Those How the World Works readers who consider me inexcusably soft on globalization would be well advised to avoid Newsweek's current issue as if it were a bird-flu carrier. The cover package, "The New India," includes some articles that strike even me as incredibly tone-deaf to the pain that American workers are experiencing as a result of competition in the global economy.
None more so than Keith Naughton's piece, "Outsourcing: Silicon Valley East -- Americans once feared their jobs would be shipped to India, but the backlash was overdone. Now everybody's winning."
One choice quote:
"And the stigma of outsourcing jobs to India is disappearing. American companies once afraid to put their names on the doors of their Indian offices now issue press releases touting their latest investments there."
Naughton cites the same information technology job figures reported in the Association for Computing Machinery study discussed here last week: 17 percent more IT jobs now than in 1999, and a projection of a million new IT jobs in the next decade. He even quotes one of the authors of the study, Moshe Varde: "Everyone was worried about the offshoring bogeyman. But the big whoosh of jobs to India never happened."
First of all, projected numbers are not nearly as valuable as actual current numbers, so let's not even bother being consoled by the million-new-jobs-in-the-next-decade sound bite. More important, it's not clear that Naughton actually read the entire ACM study. I'm still only about halfway through it, but the underlying message of the study turns out to be somewhat at odds with the trumpeted job figures. In a detailed discussion of the offshoring relationship between the U.S. and India, there are clear and sobering indications that what we have seen in the last decade is just the beginning. Relentless cost pressures will continue to push more jobs offshore and depress wage growth in the U.S. India is rapidly moving up the value-added ladder. Again and again, the study hammers home an overriding message: This is no time to be complacent. Competition will only intensify in the future.
Furthermore, there are numerous references by the authors of the study to the fact that the benefits that the vast majority of economists see deriving from free trade do not add up to "everybody winning." It is quite possible for specific sectors of a given economy to get hit hard in a free-trade environment. There are losers and winners. The challenge for governments is how to help those who come out on the wrong side. (The study's authors recommend wage insurance, subsidies for education, and extensive funding of job training, but then pull a bit of a cop-out by observing that setting up such a safety net will be expensive and "politically difficult." So, the study notes several times, individual programmers would do well to hit the books again and learn how to work well with others.)
Everybody is not winning from globalization and it is irresponsible for Newsweek to suggest that they are. As has been widely reported, wage growth in the U.S. during the current period of economic growth is nearly the weakest on record, and the average American family income, adjusted for inflation, actually fell between 2001 and 2004. The economy as a whole may be benefiting from globalization, but the distribution of the resulting wealth is completely out of whack.