from the country's new wealth. His public high school tuition alone consumed most of his family's income for a year.

He wanted to attend college. But to do so meant taking the annual college entrance examination. On the humid morning of June 4, three days before the exam, Qingming's teacher repeated a common refrain: he had to pay his last $80 in fees or he would not be allowed to take the test. Qingming stood before his classmates, his shame overtaken by anger.

'I do not have the money,' he said slowly, according to several teachers who described the events that morning. But his teacher — and the system — would not budge.

A few hours later, Qingming, 18 years old, stepped in front of an approaching locomotive. The train, like China's roaring economy, was an express.

If his gruesome death was shocking, the life of this peasant boy in the rolling hills of northern Sichuan Province is repeated a millionfold across the Chinese countryside. Peasants like Qingming were once the core constituency of the Communist Party. Now, they are being left behind in the money-centered, cutthroat society that has replaced socialist China.

China has the world's fastest-growing economy but is one of its most unequal societies. The benefits of growth have been bestowed mainly on urban residents and government and party officials. In the past five years, the income divide between the urban rich and the rural poor has widened so sharply that some studies now compare China's social cleavage unfavorably with Africa's poorest nations.

For the Communist leaders whose main claim to legitimacy is creating prosperity, the skewed distribution of wealth has already begun to alienate the country's 750 million peasants, historically a bellwether of stability.

The countryside simmers with unrest. Farmers flock to the cities to find work. The poor demand social, economic and political benefits that the Communist Party has been reluctant to deliver.

To its credit, the Chinese government invigorated the economy and lifted hundreds of millions of people out of abject poverty over the past quarter century. Few would argue that Chinese lived better when officials still adhered to a rigid idea of socialist equality.

Posted by: Anne on August 3, 2004 04:23 PM

____

Human capital is way over-rated. A fadish fetish.

Posted by: Luke Lea on August 3, 2004 04:46 PM

____

Human capital is way over-rated. A fadish fetish.

Posted by: Luke Lea on August 3, 2004 04:47 PM

____

Brad writes: A truly enlightened trade policy would involve increasing federal support for science at all levels of the education system; creating financial incentives for firms to pursue technological innovation; building up pre-school and mentoring initiatives to reduce dropout rates; expanding scholarships and visas to attract able foreign students and entrepreneurs to these shores; and encouraging the development of the arts. ... This was, for example, Robert Reich's wish-list program when he was Secretary of Labor--but there wasn't the money to seriously start it in 1993-1994 and, after 1994, Newt Gingrich, Bob Dole, and company had no interest in funding more than a trivial part of it.

Communists used to say the same - the dream is to build the paradise on Earth, the ugly reality is deviations and other guys' fault.

Posted by: a on August 3, 2004 05:26 PM

____

One problem with the "best scientists/engineers/etc" solution is that potential scientists and engineers are intelligent, self-interested participants in the labor market.

Jon H
If they see that all the jobs in a field are going overseas, they won't pursue education in that field.

If companies see people abandoning a field, they will be inclined to move work in that field overseas.

Is this like Bill Gates going around begging students at MIT not to quit computer science as he sends more and more HIGH level jobs offshore?

The only ones stuck are like me, at 55 I don't have time to start over again. Just another data point on the regression line to nowhere.

Posted by: me on August 3, 2004 05:44 PM

____

"The article is supposed to be about subtleties in the usual arguments for free trade. I thought Cassidy was going to come up with more than the usual worker dislocation costs and redistribution of gains arguments, but I guess not."

The biggest subtleties seem to come from the externalities associated with industries. Basically, there are a lot of situations where two industries may have the same direct profitability, but one of them is better for your country in the long run.

One big example of this is focusing on cash crops vs. industrial products. Starting a century ago, a lot of developing economies (especially in South America) that weren't far behind the rest of the world, focused on cash crop production. It made them a bunch of money. But among other problems, it didn't lead to the development of the sort of educated labor force that industrial development did. As industry became more productive and more important around the world, these countries found their economies being left behind. There are other complexities as well involving cash crops and terms of trade, but in general any mix of industries that encourages people in your society to become better educated will have long term benefits far above and beyond its short term profits.

But the thing is, no matter how many of these complexities I hear about, everything all points in exactly one direction in regard to first vs. third world trade. The best thing for the wellfare of the human race, especially its impoverished billions, is for first world nations to be open to third world imports, to be able to make stable investments in the third world, to generally get the opportunity to undercut first world workers on labor costs, and to be able to send emigrants to first world countries.

