in the long run their will be full employment in the US economy, but temporary unemployment can be very costly to those who lose their jobs.

an increase in trade and outsourcing also effects relative wage rates. the economy may reach full employment, but many Americans may have lower real incomes than they would have if the increased trade/outsourcing was not allowed. Theoretically the people better off could compensate those who will receive lower wages than they otherwise whould have, but people like Dan Drezner often argue against such redistribution programs.

Dan seems to beleive as long as the low income Americans as a group are not *absolutely* poorer (as opposed to poorer in relation to what they would have gotten with the more protectionist policy), the allocation of more resources to the wealthy is perfectly alright.

Our economy has always been going through changes that cause dislocation and unemployment in the workforce, hurting some Americans. But this does not mean they deserve to be harmed, or that they should not be compensated, or that policies can be implimented to lessen the harsh results of economic changes.

oh yeah, most Americans be better off if the president had pushed through a stimulous package focused on creating demand and job growth rather than giving money to the highest income and wealthiest Americans. that way you wouldnt have to worry about all these silly protectionist arguements.

Dan,
I'm not saying you (or my husband, who's been lecturing me of the benefits of the global economy all afternoon--cursed ice storm!) are wrong on this one. What do I know? I'm no economist, just a lowly historian.

But perception matters, and anxiety matters. A hundred years ago (really, longer) farmers profited from industrialization (which many engaged in part time) and increased access to a national market. And as the industrial landscape of the country changed, people suffered temporarily, but adapted (shifted jobs, relocated, etc.) and eventually made out better.

Now you're talking about people with huge investments of time and money in "surefire" careers who are taking big hits, and who you say need to see the big picture. Good luck.

The way I see it, Americans are swimming in the fastest part of the stream--they deal with competition from foreign workers (the best the rest of the world has to offer) at home AND abroad. Nobody protects them the way others are protected by their "less enlightened" governments. Some prosper, many sink. It may work for the economy as a whole, but it leaves a bad taste in many people's mouths, including my own.

“But the winners will outnumber the losers, because the adjustment creates new efficiencies. Each worker can produce more, meaning that he or she can be paid more. Do the Democrats really mean to oppose that?”

The Washington Post editorial is excellent. I found nothing to disagree with including the legitimate criticism of President Bush that “his irresponsible fiscal policy harms business confidence and therefore job creation.” The gods of creative destruction must have their victims. This is a brutally harsh economic dogma. Both Brad DeLong and Paul Krugman will even concede this point when push turns to shove.

What do we owe those whose livelihoods are immediately threatened? Abstractly, nobody owes them a thing. This is essentially their problem and nobody else's. We should, though, help them train for new employment---if realistically possible. Job protectionism not only harms the more affluent members of American society, it causes extreme hardships to the very poor among us. For instance, protecting a textile worker job will inevitably result in higher clothing prices for those barely able to earn a living.

“It may work for the economy as a whole, but it leaves a bad taste in many people's mouths, including my own.”

I can offer a consoling thought for you to chew on: an overall wealthier society ultimately lifts all boats. One merely needs to visit a Wal-Mart or a Target store in a economically modest neighborhood. Those who often earn less than $10 an hour still have no problem purchasing food, clothing, dvd players, and other items.

John Rawls did an enormous amount of damage. He focussed too much on equality---and ignored how best to grow the economic pie bigger for everyone. We should care little about the money Bill Gates has in his bank account. All that matters is whether the rest of us are getting wealthier. The overwhelming evidence suggests that this is indeed the case. You might also wish to obtain a copy of Mickey Kaus' excellent work, --The End of Equality.-- He clearly distinguishes between social and economic equality.

All that you say is likely correct, but looking at historical numbers and evidence has a way of being abstract and disconnected to the human reality of a modern day situation. When a qualified, hard working individual is fired so that her employer can make a higher margin on the same job by sending it to Mexico or India, or by automating the position with tecnology, that has a real world economic and psychological effect on the person being fired.

Should we legislate that this cannot happen? Of course not for the reasons listed by Dan. But what we should do is make the employer fiscally resposible in the short term by having the employer pay for job retraining and job search efforts, and pay the fired employee a realistic severence package. If the long term benefits of firing the employee are so great, than this will not be harmed by the short term payout to help a formerly valued employee get back on their feet and find new work.

As an IT pro who deals with the outsourcing issue every day, I can report that the trend is at least as much an opportunity as a threat.

Threat: the outsourcing trend is compressing my company's (and our US rivals') profit margins, which makes it LESS likely that I'll still be employed.

Opportunity: Outsourcing is by far the highest growth opportunity for us, and we're capitalizing on it, which makes it MORE likely that I'll still be employed.

Threat: someone from India may someday be able to do my current job as well as I can, and for a tenth my salary.

Opportunity: there are now opportunities for me to sell outsourcing engagements, which are a) vastly more interesting and complex than my current area of work and b) potentially many times more lucrative than my current job, which itself pays high 6 figures.

In sum, the cliches are true: nothing is guaranteed, not by an ivy league MBA, not by years of technical experience, not by anything. The outsourcing wave is here to stay, and I intend to ride it. I'll check in again with y'all in a few years when my outsourcing niche provider startup is sold to IBM for $100 million. ;-)

Get real, GP. The vast majority of jobs that are outsourced are excruciatingly boring. Any job that can be done competently by a 22 year-old Filipino with no business experience at all is not a job that a well-educated American adult should want. It may shock you that the, uh, majority of mid-level corporate jobs fit that description, but this realization should be liberating, not depressing.

The more entrepreneurial you are, the better off you are in the global economy. The message to our people should be not to aspire to be accounts payable or call center or contracts or other back-office drones, rather to find areas where they truly add unique value. These areas tend to be -- surprise! -- those creative and relationship-driven fields such as product design, sales, and advertising and marketing. Why would anyone prefer to be processing paper when he/she could make much more money designing and selling things of unique value?

I don't think that stopping outsourcing is a solution, but one has to look at what is happening and acknowledge that there are policies that can help the situation.

While David Thomson (and others) believe that each person's problems are their own, in reality we are not islands. Each person lives in the context of a society. We are all better off when that society is working properly. And one aspect of it working is to try to make sure that people are not suffering. Suffering leads to anger, which leads to conflict, which can harm society, which then harms each individual.

So what can be done to help smooth the changes that outsourcing is leading to? I think that one thing is to not have government redirecting resources towards those already benefiting from economic trends. So less tax cuts for the wealthy and for capital, they are doing fine right now (I am not advocating upping tax rates, just a return to the level a few years ago that still allowed for ample...some might say too much...investment).

