NCPA - National Center for Policy Analysis

The Reality of Outsourcing

February 18, 2004

Last week, Council of Economic Advisers Chairman N. Gregory Mankiw ran into a buzz saw. He defended the concept of outsourcing -- contracting with foreigners for information technology services. With a lack of job growth being the central economic issue in the country today, Mankiw's comments were assailed across the political spectrum. President Bush quickly distanced himself from his aide's remarks, House Speaker Dennis Hastert (R-Illinois) repudiated them, and many Democrats called for Mankiw's dismissal.

What is different about outsourcing and why it has aroused so much protest is that it is affecting workers who thought they were immune from international competition. Yet, blue-collar workers in manufacturing have been suffering from outsourcing for 100 years:

  • Textile jobs in South Carolina today were originally outsourced from Massachusetts.
  • While in the short run, the transition was painful for Massachusetts textile workers, they soon found better jobs in new industries.
  • That is why per capita income there is and always has been far higher than that in South Carolina.

It would be grossly unfair to say that it is okay to move manufacturing wherever production is cheaper, but wrong to subject information technology services to the same competition. It is mostly because of the Internet and the fact that IT people know how to use it that they are getting attention disproportionate to their numbers. Moreover, if we hadn't just gone through a painful economic recession, most of these people probably would have already found new jobs and the problem of outsourcing would not be worth writing nasty e-mails to politicians and columnists, says Bartlett.

Source: Bruce Bartlett, "The Reality of Outsourcing," National Center for Policy Analysis, February 18, 2004.

 

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