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June 22, 2005

Offshoring Once Again

Offshoring is a very big deal, not for the next five years, but for the next fifty.

David Wessel writes about McKinsey's forecasts:

WSJ.com - Capital: In Spite of Offshoring, U.S. Students Can Still Engineer a Career: By 2008, more than half the jobs in engineering could be done anywhere in the world, according to an intriguing new analysis... by McKinsey & Co.'s in-house think tank. Many of them will... be done in... low-wage countries. Yet... engineering still looks like a winning profession for Americans -- in contrast to some other occupations. "There is this myth that the last thing you should do is go into engineering," says Diana Farrell, head of McKinsey Global Institute. "But the underlying growth of demand for engineers is so great that even when you consider the potential of offshoring, there will be demand in the U.S."...

There are already twice as many young university-trained professionals in low-wage countries as in high-wage countries.... India has nearly as many young engineers as the U.S.; China has twice as many.... [But] fewer than one in five engineers in low-wage countries [are] potential [multinational] hires. The others don't speak the language, don't live in the right cities or near airports, aren't practical enough or otherwise just don't fit....

McKinsey bets that the U.S. will lose 225,000 service-sector jobs a year to offshoring, but that's a very small fraction of the jobs created each year.... McKinsey expects the global supply of accountants and finance whizzes to overwhelm the demand, it doesn't expect the same for skilled engineers... demand for engineering talent from the U.S. and U.K. alone could absorb the "suitable supply" [this decade] of engineers in China, India and the Philippines, it says.... [H]igher wages for Asian engineers will bring them up to the levels of engineers in Mexico, Brazil and Poland, encouraging multinational companies to hire there.

It would be simpler for American engineers if they didn't have to worry about all those bright, ambitious folks in China and India. But as Brad DeLong, an economist and blogger at the University of California at Berkeley, puts it: "A world 60 years from now in which Chinese schoolchildren are taught that the U.S. did what it could to speed their economic growth is a much safer world for my great-grandchildren than a world in which Chinese schoolchildren are taught that the U.S. did all it could to keep China poor."

Decrying or trying to stop globalization isn't a winning strategy. Analyses like McKinsey's are a step toward more promising national -- and personal -- responses to global realities. Understand the competition, and then do something you can do better than they can.

Posted by DeLong at June 22, 2005 04:08 PM