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Around two years after the proverbial slip that became one of the most discussed topics of the 2004 US election, Dr. Greg Mankiw, Professor at Harvard University and a respected economist, has finally thought it apt to explain to the world why his stance of calling outsourcing yet another form of international trade was right.
Almost 18 months after quitting as the Chairman of the Council of Economic Advisors (CEA) to President Bush, Dr. Mankiw, often vilified by the anti-outsourcing lobby and blamed by friends of the President for creating an issue for the opposition, gives his side in a discussion paper, Politics and Economics of Offshore Outsourcing, that he has co-written with Philip Swagel, former Chief of Staff at CEA and presently with the American Enterprise Institute.
Though the paper covers the phenomenon of offshore outsourcing quite comprehensively, the best part of it is the section where Mankiw and Swagel have re-construed the entire chain of events that led to outsourcing becoming such a hot issue. The authors have tracked all media reports, the reactions of politicians, and have offered clarification to each of those. At the end, they agree that it was probably "a tactical error from a communications standpoint." Or to repeat the old line, good economics is not always good politics.
It all started with the press conference on February 9, 2004, called to release the 2004 Economic Report of the President. Mankiw's statement that outsourcing is just a new way of doing international trade was what has been believed so far to spark off the whole debate. A couple of days after the press conference, speaker of the House, Dennis Hastert, even remarked that Mankiw's ideas "failed basic test of real economics." It ultimately led to Democratic candidate Senator John Kerry making it "the issue"
The Suppressed 2004 Report
Prof. Mankiw might have meant what he said about outsourcing and international trade, with all sincerity. But many now believe that other members of the Bush Administration had no such values when they decided not to make public another report, An Overview of Workforce Globalization in the U.S. IT Services and Software, U.S. Semiconductor, and U.S. Pharmaceutical Industries, which was originally prepared in July 2004 by the U.S Department of Commerce, Office of Technology Policy, just five months after Mankiw's comments and just four months before the presidential election --- apparently because of the fear that it might hurt the President's re-election campaign.
Even the Congress was given a 12-page summary of the report, which concealed most of the potentially harmful findings. The administration turned down the request of the House again in October 2005 for the full copy.
A section of the media has now obtained the report and has extensively written on it, leading to flak for the administration from various quarters, including professionals and anti-offshoring associations. The issue has not flared up into a major political issue, though.
The opinion is divided whether re-visiting 2004 would create the same turmoil this time around. While politics has its own rules and realities, business observers, however, feel that offshoring has been accepted as a part of life, since then.
"I firmly believe that the world market for engineering talent should be left to go where it finds its optimum. If we fight IC design outsourcing with federal government intervention, it will only slow down the inevitable. It will not only make it harder for U.S. companies to compete, but will also put off the necessary, though, painful adjustments that engineers must make," says Robert Kier, a hardware engineer with Sun Microsystems, while adding that, "there can be no progress without change."
"I have to believe that in the long term it [outsourcing] will push us to be better, and, hopefully, to re-invent. I do believe that in the short term it will affect our salaries and create a dislocation, which will be quite tough on many of us," says Riko Radojcic, an engineer in a U.S. semiconductor company.
Politics may keep winning the battles, while economics will probably still win the war.
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