4 min read

Down To Business: Offshore Infighting

Is the U.S. services economy doomed or just adjusting to the times? The answer isn't black and white.
Not since the Harvard Business Review declared that "IT Doesn't Matter" have we had a techonomic debate of such sensational proportions. Now the kerfuffle is over the offshoring of U.S. IT and other service sector jobs. Is the balance of economic power really shifting to India, China, and other low-cost, high-intellect countries, sucking from the United States as many as one in three professional jobs over the next decade, or are we just witnessing a global expansion that will lift standards of living for everyone?

This isn't a right vs. left, Republican vs. Democrat polemic. Populist conservatives find themselves in league with organized labor; libertarians are aligning (in theory, at least) with big business.

At one extreme is Princeton University's Alan Blinder, a renowned economist and former adviser to President Clinton. In a recent article in Foreign Affairs magazine, Blinder, a free trade advocate, argues that offshoring of professional services isn't just a "routine extension of international trade," but one that will have dire consequences for the developed world if "national data systems, trade policies, educational systems, social welfare programs, and politics" don't adapt.

Blinder and others peg the number of U.S. services jobs already lost to foreign competition at less than 1 million, a small number in the macro scheme of things. But as communications and collaboration technologies improve and companies get more offshore experience, 28 million to 42 million U.S. service sector jobs could head offshore, Blinder predicts. That's two to three times the most aggressive earlier projections.

Another Clintonian progressive, Robert D. Atkinson of the Information Technology & Innovation Foundation, picks apart Blinder's analysis in a July 6 policy paper. He argues that Blinder overestimates the number of jobs that are offshorable, assumes that just because a job can be offshored it will be, and fails to factor in the U.S. jobs that will be created from increased exports of services. Atkinson puts the number of U.S. services jobs at risk in the 3 million to 4 million range.

Quite a few U.S. companies already are pulling back work they had offshored because they're not realizing the promised cost savings or service levels. Consider Dell's decision to bring tech support back from India after its customers complained. Other factors keeping down offshore expansion include political opposition in the States and instability of all sorts abroad--flighty regulations, overrun infrastructure, social unrest. So just because such services can be offshored doesn't mean the related U.S. jobs will go or go for good.

No matter how you slice the trade numbers, the U.S. services economy is still thriving. For the period January to May 2006, U.S. exports of professional, technical, and other private services rose 11% compared with the year-earlier period, to $71.12 billion, according to Commerce Department figures released last week. Meantime, imports of such services (which include technical work done for U.S. companies in India and elsewhere) rose 16%, to $46.02 billion. So even while imports are growing faster than exports in percentage terms, the U.S. trade surplus in professional, technical, and other private services is widening in absolute terms--to $25.10 billion for the first five months of 2006 compared with $24.21 billion a year earlier. The lift in exports suggests that the U.S. economy is creating new services jobs to replace at least some of the ones lost to other countries.

Blinder, of course, maintains that the offshoring tidal wave is still to come. Even so, while the job loss numbers he projects are extreme, Blinder isn't calling for an extreme protectionist response. "We should not view the coming wave of offshoring as an impending catastrophe. Nor should we try to stop it," he writes. "The normal gains from trade mean that the world as a whole cannot lose from increases in productivity."

In other words, many U.S. workers should expect disruption and upheaval. But our nation of smart, talented, flexible, entrepreneurial people will roll with the changes. It simply must.

Rob Preston,
VP/Editor In Chief
[email protected]

To find out more about Rob Preston, please visit his page.