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December 25, 2003

Productivity is the real "villain" for job losses; not outsourcing

China lost 16 million manufacturing jobs, a decline of 15 percent, between 1995 and 2002, says The International Herald Tribune quoting a recent study by Alliance Capital Management. In that same time, U.S. factory employment shrank by 2 million, or 11 percent. That is, China--the so-called factory of the world--lost manufacturing jobs at a faster rate than the US!!

So where are these jobs going? "That place is called Silicon Valley, where engineers are producing machines that work cheaply and make businesses the world over run more efficiently," says Kevin Laws, Entrepreneur In Residence at Venture Capital firm Pacific Rim Partners, in his VentureBlog article. "Running more efficiently means you can produce more things with less capital --and less people," he adds.

Here is how the IHT article concludes:

As hard as expendability is on the workers themselves, increased productivity is the way progress is made. And the alternative is not so appealing.

"Our studies suggest that hunter-gatherer societies offer full employment for all, simply providing the basic necessities of food and shelter," Steve Wieting, senior economist at Citigroup, says.

Of course, with all of their resources devoted to providing food and shelter, hunter-gatherers tend to have little "income" left to consume anything else - made in China or otherwise.

Kevin Laws rephrases this from a tech industry perspective in his article:

Of course it would be possible to keep the jobs in America through measures to prevent corporations from outsourcing development, just as it would be possible to keep high buggy-whip industry salaries by banning autos.

But we won't, because technological progress makes us all wealthier. Our bargain with each other is that we can't stop the technology that hurts our own jobs as long as others can't stop us from producing the technology that hurts theirs. In the end, we'll do better living in a society that is advancing rather than one that protects all our current positions by preventing innovation.