How Capitalism Will Save Us (48 page)

Bottom line: “protectionism” is really a euphemism for political favoritism that protects the jobs of a few at the expense of everyone else.

E
veryone from Barack Obama to Pat Buchanan has assailed companies for “shipping jobs overseas.” Such heated characterizations may win votes and viewing audiences. But they are misguided. As we note in the introduction to this chapter, America is still the world’s largest manufacturer. In fact, relatively few jobs in the Real World U.S. economy are lost because of “outsourcing” or “offshoring.”

According to a report by Forrester Research, not even 1 percent of jobs lost every quarter between 2000 and 2015 will likely be due to outsourcing. Contrary to popular perceptions, most American jobs can’t be outsourced. A report by the McKinsey Global Institute pointed this out in 2003,

Much of the job loss blamed on “outsourcing” is actually part of the normal “churn,” the ongoing process of job loss and new-job creation that takes place as the economy changes and grows. Even China, with its robust growth, has lost manufacturing jobs—including fifteen million between 1995 and 2002, according to the Conference Board.

What has really happened, as we explained earlier, is that jobs have shifted from one section of the economy to another, as America has increasingly become an economy specializing in services such as health care. This process is in fact helping our economy build wealth.

Outsourcing jobs overseas also helps create extremely lucrative markets for the products and expertise that drive our economy. Foreign companies buy our telecommunications equipment, computer hardware, and software. According to McKinsey, every dollar spent by American companies abroad generates additional revenue for the United States. They conclude that “far from being bad for the United States, offshoring creates net additional value for the U.S. economy that did not exist before.”
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A Real World economic truth conveniently overlooked by outsourcing opponents: the United States is a major exporter of services. According to the American Enterprise Institute, American services provided to other nations represent about a fifth of the global trade in services and about 30 percent of U.S. exports. For those who care about trade deficits (and as we explain later, you shouldn’t), our service economy is one place where we have had a trade surplus.

The most visible benefit of outsourcing is, of course, the production of cheaper goods for Americans and people around the world. Outsourcing in the tech sector, for example, helped reduce the cost of computer components by 10 percent to 30 percent between 1995 and 2002, according to Catherine Mann of the Peterson Institute for International Economics.
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These declines help explain why laptops can now be bought for as little as five hundred dollars at the local Best Buy.

Outsourcing foes will dismiss this benefit—suggesting that we have sacrificed American livelihoods to feed a gluttonous national appetite for cheaper televisions and other consumer products. But lower prices have helped spark revolutions. Remember how Henry Ford transformed society. He made the Model T
affordable
to working Americans. People everywhere were able to travel longer distances faster than they could before. This meant not just greater personal convenience, but also the ability to travel to work and trade in places that were once out of reach.

If computers were as expensive now as they were in the 1960s and ’70s, only a handful of researchers funded by corporations or government would be able to use them. We would never have experienced the
technology revolution that has given us wireless computing, Bluetooth, Google, and countless other innovations that have made us more productive, informed, and connected than ever before.

F
air trade means that the United States must go tit for tat regarding other countries’ trade restrictions, even if those countries are in compliance with international bilateral trade agreements. “Fair trade” is supposed to be a middle-ground alternative to free trade. Its policies aim to achieve the benefits of trade—i.e., economic growth—while minimizing job loss and disruption.

Like all protectionists, advocates of so-called fair trade miss the Real World benefits of free trade to the broader economy. So if Thailand, with its lower-cost labor, can make a shoe at one-tenth of the cost that a U.S. shoemaker can, then that is not “fair.” Fair traders believe we ought to impose a stiff tax on such nations, and in some cases even bar their products.

Tufts University professor Daniel Drezner has summed up the policy positions that fall under the heading of “fair trade.” They include, in his words: