Global capitalism is an ailing system. The main question is whether the illness is curable or terminal.
Dollars Without Borders by Michael Hirsh, a book review in the Sunday New York Times, March 5, 2006, Pg. 13 of the New York Times Book Review
Looking at the current state of the world it appears that there are problems with the standard capitalist market economy. It used to be that if you wrote a sentence like the one above people would accuse you of being a communist. Fewer and fewer people even remember what a communist is, so hopefully I'm safe. The observation that capitalism may be in trouble is not made from a Marxist stand point. The observation is based on the fact that automation, computerization and globalization are taking many of the well paying jobs that have been the foundation of the middle class. This is the group of people who are the backbone of the market itself. Without a healthy class of consumers with disposable income, the only market is the wealthy. Even if "high net worth individuals" are gripped by Caligulian excesses of consumption, they cannot buy enough goods to support all of the automated factories or offshore manufacturing. A healthy market needs a healthy middle class, yet this is exactly the class that seems to be shrinking.
What happens if all those displaced white-collar workers can't find greener pastures? Sure, tech specialists, payroll administrators, and Wall Street analysts will land new jobs. But will they be able to make the same money as before? It's possible that lower salaries for skilled work will outweigh the gains in corporate efficiency. "If foreign countries specialize in high-skilled areas where we have an advantage, we could be worse off," says Harvard University economist Robert Z. Lawrence, a prominent free-trade advocate. "I still have faith that globalization will make us better off, but it's no more than faith." [emphasis added]
The New Global Job Shift, By Pete Engardio, Aaron Bernstein, and Manjeet Kripalani, BusinessWeek online, February 3, 2003
From the start of the industrial revolution there has been a constant decrease in the cost of manufacturing. The efficiency of manufacturing, or business in general, is sometimes referred to as productivity. In the early years of the twenty-first century, productivity has been rising in the United States.
Economists have usually viewed rises in productivity as a good thing. Productivity increases have historically allowed wages to rise. In the last few decades, the rise in productivity produced by the combination of automation and globalization has increasingly benefited the wealthy (e.g., those who can take advantage of increasing corporate profits). Overall wages have been stagnating. In some cases wages are being driven downward.
While manufactured goods, like home entertainment electronics and cellular telephones have become cheaper, the cost of housing, food, medical care and eduction has been constant or has risen. The result of rising productivity and stagnate or falling wages is a contradiction. A market for manufactured goods exists only if people have money to spend. As human labor is replaced by computers or robots or jobs are moved to low wage countries people have less disposable income. Yet disposable income is what drives the markets for the fruits of increased manufacturing productivity.
Capitalism has produced a steady rise in income throughout the world. Although the agricultural, industrial and computer revolutions have produced huge dislocations in labor, these painful "reallocations" of resources have worked out for the greater good (or so it is generally argued). It has been a statement of faith that as the power of capitalist economic evolution worked out for the best in the past, so it will be in the future. Such statements of faith, without the support of evidence and analysis, may not necessarily be true. We need to start replacing statements of faith with statistics and analysis.
Commentary: Waking Up From The American Dream Dead-end jobs and the high cost of college could be choking off upward mobility by By Aaron Bernstein, Business Week Online, December 1, 2003
The Death of Horatio Alger by Paul Krugman, The Nation, December 18, 2003
This is a commentary by the economist, professor and New York Times columnist Paul Krugman on the Business Week article listed above.
A Recovery for Profits, but Not for Workers By Louis Uchitelle, December 21, 2003, New York Times
An untested theory is simply a hypothesis and science seeks to expand our knowledge of things by a process of testing hypothesis. In contrast, much of traditional economics theory can be called, appropriately, "ecclesiastical theory"; it is accepted (or rejected) on the basis of authority, tradition or opinion about assumptions, rather than on the basis of having survived a rigorous falsification process.
Why Stock Markets Crash by Dider Sornette, Princeton Univ. Press, 2003, pg. 84.
For most of human history power came from humans, animals, wind or water. The steam engine provided a new source of power for the first time in human history. It ushered in the industrial revolution, modern warfare and the destruction of the old order of kings.
The industrial revolution produced huge dislocations of labor, as people moved from farms to cities, staffing the factories and the offices of the emerging modern world. The terrible working conditions in factories and the rapacious behavior of industrialists like Rockefeller and Carnegie also gave rise to the political theories of Socialism, Communism and Capitalism itself. The process of social transformation brought about by the steam engine, turbines and the internal combustion engine was painful but eventually produced higher income and longer life expectancy. The dead hand of capitalism might have blood stains, but in the end it was for the best (at least for those who survived to live in better times).
The availability of cheap microprocessor based computer power has produced another revolution, sometimes referred to as the "knowledge revolution". Automobile factories in Asia and the United States use robots to perform many of the assembly tasks that were previously performed by human factory workers. Powerful desktop and laptop computer have largely done away with the corporate typing pool. Corporate software and database systems have replaced armies of accounting personnel.
When automation started to halve and then halve again the number of people employed by the large auto factories in the United States people talked about retraining for these displaced workers. In this "best of all possible worlds" scenario these displaced workers would become knowledge workers. Instead of working in dangerous factories full of carcinogens and toxins like auto paint and oil they would work in gleaming office buildings. In this "best of all possible worlds" view, it that all works out for the best in the end. The displaced factory workers go on to "knowledge worker" jobs that pay at least as well and have better working conditions.
The problem with this discussion is that much of it is based on faith that things all work out for the better in the long run. Do we know whether this really happened? For example, what was the inflation adjusted income tax base for Michigan from 1975 to 1995? What about the tax rolls in Pennsylvania over the same period as the steel industry in the US started to move offshore?
Where does increased productivity come from? Many places, but one of the main places is from the automation that IT departments provide. We have been putting other folks out of jobs at a furious rate. We don't have typing pools or mailrooms or nearly as many administrative assistants and customer reps because of email, web sites, and other stuff that comes out of IT.
We rationalize it by saying those jobs sucked anyway...and it's probably true...but many people were depending on those sucky jobs to pay their bills and feed their families. If it's wrong for your boss to save money by exporting your job to India, then it's wrong for your boss to save money by replacing someone else's job with code that you wrote or an application that you administer. If you believe that the people that you helped to displace eventually found other, better jobs, then you have to believe that that is what you will have to do when the time comes.
I don't like this, I don't like saying it, and I don't like management, but it's totally hypocritical to expect mercy after we have acted as executioners for so many years.
From slashdot poster cthlptlk, posting on one of the many slashdot discussions on outsourcing.
The reason that we have statements of faith rather than statistics and analysis when it comes to the waves of change we see around us is that static economic theory is being applied to rapidly changing circumstances. Computer driven automation is without precedent in human history.
Computers and computer driven automation have appeared in every work place, from automobile factories to offices. In the past automobiles were assembled by large labor forces. The "genius" of the assembly line is that a worker only needs to learn a single task, which is performed again and again throughout the day. As a result, assembly line workers can be relatively unskilled. During World War II and for twenty years afterward, factory labor was an engine of prosperity in the United States. Companies like Ford and General Motors where industrial titans, employing large work forces and paying relative high wages, with benefits like health care and retirement plans.
Few unskilled jobs remain in automobile factories. The automobile industry world wide has spent billions of dollars installing automated systems that allow cars to be produced by fewer workers. Automobile assembly lines are composed of robotic and highly efficient human operated systems. Some newly built steel mills now employ only a few tens of people rather than the hundreds that staffed them in the past.
The massive changes produced by automation have not been limited to the factory floor. Before the 1960s, when computer automation started spread into business, office work employed large numbers of people. Financial transactions where labor intensive, recorded by hand on paper, with no more than a mechanical adding machine. Even a medium sized company required a sizable number of workers to manage the company accounts. The financial transactions of a large corporation like General Motors or US Steel required a small army of office workers.
These armies of workers have been replaced by corporate computer systems which support the databases and applications which now manage all aspects of a company's finances. Networks of inexpensive high performance desk top computers, with high resolution monitors and laser printers, have largely replaced secretaries. People prepare their own documents, rather than writing them out by hand or dictating them for typing by a corporate typing pool.
The office and factory jobs that fueled the middle class in the United States and Europe are disappearing. The 1980s, 1990s and the beginning of the twenty-first century have been a time of constant corporate "restructuring", when millions of workers lost their jobs. In many cases only those who are talented and/or well educated can earn salaries that pay for much more than the basic necessities of life. While "knowledge worker" jobs may pay relatively well, increasingly they have no job security.
Retraining won't suffice as technology advances: Computer Revolution May Be Devastating By Robert J. Shiller, Mercury News, March 21, 2004
Source: The New York Times, Page B3, October 15, 2005
One of the first multinational corporations was probably the banking empire of the Rothschild family, which spanned Europe. Before the twentieth century multinational companies were rare. For example, General Motors was an American company, even though it had manufacturing plants in Europe. Even companies that derived their wealth from holdings outside of their home countries, like Standard Oil, Royal Dutch Shell and British Petroleum were each strongly associated with their home countries.
As corporate markets spread throughout the world, large multinational companies developed. These companies have markets in a number of countries and these foreign markets have, in some cases, became larger than their home country market. Globalization has allowed manufacturing to spread throughout the world as well, continually moving to countries which have lower labor costs.
The factors that have allowed multinational corporations to move into new markets and smoothly relocate production are relatively new. These include:
Globalization has been a long time coming. It required rapid ocean born shipping, truck transportation (in the case of the United States, Mexico and Canada) and air freight.
Taxes also had to be low enough to allow multinational corporations to take advantage of low labor costs. These taxes can come in a number of forms: tariffs at the border, government fees, corporate taxes and corruption (e.g., bribes that the multinational would be required to pay to build factories, import or export material).
Modern China is sometimes called the "Dragon of Asia", in reference to its rising economic power. But thirty years ago China was a very different country. China was a communist dictatorship which was largely cut off from the world community. Private ownership and wealth was illegal in China. China viewed multinational corporations as tools of colonialist foreign powers. China had nothing resembling commercial law (e.g., bankruptcy, copyright and contract law).
In the 1950s China fought a land war in Korea against the United States (several hundred thousand Chinese soldiers died in this war). In the 1960s and 1970s China backed North Vietnam in the war it fought against South Vietnam and the United States. The Cultural Revolution in China caused famine and political chaos. The Chinese currency was not traded in the international foreign exchange market. Few Chinese students were allowed to attend Universities in the US or Europe.
In almost every respect China is a different country today. While there is occasional saber rattling between the United States and China, relations between the two trading partners are relatively cordial. Succession in the Chinese "Communist Party" is orderly. The Chinese currency (the yuan) trades on the international foreign exchange market. China has laid the foundation for commercial law. Instead of being a criminal offense, wealth is officially desirable (It is good to be rich said Chinese leader Deng Xiaoping). China sends many of its best students abroad to study. As a global trading powerhouse China is no longer isolated. It has massive infrastructure in its ports and airports to support the export of goods manufactured in China. Corruption is still a problem, but it seems to be less of a barrier to doing business than it was in the past.
For much of its modern history, India was governed by the so-called License Raj, a socialist-inspired system that required government permits for almost every aspect of business. The raj was an impediment to growth and a reason India has lagged behind China, which began its economic reforms in the 1970s. In India, companies could produce only the amount allocated to them by the government under the terms of a "license." In order to expand or start a new product line, businesses also needed state approval. The government regulated everything from exports to foreign-exchange transactions.
India's Economy Gets a New Jolt From Mr. Shourie by Jay Solomon and Joanna Slater, The Wall Street Journal, Pg. A1, January 9, 2004
India is another example of a country where change has supported globalization. India was a colony of Great Britain and the reaction against its history of British colonial domination echoed throughout Indian politics for decades. Like China, India was extremely suspicious of European and US multinational corporations. India was a socialist country with high tax rates and strict controls on capital flows, both into and out of India. There were also high tariffs on imported goods. This combined with a glacial customs made import of machinery, computers or telecommunications equipment into India difficult. Corruption added another hidden tax, as each level of bureaucracy required a bribe to move permits forward.
Economic liberalization in India began in 1991. The liberalization of the India tax system, the reduction of tariffs and the relaxation of controls on capital flows has allowed India to take part in globalization, particularly in services and information technology (i.e., software development).
Mexico, Malaysia, Singapore and Thailand have all undergone similar changes to some degree in order to support globalization. The end result has allowed manufacturing to move from higher cost countries to lower cost countries. For example, in the past the United States, especially in the Southern States, has been a manufacturer of textiles. Now textile production has moved almost entirely from the United States to low cost countries. This has also happened with computer memory chips and electronic board assembly.
In the 1980s and '90s, two-thirds of workers who lost jobs in manufacturing industries hit by overseas competition earned less on their next job, according to a study by Lori Kletzer, an economist at the University of California Santa Cruz. A quarter of workers who lost their jobs and were re-employed saw income fall 30% or more.
Behind Oursourcing Debate: Surpringly Few Hard Numbers by Jon E. Hilsenrath, The Wall Stree Journal, Pg. A1, April 12, 2004
The book Rivethead: Tales From the Assembly Line by Ben Hamper is an account of two automobile factory workers in the 1970s. The work on the assembly line was mind numbingly boring. Rivithead was the true story of two relatively unskilled "shoprats" who got drunk every day in the parking lot at lunch. The quality problems that resulted from a workforce where this behavior was not unusual was one of the reasons that Japanese cars and trucks made inroads in the United States.
Low skill assembly line jobs are largely gone in the automobile industry. They have been replaced by automation or labor in low cost countries. Many of the suppliers to General Motors and the other large automobile companies have moved assembly work to lower cost countries like Mexico, where there are no union contracts and environmental protection laws are limited, at best.
Globalization is now moving up the "food chain". Skilled manufacturing jobs are moving offshore as well. These jobs include welders, tool and die makers and skilled machinists. The National Tooling and Machining Association estimates that 30% of the tool makers have shut down from 2000 to 2003.
These workers are the manufacturing and crafts equivalent of knowledge workers. They work in skilled manufacturing jobs that require years to master. Many of the people who do these jobs take pride in their work. These are jobs that have paid well. When these jobs disappear, they are rarely replaced by jobs with equal or better pay.
Die Is Cast: With Foreign Rivals Making the Cut, Took Makers Dwindle by Timothy Aeppel, the Wall Street Journal, November 21, 2003
Laid-Off Factory Workers Find Jobs are Drying Up for Good by Clare Ansberry, The Wall Street Journal, July 21, 2003, Pg. A1
In the 1990s, while hundreds of thousands of manufacturing jobs were moving offshore or being replaced by automation many writers claimed that the future belonged to the knowledge worker: software engineers, electrical engineers and financial analysts. Some suggested that workers displaced from manufacturing could be retrained to meet the huge demand that was expected for knowledge workers.
There were a few problems with the idea that everyone could become a knowledge worker. Many of the skilled craftspeople who lost their jobs to globalization where people who made their career choice because that is where their skills lay. These were the people who failed math but got A's in metal shop and drafting. While they might not have had a gift for mathematics or english, they are mechanically gifted people who like working with their hands to build things. There is no direct path to "knowledge work" for these people.
Another problem with the idea that the future, at least in the United States, belongs to the knowledge worker is that it turned out to be wrong. Those high paying knowledge worker jobs are now being globalized as well. Jobs in software development, electrical engineering, tax preparation, financial analysis and legal research are all being moved from the United States to lower cost countries.
