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it's 100 percent。 Nobook about the flat world would be honest if it did not acknowledge
such con…
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cerns； or acknowledge that there is some debate among economists about whether Ricardo
is still right。
Having listened to the arguments on both sides； though； I come down where the great
majority of economists come down…that Ricardo is still right and that more American
individuals will be better off if we don't erect barriers to outsourcing；
supply…chaining； and offshoring than if we do。 The simple message of this chapter
is that even as the world gets flat； America as a whole will benefit more by sticking
to the basic principles of free trade； as it always has； than by trying to erect walls。
The main argument of the anti…outsourcing school is that in a flat world； not only
are goods tradable； but many services have become trad…able as well。 Because of this
change； America and other developed countries could be headed for an absolute decline；
not just a relative one； in their economic power and living standards unless they
move to formally protect certain jobs from foreign competition。 So many new players
cannot enter the global economy…in service and knowledge fields now dominated by
Americans； Europeans； and Japanese…without wages settling at a newer； lower
equilibrium； this school argues。
The main counterargument from free…trade/outsourcing advocates is that while there
may be a transition phase in certain fields； during which wages are dampened； there
is no reason to believe that this dip will be permanent or across the board； as long
as the global pie keeps growing。 To suggest that it will be is to invoke the so…called
lump of labor theory…the notion that there is a fixed lump of labor in the world
and that once that lump is gobbled up； by either Americans or Indians or Japanese；
there won't be any more jobs to go around。 If we have the biggest lump of labor now；
and then Indians offer to do this same work for less； they will get a bigger piece
of the lump； and we will have less； or so this argument goes。
The main reason the lump of labor theory is wrong is that it is based on the assumption
that everything that is going to be invented has been invented； and that therefore
economic competition is a zero…sum game； a fight over a fixed lump。 This assumption
misses the fact that although jobs are often lost in bulk…to outsourcing or
offshoring…by big individ
ual companies； and this loss tends to make headlines； new jobs are also being created
in fives； tens； and twenties by small companies that you can't see。 It often takes
a leap of faith to believe that it is happening。 But it is happening。 If it were not；
America's unemployment rate would be much higher today than 5 percent。 The reason
it ishappening is that as lower…end service and manufacturing jobs move out of Europe；
America； and Japan to India； China； and the former Soviet Empire； the global pie not
only grows larger…because more people have more income to spend…it also grows more
complex； as more new jobs； and new specialties； are created。
Let me illustrate this with asimple example。 Imagine thatthere are only two countries
in the world…America and China。 And imagine that the American economy has only 100
people。 Of those 100 people； 80 are well…educated knowledge workers and 20 are
less…educated low…skilled workers。 Now imagine that the world goes flat and America
enters into a free…trade agreement with China； which has 1；000 people but is a less
developed country。 So today China too has only 80 well…educated knowledge workers
out of that 1；000； and it has 920 low…skilled workers。 Before America entered into
its free…trade agreement with China； there were only 80 knowledge workers in its world。
Now there are 160 in our two…country world。 The American knowledge workers feel like
they have more competition； and they do。 But if you look at the prize they are going
after； it is now a much expanded and more complex market。 It went from a market of
100 people to a market of 1；100 people； with many more needs and wants。 So it should
be win…win for both the American and Chinese knowledge workers。
Sure； some of the knowledge workers in America may have to move horizontally into
new knowledge jobs； because of the competition from China。 But with a market that
big and complex； you can be sure that new knowledge jobs will open up at decent wages
for anyone who keeps up his or her skills。 So do not worry about our knowledge workers
or the Chinese knowledge workers。 They will both do fine with this bigger market。
〃What do you mean； don't worry？〃 you ask。 〃How do we deal with the fact that those
eighty knowledge workers from China will be willing
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to work for so much less than the eighty knowledge workers from America？ How will
this difference get resolved？〃
It won't happen overnight； so some American knowledge workers may be affected in the
transition； but the effects will not be permanent。 Here； argues Stanford new economy
specialist Paul Romer； is what you need to understand： The wages for the Chinese
knowledge workers were so low because； although their skills were marketable globally
like those of their American counterparts； they were trappedinside a stifled economy。
Imagine how little a North Korean computer expert or brain surgeon is paid inside
that huge prison of a nation！ But as the Chinese economy opens up to the world and
reforms； the wages of Chinese knowledge workers will rise up to American/world levels。
Ours will not go down to the level of a stifled； walled…in economy。 You can already
see this happening in Bangalore； where competition for Indian software writers is
rapidly pushing up their wages toward American/European levels…after decades of
languishing while the Indian economy was closed。 It is why Americans should be doing
all they can to promote more and faster economic reform in India and China。
Do worry； though； about the 20 low…skilled Americans； who now have to compete more
directly with the 920 low…skilled Chinese。 One reason the 20 low…skilled Americans
were paid a decent wage before was that； relative to the 80 skilled Americans； there
were not that many of them。 Every economy needs some low…skilled manual labor。 But
now that China and America have signed their free…trade pact； there are a total of
940 low…skilled workers and 160 knowledge workers in our two…country world。 Those
American low…skilled workers doing fungible jobs…jobs that can easily be moved to
China…will have a problem。 There is no denying this。 Their wages are certain to be
depressed。 In order to maintain or improve their living standards； they will have
to move vertically； not horizontally。 They will have to upgrade their education and
upgrade their knowledge skills so that they can occupy one of the new jobs sure to
be created in the much expanded United States…China market。 （In Chapter 8 I will talk
about our society's obligation to ensure that everyone gets a chance to acquire those
skills。）
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As Romer notes； we know from the history of our own country that an increase in
knowledge wo