The only really credible arguments over whether restricted trade is good seem to revolve around whether it's good for developing world nations to limit some of their own exposure to world markets. They need to export, but there may be benefits to restricting some imports. They need investment, but there may be benefits to capital controls to prevent investment from being too boom-and-bust. They need access to first world knowledge, but that doesn't mean they should sign every exploitative intellectual property agreement that comes along (IP laws may in general be to their net detriment). All these arguments tend to have a particular relationship to what it's like being an underdeveloped nation trying to catch up, and don't really apply to the developing world. I still haven't seen any arguments for the developing world to restrict its own trade with the third world that don't boil down to "let's get at most a small benefit to ourselves in return for fucking over millions of impoverished people".

Posted by: Ian Montgomerie on August 3, 2004 07:39 PM

____

At the risk of (slightly) hijacking the comment thread. Education -- GOOD education that stimulates creative, insightful outside-the-box minds and ideas -- is often proposed as one way that developed countries can respond to the rising skill levels in developing countries. If we educate better engineers and designers, the thought goes, we can preserve the wild disequilibrium in wealth and consumption that currently characterizes the developed West, and particularly the United States.

Argue away.

Now...one might expect that free-marketeers (of the classical liberal or current pro-business flavors) would rely on market mechanisms to help improve education, especially higher education, to this end. Successful universities (i.e., those that are swamped with applications and whose graduates are in demand for quality jobs) should be rewarded. For the government, this would apply to public universities, one might think.

Evidently, the Schwarzenegger administration in California, or those it appointed to 'reform' state government, don't see it this way. (The "Education, Training and Volunteerism" section of the just-released "California Performance Review" report at: http://www.report.cpr.ca.gov/cprrpt/issrec/etv/index.htm .)

For example, an ongoing concern of Mr. Schwarzenegger and his minions is that public university students in California are getting too damn much education. One of the insistent demands the governor made of the UC system recently was that students who take "too many" courses (beyond graduate requirements) be required to pay for them. Wouldn't want those students to learn too much, after all!

Now, the commission on state government reform has provided further ideas. For example, they suggest that: "The Governor should work with the Legislature to develop core, lower division, general education and major requirements that are recognized and accepted by all California public universities." (Their goal is to make it easier for students to start college at a community college, then transfer to Berkeley.)

Right, how obvious: the way to improve universities and reward success is to have the Governor and Legislature impose identical general education and _major_ requirements on all state university campuses, from community colleges to Berkeley. That's sure to produce the inquiring minds and bright ideas that we need! (And think: we can produce lots more of those high-quality Berkely grads but save all the money we spend on students who their freshman and sophomore years at Berkeley, which (oddly enough) costs rather more to run than Riverside Community College! (That college admissions are one of the more "competitive" parts of our entire society appears to have eluded these champions of competition).

Additionally, since the "free market" is apparently driving textbook prices to astronomical levels, they commission also recommends: "The Governor should work with the Legislature to enact state law in an effort to reduce the cost of college textbooks. This law should require college and university faculty to: Consider the price of textbooks when making textbook selection decisions..." (and various other recommendations).

Actually, every faculty member I know does consider textbook prices, but it's rarely a determining factor because some textbooks are much better for _teaching_ than others. Frankly, even an old-fashioned nearly socialist type like me wonders what the utility of a law about textbook choices would be. One does wonder where the idea of "market" went on that one!

Of course, I'm focusing on this part of the report because it gores my ox in various ways...but I wonder whether other parts of this "reform" are as counter-intuitive as these?

No doubt there's food for thought, and I'd like to hear the economists' take on "reform a la Schwarzenegger"!

Posted by: PQuincy on August 3, 2004 07:40 PM

____

Ian is starting to convince me, I wasn't quite sure what he was getting at before, but I think we agree on broad points.

Posted by: Jeff Lawson on August 3, 2004 08:21 PM

____

Hi Ian
If the third world actually observed the terms of the treaties they signed with first world countries, it might operate to their detriment. As it is, unless they sign and observe those treaties the first world medical pharmacetical industry won't spend a hundredth as much on malaria treatments as they do on cures for obesity, impotence, and baldness.

