Now that the elections are over, there’s little political gain for demagoguery about jobs, but let’s prepare ourselves for the next time. Losing a job means a financial crunch and readjustment regardless of the source of job loss. If it’s not from an economic downturn, the loss might be a result of outsourcing, but much more likely, it’s a result of technological innovation. Job destruction and job creation through natural market forces are enriching. Calling for Congress to save or create jobs is to court disaster. Let’s look at a bit of job-loss history. Anthony B. Bradley, a research fellow at the Grand Rapids, Mich.-based Acton Institute, has written an article on the subject, “Productivity and the Ice Man: Understanding Outsourcing.” Citing the work of Forrester Research Inc., a technology research firm, Bradley says, “Of the 2.7 million jobs lost over the past three years, only 300,000 have resulted from outsourcing.” Job losses and job gains have always been a part of our history.
Let’s look at some of the history of job loss described in Bradley’s article. We might also ponder whether measures should have been taken to save these jobs. In 1858, Lyman Blake patented a shoemaking machine that ultimately destroyed jobs hand making shoes. In 1919, General Motors started selling Frigidaire. As Bradley says, “This ‘electric ice box’ wiped out a whole set of occupations, including ice-box manufacturers, ice gatherers, and the manufacturers of the tools and equipment needed to handle large blocks of ice.”
Auto manufacturers use thousands of robots for tasks that people used to do such as spot welding, painting, machine loading, parts transfer and assembly. Robots have replaced thousands of workers in electronic assembly and mounting microchips on circuit boards, reports Bradley.
We could probably think of hundreds of jobs that either don’t exist or exist in far fewer numbers than in the past – jobs such as elevator operator, TV repairman and coal deliveryman. “Creative destruction” is a discovery process where we find ways to produce goods and services more cheaply. That in turn makes us all richer.
That same principle applies when it’s outsourcing serving as the engine for creative destruction. Daniel W. Drezner, assistant professor of political science at the University of Chicago, discusses outsourcing in “The Outsourcing Bogeyman” (Foreign Affairs, May/June 2004). Professor Drezner reports that for every dollar spent on outsourcing to India, the United States reaps between $1.12 and $1.14 in benefits. Why? U.S. firms save money and become more profitable, benefiting shareholders and increasing returns on investment. In the process, U.S. workers are reallocated to more competitive, mostly better-paying jobs.
Drezner also points out that large software companies such as Microsoft and Oracle have increased outsourcing and used the savings for investment and larger domestic payrolls. Nationally, 70,000 computer programmers lost their jobs between 1999 and 2003, but more than 115,000 computer software engineers found higher-paying jobs during that same period. By the way, when outsourcing doesn’t work, companies backtrack, as have Dell and Lehman Brothers, which have moved some of their call centers back to the United States from India because of customer complaints.
The last election campaign featured great angst over the loss of manufacturing jobs. The number of U.S. manufacturing jobs has fallen, but it has little to do with outsourcing and a lot to do with technological innovation – and it’s a worldwide phenomenon. During the seven years from 1995 through 2002, Drezner notes, U.S. manufacturing employment fell by 11 percent. Globally, manufacturing jobs fell by 11 percent. China lost 15 percent of its manufacturing jobs, and Brazil lost 20 percent. But guess what. Globally, manufacturing output rose by 30 percent during the same period. Technological progress is the primary cause for the decrease in manufacturing jobs.
What should a person do when innovation or international trade costs him his job? Do what the iceman did when Frigidaire cost him his job. Instead of calling on Congress to enact job protectionist measures, he did what was necessary to find another job.