Transcript Offshoring - Political Myths and Economic Reality

David Smith
The Sunday Times
Offshoring
Political myths and
economic reality
Offshoring’s negative politics (UK)
‘Now this is happening there won’t be
any jobs left in Britain’
 ‘The call-centres replaced
manufacturing jobs – now even they’re
going’
 ‘The government must do something to
prevent big firms doing this’

Offshoring’s negative politics (US)
John Kerry attacks the ‘Benedict Arnold’
CEOs who have transferred jobs
overseas
 Some US states have taken specific
action to prevent public jobs being
offshored
 Offshoring taps into the protectionist
undercurrent in Washington

Political reality (US and UK)
UK government has taken a strong prooffshoring stance. To reject offshoring
would be incompatible with free trade
 Stronger rise in non-farm payroll jobs
starting to soften the anti-offshoring
politics in America

The economic reality of
offshoring
Is it always a ‘win-win’ game?
Offshoring’s economic benefits
Lower costs/lower inflation
 Boost to real incomes in both the
transferring and receiving country
 Offsets labour/skill shortages
 Raise productivity – shift labour into
higher value-added sectors

…. And economic disadvantages
Displaces workers, sometimes in highemployment areas
 Replacement jobs may be hard to find,
or are lower-paid
 Quality of service may suffer – notably
if it relies on proximity to market

Why do firms offshore?
What do they offshore?
How much do they save?
What happens to quality?
What are the risks?
Where does offshoring go?
Telecoms capacity increasing
The UK context - 12 years of
economic growth
Eleven years of low inflation
Employment keeps on rising
… particularly in services
Close to full employment
Healthy UK services trade
Offshoring reduces labour shortages
America - how many jobs?
Some US evidence - GDP
Lower inflation/interest rates
… and a net increase in jobs
US software imports from India
US/Indian software jobs
Conclusions
Offshoring is an easy target for
politicians
 Macroeconomic benefits are significant
 But there will always be individual
losers
