‘If cell phones from Finland are OK, why not services from India?’

President Bush’s economics team deserves its bad reputation. It has peddled a constant stream of half-truths about its budget-wrecking policies; it has preached the rhetoric of free trade while caving in to the farm lobby, the steel lobby and the sugar barons. But on Monday, Gregory Mankiw, the head of the president’s Council of Economic Advisers, was brave enough to speak the truth about the shift of service jobs to places such as India. The upshot? He’s assailed from both sides of the aisle in Congress. Rep. Donald Manzullo, R-Ill., called for his resignation. Sen. Tom Daschle, D-S.D., denounced him. Sen. John Kerry , D-Mass., the front-runner for his party’s presidential nomination, issued an indignant statement. ’’(Three) million jobs destroyed on their watch, and now they want to export more of our jobs overseas,’’ harrumphed the candidate. ‘‘What in the world are they thinking?’’ Bush sought on Thursday to limit the political fallout, saying, ‘‘We need to act to make sure there are more jobs at home and people are more likely to retain a job.’’

Mankiw’s offense was to say that the normal rules of trade apply to services as well as manufacturing. Just as it makes sense to buy cell phones from Finland if they are cheap and excellent, it makes sense to buy call-centre services or software programming from India if these are the best on the market. Not only is Mankiw right, but to argue otherwise is elitist and offensive. It would suggest that it’s okay for blue-collar workers to lose jobs to foreign competition but not okay for white-collar folk to face the same competitive pressure. Kerry voted in favour of the North American Free Trade Agreement, which boosted competition in manufactured products. How can he justify the opposite position on trade in services?

People may feel that the new ‘‘offshoring’’ of service jobs is different because it appears unlimited. Until now, the loss of US manufacturing jobs ascribed to trade has been offset by gains in service jobs, which demand some proximity to the customer and have therefore not been tradable. Now that fibre-optic cable links the United States to cheap, educated, English-speaking labor in India and elsewhere, old assumptions about what’s tradable have to be rethought. The dislocation will create real pain for displaced workers, as Mankiw acknowledged; programs to retrain them should be expanded. But the US economy will not run out of jobs as a result of some service activities being tradable. After all, technology has been eliminating back-office administrative jobs for a decade, yet unemployment sank to record lows during the 1990s. Why believe that the next phase of US cost cutting will produce a different outcome? And is there nothing to be welcomed about workers in poor countries getting decent jobs?

This editorial appeared in The Washington Post on 13-2-04