Another thing is job training. This is often seen as a silver bullet solution, but it is not. I think right now we are doing fine on this front, let's just not start cutting (see current budget for example of that).

Another element of helping is to make sure that nations that are benefiting from outsourcing are pursuing policies that protect what we do well. Creative industries lose billions of dollars a year from piracy in Asia. Since we are playing nice, these countries should play nice. More money spent on our products means more jobs for people to make those products...it is pretty simple.

I don't think this is a comprehensive list, but it is a start. I am sure there are other great ideas out there.

The best policy is to tell our people that we are, like it or not, all free agents in a global marketplace. This iron law applies to financial analysts, bankers, and many lawyers and doctors as well as to back-office corporate drones. Therefore, if you want real economic security--or such security as a dynamic global economy affords--then find a way to ADD UNIQUE VALUE that 22 year-olds in Guyana or China cannot. There is no other way forward, so get used to it. You may find, as I have, that there are plenty of opportunities awaiting those with some creativity, flexibility and willingness to take a risk.

The bigger issue revolves around diminishing tax revenue--if we're talking about sustaining the American Economy. Understandably the benefits of cheaper goods bodes well for overall standards of living; yet depressed wages may not completely cover the diminishing purchasing power. As for jobs retraining, it wouldn't hurt if specifics were bandied about instead of just assuming a new job market will appear. Further, the structual integrity of the social safety net has been under attack for decades, and with lost tax revenue from capital, which will possibly become more far reaching and permanent, the notion that consumer confidence--- and, more importantly, consumption --- will remain promising, is sheer fantasy. Obviously restricting fiscal and monentary poicly too tightly will be deterimental to economic growth, but some major efforts to reform the tax code aren't out of the question--- even if this requires international collaboration( which may altogether be another fantasy)

We are going to be sorry when we have Chinese nukes pointed at our shores and we don't have any shoes because they won't ship them to us anymore. They won't worry because they can just sell to other markets. Our greatest prosperity came when our markets were protected. I am willing to pay more for goods that I know were made in America and employed Americans. You can't buy cheap goods if you don't have a job. Individualism is out of control in our society. All anyone sees is the bottom line and nothing else. You have become so intelluctual that you forget the peasants on the ground. I am totally digusted.

I've been looking forward to the coming wave of Indian outsourcing of IT jobs for years. It will have one great benefit for me, namely, that I will get to laugh as most of the loudest libertarians frantically and hypocritically reverse course.

David Thompson writes: "What do we owe those whose livelihoods are immediately threatened?"

"What do we owe the landowners whose livelihoods are threatened?!? Down with the kulaks!"

David Thompson writes: " Those who often earn less than $10 an hour still have no problem purchasing food, clothing, dvd players, and other items."

Because they get subsidies from taxpayers. You're subsidizing their employer by making it possible for people to live on low pay.

tombo writes: "Get real, GP. The vast majority of jobs that are outsourced are excruciatingly boring... It may shock you that the, uh, majority of mid-level corporate jobs fit that description, but this realization should be liberating, not depressing."

The vast majority of *all* jobs are like that. That's why they're called "jobs". And many jobs that are interesting and creative involve large stretches of boredom and mechanical drudge work.

"These areas tend to be -- surprise! -- those creative and relationship-driven fields such as product design, sales, and advertising and marketing. "

You think sales, advertising and marketing are *creative*?

Most of it is pretty banal and wretched. Somehow, I don't think of the nation's car salesmen and boilerroom telemarketers as being our storehouse of genius.

Get a grip. Really. Turning into a nation of copywriters isn't going to save the economy.

tombo writes: " I'll check in again with y'all in a few years when my outsourcing niche provider startup is sold to IBM for $100 million. ;-)"

I'll drop a quarter in the bucket when you're working as a Salvation Army bellringer for minimum wage.

"Each worker can produce more, meaning that he or she can be paid more."

That's not how it works.

Each worker can produce more, meaning the CEO can be paid more.

From the Wired article: "What comes after services? Creativity."

Which is all fine and good except the 'creative class' that supposedly comes after the 'knowledge worker' is already leaving for greener pastures.

Moreover, the oblique reference to Negroponte's "atoms to bits" neglects to mention that the 'invisible hand' of the market breaks down in 'information economies'.

As DeLong writes: "The ongoing revolution in data processing and data communications technology may well be starting to undermine those basic features of property and exchange that make the invisible hand a powerful social mechanism for organizing production and distribution."

In other words, I have my doubts that 'creative work' (or whatever) will be able to absorb the volumes of people displaced by outsourcing, no matter the productivity gains... at least 'the market' won't, for the reasons described.

In the 60's the private US economy was roughly split between farm/manufacturing/service jobs. As the article points out, that's around 3/14/83 now? (I'd thought services was around 2/3's, but anyway) So now the creative worker arrives to ostensibly manage global services and knowledge workers -- they analyze system processes and implement more efficient designs. But if the 80 => 40 => 20 year transition phase is any indication then in 10 years, creative workers will be replaced themselves.

Does anyone think society can accommodate this kind of transition, of rapid cultural change? Much less, does anyone believe that redundant knowledge workers will be able to readily transition into creative worker roles in the space of a decade only to find the new^x thing waiting around the corner ready to slap them down again? Nevermind, what the heck exactly is a creative worker. It's a title so amorphous that I tend to think it's meaningless.

So what are the alternatives? Well, if society can't handle increasing income inequality, then I'd postulate some kind of non-market outcome. And what would that look like? I'm not sure! I'm not a creative worker :D

Hmm.

1. Go right ahead and sell your company to IBM.
There's a lot of comments I could make but what the hell. Enjoy it while it lasts.

2. People are overly focusing on outsourcing in IT.
Any job that is based on information can and will be outsourced. Ask yourself this: "can I telecommute?". If the answer is yes then your job and be outsourced. So the real question isn't what those IT workers will do, but rather what will YOU do.

3. It's pretty silly to talk about historical perspectives.
Frankly this situation has never been seen before. While there is some, very little, correlation between the now and the last 80+ years. There are a LOT more differences. Previously the situation involved jobs being lost and new jobs replacing those lost **HERE** in America. The situation now is jobs being lost and created **ELSEWHERE**.

In case this has escaped notice, there are new jobs being created. They're just not being created here in America. This is cause for concern and some political angst. Frankly I'm a Conservative Republican, Conservative first and occasionally a Republican for those who don't know the distinction, and I forsee a lot of heartache for the GOP as this turns into a jobless recovery.

