Outsourcing

19 Pages 4713 Words

erned about the political backlash to outsourcing? Absolutely. Anecdotes of workers affected by outsourcing are politically powerful, and demands for government protection always increase during economic slowdowns. The short-term political appeal of protectionism is undeniable. Scapegoating foreigners for domestic business cycles is smart politics, and protecting domestic markets gives leaders the appearance of taking direct, decisive action on the economy.
Protectionism would not solve the U.S. economy's employment problems, although it would succeed in providing massive subsidies to well-organized interest groups. In open markets, greater competition spurs the reallocation of labor and capital to more profitable sectors of the economy. The benefits of such free trade -- to both consumers and producers -- are significant. Cushioning this process for displaced workers makes sense. Resorting to protectionism to halt the process, however, is a recipe for decline. An open economy leads to concentrated costs (and diffuse benefits) in the short te...