US economist guns for outsourcing

Uttara Choudhury

Thursday, April 12, 2007 01:56 IST

NEW YORK: Princeton University economist Alan S Blinder, an adviser to Democratic presidential candidates, has always been a champion of free trade. But now he is saying the downsides of trade for America are “deeper than once realised”.

He told the Wall Street Journal that a new industrial revolution — communication technology that allows services to be delivered electronically from afar — will put as many as 40 million jobs at risk of being shipped out of America in the next two decades.

The job insecurity US workers face today is “only the tip of a very big iceberg”, said Blinder, who was an adviser to President Bill Clinton. He now coaches Hillary and her rival Barack Obama.

Other economists, most of whom emphasise the big gains from free trade, are weighing in on the outsourcing conundrum, with Columbia University economist Jagdish Bhagwati firing the opening salvo. “Blinder is a good friend, but he is dead wrong,” Bhagwati told DNA. He will debate with Blinder at Harvard on May 2 his assertions about the magnitude of job losses from trade.

“You have two-way flows, three-way flows; you have what we call trade in variety,” Bhagwati said. “Even if India has the same skill person, it doesn’t mean the US is going to suffer. It just means the US and India will transact within the same industry.”

Bhagwati cited the example of clinical trials now being done in India.

“An American surgeon is not going to lose his job because drug trials are being done in India,” he remarked.

Bhagwati said his data sources show that in skilled fields such as medicine, law and accounting, outsourcing is boosting efficiency and creating more jobs than the US is losing. “You ask any American, was it a mistake to put Japan and Europe back on their feet and therefore make them more like America after the World War? Does any American say this was a bad thing on economic grounds? So why fear India or China, who specialise in different aspects of the same thing?”

Bhagwati responded to the rising rhetoric about high-end research being outsourced: “Outsourcing may have begun with countries like India doing call-centre work. Sure, India has moved to doing higher-level work. But this is nothing to fret about — there will always be a to-and-fro movement of trade and services.”

But Blinder’s job-loss estimates are electrifying Democratic candidates. “The cheap and easy flow of information around the globe will require vast and unsettling adjustments in the way Americans and residents of other developed countries work, live, and educate their children,” he said in an essay titled Offshoring: The Next Industrial Revolution.

In the essay, Blinder, 61, a former Federal Reserve Board vice-chairman, said 42-56 million jobs are “potentially offshorable”. Since then, he has scrutinised 817 occupations to identify how likely each is to go overseas to low-wage countries like India. From that exercise, Blinder has arrived at his latest estimate that between 30 million and 40 million American jobs can be outsourced.

The US is adjusting to the new reality that jobs with person-to-person contact, regardless of pay and skill levels — from nannies and barbers to surgeons — are probably the only occupations left with some protection from outsourcing.