PARIS--Whether the outsourcing of jobs to low-wage nations will create a boost for the world economy--or a massive loss of jobs for well-paid workers--was the subject of debate May 13 at a meeting of the Organization for Economic Cooperation and Development (OECD).

Business leaders called on OECD members to take a hands-off approach, insisting that the high-profile offshore outsourcing debate should not be used as a justification for protectionism or government interference in the economy.

Labor leaders, on the other hand, said the citizen and worker concerns across the 30-member OECD over offshore outsourcing threaten to undermine support for the multilateral trading system, and called for greater government action on a variety of fronts.

The debate over outsourcing was among the more controversial agenda items during the first day of the OECD's annual meeting of trade and finance ministers.

The OECD invited a number of large, developing countries--including Argentina, Brazil, Chile, China, India, Russia, and South Africa--to participate in the May 13-14 ministerial meeting, providing first-hand experience of the outsourcing issue from the other side of the table.

Most governmental participants in the debate agreed that outsourcing was "not something to be overly concerned about, but more like an opportunity for the world economy," according to Mexican Finance Minister Francisco Gil Diaz, who chaired the discussions.

Ministers expressed confidence that outsourcing offers a general boost to global trade, enriching poor countries that win new manufacturing business while offering consumers in rich countries cheaper merchandise, Diaz said.

Bush Adviser Reiterates Support for Outsourcing.

This was the position taken during the meeting by N. Gregory Mankiw, chairman of the Council of Economic Advisers to President Bush, who told reporters May 13 that "the issue of offshore outsourcing has to be understood in the broader context of the role the U.S. economy, or any other economy that wants to play in the global economy."

Mankiw drew barbs in mid-February from Republicans and Democrats alike in Washington after publishing a report that suggested outsourcing would be "a plus for the economy in the long run, and was just a new way of doing international trade" (22 HRR 148, 2/16/04).

He stood by those remarks during the OECD meeting, insisting that "free and open markets," including those for labor, were the "best way to raise living standards around the world."

While Mankiw recognized that workers were justifiably "upset" at being "subject to global competition," he said the Bush administration remained fervently devoted to free trade, in all its forms. "President Bush … has no plans of hiding behind walls … or resorting to protectionism," Mankiw said.

Most ministers agreed with this point of view, Diaz said, expressing belief that any governmental efforts to unilaterally impede or control offshore outsourcing would likely backfire, making their economies less competitive than those that continue to allow outsourcing, and eventually costing jobs and economic growth opportunities.

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While ministers are aware of the "rising anxiety among citizens" about the outsourcing trend, Diaz said, much of the concern stems from "a lack of information about the real scale of job losses."

OECD Secretary-General Donald Johnston seconded Diaz on this point, noting that both the OECD's own research and data from member countries had shown that the likely impact of job losses linked specifically to outsourcing is minimal when compared to general job creation and loss across the world's industrialized nations.

Labor Unions Demand Action.

Members of a labor delegation led by the Trade Union Advisory Committee to the OECD presented an entirely different interpretation during a briefing with ministers, followed by a meeting with reporters.

TUAC--which groups 56 national trade unions across the OECD, representing more than 70 million workers--sees most governments' "laissez-faire approach" to outsourcing as an "inadequate" response to a growing problem, according to a statement presented to ministers.

"Trade unions have a lot of concern, because we are already seeing the impact of offshore outsourcing on labor standards, on trade displacement, and in delocalization arguments," TUAC General Secretary John Evans said.

Evans said the growing weight of China as an offshore manufacturing destination is not only sapping manufacturing jobs from OECD economies, but also driving down labor standards--including wages, working conditions, and the right to unionize--in other areas of the world.

"We are hearing about Japanese and Korean companies in Malaysia, in Indonesia, and across Southeast Asia who used to recognize trade unions and core labor standards now demanding lower wages, under the threat of delocalization to China," Evans said.

Report Projects Huge Growth in Offshore Outsourcing Over Next Two Years The movement of U.S. service sector jobs overseas will accelerate faster than initially projected over the next two years, as the cost savings from offshoring become better publicized and opportunities expand to move jobs abroad, according to a report released May 17. The report by Forrester Research Inc. of Cambridge, Mass., predicts that 830,000 service sector positions will migrate overseas by 2005. This is 240,000 more than the forecast Forrester made in a widely cited study in November 2002. The technology research firm said media coverage of offshoring--which has pointed out some of the cost savings that flow from moving jobs to low-wage countries--and pressure from senior management to develop an offshoring strategy has forced corporate chief information officers to consider offshoring as a viable option. Much of the growth will occur among companies that have been experimenting with offshoring, as they expand the scope of their operations in the next few years, Forrester said. The report was based on, among other things, interviews with more than 100 companies that use an offshoring strategy along with a survey of more than 1,800 business and information technology leaders in North America. Offshoring would represent about 6.4 percent of total jobs in affected categories, which include fields such as management, computers, sales, architecture, legal, art and design, and office work, according to the report. The report said suppliers and users of offshore services will broaden their focus beyond information technology and call centers to include more transaction-oriented services in areas such as accounting, insurance claims, and loan processing. Other areas gaining momentum as a result of cost pressures are research and development and processing of clinical trials data in pharmaceutical research, the report said. Offshoring is likely to remain a highly political topic, and although legislation to restrict the practice probably will not be enacted, companies that use offshore services will have to go "underground" to avoid bad publicity, the report said. In a note of caution, the Forrester report also said a combination of global issues--escalation of tensions between Pakistan and India or souring in U.S.-China relations, for example--and more "onerous" legislation than predicted could slow the trend toward offshoring. Also, privacy regulation could limit growth of business process outsourcing in areas such as claims or loan processing, Forrester said.

While most outsourcing to date has involved manufacturing jobs, TUAC President John Sweeney, president of the AFL-CIO, warned that the next area of concern will be greater outsourcing of services jobs, financial sector jobs, and other so-called white-collar positions from high-wage OECD countries to lower-wage countries in the developing world. "This is already extending to workers who weren't impacted directly by the first wave of manufacturing job losses," Sweeney said, noting that many service sector employees are justifiably "afraid of what has happened, and wonder if they are going to be next."

TUAC told the OECD that governments should make greater efforts to ensure that businesses and unions negotiate before outsourcing takes place.

Governments worldwide also must insist on wider application of core labor standards, TUAC said, suggesting that this is the only way to eventually prevent the ongoing "race to the bottom."

Business Opposed to Government Intervention.

Not surprisingly, members of a business lobby led by the Business and Industry Advisory Committee to the OECD disagreed with the trade unionist point of view.

BIAC--which groups the 38 main business federations across the OECD--described current outsourcing trends as part of a normal "reshaping" of the global economy that "should not be the cause for over-reaction."

BIAC warned OECD governments against using the ongoing global "outsourcing" debate as a justification for protectionism or government interference into the economy, particularly as concerns the new trend toward outsourcing of service sector jobs. "Just as low-wage China has not taken all of the manufacturing capability in OECD countries, low-wage India is not going to absorb all of our service sector production," said Jin Roy Ryu, the chairman and chief executive officer of Korea's Poongsan Corp., who was elected May 12 to take over the BIAC leadership.

"Protectionist or interventionist policies which keep business from adapting to the constantly evolving economic situation must be rejected," Ryu added.

Rather than intervening directly in the outsourcing process, BIAC called on OECD governments to implement policies which encourage economic growth, spur trade, and offer companies the opportunity to create jobs at home.