The Real Cost of Offshoring

BUSINESS WEEK, JUNE 18, 2007
http://www.businessweek.com/magazine/content/07_25/b4039001.htm
COVER STORY
By Michael Mandel

The Real Cost Of Offshoring

U.S. data show that moving jobs overseas hasn’t hurt the economy. Here’s why those stats are wrong

Whenever critics of globalization complain about the loss of American jobs to low-cost countries such as China and India, supporters point to the powerful performance of the U.S. economy. And with good reason. Despite the latest slow quarter, official statistics show that America’s economic output has grown at a solid 3.3% annual rate since 2003, a period when imports from low-cost countries have soared. Similarly, domestic manufacturing output has expanded at a decent pace. On the face of it, offshoring doesn’t seem to be having much of an effect at all.But new evidence suggests that shifting production overseas has inflicted worse damage on the U.S. economy than the numbers show. BusinessWeek has learned of a gaping flaw in the way statistics treat offshoring, with serious economic and political implications. Top government statisticians now acknowledge that the problem exists, and say it could prove to be significant.The short explanation is that the growth of domestic manufacturing has been substantially overstated in recent years. That means productivity gains and overall economic growth have been overstated as well. And that raises questions about U.S.

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2 comments

  • Amazing! I knew one day we’d figure out what dark matter was made of, and then maybe we’d get some data that may have at least some potential to reflect economic reality when it comes to GDP and international trade data. I can say this, the dark secrets are not just reserved for the US BLS. I think if you looked in our yard, you would find pieces of dark matter that are much larger than the ones residing in the BLS.

  • Just wanted to add that I believe the metrics and problems implicit to the realities of the measurement process are effected by many issues that would greatly expand the list mentioned in the article. Just to name a couple on the trade data front I would start with the goods and service valuation process and currencies valuations for comparison and measurement purposes. (this does not even address the baselines measurement problems of services). Another black hole would be intra-firm trade data and accountability problems for realizing revenues contra tax minimization motivations. These intra-firm transactions account for a significant proportion of trade and without any real power to standardize the measurement, one can only imagine what is counted when and where and what is not but should have been. With the internet, the pace of change and the service industry growth, it is hard to imagine the powers of legitimacy will catch their desired targets anytime soon.

    Pt.

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