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The global outlook on outsourcing

By Lou Dobbs
This week on "Lou Dobbs Tonight": Exporting America 6 p.m. ET, Monday-Friday

Outsource at Your Own Risk
Tuesday: India Too Costly?
Wednesday: Outsourcing Musical Chairs
Thursday: Is Advertising Next?
Friday: New Team in Outsourcing?
Lou Dobbs
Business and Industry

(CNN) -- While the shift of manufacturing jobs from developed nations to cheaper labor markets has been well documented, a major study of the forces shaping the world economy is now acknowledging outsourcing's effects on the service sector.

The report, from the Central Intelligence Agency's National Intelligence Council, is the first in its series to specifically mention outsourcing and to link it directly to the changing global landscape. The report also warns that outsourcing's growing role in globalization is detrimental to the middle classes in Western nations.

Outsourcing is often treated as an anecdotal factor amid much bigger patterns of shifting global trade. But the report suggests it could become a driving force in the future.

Because of a lack of reliable and thorough data on outsourcing's impact, the weight given to outsourcing in the report was somewhat surprising, said Josh Bivens, an economist at the Economic Policy Institute. But "more and more people are at least taking the scenario seriously that something big is happening and that services are much more tradable than they have been," he said.

The CIA's semi-annual survey attempts to predict global trends for the future, and its authors' view of the path to the year 2020 contains some additional threats to job security. China and India's integration into the global economy is creating a huge, low-cost labor force, the report states. And as more companies take advantage of this labor, "the transition will not be painless and will hit the middle classes of the developed world in particular."

The authors also suggest that such a trend could lead to a stronger anti-globalization movement with serious political consequences. While few events could stop the process of globalization entirely, they write, its pace may be slowed by "a popular backlash against globalization prompted, perhaps, by white collar rejection of outsourcing in the wealthy countries."

"I don't think it's a fait accompli that it's going to make the middle class poor in the United States," Bivens said. "But I do think it's a useful warning that this is going to be tough for a large swath of workers in the United States, if managed poorly."

Outsourcing's effects are part of the broader trend of shifting power from West to East. The CIA's previous survey, written in 2000 and looking ahead to the year 2015, unquestioningly places the United States as the top economic and technological power and the main driving international force. In the 2020 report, the United States remains the dominant force, but sees its position of power slipping as China and India emerge as "major global players."

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