Friday, May 2, 2008

Globalization ≠ Outsourcing

David Brooks is confused about all that "globalization" mumbo-jumbo people are always talking about. Apparently he thinks globalization is the same thing as outsourcing, and that by showing that there's less outsourcing than is commonly believed, he has disproved the "globalization paradigm." From his column today:

Globalization is real and important. It’s just not the central force driving economic change. Some Americans have seen their jobs shipped overseas, but global competition has accounted for a small share of job creation and destruction over the past few decades. Capital does indeed flow around the world. But as Pankaj Ghemawat of the Harvard Business School has observed, 90 percent of fixed investment around the world is domestic. Companies open plants overseas, but that’s mainly so their production facilities can be close to local markets.
Repeat after me: globalization ≠ outsourcing. An American company doesn't have to move to another country for America to lose jobs due to globalization. Just imagine a company that would have located in America but for a trade deal. To prove his argument about globalization's irrelevance, Brooks cites U.S. manufacturing of all industries:
Nor is the globalization paradigm even accurate when applied to manufacturing. Instead of fleeing to Asia, U.S. manufacturing output is up over recent decades. As Thomas Duesterberg of Manufacturers Alliance/MAPI, a research firm, has pointed out, the U.S.’s share of global manufacturing output has actually increased slightly since 1980.
Even under the dubious assumption that "share of global output" is the proper way to measure the impact of globalization, the fact that the U.S.'s share of global manufacturing output has increased proves absolutely nothing about globalization. The proper question would be whether the U.S.'s current share of global manufacturing output is higher or lower than it would have been in the absence of globalization. If it's lower, then the U.S. has lost jobs due to globalization. This is a bit like the supply-siders' argument that the Bush tax cuts paid for themselves because tax revenues are higher now than they were before the tax cuts. That also proves nothing, as the proper question is whether tax revenues are higher now than they would have been in the absence of the tax cuts. David Brooks doesn't understand this. And yet some people consider him a "thinking" Republican. That makes me sad.

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