When economic times are bad, animosity is directed at foreigners: “They’re taking our jobs!” So it’s unsurprising that the presidential campaigns feature charges and countercharges about outsourcing, the employment of foreign labor by American companies. This is a dangerous game because it sows the seeds of trade war.
Economists understand the benefits of the division of labor. If you and your family had to live on only what you could produce yourselves, you’d be dirt poor. You wouldn’t be much better off if you could buy only what the residents of your town or county could produce. As the trading area grows, a more intensive specialization and hence division of labor are possible. Combine this with the increased productivity that the growth in knowledge and inventiveness also make possible, and dramatic prosperity results.
Adam Smith observed, “The division of labor is limited by the extent of the market.” If the extent of the market is artificially constricted by politicians (no one else has such power), the division of labor and its concomitant progress are stunted — and we are poorer than we would have been.
Thus we should worry whenever politicians attempt to incite the public against global trade in goods and services.
“But they’re taking our jobs!” In the course of things, jobs are moving, changing, disappearing, and emerging all the time. It can be disconcerting and disruptive, but we wouldn’t like the alternative: a government powerful enough to stifle freedom and change. When the free market is allowed to operate (which is not the case today), change is the rule. Consumer preferences evolve. Entrepreneurs try to win favor by offering new or improved goods. New knowledge brings technological developments that lower costs, which enable things to be produced with fewer resources and less labor.
While of course this all can create hardship for those — workers and business owners — invested in the old ways, the general benefits are undeniable. Whenever fewer resources and less labor are required to produce a good, resources and labor formerly devoted to that good can now be directed to things we couldn’t afford yesterday. That’s how societies prosper.
Moreover, whenever a new good comes to market, it plants the seeds of new opportunities for other people. Think of the many firms launched to complement the personal-computer industry, with products ranging from software to a multitude of accessories. No one was making mouse pads, laptop fans, and web cams a few years ago, nor mobile-phone cases, ring tones, and apps.
The same process that “destroys” jobs also creates them. Our desire for goods and services is open-ended, and so the opportunities for work — absent government impediments — are similarly unlimited. Even if we could acquire all imaginable “necessities,” we also value leisure, which results in the demand for skis, tennis racquets, fishing rods, e-book readers, tablets, game consoles, and things yet to be dreamed up.
I don’t wish to understate the hardship that change can produce. But government policies designed to tamp down change are a blueprint for poverty for the poorest among us. The wealthy have their riches already. It is those who have yet to make it who stand to lose the most from economic stagnation.
Fortunately, the hardship that is a byproduct of social dynamism can be ameliorated by the very freedom which produces that dynamism. Because our desire for goods and services is unlimited, there is always new work to be done.
It is shameful for Americans – fabulously wealthy by world and historical standards – to begrudge poorer people their chance to prosper. Progressives and conservatives profess compassion and charity – but they are the first to object when the world’s worst-off “take our jobs!”
The foregoing requires a caveat. America does not have a free market; the economy is laden with intervention, much of it in the form of privileges for big, established companies at the expense of would-be competitors. Tax and regulatory interventions distort market forces and facilitate the migration of jobs and other resources.
Moreover, neo-feudalism in developing countries likely reduces workers’ options, providing cheaper labor to transnational corporations.
All of this underscores the imperative to free the market at home and to set an example for others abroad. Global cooperation beats trade war every time.