Legal Research And Back-Office Work to Go Offshore Next, Information Week, December 9, 2003
What goes around comes around. Remember all of those insane signing bonuses and perks that useless rockstar programmers and IT staff were getting 2-3 years ago during the boom? Well, now we get to see management and HR getting their chance to get some of their own back.
It's best to look at this as an exercise in schadenfreude: all of those wanna-be technolibertarians who spent most of the 90s shuddering and twitching at the mere mention of unions, collective bargaining or any other manifestation of labor rights now get to find out the hard way what life is like when management holds all of the cards.
That cold, unwelcome sensation invading your rectum? That's the invisible hand you professed to adore so much last year. Enjoy!
Doktor Memory, a poster in a slashdot.org discussion
The movement of Information Technology (IT) jobs offshore has been going on for a number of years. The first jobs to move were telephone customer support. Routine software maintenance jobs for older software applications were next. As has been the case with manufacturing jobs, where first assembly line jobs went first, eventually followed by skilled jobs like tool and die making, the computer industry jobs that have moved overseas have moved "up the food chain".
One of the first steps up "the food chain" involved custom applications development for internal use by large corporations. In the past these applications have been developed by corporate Information Technology (IT) departments. In increasing numbers, corporations have moved their IT development groups offshore and fired most of their US engineers.
In many cases the custom applications developed by corporations and banks were relatively simple. Complex software design and development remained in the United States. Since the technology downturn in 2000 this has started to change. While corporations have been firing workers in the United States, the same corporations have been investing in India.
A "Made in India" tabbed Intel chip is likely to be released by the year 2005-.06. This was announced by Intel India, President, Ketan Sampat. "We are in a three year development phase. So a "Made in India" chip is likely to be released in the year 2005-'06."
He went on to add that the design center in India is developing a high-end 32-bit computing Xeon chip processor, which has apparently not been code named yet. But the release would likely be the first fully designed chip from the Intel stable in India.
Intel plans "Made in India" chip by 2005", Cyber India On-Line (CIOL)
With few exceptions every large technology company in the United States now has design and development centers in India. This includes IBM, Intel, Oracle, Sun Microsystems, Microsoft, Adaptec, Cadence and Synopsys. These offshore engineering groups are not just designing and implementing simple software or hardware components. They are involved in sophisticated product development.
In late 2003 and early 2004 companies like Intel and Juniper Networks (a company that makes computer network routers that compete against Cisco) have reported strong profits. While India is experiencing a hiring boom, strong corporate profits have not translated into jobs for unemployed engineers in the United States.
Between 2000 and 2003, employment in the U.S. among computer programmers, as defined by the Bureau of Labor Statistics, fell 182,000 to 563,000.
Behind Oursourcing Debate: Surpringly Few Hard Numbers by Jon E. Hilsenrath, The Wall Stree Journal, Pg. A1, April 12, 2004
In a commercial setting, the development of new software and maintenance and enhancement of existing software can be divided into three categories:
Internal corporate software. This involves the development and maintenance of custom software to support the business. The "customers" for this software are corporate business units. This software is rarely sold to customers outside the corporation. The cost for software development and maintenance is part of the corporate overhead.
Consulting. In consulting, software engineers are paid to develop or maintain software for a client. Consulting is usually done on either a fixed price or "time and materials" (e.g., hourly rate) basis. In most cases the consulting company charges the customer a fee and then pays the consulting engineer some fraction of that fee. Consultants may be paid to develop internal corporate software or to support corporate research and development.
Research and development (R&D). This involves the design and development of new products which are intended for resale to multiple customers.
The cost of corporate software development is part of the overall corporate overhead. By cutting this overhead companies can raise their profit margin. As a result, corporate software development (usually performed by corporate information technology departments) has been an area where outsourcing to low wage countries has had a big impact. Corporate applications also tend to be relatively uncomplicated, which has made outsourcing easier. A number of articles have appeared in the press on companies that have moved most of their IT departments overseas (usually to India or China).
Companies that provide software consulting services are selling a product: the labor of their software engineers. The customers who purchase these services would like to get them at the lowest cost possible. Indian companies like Tata have been able to offer software consulting services at about 25% of the cost charged by US consulting companies.
The history of software development is full of accounts of software development projects which were either not completed or did not deliver a quality product. Most people who purchase software consulting services are aware of these "horror stories" so they do not make their decisions solely on price. However, if there are two equally qualified consulting companies they will chose the cheaper alternative.
Research and development (R&D) costs are incurred during the design and development of a product. In the case of software or computer hardware development, engineering salaries are a significant fraction of these R&D costs. After the product is developed, sales and marketing become dominate. Most technology companies that are beyond the start-up phase spend less than 20% of their revenue on R&D. Sales, marketing, corporate overhead, product maintenance and enhancement, and manufacturing make up the other 80%. R&D costs are not a recurring cost. For a given product (or product version) R&D costs come to an end when the product is released.
The savings that can be realized by moving R&D from the United States to a low wage country is limited by the overall amount that the corporation spends on R&D. Since R&D expenditure is not the major cost incurred in selling a new product, the savings that can be realized by the corporation are proportionally fractional.
Of the three categories in software development (or engineering in general), R&D represents the technology future of the United States. This is the path by which new products are developed. R&D represents the risk capital that corporations put into their future and it usually attracts some of the best engineering talent.
Unlike corporate software development or consulting, savings on R&D expenditures are unlikely to effect the overall corporate profit and loss statement. Yet these fractional savings are being used to justify hollowing out the technology infrastructure of the United States. Every major technology company in the United States has opened R&D development centers in low wage countries.
Poisoning the roots of the techno-boom by Jeff Taylor, January 14, 2004, Salon
Moreover, it is found out that the Americans are shying away from the challenges of math and science. A recent National Science Foundation Study reveals a 5 per cent decline in the overall doctoral candidates in the US over the last five years.
The India side story: India produces 3.1 million college graduates a year, which is expected to be doubled by 2010. The number of engineering colleges is slated to grow 50 per cent, to nearly 1,600, over the next four years.
Finally, Bangalore beats Silicon Valley by Satya Prakash Singh, India Times, January 06, 2004
The Chief Executive Officers of technology companies have been complaining for years about the poor quality of eduction in the United States and the decline in the number of students studying mathematics and science. The implication is that "something ought to be done", presumably by the government to fix this sorry state of affairs. The most frequent "something" mentioned by the multi-millionaire CEOs is an increase in government research spending. While they await improvements in the educational level of US citizens, these companies have pressed for ever larger numbers of visas for engineers from outside the United States (primarily from India). These constant demands for foreign engineers have only been moderated by the political realities of record engineering unemployment at the beginning of the twenty-first century.
There are a number of reasons for the decline in math and science education in the United States. Some of these involve the society at large. For example, the rise of the media culture in opposition to a culture of books. Some of these involve the government. For example, a decline in funding for undergraduate education. There are also factors that directly involve these captains of technology companies who bemoan what they see as the decline of their country: opportunities and job security for workers in the United States.
As undergraduate student aid has declined, the cost of a college eduction has risen. A college education has become more and more difficult to afford for anyone who is not fortunate enough to be born into a wealthy family. Many students fund their college education with student loans. Even students attending state colleges can graduate with a heavy burden of debut. This debt and the time and effort that these students have put into their eduction represents an investment in their future.
As companies like Intel, H-P, IBM, Oracle and Cadence move jobs to low cost countries, opportunities in the United States are declining. There are probably only a million or so engineering and computer science jobs in the United States (the Bureau of Labor Statistics estimates that there are about 500,000 programming jobs in the US). Moving 100,000 engineering jobs offshore may have a huge impact on the US job market for engineers. Why should a prospective engineering student invest tens of thousands of dollars in their future if all they can expect is job insecurity, declining pay and age discrimination?
In contrast, the "information technology" sector if India is booming. An Indian student has every incentive to study engineering, because it promises a better life.
The end result is that the technology infrastructure in the United States is being hollowed out as sophisticated "knowledge worker" jobs are moved overseas. As these jobs disappear in the United States, there will but fewer students studying science and engineering. These students are the "seed corn" for the crop of future technology in the United States. Without a strong base of technology workers, the United States will lose its technology leadership.
A decline in technology leadership in the United States does not necessarily mean that a decline in the profits of multinational corporations will follow. Although these corporations were given birth by the technology base and capital markets of the United States, they have less and less allegiance to their country of origin. What is lost in the United States is gained by India or China. Although opportunity may decline in the United States, the jobs exported overseas will create new markets for these corporations. Lower labor costs translate directly into higher profits and fatter bonuses for corporate executives, especially the CEO.
Corporate executives are happy to talk about what the government of the United States can do for them. With perhaps less candor they will talk about their obligations to their shareholders. Corporate executives talk constantly about how they must take what ever measures are necessary to assure that they can compete in the global market. This last point is usually made to justify the movement of high paying jobs overseas.
I have yet to read about any corporate executive outside of the defense industry talking about what they owe their country. The United States government is expected to provide tax breaks, export loans, business insurance and a "corporate friendly" environment. These CEOs don't seem to feel that they owe their countries of origin anything in return. If corporate profit margins are improved by hollowing out the technology base of the United States, damaging our national future, this is not the problem of the technology executives.
The dominance of the US military is based, in part, on the fact that modern weapon systems use the most advanced technology in the world. The US technology base makes these weapon systems possible. If the US technology base is hollowed, US military power will suffer.
In other contexts actions by US citizens which harm the long term military power of the United States would be considered something close to treason. Apparently such standards and responsibilities don't apply to those who lead multinational corporations.
The Indian companies and Indian employees win, and so do the American companies that outsource. For the American companies, this clearly is an instrument for them to improve their productivity, reduce their cost and have higher quality. And that is required for their financial longevity and the robustness of their business models.
And for the Indian companies, it creates not only growth but also a tremendous amount of jobs, which are required in a country like India and is helping spur its overall economic growth. So I think it is a healthy development; it is part of globalization. For the last several years, we have all been talking about lowering the barriers of protectionism between countries, and this is part of that process.
Nadan Nilekani, CEO, Infosys Technologies. "Nilekani is spearheading the burgeoning movement to shift IT work offshore that has corporate leaders seeing green and U.S. tech worker advocates seeing red"
From an interview with Nadan Niledani, On the outsourcing hot seat, by Ed Frauenheim, January 20, 2004, News.com
This essay is entirely focused on workers in the United States. If a broader, more global view is taken, especially if this view extends over more than one lifetime, globalization may be seen as a force for the greater good of humanity. Jobs that are lost in the United States create opportunity in developing countries like India, China, the Philippines and Thailand. Perhaps over a few lifetimes globalization will increase the living standard worldwide.
On the basis of population the United States uses a disproportionate fraction of the worlds resources. This includes natural resources, like oil, but also includes less tangible resources. For example, a significant part of the US trade and budget deficits are financed by investors and governments outside the United States.
Perhaps globalization is a way of leveling out income and resource use throughout the world. If this is the case, the United States is in for a big shock as the US standard of living starts to be averaged with the standard of living of more populous developing countries like India and China (which together have about seven times the population of the United States). While there may be people in the United States who are noble enough to sacrifice their standard of living for the benefit of workers in developing countries, this is not a choice most people in the US are willing to make.
Those who support globalization either claim that it is for the greater good of the United States or that it is an irresistible force (we might as well accept it, since we can't stop it). Globalization would find few supporters in the US if people believed that US jobs are being sacrificed so that engineers in Bangalore India can have a better life. Or that globalization would reduce the standard of living in the US to the level of Bangalore.
When Webodrome places a 10-centimeter ad in the Times of India, advertising for programmers, the company will receive about 300 or 400 responses, 200 of which will be recent college graduates, Doshi says. Technical colleges send their students as unpaid interns to Webodrome to get trained for credit.
The surplus of recent college grads looking to get their foot in the door is often exploited by unscrupulous companies. Some small firms pay only 1,000 or 2,000 rupees a month, even after a six-month tryout. Other firms require a deposit of tens of thousands of rupees before they will hire you, which is repayable according to a contract, only after two years of service, says Dwpa. You cannot leave the company during that contract period, or you forfeit the deposit.
And some just demand really long hours -- 12 hours a day, not including the commute: "There are many companies that are doing this," says Dwpa."That's the level of exploitation. If you're going home at 9 p.m. at night, they still expect you to come in sharp on time. Whether you reach your house at 12 at night, they do not care."
No sweatshop here By Katharine Mieszkowski, Salon, April 12, 2004
There is a constant stream of articles in the US press about yet another multinational company opening an engineering center in India where they will employ hundreds or thousands of engineers. Where are all of these engineers coming from? India is a country where many cities do not have reliable electric power. The roads in much of the country are poor. Only recently has starvation become a thing of the past in India. How is it that India can educate all of these engineers?
A high quality University eduction is expensive. Historically, this kind of education has only been available in the "first world", which is why developing countries send their promising young men and women to school in the US and Europe. The Indian government founded the Indian Institutes of Technology to provide access to high quality education in India. This objective seems to have been met and IIT apparently provides excellent education to a very talented student body (admission to IIT is based on exams and is very difficult).
However, IIT graduates only a few thousand students a year. Some IIT students go on to post graduate work and jobs abroad in the US or Europe. The IIT graduates who remain in India constitute the core of India's technology industry. But IIT cannot compete with the vastly larger University system in the US or Europe. If IIT were the only source for Indian engineers who are filling the jobs moved from the United States, offshoring to India would quickly have come to an end. (in fact, as this article notes, increasingly there is a shortage of well trained Indian engineers).
In training computer science students, University programs attempt to provide a broad background. While most Universities have classes in Java and C++, they rarely offer classes in narrow industry related topics like writing software for the Oracle database or Microsoft .NET software development. Instead a University computer science education includes mathematics (calculus, discrete mathematics) and concentrates on computer science principles, rather than specific applications. Those who design these programs would like to believe that their students can work in a broad range of areas throughout their careers.
One possible answer to the question "Who is training the Indian IT Workers?" is that a University education is not needed for many programming jobs. Those who run Universities argue that the eduction their institution provides prepares you for an intellectual life. Many of the courses that computer science students take are not directly applicable to their future jobs. This style of eduction is a luxury of the "first world". A developing nation, like India may take a more direct path in educating students for the jobs that are moved to India.
An education that focuses on training future IT workers to staff the offshoring industry would concentrate on courses that are useful for getting a job. The english language would be studied, but english literature, history, philosophy, art, biology, chemistry and physics would not be part of the curriculum. While basic algebra might be useful, calculus and discrete mathematics is not necessary, since few IT jobs require a knowledge of mathematics.
Rather than studying general computer science principles, specific technology would be studied. For example, instead of database principles and design, Oracle, Sybase and Microsoft's SQL-server would be studied. Java and the Java Enterprise environment would be covered. An in-depth understanding of data structures and algorithms would not necessarily be needed, since Java has an extensive class library. Students would study Microsoft's technologies, like Visual Basic, the C# language and the .NET environment.
While I know very little about the Indian educational system, I speculate that many of the jobs that are moved offshore are being staffed by people who are graduates of the sort of trade school eduction I have described above. For many of the entry and mid-level programming jobs that are being moved offshore from the United States, this eduction is probably sufficient, at least in the short run.
By accident I encountered one of these Indian "IT trade schools". I got a note from someone at an NIIT email address. The email was written in very poor english and related to one of my web pages. I took a look at the NIIT web site and found the following descrition of their "heritage":
NIIT, the brainchild of two, young Indian entrepreneurs, pioneered and nurtured the concept of high quality IT education in India. Set up in 1981, NIIT has trained one out of every three software professionals in the country and become a beacon in the global IT revolution. From introducing computers to the people of India, to providing advanced IT skills to students and professionals, NIIT has evolved into a training powerhouse. While our special-priced, IT programs have enabled ordinary citizens to achieve computer and Internet literacy, our career education has shaped the lives of millions of individuals.
