Nobel economist questions offshoring

A number of prominent economists have defended "offshoring," but a veteran in the field has questioned their conclusion.

Paul A. Samuelson, professor emeritus at Massachusetts Institute of Technology and a winner of the Nobel prize in economics in 1970, recently published a paper arguing that free trade isn't always peachy for all. "Sometimes a productivity gain in one country can benefit that country alone, while permanently hurting the other country by reducing the gains from trade that are possible between the two countries," Samuelson wrote in the Journal of Economic Perspectives.

Samuelson's article counters the advocacy of global free trade by economists such as N. Gregory Mankiw, chairman of President Bush's Council of Economic Advisers. "When a good or service is produced more cheaply abroad, it makes more sense to import it than to make or provide it domestically," Mankiw has written.

According to this view, sending American jobs overseas may cost some workers their jobs, but provide an overall benefit to the U.S. economy.

Labor advocates and some politicians, though, are critical of what's been dubbed offshoring. Democratic presidential candidate John Kerry wants to change rules he says encourage companies to export jobs.

In his article, which can be purchased for $11 plus tax, Samuelson suggests trade barriers can backfire. "Even where a genuine harm is dealt out by the roulette wheel of evolving comparative advantage in a world of free trade, what a democracy tries to do in self-defense may often amount to gratuitously shooting itself in the foot," he wrote.

But he also questions the notion that some gains by the winners in global free trade will be transferred to losers so they also benefit.

"Marie Antoinette said, 'Let them eat cake.' But history records no transfer of sugar and flour to her peasant subjects. Even the sage (Federal Reserve Board Chairman) Dr. Greenspan sometimes sounds Antoinette-ish," Samuelson said. "Mainstream trade economists have insufficiently noticed the drastic change in mean U.S. incomes and in inequalities among different U.S. classes."