Dan Dare
03-15-2006, 02:28 AM
An interesting and thought-provoking article in the current issue of Foreign Affairs, dealing with the vexed topic of offshoring. This is the first serious attempt that I have seen to establish the size of the potential impact of offshoring on Americam employment, as well as the first such exercise that takes a stab at establishing which specific sectors are likely to be most affected.
While Blinder naturally hews to the party line that Offshoring is Good, he does provide some interesting pointers on which career sectors to avoid, as well some worthwhile comments on future educational priorities.
The article itself is behind a subscription wall, so I have attempted to synthesise his main propostions and arguments, which are presented below, occasionally paraphrased in the interests of brevity.
Thoughts?
Offshoring: The Next Industrial Revolution? (http://www.foreignaffairs.org/20060301faessay85209/alan-s-blinder/offshoring-the-next-industrial-revolution.html)
By Alan S. Blinder
From Foreign Affairs, March/April 2006
Summary: Economists who insist that "offshore outsourcing" is just a routine extension of international trade are overlooking how major a transformation it will likely bring -- and how significant the consequences could be. The governments and societies of the developed world must start preparing, and fast.
Alan S. Blinder is Gordon S. Rentschler Memorial Professor of Economics at Princeton University. He served on the White House Council of Economic Advisers from 1993 to 1994 and as Vice Chairman of the Board of Governors of the Federal Reserve from 1994 to 1996
A CONTROVERSY RECONSIDERED
In February 2004, when N. Gregory Mankiw, a Harvard professor then serving as chairman of the White House Council of Economic Advisers, caused a national uproar with a "textbook" statement about trade, economists rushed to his defense. Mankiw was commenting on the phenomenon that has been clumsily dubbed "offshoring" (or "offshore outsourcing") -- the migration of jobs, but not the people who perform them, from rich countries to poor ones. Offshoring, Mankiw said, is only "the latest manifestation of the gains from trade that economists have talked about at least since Adam Smith. ... More things are tradable than were tradable in the past, and that's a good thing." Although Democratic and Republican politicians alike excoriated Mankiw for his callous attitude toward American jobs, economists lined up to support his claim that offshoring is simply international business as usual.
Their economics were basically sound: the well-known principle of comparative advantage implies that trade in new kinds of products will bring overall improvements in productivity and well-being. But Mankiw and his defenders underestimated both the importance of offshoring and its disruptive effect on wealthy countries. Sometimes a quantitative change is so large that it brings about qualitative changes, as offshoring likely will. We have so far barely seen the tip of the offshoring iceberg, the eventual dimensions of which may be staggering.
To be sure, the furor over Mankiw's remark was grotesquely out of proportion to the current importance of offshoring, which is still largely a prospective phenomenon. Although there are no reliable national data, fragmentary studies indicate that well under a million service-sector jobs in the United States have been lost to offshoring to date. (A million seems impressive, but in the gigantic and rapidly churning U.S. labor market, a million jobs is less than two weeks' worth of normal gross job losses.) However, constant improvements in technology and global communications virtually guarantee that the future will bring much more offshoring of "impersonal services" -- that is, services that can be delivered electronically over long distances with little or no degradation in quality.
That said, we should not view the coming wave of offshoring as an impending catastrophe. Nor should we try to stop it. The normal gains from trade mean that the world as a whole cannot lose from increases in productivity, and the United States and other industrial countries have not only weathered but also benefited from comparable changes in the past. But in order to do so again, the governments and societies of the developed world must face up to the massive, complex, and multifaceted challenges that offshoring will bring. National data systems, trade policies, educational systems, social welfare programs, and politics all must adapt to new realities. Unfortunately, none of this is happening now.
The fundamental rationale is the Law of Comparative Advantage.
MODERNIZING COMPARATIVE ADVANTAGE
COUNTRIES TRADE with one another for the same reasons that individuals, businesses, and regions do: to exploit their comparative advantages. …But in modern economies, much comparative advantage derives from human effort rather than natural conditions.