This is a commercial for profit trade school. Whether their claims to have trained "one out of every three Indian software professionals" is overstated or not, I can't say. I do think that it is safe to say that the training provided by NIIT differs dramatically from the training someone gets at the Indian Institute of Technology (IIT). Unlike IIT, the for profit NIIT seems to be turning out "software professionals" with very little knowledge of computer science.
There is a toxic style of management behavior that is seen in both corporate management and in investment fund management. This involves managers who get rewarded for short term gains, while avoiding the long term consequences of the decisions that delivered those short term gains. For example, a manager might get a yearly bonus for delivering savings in the corporation Information Technology (IT) department by offshoring software development and maintenance. If the cheap labor hired in India turns is not as skilled as the US engineers they replaced, the effects may not be appear for a year or more. By that time the manager may have moved on to another job.
A number of offshoring projects have the feel of short term gain at the cost of long term loss. The infrastructure in India, whether it is clean water, reliable electricity or quality education falls far behind Europe and the United States. While software programmers from Indian IT trade schools may be cheap, it appears that a shortage is starting to materialize in skilled university graduates.
Unlike Silicon Valley, however, the employees in India didn.t value stock options as much as folks do in Silicon valley. It was understandable, however, given they had never seen a friend hit it big or seen the Google like wealth effects which occur every 5 years in the Valley. Hence, they argued more for cash compensation. This combined with the fact that we were going after the best in Bangalore (the most impacted city in India) increased our exposure to wage inflation.
Bangalore wages have just been growing like crazy. To give you an example, there is an employee of ours who took the first 5 years of his career to get from 1% to 10% of his equivalent US counterpart. He then jumped from 10% to 20% of his US counterpart in the next 1 year. During his time with us (less than 2 years) he jumped to 55% of the US wage. In the next few months we would have had to move him to 75% just to keep him at market.
Keep in mind that Riya are at the leading edge of this trend. We tend to only hire folks from IIT or other top schools. We tend to only hire the smartest folks from these schools. We only hire in Bangalore (just too hard to have three offices). We tend to only hire folks with a lot of experience. These are all characteristics that are critical for technology startups, but not necessarily for a big company like IBM or a services company like Infosys who can afford to train new graduates. I do believe that other startups in Bangalore will see the same issue in 12-24 months.
Munjal Shah, CEO of Riya, an Internet software company in Bengalore
Recognizing Deven: Episode 26 - India Grows Up, April 24, 2007
Andrew Leonard's How the World Works blog entry Bangalore offshores to Silicon Valley originally pointed me to Munjal Shah's blog entry.
The job market at the start of the twenty-first looks bleak. While corporate profits are up and our appointed president crows about the economic boom created by his party's massive deficit spending, few jobs are being created to replace the high paying jobs that have moved offshore. In many cases the jobs that are being created pay less than the jobs that were lost.
Some people believe that the current depressed state of the job market is temporary. They point to rising wages for skilled engineers and scientists overseas and to a future labor shortage in the United States. This labor shortage will be created by the fact that the "baby boom" is aging and will soon be retiring. Fewer young people are available to fill the jobs that these aging workers will leave behind when they retire. However, society is committed to support these retirees through programs like Social Security. Seen in this light, the productivity gains realized by automation and globalization are a long term benefit as the profits realized through productivity will go to support the aging population.
Even with automation and globalization, these demographers believe, there will still be a worker shortage. Companies that currently treat their employees poorly or practice age discrimination will be punished for their behavior as their employees leave for better jobs. A shortage of labor will cause salaries to rise and retaining employees will become a priority for management.
For those in this future work force, this sounds like a better world than the one we are currently living in. It would be nice to look back on this essay in a few years and see how wrong it was. And who knows? The future constantly surprises us.
Sadly, there are a number of reasons why this rosy future may not arrive.
A number of writers have observed that jobs that are moved offshore never come back. They are gone forever. If offshoring trends continue some of the jobs that are vacated by retirees will simply move to low wage countries.
The thesis that there will be a wave of retirements is also open to question. Billions of dollars were lost in the US stock market downturn in 2000. Billions more were lost through corporate fraud at companies like Enron, Adelphia, Health South and Worldcom. For those whose retirement savings were reduced to a fraction of their previous value, there will be no retirement. Assuming that jobs for older workers are available, those whose retirement savings were savaged will only stop working as a result of disability or death. For others, retirement savings were used to survive after they lost their jobs in the economic downturn. Many of those who avoided stock market losses, corporate fraud and were lucky to have a job in the early part of the twenty-first century have not able to save enough for retirement. As a result, many people will be forced by economic circumstances to work beyond "retirement age".
What will it take to get back in the fight? Understanding the real interests and deep opinions of the American people is the first thing. And what are those? That a Social Security card is not a private portfolio statement but a membership ticket in a society where we all contribute to a common treasury so that none need face the indignities of poverty in old age without that help. That tax evasion is not a form of conserving investment capital but a brazen abandonment of responsibility to the country. That income inequality is not a sign of freedom-of-opportunity at work, because if it persists and grows, then unless you believe that some people are naturally born to ride and some to wear saddles, it's a sign that opportunity is less than equal. That self-interest is a great motivator for production and progress, but is amoral unless contained within the framework of community. That the rich have the right to buy more cars than anyone else, more homes, vacations, gadgets and gizmos, but they do not have the right to buy more democracy than anyone else. That public services, when privatized, serve only those who can afford them and weaken the sense that we all rise and fall together as "one nation, indivisible." That concentration in the production of goods may sometimes be useful and efficient, but monopoly over the dissemination of ideas is evil. That prosperity requires good wages and benefits for workers. And that our nation can no more survive as half democracy and half oligarchy than it could survive "half slave and half free" - and that keeping it from becoming all oligarchy is steady work - our work.
This is Your Story - The Progressive Story of America. Pass It On. by Bill Moyers
Text of speech to the Take Back America conference sponsored by the Campaign for America's Future
June 4, 2003, Washington, DC
Since the end of World War II the United States has been a society of egalitarian ideals, if not egalitarian reality. Education, talent and hard work are supposed to be the path to well paying jobs and the middle or upper-middle class. At the beginning of the twenty-first century this no longer appears to be as true as it once was. In the last decades the pay for corporate executives has increased astronomically, while factory jobs have disappeared and many skilled workers have declining jobs prospects.
Automation has had a huge impact on ever facet of our lives. Welders in automobile factories have been replaced with robots. The corporate typing pool has disappeared in an era of desk top computers and Microsoft Word. Fewer bank tellers are needed now that automated teller machines (ATMs) are everywhere. Airline tickets can be purchased and printed out via the Internet and the World Wide Web, so fewer ticket agents are needed. This trend is not going to stop. As time goes on more and more jobs will be taken over by computers and automation.
In the past people talked of computers and automation "freeing" people from tedious jobs like those on the assembly line where humans were forced to act like the robots that eventually replaced them. This begs the question: freed for what? The answer given has been: more rewarding, challenging jobs. Jobs that are enjoyable, rather than drudgery. Usually these jobs are the those of skilled workers and knowledge workers. These are exactly the jobs that are now moving to low wage countries.
The corporate executives who move these well paying jobs offshore claim that they have no choice. They say they are struggling to survive in a brutal capitalist jungle. Its ugly out there, they claim, and only the strong survive. Remember, these executives will say, we are competing in a global market. Their competitors are reducing their costs and lowering their prices by offshoring skilled jobs. To compete these executives have no choice but to follow.
A similar argument could be made for removing environmental regulations in the United States. Companies like Dow Chemical or the mining company Phelps Dodge could claim that they cannot be expected to follow environmental regulations to protect the air, water and ground from contamination. These companies compete with companies in Russia, India and China that follow few, if any, environmental laws. These foreign companies can undercut Dow Chemical or Phelps Dodge. Sorry about the poisoned air and water, but this is the price for surviving in a global marketplace.
Most people would not agree agree to drink poisoned water, breath polluted air and live in a blasted moonscape of mine tailing so that a multinational company can compete against foreign companies that don't follow environmental regulations. Instead the discussion has centered on making a "level playing field". Rather than accept a polluted environment in the United States, foreign companies that operate without environmental regulation would have tariffs slapped on their products that are imported into this country.
The equivalent to Rachel Carson's Silent Spring has yet to be written on wages and jobs. Although more attention seems to be paid to the environment, jobs and wages are not without regulation. There is a minimum wage and immigration into the United States is, in theory, controlled. In reality the minimum wage does not provide a living wage and companies like Wal-Mart reduce their labor costs by either directly or indirectly using illegal workers. The idea that minimum wage laws, workplace safety laws, and immigration laws should disappear so that multinationals can compete with low cost foreign labor would be only slightly less popular than the suggestion that we should drink poisoned water for corporate profit.
When the issue of offshore outsourcing comes up, many commentators and corporate executives claim that regulation and taxes are not the solution. You can't fight the "dead hand" of capitalism and any attempt to do so is doomed to failure. Those who are making these arguments are pretending that the United States exists is some kind of unrestricted "free market" environment. This is a willful misreading of reality. There are environmental, labor and wage regulations. There are tariffs that were imposed to preserve the US automobile industry, farm programs that cost tens of billions of dollars, cheap loans from the US import/export bank and a vast array of other corporate "welfare" programs. These corporate "welfare" programs do benefit those who donate money to politicians, but they also have political support because these programs provide jobs.
The continued loss of jobs to automation and computers does not have any obvious solution. In this case the jobs disappear as they are taken over by technology. In contrast, the skilled jobs that are moved offshore still exist and are still done by skilled workers. It is just that these jobs are no longer in the United States. We are not helpless before the trend of offshore outsourcing. The United States is not powerless to stop the hollowing out of our technological infrastructure. We do not have to sacrifice our future for a few percentage points of corporate profit.
Tax law and corporate regulation support the movement of jobs offshore. This can be changed. The United States government can recognize that R&D jobs are a critical part of the future of the United States. Tax deductions for R&D that is done offshore should be removed. The US tax deduction for salaries paid to offshore workers should be removed or modified. The executives who have become fantastically wealthy because of the infrastructure provided by the United States must come to realize that they cannot take advantage of this infrastructure without obligation. Corporations must be profitable so that they can survive and provide jobs. But these profits cannot be maximized at the cost of the future of the United States.
What is ironic is that "free trade" ideology seems to exist only in the United States. Most countries in Asia have policies in place to protect local industries, especially industries that they view as strategic. Yet it is these very same Asian economies that present the largest threat to the economic infrastructure in the United States.
The policy makers in the United States must come to realize that protectionism is not bad policy when it comes to protecting our nation. When protectionism is mentioned some argue that this will lead to "trade war" and economic meltdown. They point to the Great Depression in the 1930s as an example. What the "free traders" fail to mention is that if India stopped purchasing US services and goods, there would be no effect on the economy. Nor do the critics of protectionism mention the huge trade deficit with China. China is in no position to wage "trade war" since the US buys vastly from China than China buys from the US.
Conservatives frequently claim that government regulation is not the answer. The answer, they believe, lies with individual initiative. This maxim has some truth when it comes to jobs and wages. Government regulation alone is not the answer. It is time for workers, especially skilled workers and knowledge workers, to realize that they must organize into associations and unions. By joining together their collective voice will be heard by those who make the laws. The press will be more likely to listen to a professional association than to a single worker. Management may be able to treat an individual badly, but mistreatment is more difficult when management is faced with professionals who stand together.
When professional associations and unions are mentioned for engineers the objectivist line is frequently trotted out: unions do not allow individual talent and initiative to be rewarded. People are promoted on the basis of seniority, rather than skill. Unions like the Teamsters have shown that unions become corrupt and no longer represent the interests of their workers.
There may have been reasons to discard the idea of unions when there was high demand for engineers and most engineers were too young to be concerned with issues like age discrimination and retirement. Those times are past. Unions are not a perfect answer, but we know as engineers that obtaining an objective requires a trade-off. There are rarely perfect solutions. Many of us went into hardware and software engineering because we loved our work. We can either organize or continue to watch the decline of the professions we love.
One group of engineers and scientists that has banded together since the 1970s in an effort to create a better workplace is the Society of Professional Engineers and Scientists, which is associated with the Communication Workers of America.
Web sites that publish articles on wages, globalization and offshoring.
Economic Policy Institute (EPI): Research and Ideas for Working People
The Cato Institute: Individual Liberty, Limited Government, Free Markets and Peace.
The Cato Institute is listed here in an attempt to provide counter arguments to those I have presented here. While I am sympathetic with Cato's stands on the War on Some Drugs and their support for civil liberties, I find many of their writers odious.
Some of these references are repeated from the body of the essay. Most are links to on-line resources. A few are local copies to assure that these references remain available. In general the references are listed in increasing chronological order.
This is a small web page I've written commenting on a marketing letter sent out by a Bangalore software company, soliciting clients who need compiler development services. Compilers are very complicated software programs and this is an example of how both routine and complex development jobs can move offshore.
Robotic Nation by Marshall Brain
Robotic Nation is an essay on the increasing replacement of jobs by automation. The author (who really is named Marshall Brain) predicts a date (2055) by which he believes that the majority of human jobs in the west will be replaced by robots. Mr. Brain is the author of a the "How Stuff Works" book series and of the How Stuff Works web site.
Mr. Brain points out that the classic response from economists is that workers who are displaced by technology will work in newly created jobs. He has a rather bleak view on this topic:
What will those new jobs be? They won't be in manufacturing -- robots will hold all the manufacturing jobs. They won't be in the service sector (where most new jobs are now) -- robots will work in all the restaurants and retail stores. They won't be in transportation -- robots will be driving everything. They won't be in security (robot police), the military (robot soldiers), entertainment (robotic amusement parks), construction (robotic construction workers), education (robotic teachers and computer-based training), programming or engineering (outsourced to India at one-tenth the cost), farming (robotic agricultural machinery). We are assuming that the economy is going to invent an entirely new category of employment that will absorb half of the working population.
What Mr. Brain does not address in this article is the economics question raised here: if there are no jobs and half the work-force is getting by on government welfare or subsistence labor, there is no market and the economic system will collapse.
Grow Faster Together or Grow Slowly Apart:How Will America Work in the 21st Century? (PDF) by the Aspen Institute Domestic Strategy Group, August 2002
The main thrust of this paper is that there is an impending labor shortage that will become more pronounced as the native born population of the United States ages. The report sites the demographic shift toward an aging population that will (the authors claim), at best, replace those workers who retire or die. Their most dramatic claim is that there will be 0% net increase in the working population.
The report makes the point that there is an increasing wage gap between the educated and those who are not educated. They also point out that people are making less today than they were twenty years ago.
Those of us in software and hardware engineering have heard similar claims for worker shortages. These were loudest during the "dot-com" and telecom bubble in 1999 and 2000. The engineer shortage was used as an excuse to import large numbers of foreign workers who would work for lower wages than experienced engineers. After years of reading "engineer shortage" studies, sponsored by corporations, I am naturally skeptical of the claims made in the Aspen Institute report.
The problems of the wage gap that the authors decry and the instability of current employment would both be helped by a labor shortage. Wages would naturally rise as workers become prized commodities. Productivity increases would come through employing workers in better ways, rather than paying them less. As with the engineering shortage, these "Chicken Little" claims are simply a justification for flooding the US labor market with cheap foreign labor to keep US wages down.
