The Shanghai Squeeze : Part 2

Fast Boat to China: High-Tech Outsourcing and the Consequences of Free Trade: Lessons from Shanghai
by Andrew Ross, Ph.D.

(Page 2 of 2)

Each sizable plant closure, the commission's report continued, had a "ripple effect on the wages of every worker in that industry and that community, through lowering wage demands, restraining union organizing and bargaining power, reducing the tax base, and reducing or eliminating hundreds of jobs in the related contracting, transportation, wholesale trade, professional and service sector employment in companies and business."

The authors of study estimated that in the eight years since 1992, 760,000 jobs had been lost due to U.S.-China trade, and predicted a rapid increase in the current rate (between 70,000 and 100,000 jobs each year) after China joined the WTO. There was also evidence of a direct link between corporate investment in China in selected industries and domestic job loss in those same industries at home. The conclusion to the study was a sharp indictment of free-trade policies pursued by Republican and Democratic administrations at the behest of the business wings of their parties and U.S. multinational investors in China: "Our research concludes that the U.S. and other countries have moved ahead with trade policies and global economic integration based on faulty arguments and incomplete information."

A follow-up study, covering the period from January through March 2004, did indeed show a sharp increase in the number of production shifts, as well as the number of industries involved, and reported that corporations had established a pattern of simultaneous transfers to multiple low-wage destinations, both near shore (i.e., Mexico) and offshore (China). No government body had collected this kind of data on the domestic impact of overseas trade policies, and the studies flatly refuted what many economists had argued about the benefits brought to the United States by the "virtuous circle" of free trade. A subsequent study, undertaken for the commission by the Economic Policy Institute, found that the U.S.-China trade deficit was responsible for the loss of 1.5 million American jobs from 1989 to 2003. According to this survey, published in 2005, job displacement had doubled since China joined the WTO, and the fastest growth was occurring in highly skilled and technologically advanced areas, such as electronics, computers, and telecommunications. Indeed, China now accounted for the entire U.S. trade deficit ($32 billion) in "advanced technology products."

The commission's own field hearings, conducted in Columbia, South Carolina (September 2003), San Diego, California (February 2004), Akron, Ohio (September 2004), and Seattle, Washington (January 2005), generated a wealth of testimony from politicians, economists, manufacturers, employees, and trade unionists about the debilitating impact on U.S. industries and communities of job and capital flight to China. The industrial sectors under investigation ranged from textiles, apparel, and furniture in South Carolina; to steel, auto, and machine tools in Ohio; high-tech in California; and aerospace and software in Washington. At each hearing the commission's findings were sharply critical of how policies that were introduced to promote free trade were, in practice, actively encouraging and, in some instances (involving the Export-Import Bank), funding the transfer overseas of manufacturing, services, and R&D. According to one commissioner, "We appear to be mortgaging a broad array of assets, pieces of our country's economic future, in a historic stampede for short-term gains in corporate profitability and consumer pricing."

In the years following the onset of the recession, estimates of domestic job loss came thick and fast from many other quarters. By

the end of 2003, the number most commonly cited was 3 million jobs lost since 2000, though all such estimates had to be balanced against how many jobs the economy would have been expected to create in a normal recovery. According to one such report, over the course of

the actual recovery from the recession (from November 2001 to November 2003), 1.3 million jobs in manufacturing alone were lost, along with 272,000 jobs in information services, and 93,000 jobs in professional/technical services. These were all in sectors that paid above-average wages. Job gains in this period were predominantly

in lower-wage sectors. By 2004, only 65.9 percent of employable adults - a sixteen-year low - had jobs or were looking for work. Though the bulk of the losses were in manufacturing, and were assumed to have mostly migrated to China, as many as 30 percent were estimated to be in white-collar, IT-enabled services, flowing abroad primarily to India. If those displaced found full-time employment, by far the majority were earning less than at their previous positions. On the whole, these earnings losses had been increasing since the mid-1990s. Department of Labor figures that analyzed the job downturn showed a sustained impact on older, more experienced workers, a result that was consistent with patterns of outsourcing.

Much of the headline-grabbing data about job loss, and projections of future flight, came from private consultancies like Forrester Research, the Gartner Group, Technology Partners International, the Boston Consulting Group, and the McKinsey Global Institute. Their research analysts played both sides of the issue. They advised their client firms to move offshore whatever assets they could, as soon as they could, while also issuing publicity-conscious reports that were guaranteed to scare the living daylights out of Americans who still had jobs in vulnerable sectors. The mainstream press followed the same schizophrenic path. Alarmist human-interest stories about jobs lost alternated with reassurances, often directly from the mouths of business economists, about the beneficial impact of outsourcing "in the long run."

The analysts' most alarming reports offered estimates of unprecedented losses in white-collar services and skilled IT jobs. A much-cited Forrester Research report in November 2002 projected that by 2015 the United States would lose about 3.3 million such jobs. In July 2003, the Gartner Group estimated that by the end of 2004, one in ten technology jobs at American IT companies and one in twenty at non-IT companies would have moved offshore. In addition, only 40 percent of those who had lost jobs were likely to be retrained and redeployed by the firms surveyed. Some estimates were even higher. Researchers at the Fisher Center for Real Estate and Urban Economics predicted that as many as 14 million white-collar service employees, or 11 percent of the nation's total jobs, were vulnerable to offshoring.

Even after the U.S. economy began to add jobs in the winter of 2003-4, the estimates continued to rise. The market-research firm Technology Partners International reported that the second quarter of 2004 saw a 35 percent increase in the value of IT outsourcing contracts over the previous year, indicating that companies were increasingly committed to moving their entire IT operations out of house. In March 2004, McKinsey reported that multinationals had moved $35 billion of investment offshore in 2002 alone, and forecast that the rate of offshoring would grow between 30 percent and 40 percent annually at least through 2008. Outsourcing was no longer an option in services: it was considered a requirement of business-process jobs in call centers, loan processing, and back-office accounting; it was becoming an imperative in a whole range of engineering sectors and services like financial analysis; and it was marching steadily into the legal and medical professions. In July 2004, Boston Consulting Group adopted a more apocalyptic tone in warning firms that they faced extinction if they did not move offshore: "Companies that wait will be caught in a vicious cycle of uncompetitive costs, lost business, underutilized capacity, and the irreversible destruction of value."

Copyright © 2006 by Andrew Ross.

About the Author

Andrew Ross is Professor of American Studies at New York University. He is the author of seven books, including No-Collar: The Humane Workplace and its Hidden Costs, The Celebration Chronicles: Life, Liberty and the Pursuit of Property Value in Disney's New Town and Low Pay, High Profile: The Global Push for Fair Labor. He has also edited six books, including No Sweat: Fashion, Free Trade, and the Rights of Garment Workers, and, most recently, Anti-Americanism.