- The Washington Times - Sunday, March 28, 2004

On Friday, the Bureau of Labor Statistics will release the employment report for March. Most economists expect a solid increase in jobs. But they have expected significant increases for months, only to be proven wrong when the official data were released.

Another weak jobs number undoubtedly will raise pressure on Congress and the Bush administration to act on outsourcing, which many unemployed workers, especially in information technology (IT), blame for their misfortune.

One reason so much attention as been given the outsourcing issue is it plays to deeply held fears about foreigners that have been part of the American political landscape since the Know-Nothing movement of the 1840s. As Holman Jenkins of the Wall Street Journal recently put it, “The current griping over ‘outsourcing’ seems almost a species of psychological dysfunction, one that blames foreigners over any explanation that doesn’t.”

The Bush administration has been very slow to recognize the political threat from the outsourcing issue. Indeed, it played right into it with an ill-timed proposal to allow illegal Mexican workers in the United States to have “guest worker” status allowing them to remain here legally. While I think this is a defensible policy, it suffers from appearing to be motivated more by politics than a serious concern for illegal immigration. It looks as if its sole purpose is to win Hispanic votes.

Mr. Bush also shot himself in the foot when he promised to create a high-level post to promote manufacturing, which has seen the greatest job loss. Then it turned out this “manufacturing czar” involved nothing more than a renamed existing Commerce Department assistant secretary position. Finally, the vetting process blundered by naming to the post a businessman, Tony Raimondo, who had outsourced jobs to China. The appointment was quickly rescinded when John Kerry’s campaign brought this fact to the media’s attention.

The Bush administration has done little to address the outsourcing issue other than muzzle Council of Economic Advisers Chairman Greg Mankiw for daring to suggest it is an inevitable process. But others are starting to pick up the slack. A new study by the American Electronics Association offers a balanced perspective.

While acknowledging that outsourcing has hurt some Americans, the AEA study places most of the blame for job loss on slow growth and rising productivity. It also notes other countries have caught up with the United States in education and technology, making them stronger competitors for IT business. They compete not just on wages but quality as well.

The AEA study says today’s outsourcing concern echoes warnings in the 1980s that Japan would take over the world. A recent Forbes Magazine article notes parallels with the 1960s’ automation scare. Presidential candidate John F. Kennedy warned automation “carries the dark menace of industrial dislocation, increased unemployment and deepens poverty.”

Robots, Japan, NAFTA and other threats to our prosperity have never sustained themselves, and the doom-and-gloom crowd always slinked away without ever explaining why they were so wrong. Ross Perot, for example, has never told us why NAFTA didn’t cause the “giant sucking sound of jobs being pulled out of this country” that he predicted in 1992.

Writing in the May/June issue of Foreign Affairs, political scientist Daniel Drezner explains that fears of permanent job loss from trade and technology always arise when unemployment is high for cyclical reasons. But eventually the slowdowns end, and employment strengthens again.

“Once the economy improves, the political hysteria over outsourcing will also disappear,” Mr. Drezner writes.

This is exactly what President Kennedy’s Council of Economic Advisers told him 40 years ago when fears were at their peak that automation would cause all jobs to disappear. CEA Chairman Walter Heller explained the best thing Kennedy could do was cut taxes to stimulate investment and consumption, which would raise economic growth and employment regardless of how much automation was going on. When this proved correct, the automation hysteria faded away.

Thus, most economists believe policies aimed specifically at outsourcing are misdirected and potentially counterproductive. For example, a new study by the National Foundation for American Policy argues recently passed Senate anti-outsourcing legislation will likely destroy more jobs than it saves, by inviting foreign retaliation, reducing competition and raising costs to governments. The amendment, sponsored by Sen. Chris Dodd, Connecticut Democrat, would prohibit federal contractors or states from contracting-out with foreign businesses.

Outsourcing is an issue only because employment growth is slow. But it is not the cause. Hence, policies directed at restricting outsourcing are unlikely to create any jobs and risk actually worsening the situation.

Bruce Bartlett is senior fellow with the National Center for Policy Analysis and a nationally syndicated columnist.

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