Posted by: walter willis on August 3, 2004 10:05 PM

____

Brad: The sermon is starting to get quite repetitive. Look, there's NO FUCKING CHANCE that the Republican-dominated Congress is going to pass any of the cushioning programs you advocate. So the losers of so-called "free trade" will be left high and dry. Please explain why protectionism is not a rational response from the American middle class in this situation.

Ian Montgomerie: You don't get it. Most of the American middle class (myself included) doesn't give a rat's ass about the welfare of Third Worlders. That's the responsibility of their governments. The responsibility of *OUR* government that *WE* elect is to look after *OUR* interests. If free trade hurts the middle class, then fuck the Indians and Chinese - I don't care whether it's good for them or not. Do you really think this call for sacrifice will play in Peoria?

Here are my three UNANSWERED QUESTIONS of job exportation. I've posted them on previous threads and no one has a sensible answer to any of them.

(1) It has been admitted that even if the country as a whole may be better off with job exporting (which is debatable, but let's pass that over for now), some groups will, if not compensated, be net losers in this game. What programs, if any, would you propose to ease the pain of offshoring and free trade on specific groups of Americans who are negatively affected by it? Please be specific.

(2) What do you think the political feasibility is of the programs (if any) that you would recommend?

(3) How would you respond to a point made in one of these threads by another poster that there is no realistic possibility that the losers of offshoring will be compensated in any way, and that therefore it is rational for the individuals in these groups to oppose it even if it results in a theoretical benefit to the country as a whole? Is it your assertion that they should sacrifice the well-being of themselves and their families for the enrichment of others?

Posted by: Firebug on August 3, 2004 11:51 PM

____

"creating financial incentives for firms to pursue technological innovation"

Translation: R&D tax credits for work outsourced overseas

"building up pre-school and mentoring initiatives to reduce dropout rates"

Dropout from what? Pre-school? But, seriously, probably that translates to "start school earlier, so that people have received 15 years worth of school when leaving 12th grade", or in one/two-decades-ago terms ("real terms"?) a full 12 years worth of education?

"expanding scholarships and visas to attract able foreign students and entrepreneurs to these shores"

But please not from "terrorist" countries ...

"and encouraging the development of the arts"

Translation: "Subsidize local artists, so that they can focus on inspiration instead of going slave in some shitty job." Maybe not a bad idea after all.

Posted by: cm on August 4, 2004 12:06 AM

____

ian Montgomerie: How can the US lead

What would be your advice to a runner that has a lead over those who are just getting off the start line? Keep running! That's the one and only way to keep a lead. The lead will diminish as the new entrants catch up, but as long as they cannot asymptotically run faster than you, you will keep some lead.

Of course, it takes a constant effort to do so. Currently I see a tired and complacent runner who hopes that all others will carry him forward.

Posted by: cm on August 4, 2004 12:28 AM

____

Even at elite schools, Computer Science enrollments are plunging due to outsourcing:

The number of students declaring computer science or computer systems engineering as their major decreased eight percent between the 2000-2001 and 2001-2002 academic years and by 20 percent between the 2001-2002 and 2002-2003 years, according to Claire Stager, a student services officer in the Stanford Computer Science Department.

Chetan Puttagunta, a freshman who is considering majoring in computer science, voiced concerns about the shipping of programming jobs overseas.

“At the rate outsourcing is going at, you wonder how many computer science jobs will be left in America,” Puttagunta said.

Source: Stanford Daily Online - April 14, 2004

Posted by: bhaim on August 4, 2004 07:09 AM

____

bhaim: It would be useful to contrast this to the trends in other subjects and the total trend. Are people choosing other subjects, do fewer people enroll in college in general, and perhaps in this college in particular? Any insights?

Posted by: cm on August 4, 2004 08:29 AM

____

Computer Science enrollments are down
across the country:

Computer majors down amid tech bust
By Michelle Kessler, USA TODAY
SAN FRANCISCO — The tech bust is hurting the popularity of computer majors in U.S. colleges, and that could eventually cause worker shortages in a highly competitive global industry.
U.S. colleges say the decline in enrollments in computer science and engineering classes started last year and hastened this fall.

At the University of Michigan, enrollment in a key course for computer science majors is down 20%. A similar course at Ohio State University has seen a 30% drop.

http://www.usatoday.com/tech/news/2002-10-08-computer-science-majors_x.htm

Posted by: bhaim on August 4, 2004 08:57 AM

____


NPR discusses decline in Computer Science enrollments.

http://www.cra.org/govaffairs/blog/archives/000066.html

Posted by: bhaim on August 4, 2004 09:30 AM

____

"Ian Montgomerie: You don't get it. Most of the American middle class (myself included) doesn't give a rat's ass about the welfare of Third Worlders. That's the responsibility of their governments. The responsibility of *OUR* government that *WE* elect is to look after *OUR* interests. If free trade hurts the middle class, then fuck the Indians and Chinese - I don't care whether it's good for them or not."