The foundation for software or hardware engineering is a University degree. The technology changes so fast that it requires constant study and mastery of new knowledge and skills. Much of this must be done at night and on weekends. Although engineering is a demanding profession, engineers have been faced with record unemployment. Families have lost their savings and in some cases their homes. Is it any wonder that eduction levels in the United States are declining (as this report claims)? Young people see how hard older professionals work, only to be laid off as corporate executives rake in huge pay packages.
The report's summary is full of empty platitudes and observations of the blazingly obvious. There is no in-depth analysis or suggestions for anything like a real solution. Little else can be expected from a report written by people who are nothing more than corporate shills, funded by the "Fat Cats" of the business world.
The New Global Job Shift by Pete Engardio, Aaron Bernstein and Manjeet Kripalani, Business Week, February 3, 2003
This Business Week article discussions how Bank of America, among others, made huge reductions in their information technology and back office staff by moving the jobs to India. The last paragraph of this article echos the motivation for writing this essay:
The truth is, the rise of the global knowledge industry is so recent that most economists haven't begun to fathom the implications. For developing nations, the big beneficiaries will be those offering the speediest and cheapest telecom links, investor-friendly policies, and ample college grads. In the West, it's far less clear who will be the big winners and losers. But we'll soon find out.
Lets at least start asking the right questions, even if the answers are not obvious.
This article is a review of the authors view of economics in the last quarter or so of the twentieth century and the early years of the twenty-first century. Robert Brenner's discussion is echoed in many cases by this essay: when people do not have income, they do not have buying power. Only the rich get rich and the rest of the population struggles.
U.S. tech workers feeling pinch of new world economy by Phyllis Schlafly, June 10, 2003, published on townhall.com, a conservative web site.
Phyllis Schlafly is a long standing and vocal proponent of the "Christian Right". While this essay does not advocate any particular political solution, it does describe in detail the disappearance of "knowledge worker" jobs from the United States to India. The fact that factions of the Republican right wing have taken up this cause, which is also a classic unionist issue, means that the disappearance of US jobs to foreign countries may become a broad spectrum political issue.
Imported From India, CBS News/60 Minutes, June 22, 2003
This is an article on the Indian Institutes of Technology (IIT), in India. IIT has a very good reputation for producing engineers. This article includes various elitist comments by Vinod Khosla, one of the founders of Sun Microsystems, about how IIT produces uber-mensch of the technology world.
White-collar sweatshops: "Globalization" is becoming a dirty word to U.S. tech workers, increasingly angry and anxious as their jobs disappear overseas, never to return, by Katharine Mieszkowski, Salon, July 2, 2003
Tech jobs leave U.S. for India, Russia: Job exports may imperil U.S. programmers, Associated Press, Monday, July 14, 2003, reprinted on CNN.com
Laid-Off Factory Workers Find Jobs are Drying Up for Good by Clare Ansberry, The Wall Street Journal, July 21, 2003, Pg. A1
IBM explores shift of white-collar jobs overseas, By Steven Greenhouse, The New York Times, July 21, 2003.
With American corporations under increasing pressure to cut costs and build global supply networks, two senior IBM officials told their corporate colleagues around the world in a recorded conference call that IBM needed to accelerate its efforts to move white-collar, often high-paying, jobs overseas even though that might create a backlash among politicians and its own employees.
Coding: Should it stay or should it go? By Ed Frauenheim, CNET News.com, July 22, 2003
In this article Greg Owens, a CEO of a small software company Manugistics, is quoted as stating that engineering is still a great profession (while he fires his US workforce and moves their jobs overseas):
At software company Manugistics, for example, the use of about 100 developers in India has corresponded with a cut in the number of U.S. developers from roughly 450 to about 275, CEO Greg Owens told the conference audience. Owens said more cuts are planned for the U.S. work force. Owens' advice to U.S. tech workers is to improve skills, such as learning the latest technology. "I still think it's a good profession," he said.
Small companies have often been cited as the "engines" of job creation. It is interesting to note that some of these small companies, like Manugistics, are active in offshore contracting, limiting the number of jobs created in the US.
There is a rather disturbing business model which may be active here: Hire US engineers who will work hard to make the company successful. Once the company reaches a level where it has sufficient cash flow, ship the jobs overseas and fire the US engineers.
Globalization takes toll on techies, by Martin Wolk, MSNBC, July 24, 2003
The Wal-Mart Way Becomes Topic A in Business School by Constance L. Hays, The New York Times, July 27, 2003
About a year ago, James E. Hoopes, a professor of history and business ethics at Babson College in Massachusetts, began looking at what he called the symbolic aspects of Wal-Mart.
The company's approach to commerce contravenes the American dream for some people, he said. "It's a new kind of twist because it does affect the lifestyles of so many of us," he said. "Its an enormous employer, and it is identified with what's happened with America in the last 25 years." Gone are many of the high-paying skilled jobs that the automotive plants once provided; instead, people are punching a cash register at Wal-Mart for half the money, he added.
That perception of reduced opportunity carries over into spending, he says. "People have a sense of bing trapped in this marketplace," he said. "You work for these low-wage jobs, and you can have your American dream as long as you buy it at Wal-Mart. So the dream is getting standardized, and downscaled, in a way that hasn't happened before."
Gartner Says Tech Jobs Will Continue to Move Overseas by Michael Pastore, Internetnews.com, July 29, 2003
High Tech Worker Visas Come Under Fire By Roy Mark, Internetnews.com, July 30, 2003
This article discusses L-1B visas, which until recently have been little known. These visa were created to allow multinational corporations to transfer overseas employees to the United States. There has been a huge rise in L-1B visa applications as they have been used by "body shops" to transfer low paid workers to the US for contract work. Unlike the H-1B visa there are no regulations that require a company to at least make a pretense to paying a prevailing wage.
Offshore Lore: Myths and facts of white-collar out-sourcing by Jeff Taylor, Reason On-line, July 30, 2003
This brief article claims that the problem of moving software jobs off-shore is not as bad as some claim. Off-shore talent, the author claims, is not as good as US talent and "off-shoring" is must another management fad. Apparently Reason magazine's bias is toward "free markets". So they might be expected to argue against regulations that might work against allowing companies to move US jobs to other countries.
Jobs Go Global Tech jobs are moving overseas at an alarming rate. Other fields may soon follow. Why is it happening? By Laura Fording, August 3, 2003, Newsweek online/SNUBS
The issue of knowledge working jobs moving offshore is a heated one, with workers on one side and companies on the other. This article is an interview with Ron Hira, who is a post-doctoral fellow at Columbia University's Center for Science, Policy and Outcomes and soon to be a professor at Rochester Institute of Technology. As an academic, Dr. Hira has a more objective view and has some interesting observations.
Body Count: Why Moving to India Won't Really Help IT by Robert X. Cringely, August 7, 2003
Some quotes from the article:
There was a story in the news a couple weeks ago about how IBM was planning to move thousands -- perhaps tens of thousands -- of technical positions to India. This isn't just IBM, though. Nearly every big company that is in the IT outsourcing or software development business is doing or getting ready to do the same thing. They call this "offshoring," and its goal is to save a lot of money for the companies involved because India is a very cheap place to do business. And it will accomplish that objective for awhile. In the long run, though, IT is going to have the same problems in India that it has here. The only real result of all this job-shifting will be tens of thousands of older engineers in the U.S. who will find themselves working at Home Depot. You see, "offshoring" is another word for age discrimination.
If a U.S. employer said out loud, "Gosh, we have a lot of 50-something engineers who are going to kill us with their retirement benefits so we'd better get rid of a few thousand," they would be violating a long list of labor and civil rights laws. But if they say, "Our cost of doing business in the U.S. is too high, so we'll be moving a few thousand jobs to India," that's just fine -- even though it means exactly the same thing.
Men at Overwork: The good news is we're more productive. The bad news? They don't need as many of us by Brad Stone NEWSWEEK, August 11 2003
LABOR MARKET LEFT BEHIND: Evidence shows that post-recession economy has not turned into a recovery for workers (PDF), by Jared Bernstein and Lawrence Mishel, August 27, 2003
Although the recent recession was officially declared over as of November 2001, on Labor Day 2003 the job market remains decidedly weak. Unemployment is high and, instead of coming down in the nascent recovery, it has climbed from 5.6% at the recession.s end to 6.2% in July 2003 (the most recent data available). Tracking the nation.s payrolls reveals the worst hiring slump since the Great Depression. And the weak labor market is not just a problem for those without jobs.wages have been growing more slowly for most workers and even falling in real terms for some.
CIO Magazine, September 1, 2003: articles on offshore outsourcing.
CIO Magazine ran an excellent set of articles on many of the issues involved in offshore outsourcing.
The Radicalization of Mike Emmons by Ben Worthen, September 1, 2003
This article is about Mike Emmons, a previously apolitical software engineer who has seen his job moved offshore.
No Americans Need Apply by Ben Worthen, CIO Magazine, September 1, 2003
This article recounts the problems that the software engineer Daniel Soong has had with his job being repeatedly "outsourced" to India.
There has been a lot of ink spilled in the press about how a decreasing number of students in the United States are taking math and science. These articles make the point that the students who take math and science are the technological future of the United States. In many ways Daniel Soong was an ideal student, the sort of student that these articles claim that the US needs more of. Daniel had a passion for programming since he was a kid, programming a Timex Sinclair. He took calculus in High School and graduated with a computer science degree in 1995. Daniel's reward for years of hard work and study is being unemployed since January of 2002 when his last job was moved off shore.
The surface view of knowledge workers like software engineers is that they are like textile workers. What this view ignores is that these are workers who have made an investment on which they expect a return. This investment is real money, in college tuition and the hard work required to get a computer science degree. The investment continues after graduation, as all engineers are required to continually stay abreast of a rapidly changing field. Daniel Soong could not be blamed for feeling that his investment has not paid off. His post college career has consisted of seven years, ending in unemployment. How many students are going to invest in technology when they can at best look forward to an unstable and short career, ending in wages that high school graduates can command?
Especially after September 11, 2001 many corporate executives are willing to spout the line about the patriotism and commitment to the United States. But their actions tell another story. The greed and concentration on short term profits of large multinational corporations is hollowing out the technology infrastructure of the United States. Although these companies were born in the United States and have succeeded because of the United States, they have no allegiance or concern for the long term welfare of this country.
Backlash - Offshore Outsourcing by Christopher Koch, CIO Magazine, September 1, 2003
The fact that large corporations are currently involved in hollowing out the culture which has nurtured them is not entirely lost on these corporations. They fear that there will be a political backlash, resulting in a boycott of their products and services because of their behavior. There is already a move to ban companies that outsource US Information Technology jobs from state and federal government contracts.
The Hidden Costs of Offshore Outsourcing by Setphanie Overby, CIO Magazine, September 1, 2003
In any year looking at the current crop of management books will show that fads ripple through the US corporate world. To some degree outsourcing is a fad. Corporations do it because other corporations do it. If you are a Chief Information Officer at a large corporation who do you answer your CEO when he asks why you are not saving money through offshore outsourcing? An answer that includes the complexity of such an issue is usually not welcome. It is easier to say "Yes Sir, we're doing that to! We have a program in place."
This article discusses some of the costs that a company may incur from such a facile, but potentially wrong, course.
Anti-Globalization and the U.S. Middle Class By Alan Tonelson, September 01, 2003, The Globalist web site
Alan Tonelson is the author of the book The Race to the Bottom, which discusses the impact of globalization when it comes to jobs and income in the United States.
The unemployment statistics that the government publishes seem to reflect reality less and less. Unemployment and hard times for those who are not rich is a staple of the Bush II years. The slow realization that things are not going well is a threat to the election of Bush II. So perhaps it should be no surprise that the government statistics do now properly reflect the insecurity of the middle and upper-middle class professionals.
This article is an account of one families fall from the middle class lifestyle to food stamps.
Lumps of Labor by Paul Krugman, New York Times, October 7, 2003
I am a great fan of Paul Krugman's political commentary. I'm less of a fan of Krugman as an economist. In this essay he claims that workers don't have to worry about the effects of automation and offshore outsourcing.
A New Wave of Outsourcing (PDF) by Ashok Deo Bardhan and Cynthia A.l Kroll, Fisher Center for Real Estate and Urban Economics, University of California, October 2003
This 12 page paper is the academic study discussed above. Job growth effects the demand for office space and real estate prices. The authors work in a center devoted to real estate economics and the second half of the article consists of a discussion of future office space demand.
Welcome To The Machines by Robert B. Reich, November 5, 2003, republished on www.tompaine.com
In this brief editorial Robert Reich, President Clinton's Secretary of Labor, discusses the fact that automation is raising productivity across first and second world (e.g., Brazil) economies. This is economist speak for producing more with less labor. As more and more jobs are automated, what jobs will be left for humans? Reich writes that this should be the topic of political discourse. However, the full dimensions of this problem lie in the future. The issue that affects jobs now is globalization.
Gone in the blink of an eye: Berkeley researchers declare 14 million U.S. jobs are at risk of being outsourced, by Katharine Mieszkowski, Nov. 5, 2003, Salon.com
This is an interview with the author of an academic study on "outsourcing" of US white collar jobs to countries like India, China and Russia.
Want to stop your job from being outsourced? Join a Union., by Joel Keller, Nov. 6, 2003, Salon.com
The lumpen proletariat of Information Technology (IT) are the system administrators. They work long hours and are usually only noticed with things go wrong. This article suggests that one way to address the job insecurity and unpaid labor forced on system administrators is to unionize.
A number of Salon readers had interesting responses to Katharine Mieszkowski article on outsourcing and Joel Keller's article on unionizing the "IT" workforce. At the end of Katharine Mieszkowski's interview with Ashok Deo Bardhan he concludes: "People need to acquire new skills all the time. In a fast-paced globalizing world like ours we are all liable to be obsolete in the blink of an eye.". One letter writer responded:
What skills? This is what I'd like to know. What skills and what markets can somebody move toward to protect themselves from the outsourcing black hole? The blue-collar workers of the '80s and '90s have been retrained to be the white-collar workers that are now getting the shaft. How do these people jump far enough up the food chain to have a chance?
Another reader responds:
What I've never heard is what these outsourced workers are supposed to be trained to do? We don't need 14 million nursing assistants. Or is the training to teach us how to say "Do you want fries with that?" Most of those factory workers that were downsized in the '80s didn't end up working at dot-coms, except maybe in San Francisco.
Vague comments about innovation and retraining don't solve the essential problem -- what are 14 million unemployed people supposed to be trained to do?
Help Wanted: New reports show jobs are finally being added to the economy. But many of them pay less than those that were lost Jennifer Barrett, Newsweek, Nov. 13, 2003
Die Is Cast: With Foreign Rivals Making the Cut, Took Makers Dwindle by Timothy Aeppel, the Wall Street Journal, November 21, 2003
Your New Core Strategy: Employee Retention by Paul Michelman, Harvard Business School Working Knowledge, November 26, 2003
There is an old saying that "demographics is destiny". The kernel of truth behind this saying is the idea that looking at current demographics is a way to understand what the future might hold.
