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How American trade policy relies on faulty measures of productivity
Old 03-06-2010, 12:38 PM   #1
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How American trade policy relies on faulty measures of productivity

According to this in NYT productivity in not growing as fast as it is stated. I did not find anything non-factual in the article.

I take example of software outsourcing, if local taxes are high and there are no taxes in remote location then local employee will loose. Somehow I dont understand the logic of more innovation with free trade if trade policies are not equal (between countries, state). How outsourcing will lead to more innovation?

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Old 03-06-2010, 05:20 PM   #2
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The article was very misleading. The BLS only measure the productivity of American worker and worker productivity is increasing to due to a variety of factors including outsourcing.

Imagine you are the manager of a widget factory, which has 90 workers, 10 supervisors and produces 1 million widgets year. In order to remain competitive you need to increase your productivity. You have two options; you can replace the 90 workers with robots and train the supervisors to run the machines,or we can outsource the manufacturing to another country fire the workers and retrain the supervisors to be the liaisons with foreign factory, Q&A inspectors and work on improving the widgets. In both cases the regular workers lose their jobs the total number of widgets per employee is increased by 10x, it is irrelevant if the high production came through using robots or foreign workers.

One of things that never seems to get mentioned in all of this outsourcing is that biggest losers of manufacturing jobs in the last 5,10 or 15 years has been China, at least 20 million manufacturing jobs has disappeared. In some cases they have moved to cheaper places, but in most cases the manufacturing jobs have simply disappeared replaced by machines. A hundred years ago 30% of Americans worked on farms now it is 2-3%, some of the jobs were outsourced (e.g. winter vegetables from South America) but the vast majority of simply disappeared. I have never figured out why the fascination with retaining manufacturing jobs they have never looked particularly fun, or fulfilling to me.

Now moving on to software. Pretend that computer hardware continued to evolve very rapidly but compilers and high level languages never were invented. So that every program had first be written in english like language and then sent to a coder who translated these instructions into binary code which was then inputted into a computer. Obviously this would have had a pretty significant impact on creating software programs. At some point some entrepreneur gets the bright idea that you know the folks in India speak and read English and wonder if we can train them to be coders. What would happen to the American coders? Well some would be fired, but many could be trained to write actual computer programmers. Who knows one of the programs they may write would actually figure out how to translate english-language instructions into binary codes and thereby obsolete the Indian coders Pretty clearly America would benefit from having a few million people shift from being coders to actual software engineers.

To a large extent this is what is happening with outsourcing of software today. Of course there is no guarrante that Indians will not produce the next Google or Facebook, but banned outsourcing won't help.

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Old 03-06-2010, 07:28 PM   #3
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The article begins with this intoduction

FOR a quarter-century, American economic policy has assumed that the keys to durable national prosperity are deregulation, free trade and a swift transition to a post-industrial, services-dominated future.

Such policies, advocates say, drive innovation, which leads to enormous labor productivity and wage gains — more than enough, supposedly, to make up for the labor disruptions that accompany free trade and de-industrialization.
article took a "anti free trade stance IMO

How can we actually increase innovation and real productivity? Manufacturing, long slighted by free-market extremists, needs to be promoted, not pushed offshore, since it has historically accounted for the bulk of research and development spending and employs the bulk of American science and technology workers — who in turn spur further innovation and real productivity.

I can probably agree how economists measure productivity could use some work.

I work for megacorp which is quite mega... the only entities in more countries is FIFA and the catholic church- my company makes money "everywhere" and employs people "everywhere".

The software division I am in does some work in Pune (India). I have done some software consulting in Mexico in supporting another large US company. I have worked for other companies which have European R&D units as well.

Here are my conclusions
1) "Remedial" work can be offshored. However work which requires "critical thinking" or being in touch with customers needs to be in the USA.

1) Coming up with initial processes and procedures for software to do xyz needs to be done in USA. Once created, a developer in pune could do QA on them, but few programmers I have interacted with appear to think properly like a US software user to create these from scratch.
2) When doing detailed design work for company A, it was clear the people in Mexico were not capable of thinking a problem thru similar to my experiences with the design engineers in Rochester, NY. Not even close. The designers in Mexico did not put the time in, and did not show the ability to think thru a problem the way I would have expected.
3) Third hand, I have worked with US automotive companies. The designers for that company said most of the big products (full size pickups and SUVs) had 90%+ of the design work done in the USA because that is where the best designers were, that is where the people who were in touch with what the customer wanted in vehicles like that. In general the engineering projects done in Europe were for the smaller cars which did not take as long to design.

Those are 3 isolated data points based on my experience. You can offshore so much, but the truly innovative products for the american consumer are going to be developed by USA engineers IMO.
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