I have no problem getting that some people, yourself obviously encluded, are nativist scumbags who think that human life loses all value once it's "them" rather than "us", and are also too ignorant and/or stupid to have recognized even by now that developing world poverty, and the associated political instability, are a serious long term problem for the developed world.

Posted by: Ian Montgomerie on August 4, 2004 01:56 PM

____

"What would be your advice to a runner that has a lead over those who are just getting off the start line? Keep running!"

This is an extraordinarily bad analogy. In a race between runners, whoever starts first can maintain most of their lead forever (assuming equal skill). Whoever is behind doesn't get an advantage from the very fact of being behind.

The world economy is different. Developing nations get an advantage because they're playing catchup. They can use technology already developed elsewhere and sell to larger markets already developed elsewhere.

The Chinese economy has grown at an average of roughly 8% per year for the past quarter of a century. There is no way that the US or any other developed nation can maintain anywhere near that kind of growth. US growth is under 4% for the same period.

Let's say that there was some kind of perfect set of education and innovation policies that could allow the US to sustain 5% annual growth. I don't think there is any reason to believe there are, but it might be possible. So what? There is no way to close the bulk of the gap with the Chinese growth rate. So no matter what the US does, the reality is that the Chinese economy is going to outgrow the US economy by a lot, every year, until China is much much richer than it is now.

So basically, any policy of stimulating US growth is incapable of having any large effect on any problem arising from the fact that the Chinese economy is outgrowing the US economy. All it can do is slow them down a bit. Therefore it is not a solution to any such (real or imagined) problems, and anything honestly claimed as a solution must not lie in increasing US economic growth.

Of course, it's also entirely true that people only get the really strong THE SKY IS FALLING reaction to stuff like outsourcing when the domestic economy is not doing well. Because the US economy tanked and unemployment increased for domestic reasons having nothing at all to do with outsourcing, people are now eager to find something to blame for unemployment, and third world workers are convenient to demonize.

The developing world was just as present four years ago, but nobody cared because the domestic economy was at record high employment. Anybody panicking about outsourcing-induced job loss would have been rightly dismissed as a fool.

But now, people across the political spectrum are willing to completely ignore recent history and blame everything on outsourcing. It reaches the ultimate in ignorant ridiculousness as people in this thread mention things like the drop in computer science enrollments and blame it on outsourcing.

Being a tech worker in silicon valley, and having a couple of brain cells to rub together, _I_ haven't yet forgotten that the reason for the current US economic problems involves a few minor little events other than the Yellow Menace and the Brown Menace. Like the bursting of the biggest stock market bubble since the Great Depression. Like the collapse of the telecommunications industries and the dot.coms following one of the biggest binges of overinvestment ever. Like the bankruptcies of one major corporation after another in the midst of terrible accounting scandals. Like the biggest terrorist attack in world history. Like the most expensive and destabilizing US war since Vietnam. And like a Federal government which through all of this, year after year, bet that the economy would recover on its own so it could push through massive tax cuts for the rich instead of a real economic recovery package.

But yeah, apart from those minor details it is all the fault of the Indians and the Chinese. Protect the US middle class from those perfidious darkies!

Posted by: Ian Montgomerie on August 4, 2004 02:27 PM

____

I hate to be mean, especially with the notorious "double posting" problem in Brad's comments, but can't help suggesting that maybe it is Luke Lea's human capital that is way over-rated.

Posted by: Transient meanie on August 4, 2004 03:52 PM

____

Theoretically, I agree with the idea of free trade. Lately however, I'm beginning to wonder if the arguments for free trade apply only to products and not to human services.

I look at a sector that has been outsourced for a very long time: positions in graduate programs at top US universities. Here, US students invariably lose out to foreign students. Why? If foreign students are better qualified, then investing in technology isn't going to help our workers. The US has the most top-tier undergraduate programs in the world (with a matching price tag too). If we are already investing so much in our undergrads, and they still can't compete in admission to graduate programs with undergrads from foreign schools, then this indicates that maybe there isn't a direct relation when it comes to human beings between investment and output. If foreign students are not better qualified and are still preferred to US students, then investing in technology isn't going to help either. This just shows that there's a preference for foreigners.

