Practice stimulates employment in America

By JOHN MANZELLA
KNIGHT RIDDER NEWSPAPERS
WILLIAMSVILLE, N.Y. -- Many Republican and Democratic politicians fear off-shoring will result in fewer good jobs for American workers. This is understandable since some activities include the movement of knowledge-intensive services to India and other countries with educated, less expensive, English-speaking labor pools.
But careful analysis reveals that worldwide sourcing -- made possible by new technologies that digitize and cheaply transmit information around the world -- provides real benefits.
History tells us that new technologies and improved business strategies displace jobs. For example, automobile workers replaced buggy makers, and ATMs, voice mail and voice recognition software eliminated bank tellers, receptionists and medical transcription jobs.
Consider this: The U.S. economy loses an average of 31 million jobs annually. But new jobs are created even faster. The proof: America generated 60 million net jobs since 1970. And according to the Labor Department, the U.S. will generate another 21.3 million net jobs from 2002 through 2012. Those are over above the jobs that were outsourced.
The job churn
New technologies, innovation and higher productivity, the primary causes of the so-called job churn, increase wages and improve living standards. In turn, new industries and higher-skilled jobs emerge. Thus, Forrester Research's estimate of the 3.3 million service jobs moving offshore by 2015 represents only a fraction of job churn.
Higher-tech jobs most likely to be outsourced, like computer programming and software design, are projected to increase here at home, according to the Labor Department.
What's more, by 2012, all U.S. computer-related occupations are estimated to grow by 15 to 57 percent. Lower-tech jobs prone to outsourcing, such as bookkeeping and customer service, also are projected to increase.
Benefits flow back to U.S.
How does off-shoring lead to better jobs? The McKinsey Global Institute estimates two-thirds of economic benefits from outsourcing services to India flow back here. Firms that outsource generate higher profits, have more capital to invest in research and development, become more globally competitive and are better positioned to expand sales worldwide -- creating higher-paid jobs.
Catherine Mann of the Institute for International Economics says off-shoring of computer manufacturing resulted in a 10 percent to 30 percent drop in computer costs.
In turn, sales of PCs soared. This led to a rapid rise in U.S. productivity that added $230 billion in cumulative GDP from 1995 through 2002. The result: Many new jobs emerged -- far exceeding those lost to outsourcing.
If applied to select medical services and other fields, off-shoring could reduce costs and generate new waves of innovation, resulting in better jobs not yet imagined.
Fear of Ross Perot's "giant sucking sound" is unfounded. In reality, the U.S. service sector will significantly expand. And since the industry has become more sophisticated, average hourly earnings for service production workers have already caught up to those in manufacturing.
In 1940, 9.5 million U.S. workers were employed on farms.
By 2003, new technologies reduced this number to 2.3 million. And U.S. agricultural output is tremendously higher.
Job losses, which should not be taken lightly, cause anxiety and provoke various responses. In the early 19th century, the English Luddites attempted to destroy textile machines because they replaced weavers. Something similar is happening today. Numerous pieces of federal and state legislation have emerged that, if enacted, will penalize companies that outsource.
Protectionism is wrong course
Although our policymakers have good intentions, their protectionist actions could disrupt Joseph Schumpeter's process of "creative destruction:" where the new destroys the old. This process, which promotes job creation, produced over 867,000 net jobs from January through April 2004, albeit slowly due to recovery from recession, terrorism and war.
The American work force is the most productive and flexible in the world. As new knowledge industries and job opportunities emerge, it's important to give our workers the tools they need to be competitive. Policies supporting lifelong learning -- not protectionism -- will help prepare our workers for the challenges ahead.
X John L. Manzella, President of Manzella Trade Communications in Williamsville, NY, is a leading author, speaker and consultant on international trade and policy. Distributed by Knight Ridder/Tribune Information Services.