Misplaced fears: why the outsourcing scare is overblown.

• Author: Ezrati, Milton

Although the media for the time being has shed its panic over the outsourcing of jobs abroad, the issue nonetheless remains dangerous, not to American jobs directly, that was always overblown, but because the fear of outsourcing presents a powerful and ongoing political temptation to protectionism. Certainly campaign rhetoric in this election season testifies to that fact. The stakes are high. Even a hint ,that the United States might withdraw support for the world's free-trade regime (painstakingly developed during past decades) threatens global growth prospects and consequently more American jobs than any Chinese toy factory or Indian call center could. It is critically important, then, to put this situation into perspective.

The issue of outsourcing overseas is neither new nor is it as overwhelming as some suggest. At base, it is just the latest installment in the long-standing challenge to the United States from cheap foreign labor, one that began in the 1950s, when European wages were low, and has continued over time with a shifting focus to various countries. Since it is not new, it does not require new solutions, especially a dangerous protectionist response. The United States has managed throughout this long time without resorting to protectionism. It has instead met the challenge of cheap foreign labor successfully with impressive gains in labor productivity and ongoing innovation. The country can do the same in the present instance, too.

There can be little doubt that today's challenge from low foreign wages is as great as it has ever been. A few simple comparisons illustrate. According to IBM, a Chinese programmer with three to five years of experience earns the equivalent of around $12.50 an hour. His American equivalent makes closer to $56.00 an hour. American firms operating in Bangalore, India, note that a software engineer there makes about $30,000 year, less than one-sixth of his Silicon Valley equivalent. The average English-speaking telephone operator in India makes about $1.50 an hour, compared with $11.00 for a similar operator in the States.

Such vast wage differences seem insurmountable and lead naturally to frightening views of a future full of unemployment and poverty. Feeding that fear is a report from the Gartner Group, an independent consulting firm. It indicates that some 80 percent of American boards of directors have responded to such wage differentials by discussing outsourcing offshore. More than 40 percent...