After all, why bother creating new jobs here in America when most corporations are doing their best to move existing jobs overseas?

ed

The transition from agriculture to industry worked out fine. The transition from industry to services worked out fine. The predictive value of that for future transitions may be calculated precisely: it is zero.

"In the 60's the private US economy was roughly split between farm/manufacturing/service jobs. As the article points out, that's around 3/14/83 now? (I'd thought services was around 2/3's, but anyway) So now the creative worker arrives to ostensibly manage global services and knowledge workers -- they analyze system processes and implement more efficient designs. But if the 80 => 40 => 20 year transition phase is any indication then in 10 years, creative workers will be replaced themselves. "

Creative worker managing global services and knowledge workers??? WTH?

Ummmmmm. That's called middle management or Pointy-Haird-Boss. They already exist and have existed for decades. They're also being outsourced along with the "global services" and "knowledge workers". There's not much call for an American "Creative Worker" to manage Indian and Chinese "knowledge workers". Why bother paying some domestic schmuck when you can pay someone overseas, and who speaks the same language btw, a lot less money?

Sure while there are services being created and managed here in America there might, only might, be a need for global integration. But why would anyone bother once the level has risen to the point where the vast majority of such work is done overseas?

So what, exactly, is a "Creative worker" going to do then? LOL.

ed

Let's say you have a global company which makes network management software. They decide to outsource some of the coding to India. Government gets upset and enacts laws to block them.

Global company than sells their management software business to an Indian company and licenses the same software to sell to all their customers.

What is the difference between these two scenarios?

LOL. I'm sorry but that is just too funny.

Someone is going to pay me $50k a year to manage a bunch of people making $8k per year? :):):)

And as a "Creative worker" I'm going to "analyze system processes and implement more efficient designs"? So I'm going to replace existing Business Analysts and Systems Analysts? And there won't be, for some odd reason, ANY such Business Analysts and Systems Analysts being created in India or China? WOW. What a niche.

Man those wogs are dumb! If they only knew. Amazing that they only produce computer programmers, designers, software engineers, DBAs and Systems Analysts! Whoops! And those ruddy wog schools produce MBAs, which could be Business Analysts too. Whoops!

ROFLMAO!

Not to be mocking but. Here I am, mocking.

ed

Every dollar we send abroad comes back.

In other words, every job we create abroad creates another one here.

There is the minor problem of locating those jobs...

"What is the difference between these two scenarios?"

Add in a 200% VAT to all software imported from overseas.

Then add in a 200% VAT to any services provided by suppliers overseas.

Sure they could sell licenses to people outside the US. *shrug* then they'll be isolated from the largest single market in the world.

The scenario has now ended. Please step this way...

ed

"Every dollar we send abroad comes back.

In other words, every job we create abroad creates another one here.

There is the minor problem of locating those jobs..."

Really?

I always thought that there was a trade *imbalance*. Like the $125+ billion per year with China.

So we're waiting on the check for $125 billion then? Perhaps it's in the mail.

ed

"I've been looking forward to the coming wave of Indian outsourcing of IT jobs for years. It will have one great benefit for me, namely, that I will get to laugh as most of the loudest libertarians frantically and hypocritically reverse course."

LOL. Frankly I've been looking forward to it too. I've got 26+ years in computer programming, systems analysis and DBA work, so I won't worry about finding work. But there's going to be a lot of angst when people realize that those jobs that don't actually involve picking up a shovel, broom or wrench can all be moved offshore.

I can still remember my mom working in the local clothing factory. Until it shutdown and moved offshore. Then she worked in the local shoe factory. Until it shutdown and moved offshore.

It's an interesting world.

ed

"the consumers and shareholders will direct their new spending power at things that create employment."

What things?

I love the case made for outsourcing.

Back when manufacturing jobs were being destroyed, we were supposed to go into high tech.

Then that went as well.

Se we were all supposed to get service jobs.

You guessed it. Going.

Meanwhile the inteligecia make nebulous promises like the one that lead of my comment.

More winners than losers?
Like 51% to 49%?

Soceoeconomic stratification, into two layers will be the order of the day.

The haves, and everybody else.
Sooner or later, "everybody else" are going to develop a bit of a problem with the haves.

Lock your doors at night haves.

There are many ways to balance free trade imbalances.

The USSR disintegrated.
Italy and Spain are dying, Estonia has been declared extinct by the U.N.

The dollar could continue dropping in value, lowering the sharehold return for outsource svavings.

There are many historical parallels that indicate free trade may result in disaster.

Native American culture left us.

30 million low wage Mexicans may have to be housed in 150 square miles of Southern California sprawl.

We may have to deal with three generations of separatism on our Southern border.

The dollar could totally collapse as American citizens are unable to adapt to change fast enough.

Free traders are correct when economies eventually balance. They fail to tell you that the balancing act may mean partial disinitigration and loss of sovereignty.

TO: All [Especially History Teachers]
RE: Good Reading

Anybody familiar with Machiavelli's The Prince?

What is the lesson he wrote about and has been proven time and again regarding vital interests? Something about 'mercenaries', perhaps?

If it's vital to the company, or the country, you'd better have REAL loyalty. Not that which comes from ready cash alone.

Otherwise, we'd have hired Syrians to invade Iraq. Or Iranians, whichever was cheaper....

Regards,

Chuck(le)

A few random thoughts from a programmer:

1) It's pretty interesting that the outsourcing trend was predicted over 10 years ago in a book called "Decline and Fall of the American programmer" by Edward Yourdon. I remember discussing the book in college and dismissing it as ridiculous. Whoops.

2) I don't have any statistics, but I've heard second or third hand that 2003 was not a good year for Indian tech firms due to a combination of slow economic growth in the U.S. and the loss of jobs to China.

3) The fact that no one really knows what jobs will replace the ones being outsourced doesn't really bother me. What bothers me is the question "What will keep those jobs from being offshored?"

At some time in the future there is going to be this revolution, see, and instead of electronic computers making all the important decisions we are going to train people called Mentats, who will use a certain kind of mental performance-enhancing drug in large quantities to do what machines used to do . . .

"So what, exactly, is a 'Creative worker' going to do then?"

Um, ed, that was my point!

"I'm going to 'analyze system processes and implement more efficient designs'?"

No, that's what the "ostensibly" was there for. *Ostensibly* reading comprehension is not essential for computer programmers with 26+ years experience :D

Dustin, another problem that the Indian firms are having is unsatisfied customers, especially in tech support. Customers are calling in and getting poor service. Result: Some American companies are bring the jobs back to the States because even though the cost is higher, it prevents loss of customers/market share.

