Greenspan warns against fighting outsourcing

Greenspan detailed his views on the politically charged topic at Boston College's Finance Conference 2004, where he was awarded an honorary degree by the school. Measures such as the US Workers Protection Act might do more harm than good, he said.

"In response to these strains and the dislocations [outsourcing could] cause, a new round of protectionist steps is being proposed," Greenspan said. "These alleged cures would make matters worse rather than better. They would do little to create jobs; and if foreigners were to retaliate, we would surely lose jobs."

The Workers Protection Act aims to ban offshore outsourcing in three areas of government work: privatisation of federal work; federal purchase of goods and services; and state government procurements using federal funds. The senator contends that the United States is losing jobs at an "alarming" rate. The country has lost 2.7 million manufacturing posts since 2001, according to Dodd, and as many as 3.3 million jobs may be sent overseas in the next 15 years.

Other legislators have publicly bandied about the idea of creating laws that would financially punish US companies found to be shipping jobs out of the country.

Greenspan blamed the movement of jobs overseas on a number of factors, including US consumers' drive to push down prices through comparison shopping and breakthroughs in productivity.

He also compared the current trend of companies sending employment overseas to similar situations in the 50s, 60s and 90s, when foreign economic powers such as Japan and Mexico were considered threats to US job security.

Given this background, protectionism might end up stalling and not encouraging job growth in the long term, Greenspan warned.

"We can erect walls to foreign trade and even discourage job-displacing innovation," Greenspan said. "The pace of competition would surely slow, and tensions might appear to ease -- but only for a short while. Our standard of living would soon begin to stagnate and perhaps even decline as a consequence.

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

Overall, Greenspan said he believes that job losses may slow, as the economy shows signs of a recovery. He also predicted that employment would soon rebound, despite a current dearth of job creation.

Among the recommendations the Federal Reserve chairman made for improving the American job market was to increase emphasis on math and science among school children and to offer more retraining programs for career changers.

"We are growing more aware that in the current intensely competitive economy, the pace of job creation and destruction implies that the average work life will span many jobs and even more than one profession," Greenspan said.