…
The old assumption that if you cannot put it in a box, you cannot trade it is thus hopelessly obsolete. Because packets of digitized information play the role that boxes used to play, many more services are now tradable and many more will surely become so.
In the future, and to great extent already, the key distinction will no longer be between things that can be put in a box and things that cannot. Rather, it will be between services that can be delivered electronically and those that cannot.
Putting offshoring int a historical perspective.
THE THREE INDUSTRIAL REVOLUTIONS
…
We are now in the early stages of a third Industrial Revolution the information age. The cheap and easy flow of information around the globe has vastly expanded the scope of tradable services, and there is much more to come. Industrial revolutions are big deals. And just like the previous two, the third Industrial Revolution will require vast and unsettling adjustments in the way Americans and residents of other developed countries work, live, and educate their children.
…
Industrial Revolution did not spell the end of agriculture, or even the end of food production, in the United States. … Rather, it led to a large-scale reallocation of labor to factories.
Similarly, the second Industrial Revolution has not meant the end of manufacturing, even in the United States, which is running ahead of the rest of the world in the shift toward services. … But as with the first Industrial Revolution, the shift has not caused widespread unemployment.
The third Industrial Revolution will play out similarly over the next several decades. The kinds of jobs that can be moved offshore will not disappear entirely from the United States or other rich countries, but their shares of the work force will shrink dramatically. And this reduction will transform societies in many ways, most of them hard to foresee, as workers in rich countries find other things to do. But just as with the first two industrial revolutions, massive offshoring will not lead to massive unemployment.
A canter through the list of job sectors at risk.
THIS TIME IT'S PERSONAL
What sorts of jobs are at risk of being offshored?
In the old days, when tradable goods were things that could be put in a box, the key distinction was between manufacturing and non-manufacturing jobs. …[As] the domain of tradable services expands, many service workers will also have to accept the new, and not very pleasant, reality that they too must compete with workers in other countries. And there are many more service than manufacturing workers.
Many people blithely assume that the critical labor market dis¬tinction is, and will remain, between highly educated (or highly skilled) people and less educated (or less skilled) people doctors versus call center operators, for example. The supposed remedy for the rich countries, accordingly, is more education and a general “upskilling" of the work force. But this view may be mistaken.
The critical divide in the future may instead be between those types of work that are easily deliverable through a wire (or via wireless connections) with little or no diminution in quality and those that are not. And this unconventional divide does not correspond well to traditional distinctions between jobs that require high levels of educa¬tion and jobs that do not.
The first group of tasks can be called personally delivered services, or simply personal services, and the second group impersonally delivered services, or impersonal services. In the brave new world of globalized electronic commerce, impersonal services have more in common with manufactured goods that can be put in boxes than they do with personal services. Thus, many impersonal services are destined to become tradable and therefore vulnerable to offshoring.
By contrast, most personal services have attributes that cannot be transmitted through a wire. Some require face to face contact (child care), some are inherently "high touch" (nursing), some involve high levels of personal trust (psychotherapy), and some depend on location ¬specific attributes (lobbying).
However, the dividing line between personal and impersonal services will move over time. As information technology improves, more and more personal services will become impersonal services.
To obtain a ballpark figure of the number of U.S. jobs threatened by offshoring, consider the composition of the U.S. labor market at the end of 2004. There were 14.3 million manufacturing jobs. The vast majority of those workers produced items that could be put in a box, and so virtually all of their jobs were potentially movable offshore.
About 7.6 million Americans worked in construction and mining. Even though these people produced goods, not services, their jobs were not in danger of moving offshore. (You can't hammer a nail over the Internet.)
Next, there were 22 million local, state, and federal government jobs. Even though many of these jobs provide impersonal services that need not be delivered face to face, hardly any are candidates for offshoring for obvious political reasons.
Retail trade employed 15.6 million Americans. Most of these jobs require physical presence, although online retailing is increasing its share of the market, making a growing share of retail jobs vulnerable to offshoring as well.
