Chairman of the US Federal Reserve Alan Greenspan has strongly defended free trade in goods and services, now under attack by John Kerry and John Edwards, the two leading rivals for the Democratic Presidential nomination, as well as some Republican Party legislators.

Addressing the Omaha Chamber of Commerce on Friday, Greenspan warned that protectionist cures that are being advanced to deal with the country's job insecurities would make the situation worse.

Outsourcing and India: Complete Coverage

He recalled earlier anxieties in the US to losing jobs to low-wage Japan in the 50s and 60s, then to Mexico and now to still lower wage China.

The recent migration of service sector jobs such as employees working in telephone call centres in India, he said, is a new phenomenon, but whether in goods or services, the protectionist cures being advanced will fail to address the hardships and will only make matters worse.

The answer to the anxieties about jobs going abroad is adequate educational training, he said. The high level of job insecurity at present in the US, with more than two million people in the workforce being unemployed for more than a year is not surprising, he said and predicted that the strengthening economy will lead to stronger employment growth in the US in the months ahead.

But the main consolation he offered those worried about outsourcing is that "we have reason to be confident that new jobs will displace old ones, as they always have".

A better approach than protectionism, Greenspan said, is to increase the skills of the US workforce both through better instruction in such areas as maths and sciences in high school and increased support for community colleges, where much of the retraining of the workforce occurs.

"There is a palpable unease in the US that businesses and jobs are being drained abroad with potentially adverse long-term implications for employment and the standard of living for Americans," he observed.

But history showed that the US economy is best served by full and vigorous engagement in the global economy, he added.

"This country has always managed to replace jobs lost to lower wage foreign competition with jobs in more advanced industries," he said and predicted that this tend would continue.

Indirectly defending N Gregory Mankiw, who stirred a hornet's nest defending outsourcing to India, Greenspan said that free trade lowers costs to consumers and promotes advances in productivity.

Greenspan's speech, according to analysts, may quell some criticism but will not placate those who argue that a country like India, with a pool of highly skilled English-speaking population, can compete with the US not only in low skilled service jobs but almost in any job.