Economist. com Page 2 of 2 Few mainstream economists doubt that this is possible, at least in theory. Mr samuelson himself described the idea in the 1970s. Europeans worried about american growth in the 1950s for this reason, and Americans later worried about Japan. But evidence that it has been borne out in practice is thin. Mr samuelson suggests that the move of textile manufacturing to the American outh may have caused net losses in the North Or that malaysia's leap in rubber production may have had the same effect on Brazil. But both conclusions are uncertain, and there are not many other examples available Might the new wave of outsourcing to poor countries be different, and make rich countries poorer? On the empirical side, a papert by Jagdish Bhagwati, author of a recent book on globalisation(and listed by Mr Samuelson alongside John Doe), Arvind Panagariya, his colleague at Columbia University, and T N. Srinivasan of Yale provides more help they show, also using classical trade models, that outsourcing is no different in economic terms from the trade that has been going on since Ricardo's time. The standard results still hold including the possibility that a countrys export prices could fall so much that it becomes worse off. Then the authors cast an eye over the empirical evidence No pain, no gain? How likely is offshoring to hurt America, they ask? Not very. the threat posed by Chinese and Indian innovation is overblown. The number of graduates likely to take white-collar jobs from westerners is nowhere near the 300m often said to be ready. As skills in China and India improve trade with them will become more like that with other rich countries from which America has historically benefited In any event, outsourcing abroad is too small to matter much. One of the most popularly cited estimates, by Forrester Research, is that 3. 4m jobs will be outsourced by 2015. That may sound enormous, but it implies an annual outflow of only 0.5% of the jobs in the industries affected Ir an average year, the american economy destroys some 30m jobs and creates slightly more, dwarfing the effect of offshoring The authors take a sanguine view about the quality of jobs that will replace those lost to outsourcing. American radiologists need not be condemned to flipping burgers when their work shipped to Chennai. They can turn their skills to the obesity epidemic, or to the burgeoning field of plastic surgery. There is, surely more than enough work to be done Does all this amount to a proof" that trade can only help America's economy? No. But the marshalling of the evidence on outsourcing such as it stands, should calm even the worst bout of trade jitters. Mr samuelson 's worries for all his brilliance, can remain safely on the blackboard here Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists Supporting Globalization". Journal of Economic ectives er2004 t " The Muddles over Outsourcing". Journal of Economic Perspectives, Fall 2004 Copyright o 2004 The Economist Newspaper and The Economist Group. All rights reserved m/Printer Friendly. cfm? Story ID=3195Few mainstream economists doubt that this is possible, at least in theory. Mr Samuelson himself described the idea in the 1970s. Europeans worried about American growth in the 1950s for this reason, and Americans later worried about Japan. But evidence that it has been borne out in practice is thin. Mr Samuelson suggests that the move of textile manufacturing to the American South may have caused net losses in the North. Or that Malaysia's leap in rubber production may have had the same effect on Brazil. But both conclusions are uncertain, and there are not many other examples available. Might the new wave of outsourcing to poor countries be different, and make rich countries poorer? On the empirical side, a paper† by Jagdish Bhagwati, author of a recent book on globalisation (and listed by Mr Samuelson alongside John Doe), Arvind Panagariya, his colleague at Columbia University, and T.N. Srinivasan of Yale provides more help. They show, also using classical trade models, that outsourcing is no different in economic terms from the trade that has been going on since Ricardo's time. The standard results still hold, including the possibility that a country's export prices could fall so much that it becomes worse off. Then the authors cast an eye over the empirical evidence. No pain, no gain? How likely is offshoring to hurt America, they ask? Not very. The threat posed by Chinese and Indian innovation is overblown. The number of graduates likely to take white-collar jobs from westerners is nowhere near the 300m often said to be ready. As skills in China and India improve, trade with them will become more like that with other rich countries, from which America has historically benefited. In any event, outsourcing abroad is too small to matter much. One of the most popularly cited estimates, by Forrester Research, is that 3.4m jobs will be outsourced by 2015. That may sound enormous, but it implies an annual outflow of only 0.5% of the jobs in the industries affected. In an average year, the American economy destroys some 30m jobs and creates slightly more, dwarfing the effect of offshoring. The authors take a sanguine view about the quality of jobs that will replace those lost to outsourcing. American radiologists need not be condemned to flipping burgers when their work is shipped to Chennai. They can turn their skills to the obesity epidemic, or to the burgeoning field of plastic surgery. There is, surely, more than enough work to be done. Does all this amount to a “proof” that trade can only help America's economy? No. But the marshalling of the evidence on outsourcing, such as it stands, should calm even the worst bout of trade jitters. Mr Samuelson's worries, for all his brilliance, can remain safely on the blackboard. * “Where Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists Supporting Globalization”. Journal of Economic Perspectives, Summer 2004. † “The Muddles over Outsourcing”. Journal of Economic Perspectives, Fall 2004. Copyright © 2004 The Economist Newspaper and The Economist Group. All rights reserved. Economist.com Page 2 of 2 http://www.economist.com/PrinterFriendly.cfm?Story_ID=3195901 11/4/2004