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abstract: 'WHEN a presidential election year coincides with an uncertain economy,
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campaigning politicians invariably invoke an international economic
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issue as a dire threat to the well-being of Americans. Speechwriters
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denounce the chosen scapegoat, the media provides blanket coverage of
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the alleged threat, and legislators scurry to introduce supposed
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remedies. The cause of this year''s commotion is offshore outsourcing-the
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alleged migration of American jobs overseas. The depth of alarm was
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strikingly illustrated by the firestorm of reaction to recent testimony
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by N. Gregory Mankiw, the head of President George W Bush''s Council of
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Economic Advisers. No economist really disputed Mankiw''s observation
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that ``outsourcing is just a new way of doing international trade,{''''}
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which makes it ``a good thing.{''''} But in the political arena, Mankiw''s
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comments sparked a furor on both sides of the aisle. Democratic
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presidential candidate John Kerry accused the Bush administration of
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wanting ``to export more of our jobs overseas,{''''} and Senate Minority
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Leader Tom Daschle quipped, ``If this is the administratior''s position,
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I think they owe an apology to every worker in America.{''''} Speaker of
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the House Dennis Hastert, meanwhile, warned that ``outsourcing can be a
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problem for American workers and the American economy.{''''}
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Critics charge that the information revolution (especially the Internet)
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has accelerated the decimation of U.S. manufacturing and facilitated the
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outsourcing of service-sector jobs once considered safe, from backroom
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call centers to high-level software programming. (This concern feeds
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into the suspicion that U.S. corporations are exploiting globalization
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to fatten profits at the expense of workers.) They are right that
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offshore outsourcing deserves attention and that some measures to assist
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affected workers are called for. But if their exaggerated alarmism
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succeeds in provoking protectionist responses from lawmakers, it will do
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far more harm than good, to the U.S. economy and to American workers. S
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hould Americans be concerned about the economic effects of outsourcing?
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Not particularly. Most of the numbers thrown around are vague, overhyped
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estimates. What hard data exist suggest that gross job losses due to
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offshore outsourcing have been minimal when compared to the size of the
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entire U.S. economy. The outsourcing phenomenon has shown that
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globalization can affect white-collar professions, heretofore immune to
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foreign competition, in the same way that it has affected manufacturing
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jobs for years. But Mankiw''s statements on outsourcing are absolutely
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correct; the law of comparative advantage does not stop working just
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because 401(K)plans are involved. The creation of new jobs overseas will
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eventually lead to more jobs and higher incomes in the United States.
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Because the economy and especially job growth-is sluggish at the moment,
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commentators are attempting to draw a connection between offshore
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outsourcing and high unemployment. But believing that offshore
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outsourcing causes unemployment is the economic equivalent of believing
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that the sun revolves around the earth: intuitively compelling but
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clearly wrong.
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Should Americans be concerned about the political backlash to
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outsourcing? Absolutely. Anecdotes of workers affected by outsourcing
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are politically powerful, and demands for government protection always
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increase during economic slowdowns. The short-term political appeal of
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protectionism is undeniable. Scapegoating foreigners for domestic
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business cycles is smart politics, and protecting domestic markets gives
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leaders the appearance of taking direct, decisive action on the economy.
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Protectionism would not solve the U.S. economy''s employment problems,
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although it would succeed in providing massive subsidies to
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well-organized interest groups. In open markets, greater competition
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spurs the reallocation of labor and capital to more profitable sectors
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of the economy. The benefits of such free trade-to both consumers and
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producers-are significant. Cushioning this process for displaced
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however, sales-making TAA out of reach for those affected by it. It
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makes sense to rework TAA rules to take into account workers displaced
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by offshore outsourcing even when their former industries or firms
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maintain robust levels of production.
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Another option would be to help firms purchase targeted insurance
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policies to offset the transition costs to workers directly affected by
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offshore outsourcing. Because the perception of possible unemployment is
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considerably greater than the actual likelihood of losing a job,
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insurance programs would impose a very small cost on firms while
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relieving a great deal of employee anxiety. McKinsey Global Institute
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estimates that such a scheme could be created for as little as four or
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five cents per dollar saved from offshore outsourcing. IBM recently
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announced the creation of a two-year, \$25 million retraining fund for
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its employees who fear job losses from outsourcing. Having the private
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sector handle the problem without extensive government intervention
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would be an added bonus.'
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affiliation: 'Drezner, DW (Corresponding Author), Univ Chicago, Chicago, IL 60637
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USA.
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Univ Chicago, Chicago, IL 60637 USA.'
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author: Drezner, DW
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author_list:
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- family: Drezner
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given: DW
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da: '2023-09-28'
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doi: 10.2307/20033973
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files: []
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issn: 0015-7120
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journal: FOREIGN AFFAIRS
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language: English
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month: MAY-JUN
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number: '3'
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number-of-cited-references: '0'
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pages: 22+
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papis_id: 9d2ad769ef14983f73aee051ea264827
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ref: Drezner2004outsourcingbogeyman
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times-cited: '43'
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title: The outsourcing bogeyman
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type: Article
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unique-id: WOS:000220771200004
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usage-count-last-180-days: '0'
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usage-count-since-2013: '33'
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volume: '83'
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web-of-science-categories: International Relations
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year: '2004'
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