Blindness to the Deep Structures of Globalization

Alan Blinder is undeniably a smart guy, but that makes his recent pronouncements on offshoring even more revealing.  While seeing some of the surface elements in play, Blinder is blind to the deeper structures playing out in globalization.

Blinder is a prominent economist at Princeton University and former Vice Chairman of the Federal Reserve.  When he speaks, policy makers listen, especially as the next election season approaches.  Blinder made the front page of the Wall Street Journal earlier this week when he expressed growing concern about the implications for the US economy of massive job shifts overseas. Blinder remains a committed supporter of free trade policy, but he is making headlines both in terms of his estimates on the magnitude of potential job shifts associated with offshoring and his suggestions regarding public policies for coping with the dislocations caused by these job shifts.

In the WSJ article entitled "Pain From Free Trade Spurs Second Thoughts" (registration required), Blinder estimates as many as 40 million US jobs are vulnerable to moving offshore over the next two decades.  While many are labeling him as an “alarmist” on this front, I actually think he may be too conservative in terms of long-term impact, as I have discussed at length here, because he assumes that service jobs requiring personal, face to face contact will not be vulnerable to offshoring.  Blinder is careful to stress he is taking a long-term view extending over one to two decades.

The article quotes Diana Farrell of the McKinsey Global Institute as one who believes that these numbers are far too high. Part of the difference in perspective may have to do with semantics as well as time frames.  Blinder is focused on “vulnerability” – as I read him, he is not predicting that these jobs will necessarily move offshore, but merely suggesting that these jobs could be performed offshore.  MGI’s work in this area is much more focused on potential labor supply constraints in offshore locations in the short-term and projects much more limited impact from offshoring.  Nevertheless, as I have also written, while I have enormous respect for the work that the MGI is doing, I believe that the MGI estimates on this front are too conservative.

Both perspectives are much too static in their view of potential job movements.  They rely on the infamous ceteris paribus qualification – i.e., all other things being equal.  Of course, other things are never equal and the dynamics in competitive strategies and talent development initiatives could shift the actual movement of jobs significantly in one direction or another.

On an even deeper level, this debate about job shifts tends to reinforce a “zero sum” mindset – if offshore locations gain a job, onshore locations lose the job.  Under the terms of this debate, the only question is how many jobs are gained or lost. For reasons discussed below, we are moving to institutional architectures that support positive sum outcomes where growth of overall economic value dampens debates over distribution of jobs.

Rather than getting bogged down in a numbers debate, though, I want to focus on the other dimension of the Blinder perspective highlighted by the WSJ article. Expressing concern over “the vast and unsettling adjustments in the way Americans and residents of other developed countries work, live and educate their children,” Blinder urges a much more active role for the US government in helping to dampen the disruptive effects of these job movements.

So, what is he recommending? Well, the article focuses on two things. First,

Mr. Blinder says there’s an urgent need to retool America’s educational system so it trains young people for jobs likely to remain in the US.  Just telling them to go to college to compete in the global economy is insufficient. . . . It isn’t how many years one spends in school that will matter, he says, it’s choosing to learn the skills for jobs that cannot easily be delivered electronically from afar.

This is where Blinder reveals his blindness to the deep structures reshaping the global business landscape.  As JSB and I have written in our “From Push to Pull” working paper, we are in the early stages of a fundamental shift in institutional architectures from push programs to pull platforms.  The offshoring trend needs to be understood within this broader context.  We are moving from a world where demand can be forecast and resources “pushed” to the right place at the right time to a world where we need to flexibly “pull” resources wherever they reside when they are needed.

Our business institutions over the past centuries have focused on scaling push programs.  Toyota and other pioneers of lean manufacturing “pull” systems have more recently begun to pursue limited pull approaches among a limited number of business partners.  The next wave of innovation will focus on the development and deployment of pull platforms across a very large number of institutions.  These pull platforms will not only transform business institutions, but other forms of institutions as well.

Traditional educational institutions represent classic examples of push programs.  We project far in advance what students should learn and then develop curricula and programs to push that knowledge at the appropriate time. Just like the push programs in business, that model is now coming apart at the seams.

Blinder appears to believe that he can project into the future what skills our educational systems should seek to impart so that students need not worry about their jobs moving offshore.  There are two problems with this.  First of all, it writes off entire swaths of the economy and concedes those to offshore providers.  Second, it assumes that there is a stable and predictable set of skills that we can keep onshore.  Leaving aside such uninteresting examples as snow removal, pizza delivery and dry cleaning services (which certainly do not require that much school anyway), I certainly do not pretend to know what skills will drive success ten to twenty years from now.

We are moving into a world where such long-term forecasting becomes an exercise in folly.  What if we gave up this push mindset and instead focused on crafting a set of institutions and platforms that made it possible for people to accelerate learning on demand?

This is a massive undertaking to be sure and it starts with a fundamental shift in mindsets.  But the good news is that we have the blessing of time.  For reasons developed by the MGI report mentioned earlier, these job shifts, if they ever happen, are not going to occur overnight. On the other hand, we also have the curse of time.  If we cling to old push mindsets and refocus our educational institutions based on some long-term forecast of job shifts, we may find at the end of this lengthy undertaking that we have seriously missed both opportunities and challenges.

In the meantime, we will lull ourselves into a false sense of complacency that the “problem” is being fixed.  The problem is not that jobs are vulnerable; the problem is that we have not developed the institutions required to accelerate talent development so that we can continue to push the performance envelope of the jobs we perform.  We need to move from a static view of jobs and the skills required to perform them to a dynamic view of talent development.

