The Jobs Question in This Election
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By James O. Goldsborough
The San Diego Union-Tribune
Thursday 14 October 2004
Every election has its economic buzzword. Four years ago, it was "lockbox." This time it's "outsourcing."
The controversy around outsourcing will keep the word around longer than lockbox, which was the mysterious thing in which both Al Gore and George Bush promised to deposit Social Security surpluses.
There's nothing mysterious about outsourcing, which is the growing habit of U.S. companies to buy from overseas suppliers, thus costing the U.S. economy jobs. Anyone following these election debates knows by now that Bush is the first president since Hoover to preside over a net loss of jobs.
As for the mythical lockbox, Bush raided it to pay for his income tax cuts for the wealthy, which he hopes will help him win this election. Federal Reserve Chairman Alan Greenspan now says we need cuts in Social Security benefits to make up the coming baby boomer shortfall.
Outsourcing is not new. What's new is that U.S. companies now are sending service jobs as well as manufacturing jobs abroad.
Jobs are an issue in this election. The Southern drawls and Midwestern twangs you once heard when you called your bank or airline have been replaced by foreign accents. America is losing the service-sector jobs it counted on to replace the manufacturing jobs already lost.
The Bush administration says it has created 1.7 million new jobs in the past year or more than half the nearly 3 million private sector jobs lost in the previous years. Look behind those figures, however, and you see why outsourcing is an issue:
According to a report by CIBC World Markets, new full time job-creation has been "concentrated mainly in low-paying industries such as hospitality, education and personal services. At the same time, high-paying sectors such as transportation, manufacturing, utilities and natural resources experienced net job loss."
In a healthier economy, shipping service jobs overseas might not be noticed. But in an economy where average wages already are being driven down by the shift into low-paying service industries, outsourcing has exacerbated the fall in wages, especially for women, heavily represented in the service sector.
The outsourcing issue was brought to a boil by some politically inept comments of Gregory Mankiw, chairman of Bush's Council of Economic Advisers, to Congress. If a hospital, said Mankiw, can save money by sending X-rays to be read in India rather than Ohio, it's good economics.
What's a poor economist to do when he arrives in Washington? Mankiw told Congress nothing different from what economics professors have been telling students for 200 years. Free trade - another name for outsourcing - is good, whether it's in manufactures or services.
What Mankiw didn't say - and what made his statement so politically inept - was anything about those laid-off Ohio X-ray radiologists.
Mankiw's remarks were quickly denounced by politicians. "His theory fails a basic test of real economics," said House Speaker Dennis Hastert.
No, in fact it does not.
But economics is only half the story. The other half is social - how societies deal with the costs of free trade. In the Bush administration, unfortunately, there is only one half to the story.
America lost robust steel, textile, semiconductor, shoe, electronics and durable-goods industries when foreign labor made those products cheaper abroad. The solution was not to raise tariffs, which would have led to higher prices, lower demand and fewer jobs.
The solution was twofold: to retrain workers who lost their jobs through free trade, and to make sure tax policy, as John Kerry has been emphasizing, does not encourage companies to outsource as a means of avoiding taxes.
Where America falls short of other developed nations is in helping the victims of outsourcing. This helps explain why labor unions more fiercely oppose free trade in America than in Europe. In Europe, government helps.
However faithful Mankiw is to economic theory, Washington cannot ignore the problems posed by service-sector outsourcing. McKinsey Global Institute, a research group, predicts that job outsourcing will grow annually by 30 percent to 40 percent in coming years.
At present, the tool to protect workers is the Trade Adjustment Assistance program. It has been in place for 40 years to help workers who lose manufacturing jobs through trade agreements, such as NAFTA.
But TAA is aimed at workers in manufacturing. In addition, the nation's 1,200 community colleges, where most trade-related worker retraining and education is done, are seeing their budgets cut by both federal and state governments.
The problem is that with a record budget deficit of $422 billion - what Yale economist William Nordhaus calls the largest peacetime "four-year deterioration in the federal budget in American history" - government can't afford the kind of aid offered to workers in Europe.
According to the Congressional Budget Office, most of the deficit is from Bush tax cuts. For retraining those affected by outsourcing, nothing is left. Thus does Bush's reckless tax policy increase pressures for protectionism, which he pretends to oppose.
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