Many of you may have caught Alan Blinder’s front page article in the Wall Street Journal last week titled Pain From Free Trade Spurs Second Thoughts, where he expressed growing concerns for the U.S. economy due to the potential of massive job shifts overseas. Blinder is a Princeton economist and former Vice Chairman of the Federal Reserve, so when he talks people listen. Although he remains committed to free trade, he is advocating some policy shifts to dampen the effects of globalization. "Like 99% of economists since the days of Adam Smith, I am a free trader down to my toes," he wrote.
Quite a bit has been written in response to his article, but I’ve been waiting for someone more intelligent than myself to comment on it from a lean perspective. John Hagel at Edge Perspectives finally did so, and quite brilliantly, by showing how Blinder’s analysis of globalization is actually from a rather narrow perspective and doesn’t take into account the emerging "pull economy." Although Mr. Hagel supports his head with his hands, I agree with most of what he says. First let’s begin with the potential magnitude of the problem.
Blinder estimates as many as 40 million US jobs are vulnerable to moving offshore over the next two decades. The article quotes Diana Farrell of the McKinsey Global Institute as one who believes that these numbers are far too high. Blinder is focused on “vulnerability” – as I read him, he is not predicting that these jobs will necessarily move offshore, but merely suggesting that these jobs could be performed offshore. MGI’s work in this area is much more focused on potential labor supply constraints in offshore locations in the short-term and projects much more limited impact from offshoring.
Hagel believes both estimates are incorrect.
Both perspectives are much too static in their view of potential job movements. They rely on the infamous ceteris paribus qualification – i.e., all other things being equal. Of course, other things are never equal and the dynamics in competitive strategies and talent development initiatives could shift the actual movement of jobs significantly in one direction or another.
This debate about job shifts tends to reinforce a “zero sum” mindset – if offshore locations gain a job, onshore locations lose the job. Under the terms of this debate, the only question is how many jobs are gained or lost. For reasons discussed below, we are moving to institutional architectures that support positive sum outcomes where growth of overall economic value dampens debates over distribution of jobs.
These new "architectures" represent the change from "push" to "pull" economies, perfectly analogous to the pull systems core to lean manufacturing operations.
As I have written in our “From Push to Pull” working paper, we are in the early stages of a fundamental shift in institutional architectures from push programs to pull platforms. The offshoring trend needs to be understood within this broader context. We are moving from a world where demand can be forecast and resources “pushed” to the right place at the right time to a world where we need to flexibly “pull” resources wherever they reside when they are needed.
It is within the context of this transformation to a pull economy that Blinder’s two policy proposals fall apart. His first proposal has to do with our education system.
Mr. Blinder says there’s an urgent need to retool America’s educational system so it trains young people for jobs likely to remain in the US. Just telling them to go to college to compete in the global economy is insufficient. . . . It isn’t how many years one spends in school that will matter, he says, it’s choosing to learn the skills for jobs that cannot easily be delivered electronically from afar.
And that smacks right into the conflict between push systems and the new pull economy.
Traditional educational institutions represent classic examples of push programs. We project far in advance what students should learn and then develop curricula and programs to push that knowledge at the appropriate time. Just like the push programs in business, that model is now coming apart at the seams.
Our education system needs to change, radically, to support the new economy.
We are moving into a world where such long-term forecasting becomes an exercise in folly. What if we gave up this push mindset and instead focused on crafting a set of institutions and platforms that made it possible for people to accelerate learning on demand? This is a massive undertaking to be sure and it starts with a fundamental shift in mindsets.
Coincidentally just last week our friend Eric at GrimReader wrote a couple of posts on the problems with our current education system. In his usual exceptionally deep and detailed way, he first describes why it is such a cliche that the liberal side of the political spectrum would support our current system.
They defend the status quo to the death. No matter that real, per-pupil spending doubles every few years, no matter that test scores are flat or falling, no matter that students are signing up for remedial classes in college or at their employer’s in droves. The answer is always the same: there is nothing wrong with it except that it is underfunded.
This traditional mindset becomes especially dangerous as the global economy evolves to require a different kind of knowledge asset. Eric then proposes that tuition should be charged at public schools. Intriguing. But I digress. Blinder’s other policy suggestion has to do with the tax code.
Similarly, [Blinder] says any changes to the tax code should encourage employers to create jobs that are harder to perform overseas. . . . Mr. Blinder says the focus should be on jobs with person-to-person contact, regardless of pay and skill levels – from child daycare to physicians.
And once again he is proposing this within the framework of current push paradigms without understanding emerging pull structures.
Blinder is a prisoner of the push mindset – all we need to do is forecast demand for job categories and adjust fiscal policies accordingly to push employers to create these jobs. Blinder simply does not see the deeper structures that require us to re-think public policy at a much more fundamental level. Many forces are driving the shift from push programs to pull platforms, including technology innovation and public policy shifts that systematically reduce barriers to entry and barriers to movement.
So the real risk is not so much the "vulnerability" of U.S. jobs to globalization as it is to not waking up to the reality of the emerging pull economy. If we change our mindsets and thinking to accomodate the new paradigm, it is no longer a zero sum game and everyone can win. If we don’t, then as Hagel puts it:
The greatest risk is that we remain wedded to push programs that demand accurate forecasting in world markets characterized by increasing uncertainty and accelerating change. The inevitable forecasting failures will indeed produce severe economic dislocations and significantly increase the risk of a profound backlash that will once again raise barriers to movement across national boundaries. We will then be back in the nasty zero sum world where one country’s gain inevitably becomes another country’s loss.
Those of us in the lean manufacturing and lean enterprise world already understand the advantages of and issues associated with pull systems in a deep and fundamental way. Perhaps we can therefore be the ones to help guide policies and decisions so that everyone can win in the emerging pull economy.