I see this as similar to what happened to Britain in the 19th Century. In 1800, its lead in industrial production was enormous. By 1900, they were still producing far more per person, but their overall production was less than the US or Germany.

However their average income was still a good deal higher than their competitors. Why?

By giving up production aimed at foreign markets, they could spend their superior workers on NEW products and methods. In 1850 the Germans and Americans could mass produce iron, and the Brits could mass produce STEEL. Britain did not lose her lead in industrial development until WWII, when the US has to force their industrial development to grow quickly.

And remember, America's wealth is not tied up in imperial colonies like Britain's was....

"No, that's what the "ostensibly" was there for. *Ostensibly* reading comprehension is not essential for computer programmers with 26+ years experience :D"

ROFL! Sorry Ken!

It's late, I'm tired and my brain went to bed a long time ago. What can I say? I'm an idiot. Hmmm. You know maybe I can make a case for it being a debilitating disease and covered by the ADA?

Sorry.

ed

The real question that needs to be addressed is: what are the specific areas in which America can be most successful in the future, as technology increasingly frees production (of services as well as products) from geographical constraints? Too often, it is asserted that the answer is "more training," or some such formulation, without further analysis justifying this position.

Doesn't the principle of comparative advantage suggest that we may see some shift back toward industries in which we have a natural advantage based on climate and/or geography, combined with the strengths of our physical infrastructure? Agriculture and food processing, maybe? And may we not see a revival of manufacturing in many forms?--remember, it's much easier to ship bits than (say) castings and forgings.

My college kid likes cars and took an automechanics class in high school which he loved. He went off to college, and I keep telling him to continue to improve his automechanical skills, and that mechanical or industrial engineering would be more valuable than computer skills.

In the future, computer software will be like reading, not really an advanced skill, but something everyone learns in middle school. Software writing, as a task, is really not that difficult.

Matt,

While you are correct that equilibriums don't necessarily have to be desirable is a good point to remember, classic Ricardian economics has shown time and time again that comparative advantages benefit everyone.

I also have a few nagging doubts about your supporting points:

>> The USSR disintegrated.
The disintegration of a communist state is proof of the failing of the market?!?

>>Italy and Spain are dying, Estonia has been declared extinct by the U.N.

Maybe you mean birth rate for Italy, but economically all three are doing pretty well. The whole extinction thing for Estonia doesn't make sense. Unless you're referring to the absorption of Estonia by the Soviet Union, but that was pre UN, so again I'm at a loss to understand your point.

>>The dollar could continue dropping in value, lowering the sharehold return for outsource svavings.

Then, umm, the equilibrium shifts so that less outsourcing occurs. So umm, how does this support your point?

>>Native American culture left us.

If free trade = exploration + small pox, then sure. But you're the first I've met with that definition.

>>30 million low wage Mexicans may have to be housed in 150 square miles of Southern California sprawl.

First the obvious, of the 34 million people in California, are you actually asserting that 30 million are Mexican?
http://quickfacts.census.gov/qfd/states/06000.html

Second, what's your deal with Mexicans? Why would all 30 million be low wage? Are you asserting that Mexicans are incapable of doing anything worth paying for? Would no economy come up within the Mexican community?

>>We may have to deal with three generations of separatism on our Southern border.

This is an immigration problem, not a trade problem. Outsourcing would actually alleviate this problem. If the jobs are sent to Mexico, then they won't come here and can't possibly agitate to separate.

>>The dollar could totally collapse as American citizens are unable to adapt to change fast enough.

Again, if the dollar collapses then jobs flow here. So how does this support your thesis?

>>Free traders are correct when economies eventually balance.

Free traders make one other assertion. That the equilibrium that results from free trade is a net improvement for all parties.

1. "Otherwise, we'd have hired Syrians to invade Iraq. Or Iranians, whichever was cheaper...."

Actually there was serious consideration in hiring Ghurkas and forming them into light infantry regiments attached to regular infantry formations. The whole thing died in Congress, but there's always that thought eh?

Besides that's what we did in Afghanistan.

2. "3) The fact that no one really knows what jobs will replace the ones being outsourced doesn't really bother me. What bothers me is the question "What will keep those jobs from being offshored?"

Just about absolutely nothing will prevent those jobs from moving offshore. Frankly I expect biotech to be the next boom, and for it to move offshore very very quickly. That a great deal of the R&D for this comes from taxpayer funding for colleges is a little annoying.

This is also why I'm so incredibly opposed to the nonsense Bush was spouting about his illegal alien amnesty plan. It would convert offshoring into ONshoring. Instead of moving the work overseas, they'd move the workers here. Can you say "bread lines"? I knew you could.

3. "Dustin, another problem that the Indian firms are having is unsatisfied customers, especially in tech support. Customers are calling in and getting poor service. Result: Some American companies are bring the jobs back to the States because even though the cost is higher, it prevents loss of customers/market share."

Yes this does happen. It also happens that there are serious cultural differences involved too. A friend of mine, a woman, had really incredible problems dealing with an Indian development group. They literally would not acknowledge her nor would they speak directly to her. They would always answer her questions by talking to the nearest male in the room. She had to read them the riot act to get anything done in this regard.

*shrug* there are problems right now. But the longer it goes on the easier and faster it'll be. At some point there will be a tipping point where it'll be a lot easier to do such work overseas than here in the US. Primarily because it takes about 3 years to convert a tyro programmer, college grad or not, into a veteran programmer. Without that experience being available, due to the work being overseas, then there won't ever be a means for domestic IT workers to be upwardly mobile.

4. Stabililty.
This is a curious issue that perhaps isn't being dealt with, though it might. What will happen when China melts down? There are so manhy conflicting situations ongoing in China that it more resembles a victim of Black Plague than anything else. The $1.5 trillion dollars looted from it's nation banking system by the government to prop up failing companies, owned or operated by those same government 'crats. The continuing desire for democracy in an oligarchy. The tendency for the government to react violently to any domestic challenges.

I wonder if there are contingency plans being written in case the entire software development team is locked up in jail or has been turned into dogfood.

ed

1. "Doesn't the principle of comparative advantage suggest that we may see some shift back toward industries in which we have a natural advantage based on climate and/or geography, combined with the strengths of our physical infrastructure? Agriculture and food processing, maybe? And may we not see a revival of manufacturing in many forms?--remember, it's much easier to ship bits than (say) castings and forgings."

