Wednesday, September 10, 2014

Reshorings aren't happening - and that's a good thing

According to research by Jim Rice at MIT, reported by Robert Wright at The Financial Times, (HT: EV) reshorings - the movement of offshored production back to the US - have been overstated.  This seems to be generally viewed as a problem, because this production is associated with jobs.  But, I think this view is misguided.

If we found that more Americans were also returning to agricultural work, that would also be bad news - as would be a surge in jobs among typists, blacksmiths, and ice handlers because Americans had given up computers, cars, and freezers.

The widespread error of attributing the growth of foreign production to low wages creates these sort of misinterpretations.  It is better to think of the application of functional public institutions, such as universal, transparent property rights, the ability to engage in commerce with minimal harassment, etc. as an improvement in technology.  Foreign production is the result of this technological advancement, which attracts capital and produces higher wages for local laborers.  The production is moving to where wages are rising.  Those wages are low because of the pre-existing dysfunctions.

The growth in foreign production - which, in the emergent, decentralized system of commerce that creates abundance will inevitably result in the movement of some existing production - has created dislocations.  All growth creates dislocations.  The existence of dislocations is not a valid reason for the elimination of growth.  For instance, we should not reverse the cultural and legal equality of women just because it means that men have to adjust to having fewer privileges - even if some of those adjustments are difficult and if some of them are borne by men who are not especially privileged.

As with much technological improvement, the effect of these changes is to free labor up to create new goods and services that we couldn't produce before - frequently they are goods and services that we never conceived of before.  These are jobs that are good news.

This notion of jobs being taken away or underbid leads to a backwards looking framing, where we want to fill the jobs gap with jobs that represent economic regression.  This is one of the core sources of conflict between the neo-liberal conception of the economy and conservative economic conceptions (oddly associated in the US with "Progressive" factions).  The best forward-looking way to fill the job gap is to create a legal and cultural context where the obstacles to creating those new goods and services are minimized.  This involves a sort of faith in the ability of markets to create things that exceed our individual imaginations.  Faith is probably too strong of a word for this.  It's akin to having faith that your heart will keep beating through the night.

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