Well, I spent the afternoon at a conference at Harvard today, where Jagdish Bhagwati was to debate Alan Blinder about Offshoring/Outsourcing. Actually, their biggest disagreement was about the name of the phenomenon. Blinder uses offshoring to refer to country effects, as opposed to firm effects, whereas Bhagwati just uses “outsourcing” for both. I’m with Bhagwati on this one. The most remarkable thing is that they did not really disagree. I think a lot of their agreement has to do with the level of uncertainty in the data—they certainly don’t disagree on the theory. Not much of a debate.
Blinder thinks that there will be substantial effects that will cause significant dislocation. The magnitude will be caused by improving IT and the rise of China, India, and the former Soviet Union. These places have labor but no capital. This change will be bad for labor and good for capital. It will be most severe for workers in the “impersonal service sector:” where services do not need to be provided face-to-face. When I described this to my 18 year old and 13 year old sons at dinner, they were surprised that I needed a brilliant economist to tell me that. In any event, Blinder conceded that there would be some equilibrating mechanisms, and some onshoring and cost reductions. The dollar will fall. But he sees a long, large transition, with difficult adjustment problems, and expects it to “dominate the political economy landscape” for years. He noted that the U.S. does a bad job of compensating losers, and said there should be a broader and deeper social safety net. Trade Adjustment Assistance should be available for service workers.
Bhagwati did not find the argument that there will be lots of jobs lost compelling. He sees continuity with the trend that has occurred in goods, with jobs lost and adjustment. He sees lots of insourcing. He disagreed with Blinder’s observation that there are lots of English-speaking Indians, and said that the China and India effects are overstated.
I could not stay to hear what the other commentators, including Richard Freeman, Douglas Irwin and Robert Lawrence, had to say. One of my students may add some observations later.
