Outsourcing ban will backfire: Greenspan

Measures to curb outsourcing of American jobs to lower-wage countries like India and China might provide temporary relief, but it would backfire on the US, Federal Reserve Chairman Alan Greenspan said today. He warned that restrictions on free trade would also hurt US standards of living.

"A new round of protectionist steps is being proposed against outsourcing. These alleged cures will make matters worse," Greenspan said testifying before the House of Education and Workforce Committee today.

Greenspan acknowledged rising concerns "about the possibility that an increasing number of our better-paying white-collar jobs will be lost to outsourcing, especially to India and China".

"As history clearly shows, our economy is best served by full and vigorous engagement in the global economy," he said.

"Consequently, we need to increase our efforts to ensure that as many of our citizens as possible have the opportunity to capture the benefits that flow from that engagement," he said.

Greenspan said efforts to protect US jobs through legislation could end up backfiring.

"We do have a choice. We can erect walls to foreign trade and even discourage job-displacing innovation. The pace of competition will surely slow and tensions might appear to ease. But only for a short while," he said.

"Our standards of living will soon begin to stagnate and perhaps even decline as a consequence."

Time and again, we have discovered that merely attempting to preserve the comfortable features of the present, rather than reaching for new levels of prosperity, is a sure path to stagnation."

Greenspan said he recognised a "palpable unease that businesses and jobs were being drained from the US" as a result of globalisation and the accelerated pace of innovation in the economy.

And he acknowledged a "large gulf" between the arguments of economists pointing to the long-term benefits of free and open trade and the stress felt by displaced workers.

Greenspan urged renewed commitment to adapting the US educational system to the evolving needs of the economy. Education and training, he said, were a "critical element" of any move in that direction.

"Our system of higher education bears an important responsibility for ensuring that our workforce is prepared for the demands of economic change," said Greenspan.