March 20, 2004

Who's afraid of outsourcing?

In the midst of an otherwise excellent piece that debunks myths about outsourcing, Dan Drezner trots out a few dubious statistics to show that American manufacturing is doing just fine:

There is no denying that the number of manufacturing jobs has fallen dramatically in recent years, but this has very little do with outsourcing and almost everything to do with technological innovation. As with agriculture a century ago, productivity gains have outstripped demand, so fewer and fewer workers are needed for manufacturing. If outsourcing were in fact the chief cause of manufacturing losses, one would expect corresponding increases in manufacturing employment in developing countries. An Alliance Capital Management study of global manufacturing trends from 1995 to 2002, however, shows that this was not the case: the United States saw an 11 percent decrease in manufacturing employment over the course of those seven years; meanwhile, China saw a 15 percent decrease and Brazil a 20 percent decrease. Globally, the figure for manufacturing jobs lost was identical to the U.S. figure -- 11 percent. The fact that global manufacturing output increased by 30 percent in that same period confirms that technology, not trade, is the primary cause for the decrease in factory jobs. A recent analysis of employment data from U.S. multinational corporations by the U.S. Department of Commerce reached the same conclusion.
I've heard this argument elsewhere-- that rising productivity is responsible for manufacturing job loss, in the US and elsewhere. But notice, Drezner's statistical argument is a bit ambiguous. It could very well be true that China's decrease in employment is due to productivity gains, while ours are due to outsourcing. And that scenario seems highly likely, when you consider America's miserably high current account deficit.

Drezner's point rests on the fact that "global manufacturing output" has increased in recent years. But America's penchant for outsourcing may actually be helping to inflate that number artificially. A good chunk of American manufacturing these days involves throwing together a bunch of imported, high-tech components. As Eamonn Fingleton has noted on a number of occasions, the US has outsourced nearly all of their difficult manufacturing tasks, including the production of advanced materials, key components, and sophisticated capital goods. More and more, our manufacturing 'role' consists of importing these materials, and then exporting them again. That's why our output numbers seem so healthy, even as the trade deficit balloons exponentially.

Granted, I haven't done the research to back up what I'm saying, so I can't match Drezner statistic for statistic. But he certainly hasn't proved that rising productivity is responsible for the decline in manufacturing jobs, not with those numbers.
-- Brad Plumer 10:36 PM || ||