In Age of Outsourcing, Do the Old Rules Apply? ; Most Experts Say Globalization's Benefits Outweigh the Costs, but Some See Altered Equations

Article excerpt

The trend has made globalization a dirty word even to many well- heeled professionals. It has made software engineering look like a risky major for American college kids. And it has made India suddenly relevant - in terms of US jobs and pocket cash, not nuclear warheads and Kashmir.

"Offshore outsourcing" is stirring anxiety, and with good reason. America's white-collar work force is experiencing the kind of vulnerability once felt mainly on assembly lines. Entire industries such as software have felt the shockwaves. Employers are signing up firms abroad to supply skilled services such as radiology and architecture.

Some economists, including erstwhile free-traders, now worry that the offshoring trend reflects a fundamentally new situation. Instant and cheap communication, coupled with the rise of millions of newly educated workers in low-wage nations, creates the risk of a rapid shift of jobs.

"It has never before happened," says former Reagan administration economist Paul Craig Roberts.

Most economists say the age-old benefits of unfettered global commerce still apply. But the rising debate could have far-reaching policy implications - possibly slowing the trend toward globalization that many credit with raising living standards worldwide in recent years. Now, even if the outsourcing threat is overblown, it could help put the brakes on globalization.

High wage earners, long the strongest supporters of free trade in the past, have lost much of their enthusiasm for it. Any new effort to liberalize trade could face a hard slog in Congress.

The rapid shift in national mood is reflected in a survey last month by the University of Maryland's Program on International Policy Attitudes. It found that 40 percent of Americans now see globalization as positive, down from 53 percent in 1999. Nineteen percent see it as mostly negative, and 39 percent are neutral.

Perhaps the most revealing shift is among high-income Americans. Only 28 percent of those making more than $100,000 a year support active promotion of free trade, down from 57 percent in 1999, according to a breakdown of the survey data sought by USA Today.

Most economists support freer trade, international investment, and a freer labor market - all enablers of offshore outsourcing. Though it may cause short-term job loss and other disruptions, the long-term effect is to raise living standards, they say.

But a few economists charge that economists' old trade theory no longer applies.

Mr. Roberts cites the classic theory of David Ricardo, a 19th- century British economist, that exports of a specific good would be won by nations with a "comparative advantage" in producing that good. A producer had better technology, cheap raw materials, low wages, more education, or some other advantage. All nations engaged in such trade would eventually benefit in higher living standards. But that thesis, says Mr. Roberts, hung on the idea that the "factors of production" - plants, equipment, etc. - are relatively hard to move. Increasingly, that is no longer the case.

After the cold war ...

The demise of communism and socialism has invalidated this old trade theory, Roberts says. Cheap labor in Eastern Europe, not to mention burgeoning China, has suddenly and eagerly joined the global work force. …