In the nascent stages of the Industrial Revolution people feared for their livelihoods. Monumental changes were taking place as the economy shifted from agriculture to manufacturing, and production moved from its traditional locations in the home and small workshop to vast factories. Massive portions of the population relocated from the countryside to the cities where manufacturing centers evolved. Goods and services produced expanded dramatically, the proportion of capital invested per worker grew, and young investors, businesspeople, and managers took financial risks but reaped great rewards.
It was during this time that Scottish philosopher and economist Adam Smith’s free-market theories were postulated in his book The Wealth of Nations, and his hands-off policies permitted ideas to flourish with little interference. No one would argue that had it not undergone the structural upheaval of the Industrial Revolution, the United States would have never become a superpower economically or militarily.
Yet today as we experience the structural upheaval of the shift from manufacturing to a service economy, the media and a swarm of critics assail the Bush Administration’s economic policies for not creating jobs, and allowing them to be outsourced to far off lands like India and China. Remarkably, what the media and critics conveniently omit is that, first, outsourcing has been going on for decades — even during the most recent U.S. full employment rate in the late 1990s — but only accounts for a tiny proportion of the jobs constantly shifting within our economy.
Second, standing alongside with outsourcing is “insourcing” — jobs being created as a direct result of strong foreign investment. According to the U.S. Bureau for Economic Analysis, insourcing accounted for 6.5 million jobs between 1983 and 2003. In all, the “churning” of our economy creates many more jobs than it destroys (24 million more during the 1990s, according to The Economist). The process fosters more working people, higher productivity, and competition, which, in turn, cultivates lower prices and a resilient economy. Countries such as Germany focus on protecting jobs rather than creating them, so in turn they ultimately have fewer jobs and a less resilient economy.
Third, what critics overlook in the “jobless recovery” opining is that approximately 80 million gross jobs have been created since the start of the Bush Administration, and “yes” about 82 million gross jobs have been lost in the same timeframe. While a majority of the net job losses still remain cyclical in nature, many economists agree that there are many more structural job losses this time around in comparison to other economic recoveries. However, structural net job losses occurred not only during the Industrial Revolution, but also during the automotive, communications, and technology revolutions.
Subsequent to all these economic revolutions has come great prosperity. Now that the U.S. economy is strengthening in muscle, so too will the picture of job formation, which is why the White House had good reason to talk about jobs creation in 2004. February’s unemployment numbers are 5.6 percent, which reveals a picture that is below the average of each of the decades of the 1970s, 80s, and 90s. In any churning economy, the creation of new jobs always overwhelms the destruction of old ones. Yes, some Americans do get hurt in the process, but the U.S. government has done a good job to support efforts to re-train people whose industries diminish as a result.
Lastly, the U.S. economy is shifting into an even larger service economy as information technology (IT) keeps bulking up. In the last decade, the hardware and software of IT has become significantly cheaper. American factories, for example, have invested heavily in IT, and as a result have become more streamlined, which is part of the reason why productivity levels are at historical highs and are continuing to strengthen. Other service industries such as banking and hospitals can learn some valuable lessons from factories.
Contrary to what presidential candidate John Kerry rants about “Benedict Arnold” bosses betraying American workers by moving jobs overseas, protectionist policies are the greatest threat to U.S. economic health. Through historical lessons, protectionism costs Americans more jobs, lowers their wages, and stimulates inflation. Ironically for Mr. Kerry, Benedict Arnolds are only the enemy when they?re not lining his palms.