Hmmm. Sorry but I don't think I see anything there. I know I don't see a revival in manufacturing short of a complete revolution in robotics or biomanufacturing. I suppose if someone could Von Neuman style robots that mass produced stuff we could see manufacturing return to America bigtime. *shrug* perhaps some manufacturing will be created from the successful manufacturing of carbon nano-tubes or such. Frankly I think that trying to rely on some future technology gestating at an opportune time might be a bit unsafe. Then again the IT boom happened right when we needed it in 1992 so what the heck do I know?

Otherwise the only thing that I can think of that relies on American history, geography and resources that doesn't involve farming is tourism. Since I was raised in New Hampshire I get to play the part of a Pepperidge Farm rural guy. Ayup. :)

2. "In the future, computer software will be like reading, not really an advanced skill, but something everyone learns in middle school. Software writing, as a task, is really not that difficult."

As long as you're writing small programs that have limited scope, then your example does apply. I can assure you though that projects with a larger scope are in fact extremely difficult. Try writing applications that have to integrate with a number of legacy systems, new databases and upwards of 20,000+ desktops with 99.9% uptime. It gets very interesting. Or applications that rely on highly specialized knowledge of intermodal shipping, transhipping and distribution. On contract I successfully wrote an Oracle backend application for Tropicana when the previous three attempts had all failed. It does get very difficult.

{sorry. I was pretty proud of that one and I had to gloat. bad me! bad, bad me! :):) }

...
Frankly, if taken to a logical extreme, why would any company do anything but outsource just about everything? Is a company, where the only thing American is a business license, really American? Frankly I think this is going to be a lot bigger than a lot of people thing. One thing that makes me believe this is the absolute lack of numbers coming from the people who think offshoring is not a big deal.

I think offshoring, especially since the average worker can be replaced due to improved communications and reliance on email/workflow, is going eat heavily into any jobs created in this recovery.

Frankly I see the Republicans getting hammered on this issue, as the Democrats are starting to do, around June. I figure it'll be extremely apparent whether or not any major creation of jobs is going on or not. If there aren't a whole lot of created jobs, or even if they are fewer than expected, then it could easily turn into a major campaign issue.

ed

Oh boy!

Where to begin? First comparing the automation and then information revolutions to the outsourcing (manufacturing or intellectual) is like comparing apples and oranges. Why? Because the automation and information technology allowed the savings in profits to be reinvested directly back into the *same* national economy. Outsourcing contains the possibility of "leakage" to *another* economy. In addition, there is the question of production infrastructure - it's not just jobs moving but the factories, research centers, and the demand economy for skilled labor moving overseas.

For outsourcing to result in a net gain is a subtle argument. You see, a company pays less to have a worker overseas do the job for less. But unless they pay the worker a negative amount of money, they can't actually make more money in absolute retail pricing. What they do is convert the labor costs to profits.

Now this money they pay to these workers, plus the money that would go into building the facilities and the stimulus on the education system for producing skills for these workers, clearly is being injected into a foreign economy.

For there to be a net benefit to the domestic economy there must be a ROI argument. That is the company must get a better return on investment of capital, and being able to spend the same amount of capital to get a better return (because of higher profit margins) they produce more wealth. And this created wealth must be greater than the loss due to price-competition and "leakage" in production infrastructure and outright labor costs to the other country, for it to be beneficial to the domestic country.

Thirdly, market liberalism in "free-trade" has some seriously contradictory arguments. One argument they make is that foreign investment is the way to help third world countries develop. Indeed, it is a way to do that since the transfer of jobs, facilities, an education demand economy, and other aspects of production infrastructure cause a nation to develop. However, the citizens of the other nation will soon become more educated and capable of doing better work. So they will start competing for information tech, knowledge, and creative type jobs. Market liberalists also claim (correctly) that competition reduces prices. This is correct. Even if one were not to factor in the lower cost of living factor, the basic laws of economics dictate that a greater supply relative to the same demand leads to a downward pricing pressure. Thus this "outsourcing" job transfer overseas would lead to downward labor wages *across the board* in the more "advanced" domestic economy.
Thus a "rising tide" would NOT lift all boats! This would be reflected in practice by a largening discrepency in incomes - which we are seeing.

If a pie grows, but your cut of it shrinks, you can end up with a smaller slice of pie than if the pie had stayed the same size but your cut of it had stayed the same too. You do the math.

Finally, the "outsourcing" argument does nothing to address the concern of simply being "outcompeted". Once these massively populated nations have modern social infrastructures, manufacturing capacity, and educated populaces what's to stop them from simply beating our pants off in a straight up contest? Unless you "magically" believe that the laws of market competition have ceased to apply to nations, one cannot assume that the direction of the flow of profits from global productivity increases will necessarily continue to flow to the United States. The world may get richer - but the US may get poorer. Market distorting factors such as inequities in intellectual property protection, working environment standards, government subsidy of education, etc. will only exacerbate this problem.

In other words, we're all in big trouble because the professors like Dan have missed the forest for the trees.

Steve Ramsey sez: "Sooner or later, 'everybody else' are going to develop a bit of a problem with the haves."

Funnily enough, Jeremy Rifkin trotted out this neo-Marxist view a while back in 'The End of Work' (subsequently panned by Bob Black, who penned his own non-market outcome :)

Also, Roach, btw, is skeptical (as always!) of this creative-based new paradigm economy: "The New Paradigm in this case is that America has now become an asset-based, wealth driven economy."

And again, I think the main difference is not just that "[t]he upheaval is occurring not across generations, but within individual careers" or even, as ed points out, a "global labor arbitrage" (as Roach would say :) it's that 'information economies' and 'intellecutal property' are misnomers which are not amenable to market solutios.

So, I guess, basically what I'm saying (hopefully creatively deconstructively!) is economies are in service to moving 'atoms'. All the 'bits' surrounding the movement of 'atoms' -- all the administrative work to get them where we want 'em -- serve to do is to make these economies more productive.

For example, if information processing follows along the same path as lighting,[1] as Nordhaus' evidence suggests,[2] then (barring hedonics) its contribution to GDP should dim. Eric Sivula's British steel example is more true than I think he meant.

In other words, if the analogy is correct, the IT outsourcing 'industry' that's a "$57 billion market [which] represents about 0.5 percent of US GDP" is likely to stay that way or move lower. And, one would hope, it's the farming/manufacturing/services that the US is *already* good at which will continue to benefit.

