Over at Eyes on Trade, Todd Tucker cites this WSJ article and expresses concerns about offshoring of Japanese animation jobs to China, Korea and Viet Nam. I’m going to use his post as a jumping off point for the following questions about offshoring: Isn’t offshoring good for economic growth in developing countries, and, therefore, shouldn’t we value offshoring as a way to promote economic development?
At the outset, let me note that, as with trade more generally, offshoring has its winners and losers. The most prominent losers are people in rich countries (such as Japan) who lose their jobs when these jobs are outsourced to countries where wages are lower. The winners may include several groups: the people in developing countries who now have jobs (or higher paying, higher skill-level jobs than they had previously); the corporations who now pay lower wages; and consumers of the products and services in question, who will likely pay lower prices.
It’s certainly reasonable to be troubled by the job losses in Japan. Any government should be concerned about this, and the people affected are not going to be happy about it. But is trying to stop offshoring an appropriate response? I think there are good arguments that it is not.
First, any measures taken in this regard will prevent developing countries from moving up the economic ladder, or at least slow their progress. Rich countries talk a lot these days about helping developing countries grow their economies (e.g., tariff preference programs, various aid programs). It would be a shame to see a promising private sector initiative that achieves this same goal be undermined by government action. All that is required by governments here is to do nothing and it will be a positive for economic development.
And second, in the absence of offshoring, developing country governments are more likely to take action to encourage their own, competing industries. If they succeed, the result would be competition for rich country companies from those same, lower-wage workers, which means that the ultimate result would be similar, just delayed a few years. (And if the response to that competition is protectionism in the rich countries, then we just end up with a large number of protected, national markets, which doesn’t seem like a very efficient outcome.)
So, yes, be concerned about job losses from offshoring, and try to help those who are affected through various government programs. But offshoring is not necessarily something we should try to stop, even if we could, as there are many people who benefit from offshoring, including a large number of people in developing countries. It may be one of the best development programs available.
