Mankiw on Outsourcing

"Free trade is good for America. The truth is when a good or service is produced at lower cost in another country; it makes sense to import it rather than to produce it domestically'.
– Gregory N. Mankiw

A statement from the chairman of President Bush's Council of Economic Advisers N. Gregory Mankiw did not sit well with the Bush administration. Mankiw had spoken a bitter truth, an act rarely done in politics, on the issue of outsourcing. He upheld free trade along with justifying outsourcing as being economically beneficial for America (see The Outsourcing Times at http://www.blogsource.org ).

At any other point of time, his remarks would not have created even a hiccup. But coming at a time when there is a sort of national debate going on over the issue of outsourcing, remarks from a prominent economist on Bush's staff pack major political punch. And with the presidential elections round the corner, the issue is more important than ever.

Democratic presidential candidate Senator John Kerry has come down severely on the Bush administration, and has proposed to come up with stringent regulations to check the increasing flow of outsourcing, if elected to power. Backing him is a large population of IT specialists, who claim to have lost their jobs due to the outsourcing to offshore locations, especially to China and India.

The present rate of unemployment in America is approximately 5.7%, which cannot be termed as an alarming figure by comparing it to the past or by comparing it to the figures from other nations; the present rate of unemployment in France, Germany and Canada being 9.3%, 9%, and 6.8% respectively.

It is not that such a phenomenon is occurring for the first time. History has been witness to similar results of free trade, but they are often short-term problems that ultimately lead to long-term gains. It is true that the rate of unemployment in America has been constantly growing for the past three years, more so in the IT sector, but the situation is not as disastrous as the media is projecting it to be. What's making the situation worse is the fact that the whole focus is on the lost jobs, more for political mileage than for any other reason, and the benefits are being totally ignored.

The importance of this issue can be gauged by the fact that in a recent poll, while 22% respondents considered this issue to be somewhat important for the forthcoming elections, 68% named it as ‘very important'.

President Bush and the Republican Party support free trade and are considered to be supporters of Corporate America – the biggest advocators of outsourcing. They are now highlighting the benefits of outsourcing in an attempt to counteract the opposition's anti-outsourcing campaign.

The Democrats are considered to be more close to the common man, and though not ‘anti-business', they are ready to take all the steps necessary to check outsourcing. In this very context, John Kerry has proposed to introduce tax benefits for those businesses who keep jobs in America.

Experts believe that this strong anti-outsourcing stand taken up by the Democratic Party is going to soften in the coming months, as they face strong opposition from the Corporate America. As the elections draw closer, more debate is expected on this issue before things settle down. And due to its strong economical impact, it may also be the key for the next President to go into the White House.

Dotmarketer, LLC is a privately held company based in Los Angeles, California. For more information, please visit http://www.dotmarketer.com . Visit The Outsourcing Times at http://www.blogsource.org .

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