---
[1] "William Nordhaus (1997) has analyzed the real price of light: how much it costs in the way of resources and labor to produce a fixed amount of artificial illumination, and has found that the real price of light has fallen by a thousandfold over the past two centuries. A middle-class urban American household in 1800 would have spent perhaps 4 percent of its income on illumination: candles, lamps, oil, and matches. A middle-class urban American household today spends less than 1 percent of its income on illumination, and consumes more than a hundred times as much artificial illumination as did its predecessor of two centuries ago.

"Yet we do not speak of the 'illumination revolution,' or of the 'new economy' generated by the existence of exterior streetlights and interior fluorescent office and store lights. The productivity of illumination-producing technology has increased enormously, but its impact on the economy and on society has been limited. Demand has not grown rapidly enough to offset falling prices. The total share of illumination in total urban spending, and thus the share of illumination production in the urban economy, has shrunk. Our artificial illumination technologies are an enormous boon and source of value--Nordhaus (1997) believes that it has contributed seven percent to the growth of real wages over the nineteenth and twentieth centuries--but its economic salience has been limited."

[2] "William Nordhaus (2002), 'The Progress of Computing' (New Haven: Yale University xerox), heroically ventures where angels fear to tread and constructs estimates of the falling price of computation: trillionfold in the past 60 years: 35 percent per year compounded continuously. A halving time of 2 years."

Two comments:

When you lose your high paying job and make less than half that, the government gets less in taxes and needs to spend out more in services. So let's not pretend that there are consequences only for the person who loses their job.

Next, this idea that we simply retrain for new jobs. Where? In what sector? And what do you do about the debt you owe for your previous retraining? I still have school loans for training for IT. That job lasted 7 years. I can't pay my loans at the $10 an hour job I have now. I can barely make my mortgage. What retraining advice would you give me? I'm 53. I can't retrain for the medical field, which is the only growth industry I see. So I retrain and if I'm lucky, it lasts another 7 years. Gee, then I'll be 60 and can retrain for yet another job. And what companies will be hiring older workers, when they can just outsource somewhere else.

There are huge implications for the long term growth and stability of this country that are being ignored. YOu can pretend that these "new jobs" or that providing retraining will fix the problems. Maybe by then, I'll be old enough for the senior citizen dole.

As a foreigner running a business in Beijing, China, I am at the heart of the outsourcing darkness. Most of my competitors are Chinese companies that have legal advantages over my company, or foreign funded ventures that employ people at the going local salary. My company is able to thrive and charge prices at rates that would be high in the US for the services we offer for two reasons: we offer attention to detail and innovation.

David Foster comments:
"Doesn't the principle of comparative advantage suggest that we may see some shift back toward industries in which we have a natural advantage based on climate and/or geography, combined with the strengths of our physical infrastructure?"

Well, in addition to these physical advantages, the USA also has historical and cultural strengths when it comes to attention to detail and innovation. Add to these a national obsession with the pursuit of success and happiness, and you have the reason why the US has nothing to fear from outsourcing.

Outsourcing is already bringing change, and change is never happy for everybody. But protectionist legislation to avoid job losses is a temporary solution that will only delay the inevitable pain. It will be much more productive for US politicians, companies and employees to discover how to profit from the realignment of the global economy.

I love it how Prof. Reynolds sees no problem with the outsourcing sittuation in our country. What does he teach, law? Maybe this is his way of getting more people study law and thus further secure his non-offshorable job.

We're on the fast track to lose our technological edge, and nobody sees a problem with this? Pretty soon, we'll be using computer languages and libraries from China, and the Pentagon will have to us these technologies from a potential future enemy, lest it develop another failed language like Ada.

I was thinking of getting a second Masters, in bioinformatics, seemed like a great way to change careers and contribute society. Am I going to do it now, hell no. Why bother? Let the Asians help develop the next cure for cancer.

Is this the situation we want? We complain that our kids don't study enough math and science. Well, maybe the kids are right and the rest of us geeks just wasted our time. Instead we should have played football, become car salesmen, or even worse be lawyers.

Welcome to America, would you like fries with that?

"But perception matters, and anxiety matters. A hundred years ago (really, longer) farmers profited from industrialization (which many engaged in part time) and increased access to a national market. And as the industrial landscape of the country changed, people suffered temporarily, but adapted (shifted jobs, relocated, etc.) and eventually made out better."

Erm, isn't this a slightly rosy way of telling the story of Industrialization? After all, the process was messy in many ways, and gave rise to, among other things, Marxism, which is still with us today in somewhat mutated form, always ready to wreck havoc on western civ when the opportunity is offered.

Regards, Döbeln

-Stabil som fan!

A good idea for everyone in this comments section would be suicide or euthanasia since the world is ending and Soylent Green is people.

So dour and as they say, "dystopic".

New jobs will come. This is for two reasons.

First, the people performing the outsourcing will have more money and they will want to spend the money. They can only buy so many shoes from China or word processors from India. With increasing wealth people become more concerned with the experiential. They have only one life and they want to make the most of it. If they're not caught in the endless struggle for basic survival which still grips most of the world's people they begin to seek thrills, look for spiritual meaning, become disaffected Democrats.

Secondly jobs will come because the people who were laid off will become very hungry and desperate and will start to be happy to ring that Salvation Army bell for minimum wage.

These two trends will come together, sooner rather than later, to produce a new economy.

I see the process already here in Boulder. Formerly, we had tech jobs, science jobs, bookstore jobs to support the previous two categories. Now, the bookstores have closed, the tech companies have shut down, and the number of Mercedes Benzes on the streets is at an all time high.

What's replacing those tech jobs? Rolfing classes, Yoga Institutes. These are hands-on jobs which cannot be exported and which the increasingly leisured upper classes are willing to buy.

The future will be: an ultrarich set of American Eloi pampered by American Morlocks while all real design, manufacturing, engineering, accounting, etc. moves offshore.

IMO, outsourcing right now is partly a trend and partly a management fad. Management tends to be herd-like and overdo these things. Like in the saying: "When you have a hammer, everything looks like a nail", these "solutions" get applied to everything in sight, and mistakes get made. It's a learning process.

Software development (my own field) is a variety of things: maintenance of existing code, new development in a well-understood area, new development in a cutting-edge area. These have increasing levels of difficulty and required skill, and place an increasing premimum on communication and understanding. Outsourcing a project involving new development in a cutting-edge area increases the posibility of failure; on the other hand, outsourcing maintenance is taking the kind of work off your hands that you would rather not be doing anyway.

I am not totally blase about it, but my company works with a body-shop company in Hydrabad, and generally they get all the boring bits of work to do. So that's not so bad. When that wasn't the case for a project (I have one specific one in mind, that was done a while ago), then schedule problems occurred.

