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Traders Are Not Traitors

From the March 29, 2004 issue: Outsourcing is good for America--and the world.

Mar 29, 2004, Vol. 9, No. 28 • By CESAR CONDA and STUART ANDERSON
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Some innovative U.S. companies have already come up with solutions to the outsourcing controversy that do not risk a trade war or other foreign policy harm. California-based E-Loan offers its customers a choice of having their loan paperwork processed in India or in the United States. Customers are informed that if they press the "India" button, their loan will be processed in one day, while the U.S.-based work may take two days or longer. More than 80 percent of customers for home equity loans, according to the company, have chosen to have their work done in India--a choice that some elected officials would like to take away from them.

The Bush administration's political performance on the outsourcing issue could be stronger. The president recently warned against "economic isolationism," which put Kerry and some Democrats on the defensive for a day or two. However, the administration has itself been inconsistent on the trade issue.

The stakes internationally are high. President Bush declared last year at West Point that a pillar of U.S. foreign policy is to advance liberty on all continents. Free trade in goods and services can be an important tool for accomplishing peacefully what our soldiers are, in part, fighting for in Iraq, namely a transition to a freer and more prosperous world that, in turn, will make Americans more secure.

New York Times columnist Thomas Friedman recently described his conversations with some of the young Indians being accused of taking American jobs:

Kiran Menon, when asked who his role model was, shot back: "Bill Gates--I dream of starting my own company and making it that big." I asked C.M. Meghna what she got most out of the work: "Self-confidence," she said, "a lot of self-confidence, when people come to you with a problem and you can solve it--and having a lot of independence." . . . There is nothing more positive than the self-confidence, dignity and optimism that comes from a society knowing it is producing wealth by tapping its own brains--men's and women's--as opposed to one just tapping its own oil, let alone one that is so lost it can find dignity only through suicide and "martyrdom."

Friedman noted a striking contrast between his conversations with these young outsourced workers and conversations he had had "on the West Bank, talking to three young Palestinian men, also in their twenties, one of whom was studying engineering. Their hero was Yasser Arafat. They talked about having no hope, no jobs, and no dignity, and they each nodded when one of them said they were all 'suicide bombers in waiting.'" Friedman warned: "There is more to outsourcing than just economics. There's also geopolitics. It is inevitable in a networked world that our economy is going to shed certain low-wage, low-prestige jobs. To the extent that they go to places like India or Pakistan--where they are viewed as high-wage, high-prestige jobs--we make not only a more prosperous world, but a safer world for our own 20-year-olds."

Even though the rest of the world views U.S. trade policy as an important element of U.S. foreign policy, commentators here have been slow to see Kerry's trade rhetoric, including implied threats to pull out of existing trade agreements, as problematic. The closest thing to a critique came in a March 15 Washington Post editorial: "It is hard to know what Mr. Kerry means by his trade-and-labor rhetoric, just as it is hard to know how to balance his pro-trade votes in the Senate against his campaign denunciation of 'Benedict Arnold' companies. It's good that Mr. Bush is attacking on these issues, and it's time for Mr. Kerry to clarify his thinking."

It's clear that Democrats believe denouncing "outsourcing" is a political winner for them, despite the potential for real harm their proposals would bring. A bill by Senator Tom Daschle, cosponsored by Kerry, would make notifications of "mass layoffs" more stringent in U.S. law than in France and Germany. Daschle's measure, which soon may be offered as a Senate floor amendment, would require U.S. companies to provide 90 days' notice to the federal government when transferring work abroad that affects the jobs of as few as 15 employees. The vague definition of "offshoring" in the bill and the way global companies routinely create and eliminate jobs worldwide could discourage some large companies from adding U.S.-based jobs in the first place.

Federal Reserve Board chairman Alan Greenspan recently warned a House committee that the "protectionist measures" now being proposed are "alleged cures" that "would make matters worse rather than better. They would do little to create jobs, and if foreigners were to retaliate we would surely lose jobs."