Off-shore jobs: Republicans are right

2004.03.09 — Business | Jobs | by Derek Jensen

John Kerry and John Edwards have been hawking a strange message for the last few months, and it doesn't look like they're planning on backing away from it any time soon: protectionism. It's an ugly, anti-free-trade, anti-foreigner policy that would make us all poorer in the long run if they follow thru on it.

Here's the problem: when work can be done more cheaply by one group of workers than another, it should be. That's called specialization of labor (or comparative advantage), and it's economically efficient. And efficiency is free money. Free to whom? I'll get to that.

Let's say you live alone on a tropical island, and all you have to eat is fish. You are able to catch enough fish in eight hours to feed you all day. So you work, work, work and just get by. That's a subsistence economy.

Now imagine that you discover how to make a fish spear that helps you catch your daily meals in half the time. Now you only need to spend four hours a day to gather the food you need to survive. That other four hours of free time is gravy. Spend it building a boat or picking your nose. It's free.

Actually, the "building a boat" part is key. It's not likely that you will really kick back and relax an extra four hours a day. You'll find other work that will provide you with other things you want, like a way off the island or at least a kick-ass Swiss Family Robinson tree house.

Actually, you can have both. The extra time will be available every day, forever. You can build a tree house, then a boat, then a fence to keep the damn monkeys out, then whatever you want... you've become wealthy (in a desert island sense). Of course, you can never have everything you could ever want. You'd never have the time to build it all (even if you had the materials). But having resources (your time) beyond what you need to live allows you to gradually become richer.

That's what the global economy does. When a factory becomes more efficient by adding robots that put some workers out of a job, the factory becomes more efficient and makes more profit. The displaced workers go looking for other jobs that mysteriously appear. How does that work? That's the connection some regular folks (and at least one loony economist) don't get.

When the factory becomes more efficient, it can lower its prices for its goods. It can research improvements or new products. So the money that efficiency creates is free to the factory owner, but some of it gets passed on to everyone thru market pressures (altho workers don't benefit directly; employers don't need to raise wages when the job market is weak). This does something strange in the marketplace: it creates opportunities for other work.

Just like the guy on the tropical island who wants more than he can ever have, consumers everywhere want more than they can ever have. In aggregate, demand for labor is infinite. That means that, one way or another, the workers displaced by robots or off-shore workers in an economy will be put to work by demand for other goods and services. The reason is pretty simple: if consumers can pay less for the product made by our example factory, they'll buy more restaurant meals, more vacation cruises, more computers, more DVDs... everything. That's why jobs appear mysteriously in the marketplace for the displaced workers.

Jobs have been going offshore for years. We just hadn't noticed because we still had plenty of new jobs being created. When the economy is booming, it puts more money in the hands of consumers, which raises demand. And China and India were supplying that demand with efficient labor (enriching their own countries and providing us with new markets in the future as they rise out of their subsistence economies).

So why doesn't that seem to be happening now? We keep hearing about lousy job-creation numbers. What's wrong? Two things: A, the economy slowed down in general, and B, President Bush's two tax cuts went mostly to the wealthy, who put it in the bank, instead of to the poor and middle class, who would have spent it.

The slowdown in the economy had to happen sometime. Eventually people are temporarily sated; they've bought all the vacation cruises, computers, and DVDs they need for a while, and they want to start saving more or paying down their debt. But the tax cuts were a mistake. Handing big globs of cash to wealthy citizens just when the cooling economy was beginning to pinch tax revenues left us with big deficits and no corresponding benefit in rising consumer spending. That's the part of the economy that the Republicans don't understand. They think wealthy people create jobs.

What the Democrats ought to be supporting is not protectionist policies that would make us all poorer, but jobs programs for displaced workers. That would help those most hurt by the movement of jobs out of the country and still allow the global economy to rise from a simmer back to a boil.

Addendum 2004.04.20

Of course, there's another side to this, and that is that China and other Asian countries are often accused of using child, slave, or sweatshop labor in their factories. These human rights abuses, together with environmental abuses, should be condemned in strong language along with the companies that commit them by the international community.

It might serve to have foreign suppliers monitored by an international non-profit group to help ensure compliance with basic human rights and environmental standards (altho they can't be held to the same standard as American companies; it just isn't feasible). That kind of policy would encourage American companies to police their suppliers themselves or risk bad press and government sanctions.

Such monitoring should probably be extended to foreign companies that export to the US as well. Some of this is in place now and it doesn't always work (as often happens when you're dealing with a pile of bastards like the Chinese government). But persistent monitoring would improve the lives of foreign workers without putting any unnecessary burdens on American corporations.

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