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FYI Number 57: May 4, 2004

Views on Outsourcing and Economic Globalization

We are living in "an entirely new world economy" and we are "not going to go back to the way it was," said Denis Fred Simon of the Rensselaer Polytechnic Institute in an April 26 presentation. The new economy will be "increasingly dominated by countries other than the U.S.," he warned. Simon was one of six speakers addressing various aspects of economic globalization and the offshoring of jobs at the 29th Annual AAAS Science and Technology Policy Forum. The speakers agreed with moderator Ira Shapiro of Greenberg Traurig, LLP, that the technological growth of developing countries presented both "enormous opportunities and significant challenges." Rather than arguing that the federal government should act to prevent companies from sending jobs overseas, panel members instead called for comprehensive policies to stimulate R&D and innovation in this country to maintain U.S. S&T leadership, and to mitigate the negative impacts on workers.

Shapiro described how policies to develop S&T talent and encourage foreign R&D investment have led to rapid change in China and India. Diana Hicks of the Georgia Institute of Technology, citing data on S&T degrees, publications, patents and citation rates, highlighted the "quickly strengthening S&T systems" in many Asian countries. She remarked that "the U.S. may no longer have a monopoly on leading-edge S&T and will have to compete harder to maintain its current position."

Ron Hira of the Rochester Institute of Technology pointed out that companies choose to send work overseas for many reasons, including low wages, low costs, intellectual talent, access to local markets and tax incentives. He called the free trade versus protectionism debate "misguided," saying that "global sourcing has good and bad effects." The real issue, he said, is determining how to mitigate the potential negative consequences such as job dislocation. He recommended better data collection to ascertain how much work is being sent offshore and how many jobs are being lost as a result.

Electronic Industries Alliance President Dave McCurdy agreed that it is simplistic and "polarizing" to portray the situation as "trade versus jobs." Instead, he said that the U.S., to retain its leadership in science and technology, must be able to "invent and perfect" new technologies, and manufacture them wherever it is most efficient. "In the past, developing nations followed the U.S.'s lead," he said. "Now those same nations are aspiring to lead.... The U.S. must create an environment that ensures the next big thing is developed here."

Panelists pointed to a series of indicators that the U.S.'s global position in S&T could be imperiled. These included the U.S.'s declining federal R&D investment, particularly in the physical sciences, as a fraction of GDP; the numbers of U.S. citizens pursuing degrees in science and engineering; and the impact of post-9/11 visa and immigration policies on foreign students. The government's R&D funding capacity is threatened by budget pressures, budget discipline is gone, and the appropriations process is in jeopardy, stated Bill Bonvillian, Legislative Director for Senator Joseph Lieberman (D-CT). Bonvillian said that "the congressional process to cope with fiscal realities is broken," and warned that in the future, the nation may not be able to fund R&D across a broad spectrum of fields, but may be forced instead into the risky strategy of "niche funding" for targeted areas.

A number of policy suggestions were offered for maintaining U.S. leadership in innovation. Common themes included stronger R&D investment; improvement of K-12 science and math education; lifetime worker training and assistance for displaced workers; incentives to attract and retain U.S. and foreign students in science and engineering; enforcement of intellectual property rights; reform of tax, trade and regulatory policies, and increased broadband access.

Among other recommendations, the Institute for International Economics' Catherine Mann suggested wage insurance and a Human-Capitol Investment Tax Credit to encourage worker training. Hira called for reform of H-1B and L-1 visa policies to discourage displacement of American workers with foreign workers. Bonvillian pointed out that the U.S. S&T enterprise is based on linear model that does not take into account cross-disciplinary, cross-agency, and cross-sector R&D, and needs to be revised. McCurdy stated that the post-9/11 security environment was deterring foreign students from coming to the U.S., and that other countries were finding ways to attract those students. "We can't continue this policy if we want to continue to grow," he said.

The speakers' presentations can be found on the web site for the AAAS S&T Policy Forum at: http://www.aaas.org/spp/rd/forum.htm

A number of bills have been introduced in Congress, sponsored primarily by Democrats, that address aspects of the offshoring issue. A bill introduced by Senate Minority Leader Tom Daschle (D-SD) (S. 2090) would amend the Worker Adjustment and Retraining Notification Act to require companies to give three months' advance notice when laying off a specified number of employees due to offshoring, and to notify the Department of Labor and state and local employment agencies. Legislation has also been introduced in both houses (S. 2157, H.R. 3881) that would broaden the categories of workers who are eligible to receive financial assistance through the Trade Adjustment Assistance Program. Additional bills (S. 2094, H.R. 3820, H.R. 3888, H.R. 3911) would ban companies that engage in certain offshoring activities from receiving some federal assistance or federal and state contracts. Yet another bill, H.R. 2849, is intended to ensure that recipients of H-1B and L-1 visas do not beat out qualified American workers for jobs.

Audrey T. Leath
Media and Government Relations Division
American Institute of Physics
fyi@aip.org
(301) 209-3094

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