Question 1
Tom Friedman, The New York Times Foreign Affairs columnist
I recently returned from a trip to Bangalore. I was there doing a documentary for the Discovery Channel, which will appear on June third on the whole question of outsourcing. It's called "The World Ate My Job, and, Hey, Got Indigestion". And it's basically about how offshoring is affecting India. We went to film the shift change at the campus of Infosys. One shift coming in, the other leaving, and it was just wave, after wave, of young, Indian, well trained engineers, men and women.

And the spokeswoman from Infosys said they had a million applications last year for 9,000 jobs. And as I watched this scene go by, I had this real sort of head-eye tussle with myself. My head kept saying, "Free trade theory works. The pie will get bigger. It's win-win." But my eye was telling me "There are so many workers. And the world is so open, now."

In relating this story to a friend of mine, he said I was seeing an optical illusion, i.e. the vast numbers of workers in India didn't necessarily mean a great shift in the global economic world order and an end to jobs in the U.S. He added that if you understand the underlying reality, you'll understand that free trade does work.

So my first question is, is this offshoring trend an optical illusion or not?

Answers

Jeffrey Garten, Dean of Yale School of Management
My sense is that, while the issue may not be so big today in terms of the numbers, we are on the cusp of what is a massive transformation that it is very difficult to get one's arms around. All of us are aware of the historical precedence in which, in the United States, we felt something was changing in the ‘70s and ‘80s.  We were losing competitiveness. And then, lo and behold, we came out of it. I think this time, we're facing a new challenge, the order of magnitude of which is much, much larger. 

Diana Farrell, Director of McKinsey Global Institute
Part of the optical illusion in the U.S. now is that the benchmarks were reset for everyone in 2000, and they were unrealistic benchmarks. Those were days when no one could hire people, and the problem was how do we extend someone's H-1 Visa. Young people set their expectations at pay levels that were unrealistic at that time. So I think this feeling that ‘the world is coming to an end' as a result of offshoring is certainly an optical illusion. In the scheme of the change that the U.S. is accustomed to over the last 30, 40 years, what we're experiencing now isn't all that different. 

But it's not an optical illusion to the degree that it does - I would agree with you Jeff - symbolize a very structural shift in what's happening in the economy. So much of the integration that we saw in the past had to do with economies that looked very similar. So when it occurred with Europe and Japan and the U.S., they all faced similar conditions of capital and labor trade-offs, for example. Now the integration of large economies, like India and China, into competitive global sectors is a structurally different shift. In that sense, it's not an optical illusion.

Ron Blackwell, Director of Corporate Affairs of the AFL-CIO
This is certainly not an optical illusion. The theory of comparative advantage is a very comforting narrative about how the world works. In that narrative, factors of production, capital and labor move between countries. And they're moving with great volume and rapidity between countries. That's why we're all here today. Even more important than the law of comparative advantage is the law of one price. And in the market, you're going to find people moving toward one price. What we're basically seeing is a doubling of the world's labor market.

You're right about the sea of individuals out there to work, and you see companies internationalizing their production processes with great energy, and uncertain results both for the companies and the countries. I agree with Jeff's initial point: offshoring, particularly in IT, hasn't really developed very far to this point. But it has enormous significance for the way this economy is going to operate.

We wouldn't be talking about offshoring today if we had full employment. There are no jobs in this economy. The Federal Reserve Bank recently did a very interesting study. They found that 89 percent of the jobs that were lost in the last recession were lost for structural reasons, meaning they don't expect them to come back. If they are to come back, they'll have to come back in new industries. And so we're sitting here, waiting, for business to start inventing some new industries that they plan to pursue here in the United States if American workers are going to have a job and a future.