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Jewish World Review March 16, 2004 / 23 Adar, 5764

Mort Zuckerman

Mort Zuckerman
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Consumer Reports

Dems demagoguing protectionism adds up to economic nonsense

http://www.NewsAndOpinion.com | If you have shopped for a toy lately, you will have noticed how inexpensive many have become. On average, in the past six years, toy prices have fallen by about 25 percent. That is typical of what's been happening over a vast range of goods and services that we import. Lower prices and high quality, of course, are what American consumers expect. They're not thinking about paying a higher price in order to keep jobs in America, and this gives retailers little leeway in product sourcing, whether the products are made in China or South Carolina.

Now outsourcing is talked about as a national disaster, but we forget that it brings lower prices, which beget lower inflation, which begets an increase in the real purchasing power of people with relatively stagnant wages. It also begets lower interest rates, which beget higher investment and economic growth and lower mortgage rates. And according to a McKinsey Global Institute study, for every dollar a U.S. company spends on outsourcing, our economy gains $1.14.

Two-way street. The media, and vulnerable workers, naturally focus on jobs lost to overseas, but even the job shift hasn't been one way. Four and a half million Americans work for European companies here; a million-plus work in companies involved in global trade. And foreign companies are continuing to invest in America, despite our higher wages. Look at the auto sector, with plants like Mercedes-Benz, Honda, BMW, and Toyota. And check out foreign investment in our financial services, pharmaceutical, chemical, and energy companies. They're all growing. And this is on top of the $600 billion invested annually here to support our trade deficit. It brings to mind Oscar Levant's saying, "People always talk to me about my drinking; they never ask me about my thirst."

There is understandable anxiety that we no longer have a lock on the high-tech, white-collar jobs that were supposed to be the next employer for those who lost manufacturing work. Everybody is aware of a new, global, highly skilled labor force that earns as little as a tenth as much as we pay here. And everybody's nervous — even those earning $75,000 and up. No wonder high-tech workers live increasingly under the shadow of this competition.

The fuss over outsourcing must not be allowed to obscure the real reason for our disappointing job and wage numbers. It's productivity. Increase in output per worker has, until recently, exceeded growth in the gross domestic product. This means fewer jobs, including 800,000 management and executive positions in the past four years — jobs that would not be outsourced to Bangladesh. Why? Companies will simply not hire new staff until they have confidence that sales will increase faster than gains in productivity.

We have seen this movie before. Productivity has brought about huge job losses in manufacturing, not just in America but worldwide, where 22 million manufacturing jobs vanished between 1995 and 2002. In the 1990s, we began outsourcing memory chips, laptops, and other high-tech equipment manufacturing to China and Taiwan. The fear then was that this might lead to the loss of our technological edge. But U.S. semiconductor makers shifted into high-value microprocessors and sparked a productivity boom. All sorts of businesses found new ways to apply this technology, resulting in multibillion-dollar new Internet markets and thousands of new jobs. The same thing is likely to happen again.


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This optimism is consistent with our history. Jobs moved from the Northeast to the South, then moved abroad, always accompanied by predictions of doom. We feared the migration of our industries to Japan in the 1950s and 1960s, OPEC's buying the world in the 1970s, and the giant sucking sound of jobs going to Mexico in the 1990s. But every time, we have been able to adapt, creating new industries and jobs that never existed while we abandoned others.

This doesn't mean that we should stand still, of course. Unlike the 1980s, when outsourcing badly hurt the manufacturing world, companies this time are benefiting from shifting lower-cost production overseas, and it is the workers who are being hurt. So companies have a responsibility to enhance their training programs, using a portion of their savings from outsourcing. Government also has a role to play, protecting intellectual-property rights, encouraging new research and development, and improving the education and training of our people. The only solution is to upgrade our skills.

Protectionism is an easy call, but it's a delusional one. The Democrats are demagoguing the issue in the hope it will produce votes. They may be right, but it is economic nonsense. Most Americans, I believe, will be wise enough to see that.

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JWR contributor Mort Zuckerman is editor-in-chief and publisher of U.S. News and World Report. Send your comments to him by clicking here.

Up


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© 2001, Mortimer Zuckerman