University of Chicago
Type of paper: Thesis/Dissertation Chapter
Offshoring: The Next Industrial Revolution?
Offshoring can be loosely defined as the movement of jobs or business opportunities from one country to another country. Alan S. Blinder cites Mankiw’s prediction of things becoming tradable with time, as long as the immediate environment allows: greater business options, albeit with consequences.
Jobs in the US are going abroad with each subsequent year thanks to comparative advantage and advancement in technology. In today’s society, services that were traditionally nontradable, mainly because of Nature and distance, are now emerging as tradable due manipulation by human effort. This tilts the balance in favor of the cheaper better option.
The end results of the first and second industrial revolutions were creation of employment, rural-urban migration, and changes in lifestyles as more people became wealthier. Moreover, during 1967 and 2003, there was increased percentage in service provision than goods manufacturing, according to the Organization for Economic Cooperation and Development.
However, the dawn of the third revolution- information age, comes the ability of widening the scope of tradable services at the expense of massive unemployment. Diversity within the market allows for cohesion among the players, resulting to increased productivity and delivery of superior quality goods and services. Also, it was noted that there was a shift towards preference for leisure services like take-away, rather than manufactured goods like clothing. Consequently, there was decline in GDP for 50 years, from 30 percent to 13 percent, as indicated by the increase in importation.
Still, Blinder argues that the solution to offshoring does not lay with higher educational inputs and training but with investing in more creative and interpersonal service provision. Those jobs that require physical contact or face to face consultations with the consumer or buyer will be more secure than those services that don’t require a human touch, regardless of educational background or skills. Like manufacturing jobs, these services can be done better, faster and more efficiently, by machines than by humans. The lower the costs involved the greater their demand in the market. Consequently, it is these jobs that are viewed as tradable and hence threatened.
Offshoring will threaten those jobs easily manipulated electronically, resulting to superior quality and quicker task execution. Therefore, modernization and technological advancement- results of the third revolution will continue to accelerate potential offshoring, especially in the first worlds.
Third world countries like India and China have heavily invested in technology and service provision, such that they have and can easily infiltrate the job market for both personal-service jobs and the impersonal-service jobs. Noting that the highly personal services like internists are more secure than those that can be performed better by machines like telephone operations.
Finally, Baumol’s disease is an exception because it refers to an increase in wages without improved production or advancement unlike in the manufacturing business. This is because, the results would be undesirable in terms of production or impossible quantitatively speaking. Therefore, teaching can only be productive if the students are fewer and the salaries fatter, translating to increased educational costs. However, demand is a direct response to cost and it contributes to the rate at which personal services are becoming increasingly impersonal, such that cosmetic surgery -a luxury-personal service, is now cheaper than the cost of educating your child-an ordinary-personal service.
Resolution, greater flexibility to allow for an easier and successful transition in the job market, investing in people skills and creativity to allow for easier retraining and eventual redeployments. Offshoring is an inevitable event, but if the US prepares for it now, through specialization in nontradable services and improved affordable quality education, the repercussions would be manageable by then.
Blinder, Alan S. “Offshoring: The Next Industrial Revolution?” Foreign Affairs. Council of Foreign Relations.March/April 2006 <http://www.foreignaffairs.org/20060301faessay85209/alan-s-blinder/offshoring-the-next-industrial-revolution.html >.