Offshoring: The Next Industrial Revolution?

Summary: Economists who insist that "offshore outsourcing" is just a routine extension of international trade are overlooking how major a transformation it will likely bring — and how significant the consequences could be. The governments and societies of the developed world must start preparing, and fast.

Alan S. Blinder is Gordon S. Rentschler Memorial Professor of Economics at Princeton University. He served on the White House Council of Economic Advisers from 1993 to 1994 and as Vice Chairman of the Board of Governors of the Federal Reserve from 1994 to 1996.

In February 2004, when N. Gregory Mankiw, a Harvard professor then serving as chairman of the White House Council of Economic Advisers, caused a national uproar with a "textbook" statement about trade, economists rushed to his defense. Mankiw was commenting on the phenomenon that has been clumsily dubbed "offshoring" (or "offshore outsourcing") — the migration of jobs, but not the people who perform them, from rich countries to poor ones. Offshoring, Mankiw said, is only "the latest manifestation of the gains from trade that economists have talked about at least since Adam Smith. …

More things are tradable than were tradable in the past, and that’s a good thing." Although Democratic and Republican politicians alike excoriated Mankiw for his callous attitude toward American jobs, economists lined up to support his claim that offshoring is simply international business as usual.

Alan S. Blinder
From Foreign Affairs, March/April 2006

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Response to Blinder article:

Working to
ensure that we
Apocalypse Soon? Why Alan Blinder
Gets it Wrong on Offshoring

Robert D. Atkinson

In a recent article in Foreign Affairs entitled “Offshoring: The Next
Industrial Revolution,” noted economist Alan Blinder presented a
provocative and disturbing thesis: the offshoring of service sector jobs is not
just a routine extension of international trade, but a “third industrial
revolution” likely to lead to one of every three American jobs being shipped

1 Blinder warns that, “We have so far barely seen the tip of the
offshoring iceberg, the eventual dimensions of which may be staggering.”
Even though he claims this revolution will lead to a “massive transition”
in the labor market,

2 Blinder puts a good a face on this “coming wave of
offshoring,” encouraging Americans to get used to their new jobs as divorce
lawyers and salespersons, and correctly counseling that it would be a mistake
to erect protectionist walls. But that’s little consolation to the average person
who, according to Blinder, is now playing Russian jobs roulette (Indian
roulette?) with two bullets in the chamber as they purportedly face a one in
three chance of having their job swept out from under them.

Giving up
traded sector as
proposes is a
strategy for

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(Many thanks to Bill Gillis of the Center to Bridge the Digital Divide for passing along this discussion. Russ)

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