Offshoring: The Next Industrial Revolution?

By Alan S. Blinder

Modernizing Comparative Advantage

Narrator describes countries trade with each other like individuals and businesses to exploit their
comparative advantage, where some can be distinguished to be natural advantage like oil
deposits in Texas, Saudi Arabia than rest of the world. However, there some comparative
advantage derived from human efforts such as “Silicon Valleys” which has nothing to do with
element silicon rather than the fact that silicon valleys were created due to concentration of
Technology related business and university which help in blooming Tech-related business.
Manmade patterns of comparative advantage can change over time and is labeled as
“Kaleidoscopic comparative advantage” by economist Jagdish Bhagwati. Key to understanding
phenomenon of “Kaleidoscopic comparative advantage” is to understand offshoring
Economist and theorist divide the goods in tradeable and non-tradable, traditionally where
tradable goods can be put into box and shipped like manufactured goods or raw material and
where non-tradable goods were something too heavy and cannot be shipped like houses. But
with improvement in technology and transportation becoming cheaper and easier is constantly
shifting concept of tradable and non-tradable goods. It is expected that in future distinction
between will no longer be between tradable and what is not, rather it will be between services
delivered electronically and those cannot.
The Three Industrial Revolutions
At times of First industrial revolution, there were 84 percent of U.S work force was engaged in
agriculture and only 2 percent were engaged in manufacturing. However, by 1960 manufacturing
rose to 25 percent where agriculture was left with only 8 percent, societies were transformed
beyond recognition as workers migrated from farms to factory.
In Second industrial revolution jobs were shifted from manufacturing to service sector.
According to Organization of Economic Cooperation and Development (1967 to 2003) service
sector jobs were rapidly increased in United States, Japan, France, Italy and United Kingdom by
more than 20 points. In 2004 one sixth of jobs were in non-agriculture and five-sixth were in
service sector.
We are currently in early Third Industrial revolution also known as Information age, which is
more of reliable, cheap, easy and flow of information traded around the world and much of its
expected to come.
Author explains that the main reason of shift from farms to factories in First Industrial revolution
was not due to foreign trade but excessive farm productivity in united states. Although it was a
huge transition of workforce but did not lead to unemployment, rather it lead to large scale
reallocation of labor.
Similarly, in second industrial revolution the shift of workforce in manufacturing sector declined
modestly and because of rising productivity of goods with production of more goods and less
labor, change in consumer taste and preference due to rise in income, finally United States was
imports of manufacturing goods rose more than ever.
In Third Industrial Revolution will have a similar effect for next few decades, the jobs will be
offshored from rich countries to other developed countries, shrinking their work force drastically
and massive unemployment.
The Time It’s Personal
Author addresses an important question as what sort of jobs are at risk of being offshored?
A Disease without a cure
Is Forewarned Forearmed?
Imperfect vision?