Oh, look, a pony

Dan Drezner sets out to write an apologia for outsourcing but ends up surveying the major issues facing US trade policy. Drezner justly highlights how the present sound and fury over outsourcing sounds exactly like previous controversies over "imminent" Japanese economic domination and NAFTA.

The refrain of "this time, it's different" is not new in the debate over free trade. In the 1980s, the Japanese variety of capitalism -- with its omniscient industrial policy and high nontariff barriers -- was supposed to supplant the U.S. system. Fifteen years later, that prediction sounds absurd. During the 1990s, the passage of NAFTA and the Uruguay Round of trade talks were supposed to create a "giant sucking sound" as jobs left the United States. Contrary to such fears, tens of millions of new jobs were created. Once the economy improves, the political hysteria over outsourcing will also disappear.

It is easy to praise economic globalization during boom times; the challenge, however, is to defend it during the lean years of a business cycle. Offshore outsourcing is not the bogeyman that critics say it is. Their arguments, however, must be persistently refuted. Otherwise, the results will be disastrous: less growth, lower incomes -- and fewer jobs for American workers.

One of Drezner's proposals to help laid-off workers:

[One way to help the laid-off and those afraid of joining them] 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.

Drezner deserves credit for acknowledging the need for policy solutions; getting a libertarian to admit that is like, well, getting a postcolonialist to acknowledge Islamic imperialism. Nonetheless, this proposal provides the only nit in the article I feel the need to pick. Somehow I just don’t see most firms spending money on unemployment insurance short of a government mandate. Most of his arguments are, economically, damn near unimpeachable and then all of a sudden he suggests that firms are going to voluntarily pay for something on which they will never get a return.

The center-leftists come closest to getting it right (as usual). Robert Reich: “[W]e're going to have to get serious about some of the things we just gab about -- job training, life-long learning, wage insurance. And perhaps we need to welcome more unionization in the personal services area -- retail, hotel, restaurant and hospital jobs which cannot be moved overseas -- in order to stabilize their wages and health care benefits.” Hey, I didn’t say they got it exactly right.