Frankly, in recent years a lot of people got into IT because they heard that it had good pay, etc. Not because they really liked it. Often they were really lousy at it - and the work they produced showed it. But (dot-com) companies were desperate for any sort of staffing, and they were hired and paid well for mediocre work - for a while. This bubble has been painfully deflated these last 3 years. I am fairly confident that people with real talent and a vocation for the work (i.e. they love to hack), will always be able to find employment.

I suspect that it is soon getting to the point where the extra freed-up capital is not going to be invested in any venture where the majority of the jobs are in America. After all, what VC would want to invest in a company that can be undercut by its competitors?

The innovatations that will attract investment will be those that can efficiently use the employee pool that works for a fraction of American salaries.

After all, there is certainly nothing unique about 98% of Americans (or Canadians for that matter :-)) that justifies them earning anything more than world wages.

The difference between past waves of change is that in general things started on-shore and moved off-shore. Now, no business dreams of starting anything that employs expensive Americans (unless it's location dependent).

Mr. Coe,

Considering that talented and dedicated people who specialize in custom-made historically authentic functional swords and armor are still able to find profitable work, despite the fact that the rest of the world went to the gun and the bomb a long time ago ... your statement really doesn't mean a whole lot. There's still a few jobs for people who want to work with punch card computation - historians need them to work the systems. The question is always: for how many?

Yours Truly writes: "What's replacing those tech jobs? Rolfing classes, Yoga Institutes. These are hands-on jobs which cannot be exported and which the increasingly leisured upper classes are willing to buy."

Somehow, I don't think a nation of 260 million people can survive by trying to emulate a cruise ship.

New meme, please: "INsourcing".

Near my parents' tiny little town in central Kansas stood an abandoned High School building. When the last few teenagers grew up and moved away, (and the even fewer younger kids started boarding the bus for a consolidated school in the county seat) the town started trying to sell the husk of the building -- offices, classrooms, shop, auditorium, gym, vast parking lot, and all. It was on the market for YEARS. But for Christmas, a couple of California entrepeneurs pulled up stakes from Beverly Hills (or like environs) and moved to the sticks. The sale of a California RESIDENCE financed the purchase of a home AND the shell of their new factory. They pay wages of some $10 per hours, plus benefits (princely! in the local economy.)
The work environment is spacious, well lit, more-than-adequately plumbed, and accessable to the disabled. Lots of parking. That's important, because they've had their pick of workers from a surrounding three county area. People accustomed to driving three hours or more to shop at the Target or WalMart in Salina think nothing of a 45 minute commute for a good wage.

There are no doubt a lot of Kansas (Nebraska, Arkansas, Mississippi, Kentucky...) American communities equally willing to embrace manufacturers who can't afford the Northeast or West Coast anymore. These areas provide generally-well-educated, English speaking, tech-savvy, hard-working (non-union) labor at a third the price of Rust Belt states.

It seems to me that if India is the problem, the Red States provide a solution. If Shrub had half a brain, (*sigh*) he could/should promote this trend and 'capitalize' on it.

Another thing the doomsdayers seem to forget.

When jobs are outsources to a country. That country becomes more prosperous and the cheap supply is choked therefore the price for services in outsourced country go up. Thus removing the incentive for outsourcing.

This happened to insurance companies in Britain when they outsourced their call centers to South Africa. South Africa prospered so much withing two years that the rand appreciated 35% relative to the pound. That's 35% of your cost savings lost in just two years.

Re:outsourcing. Very important subject, several comments.
First: let's look at how well things are going in countries that "protect" their workers, one way or another. How about mainland Europe -- hasn't their unemployment rate stayed around 9 to 11% for more than a decade, depending on the country -- Germany, France, Belgium, etc. protect their workers in many ways, for instance lifetime job protection. Result: businesses create jobs elsewhere.
Next: It is certainly understandable that anyone who has lost his or her job due to outsourcing, or who fears they may be next, will want someone to "do something" about it. I would feel exactly the same way. In the past, as the articles linked above note, most of the displacement was of workers not in the "knowledge" class or industries. What is worrisome today is not just that knowledge workers for almost the first time have to worry about their job, but that such people have more political power than previously displaced workers. MY worry is that if we get protectionism as a result, there will be retribution, and then we really WILL have an economic decline that will hurt everyone far more. After all, protectionism was one of the reasons the Great Depression was so deep, wasn't it?
Third: McKinsey & Co., the consulting company, notes that for every $1 that goes abroad through outsourcing, $1.14 comes back by various means, including purchases of technology, repatriation and reinvestment of larger profits, and job creation here because of the increased productivity. These findings parallel the views in the WaPo editorial linked above....not that I buy everything the WaPo sells, but I do find that they often have intelligent things to say, more so on economic issues (where Robert Samuelson has an influence) than on some others.
Bottom line: I think that the U.S. economy on the whole will be better with outsourcing. We heard the same issues when NAFTA was debated, yet even with NAFTA-related outsourcing, the U.S. gained 18 million jobs in the 1990s. So the way to deal with displacement is with job training programs, perhaps some new programs that will get an outsourcing-replaced worker some large sum (6 or 9 months pay? -- maybe these programs already exist?), anything to help such a worker ease the transition to a new job. But let's not, please let's not, go to protectionism. That will kill the golden goose. Just my two cents.

"A friend of mine, a woman, had really incredible problems dealing with an Indian development group. They literally would not acknowledge her nor would they speak directly to her."

That seems odd. Women in India are a lot more involved with technical fields than they are in the West. It would seem to follow that Indian men wouldn't have an issue dealing with women.

Terri Pittman is right on this one. I've busted my butt to make a decent living in IT for almost 30 years. However, my son has a CS degree from a good school - just in time for the IT bubble to burst, and is lucky to be working here part time in the print room. He still owes $30K for his education and I owe about $40K on it as well. Tough luck for us, right? Of course, being "rich" - 2 incomes, mine decent puts us in the 10% that pay most of the taxes in this country. That means I get to pay full price for his education - which of course means I subsidize the tuition of those who do not pay full price. Meanwhile, we import illegals to drive down the wages of the jobs that do remain in the US.
Let's see, I could drain my 401K to pay off my kid's loans and my house but the property taxes wouldn't even let me keep living there. I suppose if I'm laid off I could train for a nursing job (oops, we import those) even though I'm 54.
Maybe there'll be a revolution, since neither political party cares 2 cents about anyone like me.
Oh, Mr Professor, how are you going to eat when no one but the children of the rich can attend college?

