In response to this weekend's op-ed on free trade from free-marketeer Alan S. Blinder, Kevin Drum asks: What exactly is Blinder's "apostasy"?
First, an excerpt from Blinder's piece, and then an answer to Kevin's question:
I'm a free trader down to my toes. Always have been. Yet lately, I'm being treated as a heretic by many of my fellow economists. Why? Because I have stuck my neck out and predicted that the offshoring of service jobs from rich countries such as the United States to poor countries such as India may pose major problems for tens of millions of American workers over the coming decades. In fact, I think offshoring may be the biggest political issue in economics for a generation....
The reason for my alleged apostasy is that the nature of international trade is changing before our eyes. We used to think, roughly, that an item was tradable only if it could be put in a box and shipped. That's no longer true. Nowadays, a growing list of services can be zapped across international borders electronically. It's electrons that move, not boxes. We're all familiar with call centers, but electronic service delivery has already extended to computer programming, a variety of engineering services, accounting, security analysis and a lot else. And much more is on the way...Looking at these two historic forces from the perspective of the world as a whole, one can only get a warm feeling. Improvements in technology will raise living standards, just as they have since the dawn of the Industrial Revolution. And the availability of millions of new electronically deliverable service jobs in, say, India and China will help alleviate poverty on a mass scale. Offshoring will also reduce costs and boost productivity in the United States. So repeat after me: Globalization is good for the world. Which is where economists usually stop.
And where my alleged apostasy starts.
For these same forces don't look so benign from the viewpoint of an American computer programmer or accountant. They've done what they were told to do: They went to college and prepared for well-paid careers with bountiful employment opportunities. But now their bosses are eyeing legions of well-qualified, English-speaking programmers and accountants in India, for example, who will happily work for a fraction of what Americans earn. Such prospective competition puts a damper on wage increases. And if the jobs do move offshore, displaced American workers may lose not only their jobs but also their pensions and health insurance. These people can be forgiven if they have doubts about the virtues of globalization.
We economists assure folks that things will be all right in the end. Both Americans and Indians will be better off. I think that's right. The basic principles of free trade that Adam Smith and David Ricardo taught us two centuries ago remain valid today: Just like people, nations benefit by specializing in the tasks they do best and trading with other nations for the rest. There's nothing new here theoretically.
But I would argue that there's something new about the coming transition to service offshoring. Those two powerful forces mentioned earlier -- technological advancement and the rise of China and India -- suggest that this particular transition will be large, lengthy and painful.
It's going to be lengthy because the technology for moving information across the world will continue to improve for decades, if not forever. So, for those who earn their living performing tasks that are (or will become) deliverable electronically, this is no fleeting problem.
It's also going to be large. How large? In some recent research, I estimated that 30 million to 40 million U.S. jobs are potentially offshorable. These include scientists, mathematicians and editors on the high end and telephone operators, clerks and typists on the low end. Obviously, not all of these jobs are going to India, China or elsewhere. But many will.
It's going to be painful because our country offers such a poor social safety net to cushion the blow for displaced workers. Our unemployment insurance program is stingy by first-world standards. American workers who lose their jobs often lose their health insurance and pension rights as well. And even though many displaced workers will have to change occupations -- a difficult task for anyone -- only a fortunate few will be offered opportunities for retraining. All this needs to change.
The answer to Kevin's questions, I think, is simply that many people, even many scholars who study the issue, have a fairly simplistic idea of the way trade works. For the most part, they look at the issue at such a high level that they don't see how it affects individual people, and how those people, in turn, affect the political process. On balance, free trade works out to everyone's benefit. The problem, of course, is that aggregate gains mean nothing if you are one of the people who is adversely affected by the change. And as Blinder points out, over the next few decades, there are likely to be millions of well educated, middle class Americans who will see fairly significant personal losses from this process.
As I said yesterday, it very well may be time for another early twentieth century styled progressive movement to emerge, but this time focused on the effects of globalization rather than industrialization. Given how such issues are dispersed, they will be difficult to address, but if we are both serious and thoughtful about it, there's no reason it cannot be done.
Which reminds me: Is it 2009 yet?
UPDATE: A slightly different take from Ezra here prompts me to clarify... Obviously, serious economic scholars understand that there on an individual level there will be winners and losers in free trade. For the most part, however, when discussing the issue in public they simply choose to ignore this, and Ezra's account offers an excellent explanation as to why.
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