The meaning of demographic statistics and the will to respond to their implications is a complex issue, as most first world countries have discovered when it comes to funding social welfare programs for the aging. The actual impact of the demographic shift on the labor market remains an open question. From the point of view of the work force the most optimistic view is that demographics will shift power back toward employees. In this article Paul Michelman writes
Nor is it simply about making sure that your best people remain committed to the firm should the market soon beckon with new opportunities. It's about establishing a way of doing things that may well be essential to survival just a few years down the road. According to a 2000 Bureau of Labor Statistics report, by 2010 there could be as many as 10 million more jobs available than there are employees in the United States.thanks to a combination of factors, including the retirement of baby boomers and a decrease in workers aged between twenty-five and thirty-four.
You think 1999 was a bad time to be hiring? That year "was only a footprint for what we'll see in 2008," Taylor [founder of the on-line job search site monster.com] says. "We'll be facing the worst labor shortage in our lifetime within the next five years."
While many experts echo Taylor's thoughts about an impending labor shortage, there are others who believe that a combination of advancing technology and increasing globalism will mitigate its severity. Nevertheless, one day in the not-too-distant future the job market will swing back toward the job seeker's advantage. And when it does, the effect on some organizations.particularly those that let employee satisfaction and retention strategies take a back seat to seemingly more pressing issues of corporate survival could be severe.
Assuming that the predictions of labor shortage are true, the United States may pay a heavy price for savaging the technology workforce during the early part of the twenty-first century. The bleak future for those graduating with technology degrees and the number of people who have been forced out of the computer technology related fields may mean that in the best scenario recovery in technology will be slow.
Some Lost Jobs May Never Come Back Improved Productivity Allowed Manufacturers to Reduce Payrolls Permanently, By John M. Berry, The Washington Post, November 29, 2003; Page E01
This article discusses the impact of automation and offshoring on manufacturing. So much US manufacturing is moving overseas that some people worry that the manufacturing base in the US will be crippled. Whether this concern is valid or not, it appears that the manufacturing jobs that are lost are not coming back to the US.
Commentary: Waking Up From The American Dream Dead-end jobs and the high cost of college could be choking off upward mobility by By Aaron Bernstein, Business Week Online, December 1, 2003
The Rise Of India Growth is only just starting, but the country's brainpower is already reshaping Corporate America, By Manjeet Kripalani, Pete Engardio and Steve Hamm, Business Week online, December 8, 2003
Legal Research And Back-Office Work to Go Offshore Next, Information Week, December 9, 2003
"Moving to India is not a luxury. It is a necessity" American workers won't like what venture capitalist Ravi Chiruvolu says about why his tech start-ups are built using Indian workers. But they'd better listen. By Katharine Mieszkowski, Salon, Dec. 17, 2003
This is an interview with Ravi Chiruvolu, who is a US citizen of Indian background. Mr. Chiruvolu is a partner in the venture capital firm charter Venture Capital. As Ms. Mieszkowski notes, much of what Mr. Chiruvolu has to say is not very pleasant. Some managers who discuss outsourcing have a very cold blooded attitude or an almost gleeful view that those expensive engineers are finally getting their due, Mr. Chiruvolu at least has the decency to recognize the pain that he has a hand in causing. At the end of the article Mr. Chiruvolu notes:
This is not a trend that's just simply a reaction to the downturn, and we'll go back to business as usual. I think that there is this fundamental shift that has occurred just like when the Industrial Revolution happened, and 50 years later manufacturing plants started leaving the United States, God forbid, and we were a leader of the Industrial Revolution, and all of a sudden we seemed like a victim of it. Whenever that dislocation happens, there is a whole set of losers, and whole set of victims.
Like many people commenting on the issue of outsourcing, Mr. Chiruvolu claims that protectionism is a dead end. He states that US engineers must "move up the value chain". While he does provide a few examples of what these high value jobs might be (e.g., managing engineers in India), there is a contradiction that he does not address. US engineers are no smarter than engineers in India. Given the entrepreneurial success of Indian engineers who came to the US, engineers here are not obviously more creative. In the end, what tasks and skills does he think can be done in the US that can't be done in India? This is truly the bleak message.
IBM to move software jobs to India, China, Salon, December 15, 2003
This is an Associated Press article based on a Wall Street Journal Article on IBM plan to move thousands of software jobs to low cost countries.
The Death of Horatio Alger by Paul Krugman, The Nation, December 18, 2003
This is a commentary by the economist, professor and New York Times columnist Paul Krugman on the Business Week article Commentary: Waking Up From The American Dream listed as a reference above.
A Recovery for Profits, but Not for Workers By Louis Uchitelle, December 21, 2003, New York Times
More and more tech jobs head overseas, December 24, 2003, By Reuters, republished on News.com
This article mentions that moving all those white collar, high paying jobs to low cost countries like India and China is starting to become a political issue. Companies that are moving jobs overseas don't trumpet this as a source of cost savings.
The Changing Face of Offshore Programming by Christopher Kenton, Business Week Online, December 31, 2003
The author of this article, Christopher Kenton, runs a marketing company called Cymbic, which is described on their web page as
Cymbic is an integrated marketing agency with a worldwide reputation for positioning, branding and marketing high-tech businesses and products.
This is rather odd, because this article seems to be about outsourcing software development projects. Looking further on the Cymbic web pages one can see that they do claim to provide development services. Whether they have developed complex software systems was not clear to me from looking at the web pages.
While Mr. Kenton does not minimize the threat of "offshoring" to the US professional workforce, he points out that there are a number of issues that make "offshoring" more expensive than it seems. This include lack of intellectual property protection, increased time spent on project management and language issues (e.g., the comments and variable names are in a foreign language).
Can We Give America a Raise?, The American Prospect, January 2004
To quote from the American Prospect introduction:
The U.S. economy is generating jobs again, but not enough good jobs. Tens of millions of Americans receive less than a living wage-and many jobs lost in the last recession are being replaced by jobs that pay less. Recent books have vividly described daily life in low-wage America, but few have addressed why our ever more productive economy doesn't generate more good jobs.
The Russell Sage Foundation recently published the most important piece of research in a generation on why the economy keeps producing bad jobs. The study, "Low-Wage America," co-sponsored with the Rockefeller Foundation, relied on the work of 38 researchers examining 464 enterprises in 25 industries. This Prospect special report, in partnership with the Russell Sage Foundation, examines the dead-end workplace-and points to solutions. It was edited by Robert Kuttner and Sarah Blustain.
The Pitfalls of Outsourcing Programmers: Why Some Software Companies Confuse the Box with the Chocolates by Michael Bean, January 2004
Michael Bean works at, and is perhaps the founder of, Forio Business Simulations. This essay is published on the Forio web site. Michael Bean makes an interesting point: by outsourcing engineering (whether it is software or VLSI design and development) innovation is moved outside the company. This is, Michael Bean suggests, a poor strategy, since it may save money but will not yield new competitive products. Michael Bean's company develops software, so he writes from more than academic speculation.
Tech Chiefs Defend Overseas Jobs, Associated Press, January 7, 2004, reprinted in Wired News
No safety net for programmers, by Katharine Mieszkowski, January 12, 2004, Salon.com
Until I read this article I was unaware that a number of programs exist for manufacturing workers who lose their jobs as a result of globalization. These programs include some salary support and funds for retraining. The US government has resisted including software engineers in these programs, claiming that software development and maintenance is a service, not manufacturing. Apparently there is at least one class action suit contesting this.
Poisoning the roots of the techno-boom by Jeff Taylor, January 14, 2004, Salon
This is yet another Salon article on the issue of outsourcing, especially in engineering.
The author, Jeff Taylor, is a software engineer and consultant. In this article he points out that there is a difference between engineering research and development (R&D) and manufacturing. In R&D engineers design and built future products. Manufacturing workers build products to existing specifications (usually developed by engineers). By hollowing out R&D and moving it offshore, the United States is exchanging short term profits for its technology base.
The Specter of Outsourcing by Robert J. Samuelson, January 14, 2004, Washington Post, Page A19
This is an odd editorial. It starts out stating that the fears of outsourcing skilled jobs to low wage countries are overblown. It then makes the usual statement of faith that globalization is a good thing, a tide that lifts all boats. But then in the last two paragraphs Samuelson changes his tone and suggests that we may be in new territory. Things might not work out for the best and that this might not be the best of all possible worlds:
In theory, service imports (the result of outsourcing abroad) shouldn't be different [from manufacturing jobs]. Although more workers may face the unsettling global competition, job gains ought to dwarf job losses. What's unknown is whether this theory -- which has worked for 60 years -- will continue to work.
Is America's economic vitality still suffering from the technology and stock "bubbles"? If companies won't expand -- if they're glum about the future -- then lackluster job growth will choke the recovery. And what about the trading system? In Asia, some countries hoard export earnings. They accumulate huge reserves of "hard" currencies (mainly dollars) rather than spend for imports. If too many countries do this, the trading system promotes stagnation and merely shifts jobs from one country to another. In a weak job market, outsourcing -- a small threat by itself -- could become a large lightning rod for anti-globalization discontent.
Good for Investors, Bad for the Rest by Harold Meyerson, January 14, 2004, Washington Post, Page A19
On the same page as Samuelson's editorial kinda-sorta defense of the orthodoxy that globalization is a good thing, the Washington Post ran this editorial by Harold Myerson which claims that the tax policy of the Bush II administration actually encourages the export of jobs in the United States to low cost countries. The Bush II tax policy does this, Myerson claims, by reducing the taxes on corporate profits and dividends, while keeping the tax burden the same for workers. So corporations are encouraged to pump up corporate profits via cost cutting, without investing in plants and workers in the United States.
While politically I'm sympathetic with Meyerson, I don't think that the arguments he provides in this editorial are any more solid than Samuelson's.
Adaptec to expand India engineering efforts by Dinesh C. Sharm, January 16, 2004, news.com
This article briefly discusses Adaptec's $25 million (US) investment in engineering R&D centers in Hyderabad and Bangalore India. These centers are supposed to be targeted at rapid new product development.
Demand For Engineers Rising Fast In U.S., by Brian Deagon, Investors Business Daily, January 20, 2004, reprinted on Yahoo News
This article quotes the US government Bureau of Labor Statistics (BLS), which claims that jobs in the computer industry will grow three times faster than other job categories. However, unemployment for engineers is over 6%, which hardly reflects the BLS claim.
The article also quotes the "National Science Board" on the decline in engineering graduates:
"There has been a steady decline in the number of U.S. graduates in these fields," said Joseph Miller, a member of the National Science Board and the chief technology officer at Corning Inc.
There were 295,000 U.S. graduates in science and engineering fields in 2001, down from 330,000 in 1995. Meanwhile, the number of foreign-born engineers working in the U.S. has been steadily rising.
Whereas in years past the U.S. could rely on foreign-born engineers to fill shortfalls - such as during the tech boom - those workers might not be so available if they return home to work.
The NSB doesn't know why the U.S. is producing fewer engineering graduates. "Our students perform comparatively well in math and science up through the fourth grade," said Miller. "After that, there is a decline in interest and ability."
Even worse, he said, "When our young people enter college, they have a multitude of careers they can pursue. Science and engineering are rigorous and competitive, so many end up looking elsewhere."
Perhaps when college students look at the difficulty of engineering study and consider the bleak prospects an engineering career presents (low job security, offshoring, gender and age discrimination), they decide to go into another field.
A Global Demographic Time Bomb by David Fairlamb, BusinessWeek online, January 22, 2004
This is another "demographics is destiny" article. Apparently this article was motivated by discussions at the 2004 Davos World Economic conference that was held at Davos Switzerland. The theme of this article is that the population of Europe and Japan is rapidly aging and there are few workers to replace those who retire. The social welfare programs are funded on a "pay as you go" basis, so the declining workforce will not be able to support the pension system. The standard of living will decline. Although the article does not explicitly discuss this, one possible outcome is that the balance of power will shift from the United States and Europe to Asia (especially India and China).
As I've noted above, the projected labor shortage may never arrive, at least in the United States. But let us assume that the "demographics is destiny" crowd are correct for a moment. Who wins and loses if there is a labor shortage?
Some historians believe that the flowering of art, literature, philosophy and science that occured during the Renaissance was a result of labor shortages created by the Black Plague at the end of the middle ages (the plague wiped out something like 30% of the population). Before the plague, people were subjects of their local lord. Movement of labor without the permission of the local lord was illegal. Skilled artisans could not simply pick-up and move to another region. The Black Plague changed all that, at least for those fortunate enough to survive. Workers were a valuable resource and workers that moved to a new area were protected. This allowed new ideas to spread and increased incomes. This may have provided the foundation for a middle class and started the decline of the feudal system.
Like the feudal lords of the middle ages, the people who run large companies don't like the idea of labor shortages. A labor shortage makes workers more expensive and distracts management toward areas they can currently ignore, like keeping their work forces happy. There is pressure on salaries and the balance of power moves from management toward the workforce.
From the point of view of workers, a labor shortage sounds good. Engineers were treated well in Silicon Valley when engineering talent was in short supply. Engineering salaries rose. The only people who really lose are those who depend on social welfare programs to survive. These programs are not nearly as generous in the United States as they are in Europe. Many people in the United States cannot afford to retire. One possible outcome of a labor shortage in the United States would be an end to age discrimination. None of this sounds very bad. These scenarios mean that voters in the US should oppose efforts to loosen immigration law or move jobs offshore.
Robert X. Cringely editorials on Outsourcing of technology jobs to India written in January 2004 (his 2003 articles are referenced above). Robert X. Cringely has is the pseudonym of an author who has written for many years on issues involving technology and Silicon Valley. He is currently published on PBS (pbs.org).
Thick as a (Campaign) Plank U.S. Leaders Either Don't Understand or Prefer Not to Understand the IT Outsourcing Crisis, So Here's the Cliff Notes Version, By Robert X. Cringely, January 22, 2004
Our Own Damned Fault When It Comes to Understanding Why Government Doesn't Understand High-Tech and Why Financial Markets Seem to be Working Against Our Own Interests, Well, We Did It to Ourselves By Robert X. Cringely, January 29, 2004
'A New Kind of Workforce' Emerges Surge in Number of Contractors Helps Explain Why Recovery Adds Few Jobs, By Nell Henderson and Kirstin Downey, The Washington Post, January 27, 2004; Page E01
As more people are unable to find permanent jobs, they become contractors. This offers little help for those who are struggling against the forces of globalization. The Internet has created a market for contract labor, especially in software. A US software engineering contractor may be forced to compete with contractors from low wage countries like the Ukraine or India who can afford to do the work for far less.
Companies may switch to L-1 when H1-B is capped India Times, January 29, 2004
Many engineers feel that the H1-B visa program was a used by some companies to keep engineering salaries down (the IEEE-USA has commented extensively on this issue). With unemployment at record levels for US technology workers, the H1-B visa program no longer grants as many visas to foreign engineers. According to this India Times article, some US companies are using L1 visas to import workers, since H1-B visa are not available. As this article notes, the companies do not even have to show that the workers imported under the L1 visa program will not take a job from an American worker.
Enter the L1. The advantages for employers are obvious: there is no cap on the overall number, which means a company can bring in as many L-1 pros as it likes, even in groups. There are no stipulations such as paying market salaries or ensuring that an American citizen couldn't have done the job. Best of all, clearance takes as much as six to eight weeks less than for the H1-B.
All that a company has to do is to hire you in India, either directly or through a subsidiary, affiliate or parent company, and transfer you to the US. The only pre-condition: you must have worked for at least one year out of the three years prior to getting the visa with the company that.s sending you or taking you over. In other words, you needn.t even be employed by the company at the time . you could be rejoining after a gap of up to two years. Don.t expect salary parity with people in the US, however, unless it's an honourable company, and there are many of them, that's hiring you.
