The Third Revolution

Wen Jiabao isn’t running for a seat in the US House of Representatives. But China certainly seems like a phantom candidate in America’s impending mid-term elections. Chinese dragons and other images and sounds evoking the People’s Republic have appeared as props in campaign advertisements run by both Democratic and Republican candidates seeking to vilify their opponents. Their message: if unemployment is high, it is because jobs have been outsourced to China (or India), helped by greedy and unpatriotic legislators. In this autumn of discontent and anxiety, such rhetoric seems to be resonating with the electorate. A recent poll found that Americans considered outsourcing as the most important reason for the country’s economic problems.


One hopes that after election fever subsides, American politicians and opinion makers will take a look at what has been ailing the US: a third industrial revolution sweeping the world, of which offshoring and outsourcing are symptoms, not the cause.


Unlike violent political revolutions, the economic ones start almost imperceptibly. But as they gather momentum, the deep swathe of changes wrought by an economic revolution becomes apparent. The steam engine that heralded the first Industrial Revolution ushered in a massive societal upheaval and world-wide redistribution of wealth and power that became apparent only as it progressed. One of the impacts of the Industrial Revolution — which shifted jobs from agriculture to manufacturing — caused massive dislocation. Its impact on India’s millennia-old monopoly of cotton textile has been immortalised by the confidential cable sent by William Bentinck in 1834: “The bones of the cotton-weavers are bleaching the plains of India.” Their misery arose, he might well have written, because their jobs were offshored to Lancashire’s textile mills.


The next industrial revolution of the 1970s shifted jobs from the manufacturing to the service sector. A sharp drop of the share of manufacturing in the US GDP since the 1960s was clear evidence of that change. Then came the digital and telecommunication revolutions of the 1990s, increasing the number of tradable jobs and the ability to exploit more fully the comparative advantage available across continents. The volume of outsourcing has grown exponentially and the quantitative change may now be bringing about qualitative change.


Despite mounting public criticism against outsourcing in Europe and the US, all indications point to an increasing number of companies turning to offshore production and service centres. Both the European Globalisation Adjustment Fund and the US Trade Adjustment Assistance — given to workers who lost their jobs because their work was sent abroad or was undercut by cheaper imports — have reported rising numbers of applicants. To tap the growing popular anger and turn it into votes for labour-supported candidates, the American Federation of Labor and Congress of Industrial Organization (AFL-CIO) has launched an interactive website — Job Tracker. With the click of a mouse it shows the names of companies, in a given zip code, which have laid off US workers and sent jobs abroad. Their message ‘Bring jobs back home’, and tax those who would rather make profits at the cost of jobs of American workers.


Given the depth of anger at the persistent 9.6 per cent unemployment rate, the anti-outsourcing message has gained some traction. Already, some firms are bringing call centres and other operations back to the US for cost reasons or as symbolic moves for public consumption. States such as Ohio have banned outsourcing. But layoffs are more often due to automation and new technology than outsourcing. The lopsided benefits of outsourcing to corporations at the expense of workers are due to governmental failure to appreciate the shift in industrial production worldwide and prepare for the transition.


Ironically, it is the Silicon Valley revolution which enabled the massive rise in tradable services, and the US-built telecommunication networks allowed creation of virtual office. But the US seems sadly unprepared to take advantage of the revolution it has spawned. The country’s worn-out infrastructure, ailing education system and lack of political consensus have prevented it from riding a new wave to prosperity.


Blaming China for America’s troubles will only postpone the hard decisions that November’s newly elected congressmen and senators will have to eventually confront.