Those are the easy cases. But the classification so far leaves out the majority of private service jobs some 73.6 million at the end of 2004. This extremely heterogeneous group breaks down into educational and health services (17.3 million), professional and business services (16.7 million), leisure and hospitality services (12.3 million), financial services (8.1. million), wholesale trade (7 million), transportation (4.3 million), information services (3.2 million), utilities (0.6 million), and "other services" (5.4 mil¬lion).
It is hard to divide such broad job cate¬gories into personal and impersonal services, and it is even more difficult to know what possibilities for long distance electronic delivery the future will bring. Still, it is possible to get a rough sense of which of these jobs may be vulnerable to offshoring.
The health sector is currently about five times as large as the educational sector, and the vast majority of services in the health sector seem destined to be delivered in person for a very long time (if not forever). But there are exceptions, such as radiology. More generally, laboratory tests are already outsourced by most physicians.
Educational services are also best delivered face to face, but they are becoming increasingly expensive. Electronic delivery will probably never replace personal contact in K 12 education, which is where the vast majority of the educational jobs are. But college teaching is more vulnerable. As college tuition grows ever more expensive, cheap electronic delivery will start looking more and more sensible, if not imperative.
The range of professional and business service jobs includes every¬thing from CEOs and architects to typists and janitors a heterogeneous lot. That said, in scanning the list of detailed subcategories, it appears that many of these jobs are at least potentially offshorable. For example, future technological developments may dictate how much accounting stays onshore and how much comes to be delivered electronically from countries with much lower wages.
The leisure and hospitality industries seem much safer. If you vacation in Florida, you do not want the beachboy or the maid to be in China. Reservation clerks can be (and are) located anywhere. But on balance, only a few of these jobs can be moved offshore.
Financial services, a sector that includes many highly paid jobs, is another area where the future may look very different from the present. Today, the United States "onshores" more financial jobs (by selling financial services to foreigners) than it offshores. Perhaps that will remain true for years. But improvements in telecommunications and rising educational levels in countries such as China and, especially, India (where many people speak English) may change the status quo dramatically.
Wholesale trade is much like retail trade, but with a bit less personal contact and thus somewhat greater potential for offshoring. The same holds true for transportation and utilities.
Information ¬service jobs, however, are the quintessential types of jobs that can be delivered electronically with ease. The majority of these jobs are at risk.
Finally, the phrase "other services" is not very informative, but detailed scrutiny of the list (repair and laundry workers appear, for example) reveals that most of these services require personal delivery.
The overall picture defies generalization, but a rough estimate, based on the preceding numbers, is that the total number of cur¬rent U.S. service sector jobs that will be susceptible to offshoring in the electronic future is two to three times the total number of current manufacturing jobs (which is about 14 million).
That said, large swaths of the U.S. labor market look to be immune. But, of course, no one knows exactly what technological changes the fu¬ture will bring.
Blinder suggest suggest some palliatives to sooth the pain.
IS FOREWARNED FOREARMED?
What is to be done about all of this?
In the first place, rich countries such as the United States will have to reorganize the nature of work to exploit their big advantage in non¬tradable services: that they are close to where the money is. That will mean, in part, specializing more in the delivery of services where personal presence is either imperative or highly beneficial. Thus, the U. S. work force of the future will likely have more divorce lawyers and fewer attorneys who write routine contracts, more internists and fewer radiologists, more salespeople and fewer typists.
In the second place, the United States and other rich nations will have to transform their educational systems so as to prepare workers for the jobs that will actually exist in their societies. Basically, that requires training more workers for personal services and fewer for many impersonal services and manufacturing.
But what does that mean, concretely, for how children should be educated? … In the future, how children are educated may prove to be more important than how much. But educational specialists have not even begun to think about this problem. They should start right now.
Contrary to what many have come to believe in recent years, people skills may become more valuable than computer skills. The geeks may not inherit the earth after all at least not the highly paid geeks in the rich countries. Creativity will be prized.
