Think Globally, Act Locally

Near the middle of a three-hour round table on globalization that touched on innovation in medieval China, the impact of Sept. 11 on graduate engineering programs and India's market for software, New York University professor WILLIAM BAUMOL offered a much needed reality check: "The fundamental issue that we're losing in this discussion is, Is outsourcing bad for America? Is globalization good or bad for America?" Baumol, along with his fellow panelists on TIME's Board of Economists RON HIRA of the Rochester Institute of Technology, CATHERINE MANN of the Institute for International Economics and MATTHEW SLAUGHTER of the Tuck School of Business at Dartmouth proceeded to delve into that hotly contested question. Under prodding from TIME's JYOTI THOTTAM, the panel wrestled with issues of policy, politics and economic philosophy, sometimes clashing sharply. But in the end they agreed on a sobering call to action. The future of U.S. competitiveness in a globalized economy, they argued, depends on helping American workers through a period of historic transition.

TIME: Outsourcing has really dominated the economic press this year. What issues in the debate have been ignored?

CATHERINE MANN: The gains from globalization are very large and very real. Of course, the adjustment costs associated with getting these gains are coming from firms closing, from workers having to get new jobs. Historically, these adjustment costs have tended to be discounted. We can no longer afford to ignore them. We must address them explicitly. Rising wage disparities tell us something about where policies should be directed.

WILLIAM BAUMOL: There is a very clear possibility that the common man and woman's view is right: that [economic] catch-up in China may lead to a lower level and rate of growth of GDP per capita in the U.S. I am not advocating tariffs. We are so much richer than China that it may be desirable for us to make a modest sacrifice to raise their standards of living. But better still is for us to take measures that will be advantageous both to China and to us. It is obscene for us to ignore the effects [of outsourcing] on those who are hurt by it. Surely we are rich enough as a nation not to leave the ones with obsolete skills, those who are hurt by technological change and globalization, to their fate.

RON HIRA: Let me give you my take on outsourcing. First, how much of it is going on? Really, no one knows. Companies are very reluctant to reveal how many jobs they've eliminated here in favor of moving work offshore. The government is not collecting the data, and I see this as a major failure. We do know that it's not insignificant, and it's accelerating.

MANN: We can't on one hand say we don't know how big outsourcing is but on the other say it's accelerating and therefore we ought to worry about it.

MATTHEW SLAUGHTER: There is something lost in the discussion about trying to identify the number of jobs lost to outsourcing. Counting jobs in these snapshots misses the point. Globalization for the U.S. economy continues to create very large gains, but those gains don't accrue to every single worker. There's too much focus [on] policy solutions for those directly impacted. Given the fluidity in the labor market, these pressures are really spread economywide.

MANN: The question is, What policies do we have to have in place to address people who lose their jobs and won't ever get another one in the same industry?