The same concern applies to Blinder’s other major public policy recommendation:

Similarly, [Blinder] says any changes to the tax code should encourage employers to create jobs that are harder to perform overseas. . . . Mr. Blinder says the focus should be on jobs with person-to-person contact, regardless of pay and skill levels – from child daycare to physicians.

Once again, Blinder is a prisoner of the push mindset – all we need to do is forecast demand for job categories and adjust fiscal policies accordingly to push employers to create these jobs. Blinder simply does not see the deeper structures that require us to re-think public policy at a much more fundamental level.

Many forces are driving the shift from push programs to pull platforms, including technology innovation and public policy shifts that systematically reduce barriers to entry and barriers to movement. As we discuss in our working paper, pull platforms are much more effective in supporting innovation, learning and talent development.  For this reason, they help to move us from a world of diminishing returns to a world of increasing returns.

The greatest risk is that we remain wedded to push programs that demand accurate forecasting in world markets characterized by increasing uncertainty and accelerating change.  The inevitable forecasting failures will indeed produce severe economic dislocations and significantly increase the risk of a profound backlash that will once again raise barriers to movement across national boundaries. We will then be back in the nasty zero sum world where one country’s gain inevitably becomes another country’s loss.

As I have suggested before, the globalization process is a fragile one, and far from inevitable. If we do not challenge our traditional mindsets, we significantly increase the likelihood that globalization will be reversed.

Comments

[Hank Heath]

You seem to be preaching to the choir - to look at the other comments.

I'm involved in a business that outsources a LOT of our work. So, my perspective is that, yes, there is a pull model needed for determining future work. And there is a push model that also needs to be built. The resulting balance between the two will give the best results.

For example, we have just moved our global call management skills off-shore after a year's training. However, we retain a group of flexible analysts here in the US ready to create new opportunities and processes. Once the new processes are proven, off-shore them, and restart the process.

[Ken]

The manufacturing guys at Evolving Excellence also commented on your article.

http://www.evolvingexcellence.com/blog/2007/04/blind_to_the_pu.html

[Daniel W Rasmus]

I think you are right on with this line of reasoning. In the end, there will be plenty of work, the workers may not be in the right place or right time zone, but that is an adaptive structural problem that can be solved. What can't be solved is people recognizing new models and embracing them.

A few additional comments here John.

http://future-of-work.spaces.live.com/blog/cns!C07907DBA0E3BEA6!554.entry

[gregory]

globalization, for or against, is a pointless argument.... everything is already globalized... and always has been... our awareness is slow to catch up, but that is how it is... nature is fully globalized and has been from the beginning.... so adjust our minds and businesses to what already is....

[gregory]

globalization, for or against, is a pointless argument.... everything is already globalized... and always has been... our awareness is slow to catch up, but that is how it is... nature is fully globalized and has been from the beginning.... so adjust our minds and businesses to what already is....

[David Scott Lewis]

Mohan, why is offshoring jobs to developing countries a good thing -- at least from an American perspective? In my recent Tech China blog post (http://tinyurl.com/2x99kc) I talked about why it may be a good thing, but even I'm not totally convinced at the gut level (although the macro arguments are quite compelling). And, IMHO, MGI lies through their teeth when it comes to their forecasts: We ALL know that they're deceiving us, we ALL know that tremendous job loss occurs as a result of offshoring.

However, all of this may be irrelevant for reasons I'll describe in my next Sand Hill Group "Letter from China" column (http://tinyurl.com/2yu2uj) titled, "Lou Dobbs is Right -- And Wrong".

Let's go back to the Cold War. We won the Cold War, perhaps more due to economics than any other reason. Why shouldn't the U.S. stop the economic rise of the BRIC countries in order to secure its place in the global economy? In other words, why not take preemptive action to thwart the development of the BRIC + 3 countries? Alas, maybe such a strategy is truly in the best interest of Americans in the long(er)-term, even if it causes economic disruptions in the short(er)-term. Interesting public policy perspective, eh? And if you think it can't be done, perhaps you need to fire a few more synapses to get the picture.

[Mohan]

I will not claim to be an expert on globalization or economic theory or even free trade. However, jobs being generated in India (and rest of the 'Third World') is a good thing.

Now, the bigger question to economists like Mr. Blinder: Is the ‘global job pie’ remain static or will it grow due to free-trade and globalization? If the sum total is going to grow, it is a “win win” deal; right?

[vinnie mirchandani]

Not sure most analysis takes in to account what happens with the "freed up" economics. The disposable income the US middle class got from reliable, more price stable autos over last two decades has allowed for more spending in other areas. I like to say Wal-Mart unpopular as it is has written the US middle class more tax credit checks than Reagan, Clinton, Bush ever did. Those checks may not have helped other retailers but they paid for more travel, real estate, whatever. Offshoring while painful in some ways has freed up dollars for other spend. Not sure we measure well what sectors those savings go towards.

Also, if what happened with Japan is true Chinese and Indian consumers will spend at Disney, Harrods, Apple, our real estate etc.

Far better for us to encourage our companies to have products attractive to those markets. GE, Pepsi, Citibank do. GM and Ford do not. The Koreans and Japanese dominate with their small cars. Delta which had the flagship route to India (back to Pan Am) days now has less than 3% market share on the booming US India air traffic.

Also should jawbone the emerging economies it cannot be one way trade...I will take a Carla Hills any day to pound on the Chinese and Indians to open up their markets over Lou Dobbs who would rather shut down our borders.