abstract: 'WHEN a presidential election year coincides with an uncertain economy,

  campaigning politicians invariably invoke an international economic

  issue as a dire threat to the well-being of Americans. Speechwriters

  denounce the chosen scapegoat, the media provides blanket coverage of

  the alleged threat, and legislators scurry to introduce supposed

  remedies. The cause of this year''s commotion is offshore outsourcing-the

  alleged migration of American jobs overseas. The depth of alarm was

  strikingly illustrated by the firestorm of reaction to recent testimony

  by N. Gregory Mankiw, the head of President George W Bush''s Council of

  Economic Advisers. No economist really disputed Mankiw''s observation

  that ``outsourcing is just a new way of doing international trade,{''''}

  which makes it ``a good thing.{''''} But in the political arena, Mankiw''s

  comments sparked a furor on both sides of the aisle. Democratic

  presidential candidate John Kerry accused the Bush administration of

  wanting ``to export more of our jobs overseas,{''''} and Senate Minority

  Leader Tom Daschle quipped, ``If this is the administratior''s position,

  I think they owe an apology to every worker in America.{''''} Speaker of

  the House Dennis Hastert, meanwhile, warned that ``outsourcing can be a

  problem for American workers and the American economy.{''''}

  Critics charge that the information revolution (especially the Internet)

  has accelerated the decimation of U.S. manufacturing and facilitated the

  outsourcing of service-sector jobs once considered safe, from backroom

  call centers to high-level software programming. (This concern feeds

  into the suspicion that U.S. corporations are exploiting globalization

  to fatten profits at the expense of workers.) They are right that

  offshore outsourcing deserves attention and that some measures to assist

  affected workers are called for. But if their exaggerated alarmism

  succeeds in provoking protectionist responses from lawmakers, it will do

  far more harm than good, to the U.S. economy and to American workers. S

  hould Americans be concerned about the economic effects of outsourcing?

  Not particularly. Most of the numbers thrown around are vague, overhyped

  estimates. What hard data exist suggest that gross job losses due to

  offshore outsourcing have been minimal when compared to the size of the

  entire U.S. economy. The outsourcing phenomenon has shown that

  globalization can affect white-collar professions, heretofore immune to

  foreign competition, in the same way that it has affected manufacturing

  jobs for years. But Mankiw''s statements on outsourcing are absolutely

  correct; the law of comparative advantage does not stop working just

  because 401(K)plans are involved. The creation of new jobs overseas will

  eventually lead to more jobs and higher incomes in the United States.

  Because the economy and especially job growth-is sluggish at the moment,

  commentators are attempting to draw a connection between offshore

  outsourcing and high unemployment. But believing that offshore

  outsourcing causes unemployment is the economic equivalent of believing

  that the sun revolves around the earth: intuitively compelling but

  clearly wrong.

  Should Americans be concerned about the political backlash to

  outsourcing? Absolutely. Anecdotes of workers affected by outsourcing

  are politically powerful, and demands for government protection always

  increase during economic slowdowns. The short-term political appeal of

  protectionism is undeniable. Scapegoating foreigners for domestic

  business cycles is smart politics, and protecting domestic markets gives

  leaders the appearance of taking direct, decisive action on the economy.

  Protectionism would not solve the U.S. economy''s employment problems,

  although it would succeed in providing massive subsidies to

  well-organized interest groups. In open markets, greater competition

  spurs the reallocation of labor and capital to more profitable sectors

  of the economy. The benefits of such free trade-to both consumers and

  producers-are significant. Cushioning this process for displaced

  however, sales-making TAA out of reach for those affected by it. It

  makes sense to rework TAA rules to take into account workers displaced

  by offshore outsourcing even when their former industries or firms

  maintain robust levels of production.

  Another option would be to help firms purchase targeted insurance

  policies to offset the transition costs to workers directly affected by

  offshore outsourcing. Because the perception of possible unemployment is

  considerably greater than the actual likelihood of losing a job,

  insurance programs would impose a very small cost on firms while

  relieving a great deal of employee anxiety. McKinsey Global Institute

  estimates that such a scheme could be created for as little as four or

  five cents per dollar saved from offshore outsourcing. IBM recently

  announced the creation of a two-year, \$25 million retraining fund for

  its employees who fear job losses from outsourcing. Having the private

  sector handle the problem without extensive government intervention

  would be an added bonus.'
affiliation: 'Drezner, DW (Corresponding Author), Univ Chicago, Chicago, IL 60637
  USA.

  Univ Chicago, Chicago, IL 60637 USA.'
author: Drezner, DW
author_list:
- family: Drezner
  given: DW
da: '2023-09-28'
doi: 10.2307/20033973
files: []
issn: 0015-7120
journal: FOREIGN AFFAIRS
language: English
month: MAY-JUN
number: '3'
number-of-cited-references: '0'
pages: 22+
papis_id: 9d2ad769ef14983f73aee051ea264827
ref: Drezner2004outsourcingbogeyman
times-cited: '43'
title: The outsourcing bogeyman
type: Article
unique-id: WOS:000220771200004
usage-count-last-180-days: '0'
usage-count-since-2013: '33'
volume: '83'
web-of-science-categories: International Relations
year: '2004'