David Wessel and Bob Davis report on Alan Blinder's ("Princeton University economist, former Federal Reserve Board vice chairman and perennial adviser to Democratic presidential candidates") thinking on free trade on the front page of today's Wall Street Journal: "Job Prospects. Pain from Free Trade Spurs Second Thoughts. Mr. Blinder's shift Spotlights Warnings of Deeper Downside. (March 28 - subscription required, although Jason Silver reports, "You can access those Wall Street Journal articles for free with a netpass from: http://news.congoo.com")
It turns out that Blinder is for free trade:
Alan S. Blinder still considers himself a free trader ...
Mr. Blinder's answer is not protectionism, a word he utters with the contempt that Cold Warriors reserved for communism. Rather, Mr. Blinder still believes the principle British economist David Ricardo introduced 200 years ago: Nations prosper by focusing on things they do best -- their "comparative advantage" -- and trading with other nations with different strengths. He accepts the economic logic that U.S. trade with large low-wage countries like India and China will make all of them richer -- eventually. He acknowledges that trade can create jobs in the U.S. and bolster productivity growth.
He does worry, though:
But he says the harm done when some lose jobs and others get them will be far more painful and disruptive than trade advocates acknowledge. He wants government to do far more for displaced workers than the few months of retraining it offers today. He thinks the U.S. education system must be revamped so it prepares workers for jobs that can't easily go overseas, and is contemplating changes to the tax code that would reward companies that produce jobs that stay in the U.S.
In Washington in the 90s, Blinder was a strong advocate for free trade. He returned to Princeton in the mid-90s. The article suggests that he began to become significantly more concerned about the impact of trade on the job market two to three years ago, as he was exposed to anecdotes about offshoring and new forms of competition from abroad. He began to study the impact on the job market. His thinking was summarized in a Foreign Affairs article in 2006: Offshoring: The Next Industrial Revolution, April 2006):
In that paper, he made a "guesstimate" that between 42 million and 56 million jobs were "potentially offshorable." Since then he has been refining those estimates, by painstakingly ranking 817 occupations, as described by the Bureau of Labor Statistics, to identify how likely each is to go overseas. From that, he derives his latest estimate that between 30 million and 40 million jobs are vulnerable.
He says the most important divide is not, as commonly argued, between jobs that require a lot of education and those that don't. It's not simply that skilled jobs stay in the US and lesser-skilled jobs go to India or China. The important distinction is between services that must be done in the U.S. and those that can -- or will someday -- be delivered electronically with little degradation in quality. The more personal work of divorce lawyers isn't likely to go overseas, for instance, while some of the work of tax lawyers could be. Civil engineers, who have to be on site, could be in great demand in the U.S.; computer engineers might not be.
What he wants is the development of social mechanisms to address the transitional costs associated with the short run turmoil that the reorganization of production is going to create in many lives. His policy recommendations from the Foreign Affairs paper:
What is to be done about all of this? It is easier to describe the broad contours of a solution than to prescribe specific remedies. Indeed, this essay is intended to get as many smart people as possible thinking creatively about the problem.
Most obvious is what to avoid: protectionist barriers against offshoring. Building walls against conventional trade in physical goods is hard enough. Humankind's natural propensity to truck and barter, plus the power of comparative advantage, tends to undermine such efforts -- which not only end in failure but also cause wide-ranging collateral damage. But it is vastly harder (read "impossible") to stop electronic trade. There are just too many "ports" to monitor. The Coast Guard cannot interdict "shipments" of electronic services delivered via the Internet. Governments could probably do a great deal of harm by trying to block such trade, but in the end they would not succeed in repealing the laws of economics, nor in holding back the forces of history. What, then, are some more constructive -- and promising -- approaches to limiting the disruption?
In the first place, rich countries such as the United States will have to reorganize the nature of work to exploit their big advantage in nontradable services: that they are close to where the money is. That will mean, in part, specializing more in the delivery of services where personal presence is either imperative or highly beneficial. Thus, the U.S. work force of the future will likely have more divorce lawyers and fewer attorneys who write routine contracts, more internists and fewer radiologists, more salespeople and fewer typists. The market system is very good at making adjustments like these, even massive ones. It has done so before and will do so again. But it takes time and can move in unpredictable ways. Furthermore, massive transformations in the nature of work tend to bring wrenching social changes in their wake.
In the second place, the United States and other rich nations will have to transform their educational systems so as to prepare workers for the jobs that will actually exist in their societies. Basically, that requires training more workers for personal services and fewer for many impersonal services and manufacturing. But what does that mean, concretely, for how children should be educated? Simply providing more education is probably a good thing on balance, especially if a more educated labor force is a more flexible labor force, one that can cope more readily with nonroutine tasks and occupational change. However, education is far from a panacea, and the examples given earlier show that the rich countries will retain many jobs that require little education. In the future, how children are educated may prove to be more important than how much. But educational specialists have not even begun to think about this problem. They should start right now.
Contrary to what many have come to believe in recent years, people skills may become more valuable than computer skills. The geeks may not inherit the earth after all -- at least not the highly paid geeks in the rich countries. Creativity will be prized. Thomas Friedman has rightly emphasized that it is necessary to steer youth away from tasks that are routine or prone to routinization into work that requires real imagination. Unfortunately, creativity and imagination are notoriously difficult to teach in schools -- although, in this respect, the United States does seem to have a leg up on countries such as Germany and Japan. Moreover, it is hard to imagine that truly creative positions will ever constitute anything close to the majority of jobs. What will everyone else do?
One other important step for rich countries is to rethink the currently inadequate programs for trade adjustment assistance. Up to now, the performance of trade adjustment assistance has been disappointing. As more and more Americans -- and Britons, and Germans, and Japanese -- are faced with the necessity of adjusting to the dislocations caused by offshoring, these programs must become both bigger and better.
Thinking about adjustment assistance more broadly, the United States may have to repair and thicken the tattered safety net that supports workers who fall off the labor-market trapeze -- improving programs ranging from unemployment insurance to job retraining, health insurance, pensions, and right down to public assistance. At present, the United States has one of the thinnest social safety nets in the industrialized world, and there seems to be little if any political force seeking to improve it. But this may change if a larger fraction of the population starts falling into the safety net more often. The corresponding problem for western Europe is different. By U.S. standards, the social safety nets there are broad and deep. The question is, are they affordable, even now? And if so, will they remain affordable if they come to be utilized more heavily?
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