As the debate on outsourcing dominates the presidential election campaign in the United States, a leading economist has termed Democratic nominee John Kerry's opposition to American companies moving jobs overseas as faulty economics and a political error.
Jagdish Bhagwati, professor at Columbia University and a senior fellow of Council on Foreign Relations, has faulted "presumptive" Kerry for criticising Greg Mankiw, head of President George Bush's Council of Economic Adviser for telling the "simple truth" that "outsourcing" of jobs is beneficial to the US.
Outsourcing and India: Complete Coverage
In objecting to moving jobs overseas, Kerry is wrong on two counts, the India-born Baghwati wrote in an article.
First, his economics is faulty: the practice only adds to the overall economic pie and improves the competitiveness of American companies. "In a world economy, firms that forgo cheaper supplies of services are doomed to lose markets, and hence production. And companies that die out, of course, do not employ people."
Second, he said, Kerry was making a political error. By playing to the "understandable but incorrect fears of American workers" that outsourcing is "taking away" jobs from the Americans, he was painting the Democratic Party into the wrong corner on trade issues.
"As Bill Clinton showed the country, there is a way for politicians, even Democrats, to explain the benefits of free trade," Bhagwati wrote.
Contesting the claim that American jobs were disappearing because of outsourcing to India and other countries, Bhagwati said when jobs disappear in the US, it is usually because technological changes have destroyed them.
"When I came to my university 25 years ago, I got a secretary. Today, the new hires get a computer instead. In India, where a secretary costs a small fraction of what one would in New York City but a computer costs more, any Indian professor who asked for a new laptop would probably get a secretary instead.
"It is simply a matter of economic reality in both places. The hiring of the secretary in India should not be seen as 'transferring' a job out of New York," wrote Bhagwati.
Putting jobs overseas is, in economic terms, no different than importing labour-intensive textiles and other goods, he explained.
In the 1980's and 90's, he recalled, labour unions warned that imported cheap goods from the Far East would depress wages and labour standards in the US.
"But, as virtually any economist who has studied the empirical evidence of the last two decades knows, the overwhelming cause of wage stagnation in manufacturing has been automation within America, not pressure from cheaper imports," he said.
Bhagwati quoted Craig Barrett, chief executive of Intel, as saying that American workers faced the prospect of 300 million well-educated people in India, China and Russia who can "do effectively any job that can be done in the United States."
But, he emphasises, such concerns seem exaggerated. "There is little evidence of a major push by American companies to set up research operations in the developing world. I have taught hundreds of fine foreign students in the last few years, but only a small fraction are at the level of proficiency that Intel looks for in its research programmes," he said.
A cursory look at American immigration, he added, would show that the best students in high-tech fields came from just a handful of world-class institutions in those countries.