The abuse of the L-1 visa program is starting to create a backlash. See Guest-worker visas come under fire.
U.S. Tech Workers Help Companies Export Their Jobs By David Zielenziger, January 29, 2004, Reuters, republished on news.yahoo.com
This article discusses how some large multinationals force their US IT workers to train their replacements or face dismissal and loss of severance pay.
The New Face of the Silicon Age: How India became the capital of the computing revolution. by Daniel H. Pink, Wired Magazine, February 2004
This article in Wired Magazine attempts to cover both the Indian and the US technology worker side of the outsourcing story. The article is worth reading, since it attempts to provide a balanced view of the issue.
He quotes some Indian software engineers on how they provide high quality at a lower price, implying that such quality is not available in the United States. This Indian software engineer seems to have forgotten that every piece of technology used in India, the programming languages, the compilers, the operating systems, the processors, the hard disks, the routers for their Internet connections, was invented in the United States.
The article correctly mentions that when it comes to the movement of knowledge worker jobs low wage countries, there are fewer and fewer places to move "up the food chain". A claim is made that it is in innovative ideas (what the author calls high concept) where the us has the power to compete. Indian software engineers are providing the equivalent of software manufacturing, without innovation. What the author ignores is the innovative Indian software engineers in the United States and the R&D work that has moved to India. The author visited Mumbai (Bombay), not Bangalore. If he had visited some of the R&D centers in Bangalore he might have had a different view of the innovation provided by Indian engineers.
Global Trade Issues Hit Home Loss of Jobs Has Trickle-Down Effect on Local Economies in S.C., Other States, By Jonathan Weisman, February 2, 2004; Page A07
The southern states in the US have been especially hard hit by free-trade and globalization. The promised "knowledge worker" jobs, with higher pay, have not replaced those lost to globalization. Instead some communities are being ravaged. Globalization has become an issue in the 2004 presidential election.
This article also points out that the effects of globalization have been uneven. Some claim that employment and income in New Mexico and Arizona have increased as a result of globalization.
Experts: Outsourcing Helps World Economy, By Ramola Talwar Badam, February 3, 2004, Associated Press, Republished on the Washington Post On-line site
The basic theme of this article is that outsourcing is good for you (where the "you" in question is in the developed "first world").
"It's [offshore outsourcing] a great business opportunity for U.S. businesses because it makes IT available for a wide swathe of U.S. companies," said Dan Griswold, director of the Center for Trade Policy Studies at the Washington-based Cato Institute.
More jobs in developing countries would build "larger middle classes and create a larger market for U.S. products in the future," Griswold said.
Trade builds income and economic opportunity for both trading partners when they both have similar economies, with similar wage levels. The income earned via trade can be recycled in reciprocal trade. This has certainly been true of trade between the US, Europe and Japan (although Japan's closed markets have made them a weaker example).
Is such a virtuous trade cycle also true of India? Sadly the answer is probably no. India has a population that is almost three times that of the United States (900 million in India vs. over 300 million in the US). Indian wages are 25% or less of those paid for similar work in the United States. Unless wages rise in India, the market for US goods envisioned by Mr. Griswold simply will not appear. Unfortunately, Indian wages are unlikely to rise, since the huge population of India means that labor will never be in short supply (causing an increase in wages). At current Indian wage levels the middle class in India cannot afford to purchase anything but low end US manufactured goods like music CDs and movie DVDs, even if there were no tariffs in India (which is not the case).
Job shift creates India tech boom, By Michelle Kessler, February 3, 2004, USA TODAY
Oracle (ORCL) CEO Larry Ellison says his company is hiring faster in India than anywhere else. Intel (INTC) President Paul Otellini recently said Intel plans to do most new hiring in India and other Asian countries. Indian classified ads carry job listings from nearly every big U.S. tech firm, from Hewlett-Packard (HPQ) to Dell (DELL) to Microsoft (MSFT).
The shift is boosting India's growing tech industry and helping U.S. companies save money. But it's squeezing the already tight U.S. tech job market. More than 200,000 Silicon Valley jobs have been lost since 2001, says Joint Venture, a San Jose, Calif.-based civic group. Salaries fell an average 24% from 2000.
My favorite quotes in this article come from Russell Hancock, who is CEO of a non-profit called Joint Venture in San Jose California. Mr. Hancock is apparently trying to show "tough love" when he expresses his sympathy for the engineers who can no longer find work as a result of globalization.
More than 200,000 Silicon Valley jobs have been lost since 2001, says Joint Venture, a San Jose, Calif.-based civic group. Salaries fell an average 24% from 2000.
The economic recovery will help job seekers - but not as much as usual, says Joint Venture CEO Russell Hancock. "This time is different," he says. "Other regions are doing what we alone used to do." The competition will force some U.S. tech workers to seek jobs elsewhere, he says.
U.S. tech workers must adjust to a new reality, Hancock says. "Silicon Valley used to be the center of the (tech) world, but it's just not true anymore," he says. [emphasis added]
According to the Joint Venture Investors web page, Joint Venture sponsors include Sun Microsystems and Therma Corporation. Perhaps the desire for additional corporate sponsors, who might not appreciate an anti-globalizaton stance, explains Mr. Hancock's comments, which could be summarized as "Yeah, lots of engineers are losing their jobs to globalization. Get used to it".
From programming to delivering pizza: Sure, there are jobs to be found in the so-called economic recovery. You want extra cheese with that, sir? By Katharine Mieszkowski, February 3, 2004, Salon.com
This article recounts the experiences of several people who made upper-middle class incomes in the IT and are now working at low paying service industry jobs. The Salon.com letters column which printed responses to this article also makes interesting reading.
Guest-worker visas come under fire, February 4, 2004, By Ed Frauenheim, News.com
This article discusses hearings in the US House of Representatives to modify the L-1 visa law to address abuses by companies who use the law to bring low paid labor to the United States.
Michigan: Bad New for Bush by David Moberg, February 7, 2004, Salon.com
One of the themes of this article is that the loss of jobs that pay a living wage is starting to erode the Republican base and voters who might vote for Bush II in 2004 (sadly, the erosion was not strong enough, and perhaps to the regrest of those who voted for him, Bush II was re-elected).
The other theme is the jobless economic recovery at the start of the twenty-first century and the loss of jobs with decent pay and medial benefits.
This article recounts the planned move of an Electrolux referigerator factory from Michigan to Mexico. The community of Greenville Michigan united in an effort to keep the factory in Greenville
Greenville Mayor Lloyd Walker, a Republican like the majority of people in the county, led an effort by local notables from business, churches, professions and organized labor, including UAW officials, to put together a package that would save the plant. It was a lucrative deal for the company: $30 million a year in concessions from union workers. No state or local taxes for 20 years. The promise of a highly efficient new factory that the company could lease to own.
The community's package would save Electrolux $74 million a year, without the risks and costs of moving and losing a skilled, highly productive workforce, close to the $81 million a year that managers said they could save by moving to Mexico. And union leaders, using data from the company, estimate that it will cost $250 million to build the new factory.
But a little more than two weeks ago, Electrolux nixed the deal, confirming that the primary factory making many famous refrigerator brands --including Frigidaire, Kelvinator, Tappan, White-Westinghouse and many Kenmore models -- will leave Greenville. The target date for closure is November 2005, when the current union contract expires.
The loss of jobs that pay a living wage will ripple through the community:
It's not just their own fates at stake, either. If there are no jobs or only Wal-Mart jobs, says union president Carl Hoag, "there won't be any money to run the government .... How you gonna fix the state deficit if people aren't working?" And the impact will ripple further into the community. A local doctor, for example, will soon be forced to move by his health-plan employer. In all, local estimates say, the Electrolux shutdown will cost the economy here 8,000 jobs.
In the Greenville area there will be fewer people who can afford refrigerators as jobs that pay more than a bare subsistance wage disappear.
In the United States we have probably seen the last of treaties like NAFTA or the World Trade Organization agreement. NAFTA barely passed, pushed through Congress by President Clinton in the face of Democratic oppostion. Democrats are unlikely to back future agreements of this type and even Republicans no longer believe that unrestricted trade is a good idea.
But the reaction of 74-year-old Mayor Walker to his failed effort to save the plant is a little more surprising. "It's a tough time for me," he said, reflecting on his experience in the cozy parlor of his home. "I've been a lifelong Republican. I have never voted for a Democratic president or a Democratic governor, but I think I'm going to change this year. I think NAFTA -- and I supported that -- is just killing the industrial strength of this country. Michigan is being hit especially hard."
He wants an international minimum wage, enforcement of stronger environmental laws, and protection of worker health and safety, or else imposition of a tariff that can be used to retrain workers, though he hastens to add, "for what, I don't know."
Made in the U.S. of A.? by Linda Baker, February 11, 2004, Salon.com
This is an article on American Apparel, which manufactures clothing in Los Angeles, California. The owner, Dov Charney makes a point of paying better wages, supporting a good working environment and giving employees benifits. He promises that if he opens factories abroad he will pay at least US minimum wage.
Trade is a good thing when it creates markets abroad that can buy US products. This can't happen when the foreign wages are so low that the foreign workers cannot afford to buy US products. One solution is to make sure that US companies pay wages that are comparable to those in the United States.
American Apparel's initial offerings were limited and not very stylish (a sort of Maoist style). However, they have since greatly widened their selection. The cloths are now stylish, sexy, reasonably priced and Made in the USA.
I've subscribed to The Economist weekly magazine for many years. It is probably the best overall news magazine in the world. However, I describe its editors affectionately as "Tory Bastards". They have a definite concervative cant. It is no where better displayed than this poorly thoughtout defense of gloalization. As with all defenders of globalization, the author makes the usual statements of faith: pain will be felt (by others) but it will all be for the best in the end. The article hits a low point when it describes software development:
As for the Indian threat, "offshoring" is certainly having an effect on some white-collar jobs that have hitherto been safe from foreign competition. But how big is it, really? The best-known report, by Forrester Research, a consultancy, guesses that 3.3m American service-industry jobs will have gone overseas by 2015. Barely noticeable when you think about the 7m-8m lost every quarter through job-churning. And the bulk of these exports will not be the high-flying jobs of IT consultants, but the mind-numbing functions of code-writing [emphasis added].
The author shows that he knows nothing about software development or employment in this field. The mind-numbing functions of code-writing are a core part of the development of complex software applications. The idea that there are "designers" and "coders" disappeared with the demise of the old Fortan/COBOL coding sheets. Nor is the Economist correst about the overall damage these job losses cause. The US engineering job base is not that large. If the US loses a few million engineering jobs this will have a huge impact on the ability of the US to innovate and develop new products.
Personally, I look forward to the day when the mind-numbing functions of english writing, especially at the Economist, are outsourced to India (which has produced a number of fine writers).
The Economist author continues his display of ignorance and poor command of logic in the next to last paragraph of the article, where an attempt is made to show that offshoring is for the best, in this best of all possible free market world:
By contrast, jobs will be created that demand skills to handle the deeper incorporation of information technology, and the pay for these jobs will be high. The demand for computer-support specialists and software engineers, to take two examples, is expected by the Bureau of Labour Statistics (BLS) to double between 2000 and 2010. Demand for database administrators is expected to rise by three-fifths. Among the top score of occupations that the BLS reckons will see the highest growth, half will need IT skills. As it is, between 1999 and 2003 (that is, including during the recession) jobs were created, not lost, in a whole host of white-collar occupations said to be particularly susceptible to outsourcing. [emphasis added]
Computer support and database administration cannot, in fact, be done remotely. There are service jobs, rather than engineering jobs. They do not pay as well or demand the same level of skill as software engineering (that mind-numbing code writing). The author does not seem to notice that there is a contradication. The US Bureau of Labor Statistics claims job growth in exactly the area where jobs are being lost overseas.
Dark Side of Free Trade By Bob Herbert, New York Times, February 20, 2004
This is an excellent editorial by Bob Herbert, an editorialist for the New York Times. Mr. Herbert makes many of the points I've made here. However, he is a much better writer and makes them much more concisely.
IEEE USA Position on Offshore Outsourcing, March 2004
This position paper by IEEE USA covers may of the points I've raised above, includeing: a healthy and robust engineering job market and community is essential for US competitiveness and national security.
Software: Programming jobs are heading overseas by the thousands. Is there a way for the U.S. to stay on top? By Stephen Baker and Manjeet Kripalani With Robert D. Hof and Jim Kerstetter, Business Week Cover Story, March 1, 2004. The cover article links to sub-articles on software outsourcing to Bulgaria and other Eastern European countries.
Not all outsourcing is created equally. Oursourcing to Eastern Europe is probably in Western Europe's best interest. The Eastern European countries do not have huge populations and they share borders with the Western European countries. Rising standards of living in Eastern Europe are likely to lead to increased trade and income in Western Europe. Similar arguments for India and China are questionable, given the massive populations of these countries.
Law firm cuts rates by outsourcing to India, By Julie Forster, The Saint Paul Pioneer Press, March 3, 2004
As the title suggests, this article discusses outsourcing of legal work to India by a law firm named Intellevate. They claim to have realized significant savings, presumably resulting in higher profits for the firm partners and, in some cases, lower billings. The work being outsourced would be work that is normally done by new lawers and legal assistants. If more and more law firms follow this course it will become more difficult for those graduating with law degrees to find jobs. firm
In This Recovery, a College Education Backfires By Louis Uchitelle, Economic View, New York Times, March 14, 2004
When confronted by the fears that the United States manufacturing and knowledge worker infrastructure is in danger of being hollowed out, the true believers in free trade claim that education is the answer. Unemployment and falling incomes cannot be laid at the doorstep of government policy or corporate greed. Rather it is the fault of those who are unemployed. They are not eductated enough to compete in the global market.
This article presents statistics that show that the best educated workers are suffering record unemployment and job insecurity. An expensive university education presents far less job protection than it used to.
School's Out: Greenspan says the answer to everything that ails us is education. Unfortunately, it's no panacea, By Jared Bernstein, American Prospect Online, March 18, 2004
When free trade ideologues are presented with the fact that high paying jobs are disappearing to countries with low wages they blame the victim. The problem, people like Federal Reserve Chairman Greenspan claim, is that people in the US are not well educated enough. This article by economist Jared Bernstein presents a strong argument for why education is not the problem.
Retraining won't suffice as technology advances: Computer Revolution May Be Devastating By Robert J. Shiller, Mercury News, March 21, 2004
The Nobel Prize winning economist Robert Shiller is one of the few economists that is willing to think beyond economic orthodoxy and two hundred year old theory. In this editorial he notes that technology is at the root of the economic change we are living through. He notes that technology (the Internet and cheap computing) have enabled the movement of "white collar" jobs offshore. Technology takes over more and more jobs. In this editorial he hints at what may be a new kind of "post-capitalist" economics as work starts to disappear for an increasing number of people.
One Giant Global Labor Pool? by Aaron Bernstein, BusinessWeek Online, March 22, 2004
This article discusses the implications of the emergence of something like a single global labor pool (in contrast to national labor pools). The article suggests that a bleak future may lie ahead for many US professionals as their salary is averaged with the salaries of people doing similar work in India and China.
That's why the spread of global labor competition to the top of the skill ladder could be so significant. The ability of U.S. companies to find architects, engineers, programmers, and financial analysts in places like India for a fraction of what they cost at home almost certainly will create a dampening effect, sooner or later, on the pay of the 80% of U.S. employees who until now have been unaffected by such global job competition. "White-collar offshoring will make the wage outlook worse for high-skilled Americans, no question," says Brookings Institution economist William T. Dickens.
