AEI-Brookings Joint Center Policy Matters 03-06

Of Baseball And Bastiat. Robert W. Hahn. April 2003.

Opening day has arrived. The all-American hot dogs in the steam trays are beginning to curl. Ice is forming on taps brimming with all-American beer (Coors Light for me, please). The stadiums are freshly painted, large American flags snapping in the breeze.

After a brutal winter, and like generations past, needing diversion in a time of trouble, we are so ready to enjoy the quintessential American game of baseball ... with great outfielders like the Mariners' Ichiro Suzuki, the Mets' Tsuyoshi Shinjo, and pitchers like the Yankees' Jose Contreras, three-time holder of Cuba's male athlete of the year before he slipped past Fidel Castro's goons and defected.

What's going on here? If America is defined by its sports, what can we say now that so many of our best titles are being won by foreigners who couldn't qualify for a green card?

Wait, it gets worse. Can you believe that a South African--Ernie Els--won Professional Golfers' Association (our PGA) tournaments eight times! And what about the Houston Rockets rookie Yao Ming? But to get back to baseball, is it right that Ichiro is allowed to be an outfielder? For Pete's sake, if ever there was a job that ought to belong to an American, that's it.

Thoughts like these come to me whenever I consider the rising tide of fear over a new reality in the U.S. job market--the outsourcing of business services. By now, you're probably aware that the woman in customer service who helps you iron out the kinks in your software over the phone is as apt to be from India as from Indianapolis. This is happening because Fortune 500s--no less than baseball managers--are finding great advantages in building a global team by outsourcing a host of services offshore, from airline reservation systems, to software development, to engineering consulting. The outsourcing of service jobs, a curiosity to most, appears sinister to others. Maybe that's not a total surprise at a time of war when heightened patriotism can easily morph into protectionism.

"Is the United States on the outsourced path to becoming a Third World country?" asks Paul Craig Roberts (an economist with solid conservative credentials from the pro-trade Reagan administration). Others in the developed world are asking the same question. "This could be a disaster for our economy," declares Richard Hogg, president of the Australian Computer Society.

Forrester Research predicts that U.S. companies will invest in 3.3 million services industry jobs in India, Russia, China, the Philippines and other countries. Lower costs are the primary driver of this corporate shift. But are we "exporting" good American jobs any more than we are losing the game of baseball by recruiting, say, Sammy Sosa from the Dominican Republic?

When seemingly exotic new issues arise in economics, I always find balance and sustenance by turning to the classics. In the 1840s, French economist Frederic Bastiat addressed the issue of unfair trade in a famous essay known as "The Petition of the Candlemakers." (Set aside, for the moment, the current American aversion to things French--this one is truly for the ages.) Bastiat wrote an imaginary complaint from French candlemakers of "ruinous competition of a rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price."

Who is this unfair rival, dumping his goods willy-nilly onto the market place? The sun!

Bastiat went on to ask the Chamber of Deputies to pass legislation "requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, casements, bull's-eyes, deadlights and blinds--in short, all openings, holes, chinks, and fissures through which the light of the sun is wont to enter houses."

After carrying this joke to great extremes, Bastiat came to a serious point. When another country provides a commodity--coal, iron, wheat or textiles--for "less labor than if we produced it ourselves" then France should consider the difference to be "a gratuitous gift." In other words, vive la difference.

Indeed, it is this difference that creates value. Forrester Research found that 88 percent of the surveyed U.S. firms that outsource overseas for services report that they get better value than they do from U.S. providers. In fact, 71 percent said that the work they get from offshore is simply better. In other words, consumers and shareholders should enjoy increased foreign productivity (to use Bastiat's brilliant redundancy) as a gratuitous gift.

This worries those like Paul Craig Roberts who assert that there "is no reciprocity in outsourcing, only the export of domestic jobs." Perhaps they should place greater faith in the free-trade vision of conservative leaders like Ronald Reagan and liberal ones like John F. Kennedy, as a way to grow the economic pie for all participants. Or perhaps they should recall Ross Perot and his "great sucking sound." That sound, as it turned out, was merely Ross Perot. Throughout the post-World War II era, the benefits of free trade have always shown up the dire Chicken Little predictions of protectionists.

Static thinkers always see zero-sum losses in trade, but trade is a positive-sum game with benefits spread on both sides of the ledger. American consumers get access to cheaper and higher quality goods and services. Many new hires in India or the Philippines will join the middle class. Undoubtedly they will become foreign consumers for the very goods they support over the phone and Internet. Just as important, they will help build the kind of world in their home countries that Americans have fought to defend for generations.

Come to think of it, didn't Ichiro Suzuki start out as a big fan of Oakland A's manager Ken Macha, a devotion so intense that he actually bought Macha's glove? Then Ichiro comes here and starts his career in the majors by leading the American League in batting and stolen bases. What could be more American and patriotic than that? Pass the mustard, I think I'm going to enjoy watching this guy play.

Robert W. Hahn is Executive Director of the American Enterprise Institute-Brookings Joint Center for Regulatory Studies.