One other important step for rich countries is to rethink the currently inadequate programs for trade adjustment assistance. Up to now, the performance of trade adjustment assistance has been disappointing. As more and more Americans and Britons, and Germans, and Japanese are faced with the necessity of adjusting to the dislocations caused by offshoring, these programs must become both bigger and better.
Thinking about adjustment assistance more broadly, the United States may have to repair and thicken the tattered safety net that supports workers who fall off the labor market trapeze improving programs ranging from unemployment insurance to job retraining, health insurance, pensions, and right down to public assistance. At present, the United States has one of the thinnest social safety nets in the industrialized world, and there seems to be little if any political force seeking to improve it. But this may change if a larger fraction of the population starts falling into the safety net more often.
And finally a summation:
IMPERFECT VISION
[The] "threat" from offshoring should not be exaggerated. Just as the first Industrial Revolution did not banish agriculture from the rich countries, and the second Industrial Revolution has not banished manufacturing, so the third Industrial Revolution will not drive all impersonal services offshore. Nor will it lead to mass unemployment. But the necessary adjustments will put strains on the societies of the rich countries, which seem completely unprepared for the coming industrial transformation.
Perhaps the most acute need, given the long lead times, is to figure out how to educate children now for the jobs that will actually be available to them 10 and 20 years from now. Unfortunately, since the distinction between personal services (likely to remain in rich coun¬tries) and impersonal services (likely to go) does not correspond to the traditional distinction between high skilled and low skilled work, simply providing more education cannot be the whole answer.
As the transition unfolds, the number of people in the rich countries who will feel threatened by foreign job competition will grow enor¬mously. It is predictable that they will become a potent political force in each of their countries. In the United States, job market stress up to now has been particularly acute for the uneducated and the unskilled, which are less inclined to exercise their political voice and less adept at doing so. But the new cadres of displaced workers, especially those who are drawn from the upper educational reaches, will be neither as passive nor as quiet. They will also be numerous. Open trade may therefore be under great strain.
[Blinder’s final comments are directed to projections from some Indian economists that in the next few decades over 300 million people will be added to the educated labour force in Asia. This is twice the number of the current working population of the USA]
While Blinder naturally hews to the party line that Offshoring is Good, he does provide some interesting pointers on which career sectors to avoid, as well some worthwhile comments on future educational priorities.
The article itself is behind a subscription wall, so I have attempted to synthesise his main propostions and arguments, which are presented below, occasionally paraphrased in the interests of brevity.
Thoughts?
Offshoring: The Next Industrial Revolution? (http://www.foreignaffairs.org/20060301faessay85209/alan-s-blinder/offshoring-the-next-industrial-revolution.html)
By Alan S. Blinder
From Foreign Affairs, March/April 2006
Summary: Economists who insist that "offshore outsourcing" is just a routine extension of international trade are overlooking how major a transformation it will likely bring -- and how significant the consequences could be. The governments and societies of the developed world must start preparing, and fast.
Alan S. Blinder is Gordon S. Rentschler Memorial Professor of Economics at Princeton University. He served on the White House Council of Economic Advisers from 1993 to 1994 and as Vice Chairman of the Board of Governors of the Federal Reserve from 1994 to 1996
A CONTROVERSY RECONSIDERED
In February 2004, when N. Gregory Mankiw, a Harvard professor then serving as chairman of the White House Council of Economic Advisers, caused a national uproar with a "textbook" statement about trade, economists rushed to his defense. Mankiw was commenting on the phenomenon that has been clumsily dubbed "offshoring" (or "offshore outsourcing") -- the migration of jobs, but not the people who perform them, from rich countries to poor ones. Offshoring, Mankiw said, is only "the latest manifestation of the gains from trade that economists have talked about at least since Adam Smith. ... More things are tradable than were tradable in the past, and that's a good thing." Although Democratic and Republican politicians alike excoriated Mankiw for his callous attitude toward American jobs, economists lined up to support his claim that offshoring is simply international business as usual.