Indeed, trade theory suggests that the impact ultimately could be larger for high-skilled workers than it has been for the lesser-educated. As the world increasingly begins to look like one big labor pool, market forces should tend to move wages everywhere toward the same level for similar work, all else being equal. After all, employers won't pay more for labor in one country if they can easily get the same work done elsewhere for less. They wouldn't remain competitive for long if they did.
Problem is, all else isn't necessarily equal: Wages tend to move toward equilibrium only after productivity is factored into the equation. If American apparel workers earn $10 for making 10 shirts, their pay starts to come under pressure only when a Mexican worker can churn out the same quality shirts for less than $1 each. That has happened with apparel, so the U.S. has lost many clothes-making jobs. But U.S. skill and technology have made many factories at home more productive than their foreign counterparts -- one reason that all American factory jobs haven't shifted abroad.
The question that white collar offshoring raises is whether American professionals are more productive than their Chinese or Indian rivals. If the answer is no, the result could be sobering. Many of the highest-skilled jobs that are fleeing offshore seem to depend more on brainpower than on capital or technology -- the last lines of defense in manufacturing. After all, a software programmer with sufficient smarts and education needs only an office, a computer, and plenty of caffeine to do a good job. So if an Indian programmer can produce as much high-quality code as an American one, wage equalization for programmers may occur at a faster pace than it has for apparel workers.
One lesson of today's new variety of offshoring is that "U.S. [white-collar] workers are being put in direct competition with similarly skilled workers around world," says economist Gary Burtless, a colleague of Dickens' at Brookings.
If a future of falling income and job instability exists for many professions it is safe to project that fewer US students will chose to invest in these careers. This could spell the death of what has been a vibrant and creative culture of technology and innovation in the US. In short, a hollowing out of the US technology infrastructure.
U.S. Students Shun Computer Sciences: offshoring makes tech career look risky, By Karl Schoenberger, San Jose Mercury News, March 24, 2004
This article reports that computer science enrollments have dropped by twenty to thirty percent in the schools surveyed. Many students cite the difficulty of getting a job and worries about offshore outsourcing of computer science jobs.
There are a number of ironic quotes in the article. Apparently Bill Gates, the co-founder of Microsoft, has been touring US schools encouraging students to continue their computer science studies. Meanwhile, Microsoft is one of the companies moving software development jobs off shore.
Robert Denis, VP and Chief Information Officer of Trimble Navigation, a maker of global positioning instruments is quoted as saying
You con't leapfrog over the low-end process of software coding to the high end of innovation and design. You can't become an architect without knowing how to built a foundation. My company outsources to India, but we also need to maintain a core compentency on the ground, right here.
First, I don't believe that software architecture can be divorced from "coding". I also find Mr. Denis' comments contradictory. The US needs to have local expertise, but he's moving jobs offshore.
The Churn: Creative destruction in a border town By Katherine Boo, The New Yorker, March 29, 2004 Issue
Economists are probably a lot like computer scientists. They don't get out much. We live in our own little worlds. If you're lucky enough to be a tenured economics professor this is a pretty nice safe world. So far university professors seem to be safe from having their jobs moved to Bangalore or Honduras. I suspect that there are not a lot of economists who have actually met the victims of the "creative destruction" that some economists like to talk about. The term "creative destruction" is applied to the processes where some industries are destroyed and new ones are born. In justifying this process which exacts a toll in human suffering the economists assure us that the new industries will have jobs that are safer, more fulfilling and better paid than the jobs that were destroyed.
This article in the New Yorker, by Katherine Boo, puts a human face on the factory workers who are run over by "creative destruction". The question that these workers are without a doubt asking themselves is "where are those new jobs". In the beginning of the twenty-first century, there is not a lot of job creation. For many people the better jobs that are supposed to be the fruits of "creative destruction" have not materialized.
How India is saving capitalism by Katharine Mieszkowski, Salon.com, April 1, 2004
The title given to article does not do it justice. This is one of the best and most balanced articles I've read on offshore outsourcing. This long article centers on a US company, CollabNet, headquartered in Brisbane, California (Brisbane is about 20 miles south of San Francisco, between San Francisco and Silicon Valley). CollabNet has a subdivision in India which works with US engineers on software development. The article discusses both the economic and personal issues. One point the article raises is that there really is not much "up" when it comes to "moving up the food chain" for US engineers.
"Free trade" is good for all parties when the parties are equal. That is, when they have similar work place protections and similar environmental regulations. But when one competitor uses the competitive advantage of human mistreatment and environmental degradation there is a true race to the bottom, as this letter, published in Salon in response Katherine Mieszkowski's article, so eloquently points out.
You disappoint me greatly in that you do not ask why wages are so low in India. Indians pay less for food, housing and services because many of their agricultural, construction and menial workers are held in debt bondage and victimized by caste discrimination. This is common knowledge, which you ignored.
I feel sure that you are aware of the very good information on bonded labor and the denial of civil rights to one in every six Indians at the Human Rights Watch Web site. Check the "Broken People" document. Human Rights Watch and Amnesty International both recommend sanctions against India. Check the Amnesty site also. The book "Disposable People," by Kevin Bayles from Antislavery International, also explains the bondage practiced in India.
"Red China Blues," by Jan Wong, details some of the abuses of workers in China. Even better, "China's Workers Under Assault," by Anita Chan, includes accounts by Chinese journalists working undercover in sweatshop factories. Including accounts of beatings and murder. Amazon sells these books.
Offshoring jobs to countries that have low costs because of their repression of their citizenry brings that repression to bear on Americans. People have made the point that U.S. companies buy a lot of services already from Europe. Well, Europeans no longer shoot labor organizers. They no longer practice slavery or feudal bondage. They must compete on their innovation and energy, not their willingness to send out a goon squad. Competition with any country that maintains labor and civil rights will never cause massive unemployment or drop the floor out from under wages.
Apologists for India say that their tech workers are not bonded or oppressed. I agree. Their tech workers come from the hereditary higher castes. But check Arundhati Roy's book "Power Politics" for a description of emaciated workers digging ditches by candlelight -- to lay fiber optic cable. A bonded workforce cuts costs for infrastructure. And for food and housing. So Indian professionals can charge less for their work.
You probably know that the U.S. Congress passed sanctions against trade with Myanmar (properly called Burma) last year. Coerced labor, often unpaid, contributed to the building of a pipeline there for an American oil company. American companies will readily take profits that rest on violence done against the poor.
I very much dislike your deliberately omitting the daily violence done against India's working poor from your discussion.
Letter published in Salon.com by Patrick Tibbits, April 6, 2004 responding to the article How India is saving capitalism by Katharine Mieszkowski, Salon.com, April 1, 2004
When offshoring goes bad: Not all trips to India are blessed by Krishna: A case study of outsourcing gone awry. By Sam Williams April 6, 2004, Salon.com
In the classic herd beast management pattern followed by US executives, offshore outsourcing has become a fad. Outsourcing is rarely as easy as people believe at first, as this article shows.
No sweatshop here By Katharine Mieszkowski, Salon, April 12, 2004
This is a profile of a Mumbai (Bombay) software and web development company Webodrome. The article notes that there are huge numbers of recent college graduates in India who are desperate for technology jobs. In some cases these new graduates will actually pay a deposit to the company they work for in exchange for a job. The deposit is only paid back in time and is forfeited if they change jobs before a set period of time. While the founders of Webodrome are adamant that they do not run a technology sweatshop, it is clear that other companies do.
The massive population in countries like India and China may limit any scarcity for people who can do entry level technology jobs. This will in turn limit any rise in wages toward western levels. This has the potential of hollowing out entry level jobs in the West, destroying the normal career path for Western technology professionals.
The Wal-Mart Myth by Jonathan Tasini, April 12, 2004, posted on TomPaine.com
Economic competitiveness on both a domestic and a foreign level does not have to rely on a race to the bottom that sacrifices US workers to compete with workers in low wage countries like India and China.
Wal-Mart is famous for their low prices, low employee pay and poor benifits. According to the New York Times some Wal-Mart store managers have "shaved" employee hours, alterning time records so that employees are not paid overtime wages. Companies like Safeway have claimed that the only way they can compete with Wal-Mart is to lower their pay and benifits to Wal-Mart's level.
This article discusses CostCo, which pays well and provides good benifits.
Costco, surprise, has a lower turnover rate and a far higher rate of productivity: it almost equaled Sam's Club's annual sales last year with one-third fewer employees. Only six percent of Costco's employees leave each year, compared to 21 percent at Sam's. And, by every financial measurement, the company does better. Its operating income was higher than Sam's Club, as was operating profit per hourly employees, sales per square foot and even its labor and overhead costs. Here's a quote to emblazon for corporate America: "Paying your employees well is not only the right thing to do but it makes for good business," says Costco CEO James D. Sinegal.
Increase in tech outsourcing seen: Financial services trend expected to affect Hub jobs By Diane E. Lewis, Boston Globe, April 14, 2004
As US corporate profits increase and the government reports strong economic growth, hiring of engineers, computer scientists and Information Technology professionals remains slow. At least in the United States. Accoring to this article "'Some of the financial service organizations are hiring up to 100 people per month' at captive sites abroad" according to Virginia Garcia from the TowerGroup (a consulting company). More and more companies are setting up "captive" subsidiaries in India: Bank of America's decision to open a subsidiary in Hyderabad, India, is an example of what Garcia believes will become a growing trend. Last month the bank said it was setting up a subsidiary that will employ up to 1,000 people by next year.
I corresponded with an economist from Standard and Poors who is a follower of economic orthodoxy when it comes to trade (e.g., free and unrestrained trade is a good thing). His comment was that the problem was not offshore outsourcing, but the fact that jobs are not being created in the United States. It is ironic that he refused to make a connection between the rapid growth of hiring abroad (which has turned some areas in Indian cities into boom towns) to the sluggish pace of job creation in the United States.
AMD to open engineering center in India by Dinesh C. Sharma, C/NET news.com, April 22, 2004
AMD is Advanced Micro Devices. They are Intel's major competitor in the market for microprocessors.
This article recounts yet another example of high level design jobs moving from the United States to India. AMD plans to have 120 chip and development engineers working at their Bangalore center by the end of 2004. A quick look at the job openings posted on the AMD web site shows openings for about 100 software and hardware engineers in the United States. This means that AMD will be hiring in India amount as many engineers as they will be hiring in the US.
Taking the Low Road, by Robert Kuttner, The American Prospect Online, Apr 22, 2004
In clear elegent english this article summarizes many of the points I've tried to make above. The author, Robert Kuttner, is one of the founders of the Ecomomics Policy Institute.
U.S. Programmers: Bargains Go Begging by David E. Gumpert, Business Week Online, April 22, 2004
In this column, David Gumpert writes about Synergroup Systems, which is run by Mark Jennings. Synergroup Systems is offering software engineering and other technology services for $38/hour or less. On a cost basis he argues that given the extra effort to deal with offshore contractors, at this price US engineers are competitive with those in Bengalore.
As far as I can tell, Syngergroup Systems is what is sometimes referred to as a "body shop". They provide independent contractors to companies. These contractor engineers earn $50,000 to $60,000, with no benifits (e.g., they have to pay for their own health plans). Experienced US engineers are willing (and in many cases perhaps eager) to work for these wages because the job market is so grim. This is clear evidence that offshoring is exerting downward pressure on US salaries. As Jack G. Ganssle writes in his Embedded Systems column
The offshoring issue will go away when a new balance levels salaries around the world. When a Cupertino developer's salary matches those in Bangalore engineering jobs will be plentiful here.
However, even at these hourly rates, Jennings finds it a hard sell. Following the usual herd like mentality, many executives are focused on pure cost. If an engineer in Bengalore can beat a US engineer by $12/hour, they will offshore outsource the work, even though the project may not be completed. The column concludes with:
In the meantime, Jennings urges corporate executives to show a semblance of patriotism. "Don't turn your back on these people" who have lost jobs to outsourcing, he pleads. "Give them a shot."
Apprently the appeal to patriotism in this time of war and terrorism frequently fails. V.I. Lenin was supposed to have observed that a capitalist will sell you the rope to hang him. US corporations ruining the technology infrastructure of the United States for a small increment in their profit margin seems to be an example of this aphorism in application.
The next battlefields for advanced technology By Mike Ricciuti, Ed Frauenheim and Mike Yamamoto May 7, 2004, CNET News.com
This is the last and best article in a four part series on offshore outsourcing run by CNET.
Study supports controversial offshore numbers By Ed Frauenheim, May 17, 2004, CNET News.com
Forrester Research's projects of over three million high paying jobs lost in the United States to offshoring has been controversal. A new Forrester Research report defends the original projections and raises projections for near term job losses. Forrester notes that the controversy about offshore outsourcing and the coverage in the media has actually accelerated the pace that jobs are moved overseas.
Tech Woes Force Many to Wander for Work: IT unemployment new exceeds overall jobless rate by Greg Schneider, Washington Poast, Nov. 8, 2004, posted on MSNBC.
As this article points out, jobs in Information Technology (IT) are rather broadly defined. They range from network and computer support people to software engineers building large software systems to people in sales and management. Within the broad catagory of IT, this article reports that IT specialists have less chance of getting a job than average. A recent article in the Mercury News reported that revinues at the Indian outsourcing companies have been growing at a rate of between 25 and 40 percent.
IT salary survey: Recovery not making cents, by Matt Hines, January 11, 2005, Cnet News.com
One way to summarize this article is that hiring for computer professionals in India and Chian is booming, while it remains, at best, lack luster in the United states:
A trend that continues to hurt the overall IT employment market is outsourcing, wherein companies ship work to other companies, or overseas, in order to save on overhead. Janulaitis said companies are particularly sensitive to positions that undergo dramatic growth in demand, which typically spells increased pay for trained workers.
It should not surprise anyone that large corporations who are moving jobs to low wage countries have not been keeping exhaustive statistics on the number of people in the US they lay off in favor of cheap labor in other countries. Nor should it be a surprise that even when this information exists, the corporations that have it do not report it to the government.
The end result is that reports are published that state the movement of jobs to India and China have had no effect on employment. But every once in a while something appears that contradicts this view:
About 900,000 US technology jobs vanished in the four years through late 2004, according to Ecoonomy.com, which says outsourcing accounted for 40% of the loss.
As Tech Matures, Workers File A Spate of Salary Complaints by Pui-wing Tam and Nick Wingfield, The Wall Street Journal Pg. A1, February 24, 2005
This supports what I have seen in the technology job market since the dot-com dieoff in 2000. The only inquiries I have seen from recruiters (head hunters) involves defense contractors. Defense contractors cannot move their poduction offshore, so they hire only US workers. One of the problems with working for a defense contractor on a weapons system is that funding is very much boom or bust. With little spending constraint in the government, business is currently booming. It seems unlikely that this will continue. Especially for some weapons systems like the F-22 fighter, whose production seems to have little purpose.
Even Tech Execs Can't Get Kids to be Engineers by Ann Grimes, The Wall Street Journal, March 29, 2005, Pg. B1
Fewer college students are choosing engineering as a career. The U.S. has fallen to 17th place in the world in the number of engineers and natural scientists being trained at the undergraduate level, according to this article. As an example, the article uses the son of an Intel Corp. executive who does not want to go into engineering because he fears his job would be outsource to a low wage country. Similar concerns are voiced by the children of a venture capitalist. Ironically, these executives and venture capitalists are loath to admit that their actions in outsourcing U.S. engineering jobs to low wage countries has contributed to what may be an emerging engineer shortage in the U.S.
