Should we welcome offshoring or resist it?

You know a political issue is important when it starts to feature in television drama. The latest episode of The West Wing found fictional US President Bartlett agonising over whether to back or block businesses shifting production to low-cost countries in Asia.

Concern over so-called ‘offshoring’ – and what it means for jobs – also made an appearance in the recent real-life US presidential election campaign. And offshoring, especially of call centre and financial services jobs, has also triggered a debate in the UK about the long-term impact of this aspect of globalisation.

Should offshoring be welcomed or resisted? On balance, the trend is positive, and will ultimately result in more jobs and greater prosperity. Consumers in countries exporting jobs benefit from lower costs and prices – boosting their real incomes – while workers in the countries gaining work enjoy higher incomes, too. This overall enrichment provides a two-way boost to demand for goods and services, thereby providing new job opportunities on a global scale.

Moreover, it is simplistic to view offshoring as a one-way street with countries simply acting either as job importers or exporters. For example, as a recent study by the Advanced Institute of Management shows, when it comes to business services, businesses based outside of the UK currently offshore more work to this country than British businesses offshore abroad.

Perhaps the best way to allay current fears about offshoring is to draw a parallel with the loss of manufacturing jobs overseas that began in the 1970s.

Combined with technological change, this eventually resulted in the UK’s manufacturing workforce being halved, but the sector today is more highly skilled and productive, while the level of employment in the economy as a whole is higher than ever before.

The new jobs that have been created in the sector are rich in knowledge skills or require a degree of the ‘personal touch’ that is not easy to offshore. So the fear that offshoring will cause a jobs meltdown – with perhaps as many as one in three workers in the firing line  – is grossly exaggerated.

However, what the manufacturing experience also shows us is that there will be losers as well as winners in the offshoring game. Sadly, in the case of manufacturing and other sectors, such as coal mining in the 1980s, the adjustment process was often brutal, and the response of Government inadequate. It is little wonder that many people are worried that history might repeat itself.

However, the lesson to be drawn is not that service sector offshoring should be resisted. Rather, it is that as a society, we must make a far better go of helping those directly affected to adjust to change.

By John Philpot, chief economist at the Chartered Institute of Personnel and Development

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