|
Many economic historians are concerned
about the possibility of large-scale offshoring
of jobs from the United States
and Europe to China, India, and
other countries. They speak of another Industrial Revolution, the third
since the 18th century, that will transform
commerce and industry and require painful adjustments. The first revolution
brought drastic changes to England
from the middle of the 18th century to the middle of the 19th century. A
few inventions and technological innovations gave rise to the factory
system and the working population formerly laboring
in agriculture found better employment in industrial production. The
revolution spread to Western Europe and the United States a generation or
two later. It has moved to some other countries ever since.
In their vivid descriptions of the
industrial beginning, most historians rarely allude to the ideological and
political changes that actually paved the way for the revolution. They
admire the early development of the cotton industry and view with approval
the iron and steel industry which sought to meet a growing demand for all
kinds of construction. But they may not even mention the writings of the
Classical economists, of Adam Smith and his numerous teachers and
forerunners, such as Frances Hutcheson, David Hume, Josiah Tucker, and many
others. They wrote numerous essays on commerce and taxation, and developed
new insight into basic principles of a market order. They succeeded in
persuading their government to remove age-old restrictions and allow the
people to pursue their economic interests.
Economic historians also speak of a
second Industrial Revolution that left its mark on the 20th century and is
spreading to other parts of the industrial world. They are referring to the
powerful shift from manufacturing toward services. Throughout the old
industrial world the number of industrial jobs has declined slowly while
the number of service positions has risen continuously. By now, only
one-sixth of U.S.
non-farming jobs are in goods-producing industries while five-sixths render
services.
Many historians rarely ever mention
the market order that impelled and facilitated the change. It built on the
protection of private property in production; it emboldened
entrepreneurship and facilitated large capital investments that raised labor productivity. Wage rates rose and standards of
living soared, which enabled workers to use ever larger shares of their
incomes for services such as healthcare, entertainment, and education. Moreover,
the New Deal and Fair Deal introduced labor
legislation that hastened the expansion of the service industry. It enabled
and encouraged industrial labor unions to raise
the cost of labor above its productivity, which
has given rise to an unnatural economic phenomenon: mass unemployment. Unemployed
factory labor has been seeking productive
employment in the service industry ever since; it functions like a large
net, legal and illegal, that can put all willing labor
to productive use.
A third Industrial Revolution is now
making its appearance in the United States and other
industrial countries. And just like the first two, it is bound to introduce
many changes and force millions of people to make painful adjustments. It
is an "information revolution" that greatly expands the scope of
tradable services and tends to move many service jobs offshore to India, China, and other industrial
newcomers where labor is much cheaper. Defined by
its consequences, it may also be called the "offshoring
revolution."
The term "offshore" was
first used in the United
States for any financial organization
with its headquarters outside the country. A mutual fund with its domicile
in the Bahamas
is an offshore fund. The term then broadened to cover the movement of
industrial jobs from high-cost countries to places where costs are lower. By
now, in the "third revolution," ever more service jobs are likely
to go offshore. Surely, jobs that render personal services cannot go
ashore; my barber shop cannot go to China. But new technology has
made many jobs marketable which therefore may go where labor
costs are lower. The services of accountants and computer programmers are
suitable for electronic delivery and, therefore, may go offshore. According
to a recent McKinsey study, 11 percent of U.S. jobs are at risk of being
sent offshore which is likely to become a major political concern in the
future.
An unhampered market system would
readily facilitate the needed readjustments. Under the pressure of foreign
low-cost competition, American wages for many impersonal offshorable services undoubtedly would stagnate or even
decline, which would cause some workers to move into the personal-service
market and depress its wage rates. The computer programmer may have to
become a computer repairman or barber. Yet his income may not decline as
long as the amount of capital invested per head of population in the
country continues to rise; personal services may expand as fast or even faster than impersonal services contract.
Economists are ever fearful that
politicians are likely to interfere with needed economic adjustments. In
the United States the forces of old-fashioned protectionism not only may
find ways to limit imports but also hamper American capital working abroad.
The forces of political intervention, in order to shield and benefit labor, are likely to increase labor
costs, which invariably causes unemployment. After all, every penny of labor cost that exceeds labor
productivity is bound to create unemployment. The countries with the most
fervent labor-protection laws, such as France, Germany,
and Italy,
already suffer official unemployment rates of 10 percent and higher. In
years to come, the third Industrial Revolution will require many painful
adjustments. The rates of national unemployment and economic stagnation are
likely to be proportional to the political powers of defiance and control.
The process of industrial change and labor adjustment is made ever more complex and painful
by yet another political factor: the propensity of welfare governments to
suffer huge budget deficits that consume the lion's share of the people's
savings. All the governments mentioned above are busily consuming savings
that otherwise would become capital investments creating jobs and paying
wages. Surely, the American labor market is more
flexible and vibrant than European markets, which is rendering it more
adaptable to the changes to come. On the other hand, the U.S.
government budget deficit is the largest by far in volume and relative
size. Debt always is the worst kind of poverty. The third Industrial
Revolution may confirm it in years and decades to come.
|