Their economics were basically sound: the well-known principle of comparative advantage implies that trade in new kinds of products will bring overall improvements in productivity and well-being. But Mankiw and his defenders underestimated both the importance of offshoring and its disruptive effect on wealthy countries. Sometimes a quantitative change is so large that it brings about qualitative changes, as offshoring likely will. We have so far barely seen the tip of the offshoring iceberg, the eventual dimensions of which may be staggering.
To be sure, the furor over Mankiw's remark was grotesquely out of proportion to the current importance of offshoring, which is still largely a prospective phenomenon. Although there are no reliable national data, fragmentary studies indicate that well under a million service-sector jobs in the United States have been lost to offshoring to date. (A million seems impressive, but in the gigantic and rapidly churning U.S. labor market, a million jobs is less than two weeks' worth of normal gross job losses.) However, constant improvements in technology and global communications virtually guarantee that the future will bring much more offshoring of "impersonal services" -- that is, services that can be delivered electronically over long distances with little or no degradation in quality.
That said, we should not view the coming wave of offshoring as an impending catastrophe. Nor should we try to stop it. The normal gains from trade mean that the world as a whole cannot lose from increases in productivity, and the United States and other industrial countries have not only weathered but also benefited from comparable changes in the past. But in order to do so again, the governments and societies of the developed world must face up to the massive, complex, and multifaceted challenges that offshoring will bring. National data systems, trade policies, educational systems, social welfare programs, and politics all must adapt to new realities. Unfortunately, none of this is happening now.
The fundamental rationale is the Law of Comparative Advantage.
MODERNIZING COMPARATIVE ADVANTAGE
COUNTRIES TRADE with one another for the same reasons that individuals, businesses, and regions do: to exploit their comparative advantages. …But in modern economies, much comparative advantage derives from human effort rather than natural conditions.
…
The old assumption that if you cannot put it in a box, you cannot trade it is thus hopelessly obsolete. Because packets of digitized information play the role that boxes used to play, many more services are now tradable and many more will surely become so.
In the future, and to great extent already, the key distinction will no longer be between things that can be put in a box and things that cannot. Rather, it will be between services that can be delivered electronically and those that cannot.
Putting offshoring int a historical perspective.
THE THREE INDUSTRIAL REVOLUTIONS
…
We are now in the early stages of a third Industrial Revolution the information age. The cheap and easy flow of information around the globe has vastly expanded the scope of tradable services, and there is much more to come. Industrial revolutions are big deals. And just like the previous two, the third Industrial Revolution will require vast and unsettling adjustments in the way Americans and residents of other developed countries work, live, and educate their children.
…
Industrial Revolution did not spell the end of agriculture, or even the end of food production, in the United States. … Rather, it led to a large-scale reallocation of labor to factories.
Similarly, the second Industrial Revolution has not meant the end of manufacturing, even in the United States, which is running ahead of the rest of the world in the shift toward services. … But as with the first Industrial Revolution, the shift has not caused widespread unemployment.
The third Industrial Revolution will play out similarly over the next several decades. The kinds of jobs that can be moved offshore will not disappear entirely from the United States or other rich countries, but their shares of the work force will shrink dramatically. And this reduction will transform societies in many ways, most of them hard to foresee, as workers in rich countries find other things to do. But just as with the first two industrial revolutions, massive offshoring will not lead to massive unemployment.
A canter through the list of job sectors at risk.
THIS TIME IT'S PERSONAL
What sorts of jobs are at risk of being offshored?
In the old days, when tradable goods were things that could be put in a box, the key distinction was between manufacturing and non-manufacturing jobs. …[As] the domain of tradable services expands, many service workers will also have to accept the new, and not very pleasant, reality that they too must compete with workers in other countries. And there are many more service than manufacturing workers.
Many people blithely assume that the critical labor market dis¬tinction is, and will remain, between highly educated (or highly skilled) people and less educated (or less skilled) people doctors versus call center operators, for example. The supposed remedy for the rich countries, accordingly, is more education and a general “upskilling" of the work force. But this view may be mistaken.