More Jobs Hype by Paul Craig Roberts, May 13, 2005
You know that these are strange times when an arch conservative Hoover Institution fellow and Assistant Treasury Secretary under President Reagan, Paul Craig Roberts, calls for the impeachment of President George W. Bush. Mr. Roberts would, I suspect, point out that his loyalty to his country exceeds his loyalty to the Republican Party.
As I've noted above, Mr. Roberts is extremely critical of current US economic policy as it relates to offshoring of jobs. In his article More Jobs Hype he writes:
Americans and Europeans cannot compete in labor markets with Chinese, Indians and Eastern Europeans, because the cost of living in North America and Europe is so much higher. In addition, there is a vast excess supply of labor in China and India that overhangs the labor markets there and keeps wages low.
The claim by outsourcing.s proponents that outsourcing creates new and better jobs for Americans is pure fantasy. This claim can find no support in job and income data. Moreover, the same incentive to outsource that is sending so many jobs abroad applies equally to any new replacement jobs.
Valley's on fire, but workers get doused by Mike Cassidy, San Jose Mercury News, May 20, 2005
Mike Cassidy, an editorial writer for the San Jose Mercury news notes that executive salaries are up 57% in 2005, along with record corporate profits. At the same time there has been very little job growth in the United States and salaries for those who are fortunate enough to have jobs are flat or declining slightly.
The Big Squeeze: A 'second wave' of offshoring could threaten middle-income, white-collar and skilled blue-collar jobs, Newsweek May 30, 2005 issue.
This article discusses the erosion of middle class job prospects and income as a result of offshoring. Although it is not discussed much in the press, most people's wages are not going up. If you're unfortunate enough to be laid off, there is a good chance that your next job will pay less, perhaps significantly less.
According to McKinsey, just over half of Americans who are laid off and find new jobs take a pay cut of at least 15 percent, and one quarter will see their salaries fall by 30 percent.
One of the economists who has argued most loudly that free trade and offshoring is a good thing is Jagdish Bhagwati. It is interesting to note that even Dr. Bhagwati now admits that this may not be the best of all possible world for everyone.
Jagdish Bhagwati, an economics professor at Columbia University, says that globalization is not a zero-sum game: the hiring of an insurance-claims technician in Manila does not necessarily mean that a technician in Pittsburgh or Berlin is losing his or her job. "But some workers do lose out. In America, this loss comes in the form of wages. If the Federal Reserve does its job, and unemployment stays at around 5 percent, then if you're fired by Boeing, there will be other jobs available. The problem is that the new job may pay less than the previous one; and if this happens to enough people, wage rates will go down. There will be fewer good jobs and thus greater competition for the good ones."
Cutting Here, but Hiring Over There, By Steve Lohr, June 24, 2005, The New York Times
From the article:
Even as it proceeds with layoffs of up to 13,000 workers in Europe and the United States, I.B.M. plans to increase its payroll in India this year by more than 14,000 workers, according to an internal company document.
The Big Squeeze by Paul Krugman, The New York Times, October 17, 2005
In this article Paul Krugman starts to admit that maybe, just maybe, all is not well in the wonderful world of free trade economics.
During the technology bubble, it was easy to believe that "knowledge workers" were guaranteed good jobs. But when the bubble burst, they turned out to be as vulnerable to downsizing and layoffs as assembly-line workers. And many of the high-paid jobs that vanished when the technology bubble burst have never come back, partly because they have been outsourced to India and other rising economies.
It is interesting to compare this article with the article titled Lumps of Labor that Krugman wrote almost exactly a year before this one. In that article Krugman argues that all will be well in the wonderful world of free market job creation. In this article Krugman admits that middle class wages have been largely stagnant for the last thirty years when adjusted for inflation. Krugman concludes by asking "What if neither education nor health care reform is enough to end the wage squeeze?"
The H-1B Swindle: A new study shows that companies hire foreign workers for cheap labor, not skll by Ephraim Schwartz, InfoWorld, October 25, 2005
A Slashdot discussion on this article can be found here.
I have seen very talented H-1B engineers paid below standard US wages, so at least in my experience it was skill and cheap labor. While I am deeply opposed to expanding the H-1B visa allocation, I'm not sure that the conclusions drawn in this article are entirely valid. As one H-1B visa holder noted in the Slashdot discussion, the truth is that most companies who just want cheap labor will probably outsource the jobs to India, not go through the difficult H-1B visa process.
H-1B visa holders cannot easily switch jobs since their visa is tied to their employer. An H-1B visa holder has little recourse in the face of an unscruplous employers who pays them below market wages or abusive management. The solution is to issue "Green Cards" to highly skilled foreigners. The United States then gets the benefit of foreign talent. A "Green Card" holder has the opportunity to get another job if they are paid substandard wages or are abused.
Now, High-Tech Work Is Going Abroad, By James Flanigan, November 17, 2005, The New York Times
This New York Times article reports that an increasing amount of technology research is moving to India. This article describes how Conexant Systems has almost 50% of its staff in Hyberabad, India. The CEO of Conexant Systems emphasizes that he is not laying off engineers in the United States. But what he does not mention is that Conexant is probably not doing much hiring in the US either. Conexant and other technology companies justify their hiring in low wage countries with the claim that they not only save on salaries but that there is a pool of available engineers abroad, which they claim, is not the case in the United States.
Again and again the claims about a shortage of engineers has proven to be empty. Engineers, especially engineers 40 or older, remain unemployed in the United States. What these technology executives do not want to acknowledge is that they are creating a death spiral for technology talent in the United States. Hiring for engineers in the US is anemic, at best. Career prospects, especially in middle age, are increasingly problematic. As a result, University students in the US choose other areas of study. This lowers the engineering pool in the US, justifying more hiring abroad, which in turn makes engineering even more unattractive as a professional choice.
India's Talent Pool Drying Up: Tech Sector Suffers As Wages Surge And Multinationals Splurge by John Larkin, The Wall Street Journal, January 4, 2006; Page A9
The graduates of Indian Universities like the Indian Institute of Technology can hold their own with the best and the brightest from the top schools in the United States or Europe. India is a poor country which still has a third world infrastructure. The number of Universities that offer such an elete first world education is limited. Hiring of Indian engineers has been so fierce that the supply of graducates from good Indian Universities has been consumed. This is starting to drive up salaries, which may be hopeful sign for engineers in the United States.
The Cufflinks That Went to China, By Joseph Nocera, The New York Times, January 21, 2006
Joseph Nocera, of The New York Times, is one of the best business columnists writing today. In this column Mr. Nocera describes the death of the costume jewelry manufacturing industry which at one time provided 40,000 to 50,000 jobs. Although the costume jewelry business in Mr. Nocera's account provided innovative designs, they could not compete with the low cost of labor in China. Their innovative designs would soon appear as Chinese copies.
In this column, once again an economist blathers on about how globalization is a good thing and that education will provide better jobs than the ones that are lost. As time goes on, and more and more jobs of all kinds disappear overseas, the weakness of this argument is becoming more apparent.
Clyde V. Prestowitz Jr., the president of the Economic Strategy Institute and a leading critic of globalization, worries that the government lacks "a sense of urgency" as not only manufacturing jobs but service jobs move overseas.
"The theory has long been that we are going to make up in service jobs what we lose in manufacturing," he told me. "If you look at our own trade figures, you'll see a small and declining surplus in services."
Outsourcing of skilled jobs: it's the fault of the US educational system and lazy Americans.
A new study released today on why U.S. and European corporations are offshoring their research and development efforts is trumpeting a supposedly new insight: In contrast to the assumptions embedded in long-standing media coverage, say researchers Marie and Jerry Thursby, cost is not the preeminent consideration encouraging multinationals to set up R & D labs in China or India. Factors such as proximity to universities and local markets, and access to top scientists and engineers, play equally important roles.
My comment on Andrew Leonard's article:
Without job prospects, people will not become engineers and scientists
The part of this discussion that I find frustratingly missing is a complete analysis of what builds an engineering and science work force.
Corporate executives are constantly decrying the quality of science and math education in the United States. This works well for these highly paid executives because the hollowing out of the US technology infrastructure can be blamed on politicians and lazy Americans. The corporate executives have no choice but to hire better qualified people in India and China.
The argument that US education is at fault ignores the fact that the US has no shortage of medical doctors, business school graduates or people to work in high tech finance. Especially in medicine, years of intensive training is required. While this is somewhat less true for MBA degree holders or people who work in mathematical and computer driven finance, these are still highly specialized fields. These are also fields with good prospects for jobs that pay well.
While focusing on education in the US, the business executives ignore the fact that the dot-com dieoff and offshoring of engineering jobs has changed the landscape for engineering employment in the United States. For most of us, engineering and science programs are some of the most demanding courses of study at a University. University students are making a huge investment in their education in the hope that their degree will lead to interesting, well paying jobs. Instead the current engineering job market offers them job instability and the promise of a career that may be over by the time they hit middle age (we're constantly told about how we may have to have several careers in our working life). As rational investors, University students are simply investing less because the prospect of return is less.
Corporate executives do not want to address the fact that their actions have contributed to the decline in the US technology infrastructure. Much or all of the problem could be corrected by an economic environment that gave graduating engineers and scientists more opportunity for well paying, interesting, relative stable jobs. Increasingly such jobs are only available with government funded organizations, which is a sign of a sick economy.
The New York Time article that mentioned this study is: Outsourcing Is Climbing Skills Ladder, By Steve Lohr, New York Times, February 16, 2006
An excellent commentary, debunking the New York Times article and this study can be found on David Sirota's blog: Corporate America's Education Myth by David Sirota, Feburary 16, 2006
The original study parroted in the New York Times article can be found here: Here or There? A Survey on the Factors in A Survey on the Factors in Multinational R&D Location Multinational R&D Location and IP and IP Protection. The press release, put out by the Ewing Marion Kauffman Foundation, which did this study, bears are remarkable resemblance to the New York Times article.
India: Why Apple Walked Away: Plans for an Indian tech support center have been scrapped. A cautionary tale. Business Week Online, Global Business, June 19, 2006
This article notes that the median salary for mid-level software and technology support managers is over $31,000 per year. For US technology workers the rising salaries in India are a hopeful sign.
India is a country with a population that is twice the size of the United States, with pay scales that are, on average, lower than Mexico. The fear among some technology workers is that our jobs will disappear as employment dries up in the US and booms in India.
As the book Maximum City, by Suketu Mehta makes clear, India is also a country with a very poor infrastructure by first world standards. In most parts of the country the roads and trains would be considered disasterous by US or European standards. While India has world class schools like the Indian Institutes of Technology, this level of education is available to only a few thousand people a year. Education is a priority for many Indian families, but the quality of the schools may not meet the demand for highly educated workers. As a result, salaries the well educated Indian minority are rising as demand out strips supply. A broadly available, quality educational system is very expensive (some would say that we're still waiting for such an educational system in the US, despite spending large amounts of money). Such an expense may be beyond the means of the Indian economy.
Another factor driving up wages in India is that the cost of living in cities like Bengalore and Bombay (Mumbai) has skyrocketed. In Maximum City Mehta writes:
Coming from New York, I am a pauper in Bombay. The going rate for a nice two-bedroom apartment in the part of South Bombay where I grew up is $3,000 a month, plus $200,000 as a deposit, interest-free and returnable in rupees. This is after the real estate prices have fallen by 40 percent.
Free Trade's Great, but Offshoring Rattles Me By Alan S. Blinder, May 6, 2007, The Washington Post
Finally! At least one academic economist understands that offshoring of knowledge worker jobs is bad for the United States. Dr. Blinder writes:
For these same forces don't look so benign from the viewpoint of an American computer programmer or accountant. They've done what they were told to do: They went to college and prepared for well-paid careers with bountiful employment opportunities. But now their bosses are eyeing legions of well-qualified, English-speaking programmers and accountants in India, for example, who will happily work for a fraction of what Americans earn. Such prospective competition puts a damper on wage increases. And if the jobs do move offshore, displaced American workers may lose not only their jobs but also their pensions and health insurance. These people can be forgiven if they have doubts about the virtues of globalization.
You can't stop a tidal wave with a fork
Outsourcing swept away my company, my father's life savings, and my sanity. But I'm still not singing Lou Dobbs' protectionist song.
By David Silverman, Salon, May 9, 2007
From the article:
I would love to blame outsourcing. I would love to agree with CNN's Lou Dobbs that by exporting jobs to India, greedy American corporations are killing independent businesses. I could say this is exactly what happened to me, that it explains why I lost my father's life savings, my company, $4 million and my entrepreneurial American dream. I could take comfort in the fact that outsourcing swept me away in its capitalistic tide, and that there was nothing I could do about it. But this is not what I believe. And these are not the lessons I learned. The truth about America's small businesses in today's global market is a harder and more indelible one, it contains seeds of hope, and this is the story I want to tell.
It does no good to complain about the weather or the eventual death of our sun (or for that matter, our own eventual death). These are natural processes and beyond the ability of mankind to effect. Economics is not the weather nor is it solar fusion. Economics is based on markets and human behavior and can be influenced by public policy. In the Salon letters section this was articulately expressed by one reader:
Silverman is a perfect example of why the economy of the United States is failing and taking our entire civilization with it. He is so conditioned by the corporate capitalist ideology that he watches his life, and the lives of his friends and loved ones, dissolve with no anger, no outrage, nothing but utter resignation. In fact, he is so bought in that he thinks this economic destruction is good for us, (or, inevitable at any rate). He is all too willing to give up the good life (not just his own, but yours, mine and our children.s) because, after all, resistance is futile, we will all be assimilated into the globalized Borg. A lot of money went into creating that acceptance, that resignation. This used to be called brainwashing. Now it is called "spin" a skunk by any other name.
Mr. Silverman (and the rest of America) needs to understand that we are simply being looted (Silverman himself was looted). The tool being used to do this looting is multi-national corporations... unregulated, ungoverned and completely immoral in their activities. They are not just destroying our jobs, but our environment, our culture, our children.s futures, and our very souls. Does he know many people who still have jobs in corporate America who find any joy in their work? I don.t. Everywhere I go, I meet people who want out from the constant pressure to "produce," to do the work of 2, 3 or more people, to deal with less or no benefits, or lousy work enviroments.
The United States once was truly wealthy . only a short time ago. We had factories, vibrant research and development, robust and sustainable agriculture. We made our own clothing and furniture, transportation and other goods. We took care of ourselves and one another. We took pride in our companies, in our work, and our communities. We once were a country of fine craftsman, of dedicated professionals and of principled business leadership. Who are we now? A country of get-rich-quick scams, rising poverty and growing illiteracy.
The saddest part about all this is we.ve enabled this looting by our incessant craving of cheap goods. We want good jobs and good wages four ourselves, but we are unwilling to pay our friends, neighbors and children the same decent wages to create the things and services we need. Tomatoes won.t cost $3.00 if they are grown in the US. That is pure ideological drivel. Yes, goods may cost a little more, but the wealth would be kept at home and everyone would do better economically as a result.
Mr. Silverman, get a spine. Your pathetic resignation disgusts me. There are plenty of things that can be done if we, collectively, insisted our government do its regulatory job. But primary first step that any of us (all of us) can take, right now, is to treat each purchase we make as a moral choice. If we buy at home, the money stays at home. When we stop buying their pieces of shit (POS), the looting will stop. When we refuse to deal with companies that outsource our services, the looting will stop. It is that simple.
Ian Kaplan, January 2004
Revised: June, 2009
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