Anyway, I haven't really thought out my idea but it seems to me that this is an analogous situation.

Posted by: chickensoup on August 5, 2004 01:29 AM

____

Ian and others,

Yes it is not fair to blame the Chinese or Indians for our plight. And yes our plight is indeed serious.

Ian lists these problems:

"bursting of the biggest stock market bubble since the Great Depression. ... collapse of the telecommunications industries and the dot.coms following one of the biggest binges of overinvestment ever. ...bankruptcies of one major corporation after another in the midst of terrible accounting scandals. ... the biggest terrorist attack in world history. ... the most expensive and destabilizing US war since Vietnam. And ... a Federal government which through all of this, year after year, bet that the economy would recover on its own so it could push through massive tax cuts for the rich instead of a real economic recovery package."

Add to the list:

-- Unreasonable entitlement packages (retirement and medical care for starters)
-- hyping credit and consumerism and "dis"ing financial prudence and thrift,
--“deregulation" that unwound many of the checks and balances in the financial world,
-- inattention to structural deficits and a belief that all world financial problems can be solved by “helicopter money”
-- general denial of longwave social cycles and the fact that when things like financial markets wind-up in big ways they will wind-down in big ways (e.g. Minsky’s hedge, speculative, and ponzi finance phases, general complexity theory sytems dynamics, etc.)

No, we ought not to blame those who we and others locked out of the global capitalism game for so long, but we ought not to turn a blind eye to the fact that if we pretend that so-called “free markets are going to solve all our problems when markets are not free, and corruption is widespread in the worlds financial and political systems, we are very likely to reap the same kind of harvest that befell the world in the wake the the 1920s excesses. Better that we broaden our focus and rethink economics in its political, environmental, and other contexts. Dave.

Posted by: dabbler dave on August 5, 2004 08:54 AM

____

Ian Montgomerie: "Nativist scumbag"? Well, fuck you too.

Brad, Ian, all you Pollyannas: You still don't get it. You economists have NO CREDIBILITY left with real Americans. You've blathered on about the benefits of job exporting and "creative destruction" for 30 years and we were stupid enough to believe you. No more. The bottom line is we don't trust you and we don't think you know what you are talking about. You are just useful idiots for the cheap labor advocates. Try to step out of your ivory towers for a moment and look at this from the perspective of an actual American worker threatened with offshoring. (Basically anyone whose job does not require a physical presence, plus 100% of all manufacturing jobs.) Why on earth would they want to support this? Most of them would rather have a guaranteed job even if it means spending a few bucks more for a TV set. As much as this irks you people, it is their preferences, and quite rational ones given that many of them have families to raise and can't live on nebulous promises of adjustment assistance that never come true.

Everyone except a few lunatics puts their country before other countries in their hierarchy of values. Every other nation looks after their own interests first. Only Americans are expected to sacrifice all for the sake of others. (And only the working and middle classes, at that - the owners make out like bandits). Fuck it. Fuck it all.

Posted by: Firebug on August 5, 2004 01:35 PM

____

Brad,

Have you written a letter to the New Yorker about the things John Cassidy missed in the Democratic platform? Seems to me that coming from the author extensively quoted by the article, your letter has a very good chance of making it into print.

On the other hand, the magazine could probably do much better by just reprinting your article.

Posted by: anatol on August 5, 2004 04:11 PM

____

"'Subsibize local artists, so that they can focus on inspiration instead of going slave in some shitty job.' Maybe not a bad idea after all."- cm

Oh, please! Choose me! I have plenty of autistic talent!

Posted by: john c. halasz on August 5, 2004 09:23 PM

____

"Brad, Ian, all you Pollyannas: You still don't get it. You economists have NO CREDIBILITY left with real Americans ... Try to step out of your ivory towers for a moment and look at this from the perspective of an actual American worker threatened with offshoring."

I'm an economist now? That was fast, I thought it usually required years of schooling or some such nonsense.

Actually, I'm a software engineer who until a few of months ago worked on DVD players, until the project I was working on got cancelled because a Taiwanese company came out with a better product. The software aspect of the DVD industry is increasingly being outsourced to China.

Posted by: Ian Montgomerie on August 6, 2004 09:26 AM

____

Post a comment
















__