The critical divide in the future may instead be between those types of work that are easily deliverable through a wire (or via wireless connections) with little or no diminution in quality and those that are not. And this unconventional divide does not correspond well to traditional distinctions between jobs that require high levels of educa¬tion and jobs that do not.
The first group of tasks can be called personally delivered services, or simply personal services, and the second group impersonally delivered services, or impersonal services. In the brave new world of globalized electronic commerce, impersonal services have more in common with manufactured goods that can be put in boxes than they do with personal services. Thus, many impersonal services are destined to become tradable and therefore vulnerable to offshoring.
By contrast, most personal services have attributes that cannot be transmitted through a wire. Some require face to face contact (child care), some are inherently "high touch" (nursing), some involve high levels of personal trust (psychotherapy), and some depend on location ¬specific attributes (lobbying).
However, the dividing line between personal and impersonal services will move over time. As information technology improves, more and more personal services will become impersonal services.
To obtain a ballpark figure of the number of U.S. jobs threatened by offshoring, consider the composition of the U.S. labor market at the end of 2004. There were 14.3 million manufacturing jobs. The vast majority of those workers produced items that could be put in a box, and so virtually all of their jobs were potentially movable offshore.
About 7.6 million Americans worked in construction and mining. Even though these people produced goods, not services, their jobs were not in danger of moving offshore. (You can't hammer a nail over the Internet.)
Next, there were 22 million local, state, and federal government jobs. Even though many of these jobs provide impersonal services that need not be delivered face to face, hardly any are candidates for offshoring for obvious political reasons.
Retail trade employed 15.6 million Americans. Most of these jobs require physical presence, although online retailing is increasing its share of the market, making a growing share of retail jobs vulnerable to offshoring as well.
Those are the easy cases. But the classification so far leaves out the majority of private service jobs some 73.6 million at the end of 2004. This extremely heterogeneous group breaks down into educational and health services (17.3 million), professional and business services (16.7 million), leisure and hospitality services (12.3 million), financial services (8.1. million), wholesale trade (7 million), transportation (4.3 million), information services (3.2 million), utilities (0.6 million), and "other services" (5.4 mil¬lion).
It is hard to divide such broad job cate¬gories into personal and impersonal services, and it is even more difficult to know what possibilities for long distance electronic delivery the future will bring. Still, it is possible to get a rough sense of which of these jobs may be vulnerable to offshoring.
The health sector is currently about five times as large as the educational sector, and the vast majority of services in the health sector seem destined to be delivered in person for a very long time (if not forever). But there are exceptions, such as radiology. More generally, laboratory tests are already outsourced by most physicians.
Educational services are also best delivered face to face, but they are becoming increasingly expensive. Electronic delivery will probably never replace personal contact in K 12 education, which is where the vast majority of the educational jobs are. But college teaching is more vulnerable. As college tuition grows ever more expensive, cheap electronic delivery will start looking more and more sensible, if not imperative.
The range of professional and business service jobs includes every¬thing from CEOs and architects to typists and janitors a heterogeneous lot. That said, in scanning the list of detailed subcategories, it appears that many of these jobs are at least potentially offshorable. For example, future technological developments may dictate how much accounting stays onshore and how much comes to be delivered electronically from countries with much lower wages.
The leisure and hospitality industries seem much safer. If you vacation in Florida, you do not want the beachboy or the maid to be in China. Reservation clerks can be (and are) located anywhere. But on balance, only a few of these jobs can be moved offshore.
Financial services, a sector that includes many highly paid jobs, is another area where the future may look very different from the present. Today, the United States "onshores" more financial jobs (by selling financial services to foreigners) than it offshores. Perhaps that will remain true for years. But improvements in telecommunications and rising educational levels in countries such as China and, especially, India (where many people speak English) may change the status quo dramatically.
