Monday, June 25, 2007

Cover Story Covers Up The Main Point

What do the Bush Administration's attempts to link Saddam's Iraq with 9/11 and the BusinessWeek cover story of June 18, '07 have in common? Both mislead Americans.

The BusinessWeek story and research by Michael Mandel is titled, "The Real Cost Of Offshoring." The rub is in the subtitle that says "U.S. data show that moving jobs overseas hasn't hurt the economy. Here's why those stats are wrong."

Anyone reading this and the text of the story would naturally think that offshoring (or some part of it) hurts the US economy, and stopping this offshoring will improve the economy. But the reverse still holds true.

All the article says is that the GDP growth is not being properly measured because of a "phantom" factor, so the growth may be half a percent less than calculated. This "would wipe out as much as 40% of the (reported) gains in manufacturing output."

What should have been emphasized is that cutting back on offshoring may protect specific manufacturing or service jobs, but it will make the overall US economy even less competitive and hence further reduce or even reverse GDP growth. UK under the much maligned and under-appreciated Tony Blair serves as a good counter-example. Its much fuller embrace of globalization and unrestricted offshoring of services has contributed significantly to its economic well-being and ten years of uninterrupted positive quarterly growth.

But BusinessWeek insinuates to the contrary. So people will draw the wrong conclusion about the many forms of offshoring, including international medical travel. Here's what I politely wrote to BW:

"Readers may draw the wrong conclusion from your June 18, 2007 cover story, 'The Real Cost of Offshoring.'

"Even if all the calculations and analyses are correct, it does not mean that putting the brakes on offshoring will improve the US economy, or even jobs and worker welfare in the long or medium term. On the contrary, in a globally competitive economy failure to embrace the efficiencies of globalization will make Americans worse off.

"Author Michael Mandel and economist Susan Houseman probably agree with this, but it needs to be stated explicitly."

I doubt they'll publish this.


kenrod said...


How could we be reading from the same page? Finally common sense has prevailed!

David Ricardo, the famous British economist postulated his theory of Comparative Advantage. In it he states that nations(and individuals) should only do things that they have a comparative advantage.

The US advantage is innovation. Unencombured by too many traditions we are able to invent new processes. Thus Chinese, Indians, Greeks and French who have a hard time changing the status quo in their own homeland come here and become the entrepreneurs.

Henry Ford invented the Auto in Detroit, but now most are made overseas. The US invented the TV but now all manufacturing is outsourced. Apple created the I-pod and in 20 years it will all be made overseas.

The US is supposed to innovate let others manufacture, and, move on the the next big thing. I would only worry if we stop innovating. What we need are more community colleges and training centers to help workers readjust to new jobs.

I hope your knuckles are healing:)

Sandip Madan said...

Well said, Kenrod. Ricardo is very relevant even today - thanks for quoting him in contemporary context. And it's good to have my knuckles heal. :-)

Btw, I liked the videos of this panel discussion in Columbia in April 2006 on Globalization between heavy-weights Nobel Laureate Robert Solow, Jagdish Bhagwati and Paul Krugman:

(Sorry, you'll need to copy and past this URL - I haven't figured how to hyperlink in this comments section.)

It's particularly good to see Solow at age 87 put things so well. Paul Krugman just admitted to being a "tortured soul" I think because his economic instincts run counter to his leftist leanings.