Offshoring Services

Morgan Stanley Chief Economist Stephen Roach is out this morning with a new commentary on global offshoring and the associated backlash. Roach makes an important observation about what’s different about the latest offshoring wave — being associated as it is with services, not the production of physical goods.

In days of yore, it used to be that services had to be delivered in person, on site.  Cross-border trade in services was unheard of.  Now, courtesy of the Internet, that critical assumption has been turned inside out.  There is now real-time connectivity between the knowledge content of offshore white-collar workers and parent companies in the West.  That is a truly transforming event — it essentially converts many nontradables into tradables. 

The result is a whole new form of competition for American workers — most difficult to address and politically very unsettling.

Meanwhile, HP CEO Carly Fiorina has an opinion piece in this morning’s WSJ urging Americans to be creative, not protectionist. She writes:

Yet spending our time building walls around America will do nothing to help us compete for the millions of new jobs being created. Instead, we must focus on developing next-generation industries and next-generation talent — in fields like biotechnology, nanotechnology and digital media distribution; around issues like IT security, mobility and manageability — that will create long-term growth and jobs here at home, while raising all of our living standards in the process.

Nice. She’s just trying to be helpful. In this political year, displaced workers reading that will, I’m sure, appreciate her suggestions — and, unfortunately, vote accordingly. Are you “next-generation talent”?

Meanwhile, elsewhere this morning, the University of Michigan’s consumer sentiment index plunged. Double dip, anyone?