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Wednesday, March 28, 2007

Removing the Blinders on International Trade

David Wessel and Bob Davis of the Wall Street Journal give an update on Alan Blinder's views on globalization and his estimate that trade will put tens of millions of jobs at risk [Update: free link to article plus related data on jobs at risk and offshoring]:

Pain From Free Trade Spurs Second Thoughts, by David Wessel and Bob Davis, WSJ: For decades, Alan S. Blinder ... argued, along with most economists, that free trade enriches the U.S. and its trading partners, despite the harm it does to some workers. "Like 99% of economists since the days of Adam Smith, I am a free trader down to my toes," he wrote back in 2001. ...

Yet today Mr. Blinder has changed his message... Mr. Blinder ... remains an implacable opponent of tariffs and trade barriers. But now he is saying loudly that a new industrial revolution -- communication technology that allows services to be delivered electronically from afar -- will put as many as 40 million American jobs at risk ... in the next decade or two. .... The job insecurity those workers face today is "only the tip of a very big iceberg," Mr. Blinder says.

The critique comes as .... skepticism about allowing an unfettered flow of goods, services, people and money across borders is intensifying... Some critics are going public with reservations they've long harbored quietly. Nobel laureate Paul Samuelson ... damns "economists' over-simple complacencies about globalization" and says rich-country workers aren't always winners from trade. He made that point in a 2004 essay that stunned colleagues...

Mr. Blinder's answer is not protectionism, a word he utters with ... contempt... Rather, Mr. Blinder still believes ... [n]ations prosper by focusing on things they do best -- their "comparative advantage" -- and trading with other nations with different strengths. He accepts the economic logic that U.S. trade with large low-wage countries like India and China will make all of them richer -- eventually. He acknowledges that trade can create jobs in the U.S. ... But he says the harm done when some lose jobs and others get them will be far more painful and disruptive than trade advocates acknowledge. ...

His critique puts Mr. Blinder in a minority among economists, most of whom emphasize the enormous gains from trade. "He's dead wrong," says Columbia University economist Jagdish Bhagwati... Mr. Bhagwati says that in highly skilled fields such as medicine, law and accounting, "If we do a real balance sheet, I have no doubt we're creating far more jobs than we're losing."

Mr. Blinder says that misses his point. The original Industrial Revolution, the move from farm to factory, unquestionably boosted living standards, but triggered an enormous change in "how and where people lived, how they educated their children, the organization of businesses, the form and practices of governments." He says today's trickle of jobs overseas, where they are tethered to the U.S. by fiber-optic cables, is the beginning of a change of similar dimensions, and American society needs similarly far-reaching changes to cope. "I'm trying to convince a bunch of economists who are deeply skeptical and hard to convince," he says. ...

When he talked about trade in the past, Mr. Blinder emphasized its great benefits. ... As a Clinton aide, he helped sell the North American Free Trade Agreement... He was silent when his former Princeton student, N. Gregory Mankiw, then chairman of President Bush's Council of Economic Advisers, unleashed a political firestorm by ... appearing indifferent to pain caused to those whose jobs go overseas. "Does it matter from an economic standpoint whether items produced abroad come on planes and ships or over fiber optic cables?" Mr. Mankiw said at a February 2004 briefing. "Well, no, the economics is basically the same....More things are tradable than...in the past, and that's a good thing."

Mr. Blinder says he agreed with Mr. Mankiw's point that the economics of trade are the same however imports are delivered. But he'd begun to wonder if the technology that allowed English-speaking workers in India to do the jobs of American workers at lower wages was "a good thing" for many Americans...

Mr. Blinder began to muse about this in public. ... At the urging of former Clinton Treasury Secretary Robert Rubin, Mr. Blinder wrote an essay, "Offshoring: The Next Industrial Revolution?" published last year in Foreign Policy. ...

Offshore32907In that paper, he made a "guesstimate" that between 42 million and 56 million jobs were "potentially offshorable." Since then he has been refining those estimates, by painstakingly ranking 817 occupations ... to identify how likely each is to go overseas. From that, he derives his latest estimate that between 30 million and 40 million jobs are vulnerable. 

He says the most important divide is not, as commonly argued, between jobs that require a lot of education and those that don't. It's not simply that skilled jobs stay in the US and lesser-skilled jobs go to India or China. The important distinction is between services that must be done in the U.S. and those that can -- or will someday -- be delivered electronically with little degradation in quality. The more personal work of divorce lawyers isn't likely to go overseas, for instance, while some of the work of tax lawyers could be. Civil engineers, who have to be on site, could be in great demand in the U.S.; computer engineers might not be. ...

Mr. Blinder says there's an urgent need to retool America's education system so it trains young people for jobs likely to remain in the U.S. Just telling them to go to college to compete in the global economy is insufficient. ... It isn't how many years one spends in school that will matter, he says, it's choosing to learn the skills for jobs that cannot easily be delivered electronically from afar.

Similarly, he says any changes to the tax code should encourage employers to create jobs that are harder to perform overseas. ... Mr. Blinder says the focus should be on jobs with person-to-person contact, regardless of pay and skill levels -- from child day-care providers to physicians.

Mostly he wants to shock politicians, policy makers and other economists into realizing how big a change is coming and what new sectors it will reach. "This is something factory workers have understood for a generation," he says. "It's now coming down on the heads of highly educated, politically vocal people, and they're not going to take it."

Here's the Foreign Affairs article by Alan Blinder, "Offshoring: The Next Industrial Revolution?," (draft version in case link is blocked), and a summary of some of its contents is in "What Jobs are Safe from Offshoring?." Also, "The New Globalization" looks at the work of Blinder, Grossman, and others.

    Posted by on Wednesday, March 28, 2007 at 12:24 AM in Economics, International Trade, Unemployment | Permalink  TrackBack (1)  Comments (114)

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