Wholesale trade is much like retail trade, but with a bit less personal contact and thus somewhat greater potential for offshoring. The same holds true for transportation and utilities.
Information ¬service jobs, however, are the quintessential types of jobs that can be delivered electronically with ease. The majority of these jobs are at risk.
Finally, the phrase "other services" is not very informative, but detailed scrutiny of the list (repair and laundry workers appear, for example) reveals that most of these services require personal delivery.
The overall picture defies generalization, but a rough estimate, based on the preceding numbers, is that the total number of cur¬rent U.S. service sector jobs that will be susceptible to offshoring in the electronic future is two to three times the total number of current manufacturing jobs (which is about 14 million).
That said, large swaths of the U.S. labor market look to be immune. But, of course, no one knows exactly what technological changes the fu¬ture will bring.
Blinder suggest suggest some palliatives to sooth the pain.
IS FOREWARNED FOREARMED?
What is to be done about all of this?
In the first place, rich countries such as the United States will have to reorganize the nature of work to exploit their big advantage in non¬tradable services: that they are close to where the money is. That will mean, in part, specializing more in the delivery of services where personal presence is either imperative or highly beneficial. Thus, the U. S. work force of the future will likely have more divorce lawyers and fewer attorneys who write routine contracts, more internists and fewer radiologists, more salespeople and fewer typists.
In the second place, the United States and other rich nations will have to transform their educational systems so as to prepare workers for the jobs that will actually exist in their societies. Basically, that requires training more workers for personal services and fewer for many impersonal services and manufacturing.
But what does that mean, concretely, for how children should be educated? … In the future, how children are educated may prove to be more important than how much. But educational specialists have not even begun to think about this problem. They should start right now.
Contrary to what many have come to believe in recent years, people skills may become more valuable than computer skills. The geeks may not inherit the earth after all at least not the highly paid geeks in the rich countries. Creativity will be prized.
One other important step for rich countries is to rethink the currently inadequate programs for trade adjustment assistance. Up to now, the performance of trade adjustment assistance has been disappointing. As more and more Americans and Britons, and Germans, and Japanese are faced with the necessity of adjusting to the dislocations caused by offshoring, these programs must become both bigger and better.
Thinking about adjustment assistance more broadly, the United States may have to repair and thicken the tattered safety net that supports workers who fall off the labor market trapeze improving programs ranging from unemployment insurance to job retraining, health insurance, pensions, and right down to public assistance. At present, the United States has one of the thinnest social safety nets in the industrialized world, and there seems to be little if any political force seeking to improve it. But this may change if a larger fraction of the population starts falling into the safety net more often.
And finally a summation:
IMPERFECT VISION
[The] "threat" from offshoring should not be exaggerated. Just as the first Industrial Revolution did not banish agriculture from the rich countries, and the second Industrial Revolution has not banished manufacturing, so the third Industrial Revolution will not drive all impersonal services offshore. Nor will it lead to mass unemployment. But the necessary adjustments will put strains on the societies of the rich countries, which seem completely unprepared for the coming industrial transformation.
Perhaps the most acute need, given the long lead times, is to figure out how to educate children now for the jobs that will actually be available to them 10 and 20 years from now. Unfortunately, since the distinction between personal services (likely to remain in rich coun¬tries) and impersonal services (likely to go) does not correspond to the traditional distinction between high skilled and low skilled work, simply providing more education cannot be the whole answer.
As the transition unfolds, the number of people in the rich countries who will feel threatened by foreign job competition will grow enor¬mously. It is predictable that they will become a potent political force in each of their countries. In the United States, job market stress up to now has been particularly acute for the uneducated and the unskilled, which are less inclined to exercise their political voice and less adept at doing so. But the new cadres of displaced workers, especially those who are drawn from the upper educational reaches, will be neither as passive nor as quiet. They will also be numerous. Open trade may therefore be under great strain.
[Blinder’s final comments are directed to projections from some Indian economists that in the next few decades over 300 million people will be added to the educated labour force in Asia. This is twice the number of the current working population of the USA]