If anyone wants to see the affects of real world protectionism please refer to the former USSR. They too believed in complete economic autonomy and propped-up markets.

mikeh

> If anyone wants to see the affects of real world protectionism please refer to the former USSR. They too believed in complete economic autonomy and propped-up markets.

You want to see what happens when your country doesn't offer any jobs and you don't produce anything anymore, please refer to many failed Latin American economies. That's where we are headed.

Ed,

May come as a surprise to you but sales and marketing are what drives business. The Indian outsourcing services firms are now looking for US sales pros who have 1) relationships with US CIOs and other execs and 2) expertise in "creative" strategy fields (e.g., transformation consulting) where the Indians lack experience and depth.

Do you really think it's preferable for us to tell our people to protect mid-level technical jobs that have a charge-out rate of $150/hr rather than find ways to add value that the Indians cannot, and charge the client $250/hr?

Better IMO to take this as a challenge to move UP the value chain, not cling to the bottom.

I'm dismayed at the black/white, total free market/total protectionism dichotomy some commentators are painting. Is there no action we could take between an immediate pullout from the WTO and meekly waving bye-bye to millions of jobs?

Almost no one has brought up the strongest argument on behalf of free tradism, so I am forced in the interests of fairness to raise it myself. High return on investment. Half of Americans own some stock; higher profits as a result of cost savings from outsourcing leads to higher stock price and/or dividends to shareholders. Half of America wins. And, naturally, the minute fraction of America that holds the bulk of stock wins bigtime.

No offense to Eric S. above, but he is wrong to suggest that Britain maintained strong, innovative industries right up to WWII. Economic historians have demonstrated convincingly that by the late 1800s massive outflows of British capital (primarily to the US--think railroads) were fueling the first big wave of globalization but, simultaneously, starving British-based industries of investments needed to modernize and compete with growing US and German competitors. For some fifty years British industry survived largely on established trade ties, imperial connections, and superior quality (though this advantage was being eroded, once again, by US and German concerns especially). What gave Britain the dominant wealth and power of the Victorian and Edwardian eras was the ROI of all those overseas ventures (with City financiers pulling the strings masterfully). And, lest we forget, undergirding it all was the imperial foundation (paramountcy at sea, combined with territorian control of one-quarter of the globe).

So, you see, the parallels between Imperial Britain and contemporary US are striking, but they need to be interpreted carefully. The lesson of the first is that if you allow your economy to be hollowed out by focusing too much of your energies abroad at the expense of your home base, you will pay a stiff price. In the UK, that price was as follows: sharp rise in class tensions, followed by long decades of socialist rot, followed more recently by a burst of modernization and progress (but look how long it took to get there!).

Oh yeah, and the Victorian Brits were the last "true believers" in absolutely free markets...until now.

"May come as a surprise to you but sales and marketing are what drives business. The Indian outsourcing services firms are now looking for US sales pros who have 1) relationships with US CIOs and other execs and 2) expertise in "creative" strategy fields (e.g., transformation consulting) where the Indians lack experience and depth."

1)I'm sure this is true, but consider what happens as more manufacturing and service functions are outsourced to other countries--the *customer* will be offshore as well, and so will the sales pro.

2)Huh? Ever heard of Ram Charan? I can't imagine why there is anything uniquely "American" about the ability to do this kind of consulting.

I am *not* arguing that outsourcing is an evil thing and should be prohibited; I *am* arguing that we as a nation need to think through the realities and implications seriously. So far, most of the commentary from Democrats seems to involve casting blame, and much of the commentary from Republicans seems to involve quoting from the sacred texts of economics without really thinking through their applicability.

Thirty years ago, another form of outsourcing hit the US service sector: the computer.

But America was the one producing these computers (not India) which led to the creation of American high technology jobs, and an entire tech industry.

Today, America is selling her soul, exporting American tech jobs and American strategic advantage (do we want India selling cheap cruise missiles to North Korea in 20 years?).

Outsourcing is a form of global socialism, exporting American wealth to other countries.

When the product was T-shirts and cheap trinkets, that was one thing, but we are now exporting our core strategic asset -- our technological leadership.

Open your eyes people.

Outsourcing technical jobs may be profitable in the short term, but as Dell found out, customers don't want to tech support with whom they can't communicate, so they brought tech support for tjheir corporate customers back to the U.S., but the rest of us home/office users are left without adequate tech support.

We need to upgrade our system, but won't buy another Dell, or HP Printer, or any of the other companies that offer tech support from hell.

While we're hashing all this out, here's a question for all you IT guys (pro and con outsourcing). If we cut out the low to mid-level computer jobs, from what pool of talent are we going to draw the upper-level "visionaries" of coming years?

Just wondering.

> If we cut out the low to mid-level computer jobs, from what pool of talent are we going to draw the upper-level "visionaries" of coming years?

Simple, from India.

All the corporation needs is an overly payed CEO and a skeleton crew here, the rest can go to any country and the hell with the consequences.

I'm trying to understand the mentality that can look at capitalism and call it "global socialism."

Some things will have to remain a permanent mystery.

TO: ed
RE: That's What We Did...

"1. "Otherwise, we'd have hired Syrians to invade Iraq. Or Iranians, whichever was cheaper...." -- ed citing Chuck Pelto

Actually there was serious consideration in hiring Ghurkas and forming them into light infantry regiments attached to regular infantry formations. The whole thing died in Congress, but there's always that thought eh?

Besides that's what we did in Afghanistan." -- ed

Yes. You make my point very well.

We used Afghanese to take Afghanistan, but they wanted Afghanistan for themselves in the first place.

When it came to taking bin Laden, they opted out. Took our money and looked the other way while he escaped. We had to send our own troops in the next time.

Regards,

Chuck(le)
[When it absolutely, positively has to be done right, you have to do it yourself.]

"Oh yeah, and the Victorian Brits were the last "true believers" in absolutely free markets...until now."

Problem with this are:

1. In Victorian times the vast majority of shareholders were British citizens.
This isn't the case with American corporations looking to outsource. There is a very large number of shares owned by foreign citizens and interests. So presumably, under the rules of your scenario, that money is flowing outward as well.

2. Ownership of stock.
This frankly is a red herring. If a person owns enough stock that the ROI exceeds potential, and probable, losses from his/her job being outsourced, then that person should go right ahead and retire and enjoy the good life. That so many people are not in such a situation pretty much shows how useless that particular sentiment is. Sorry.

3. Frankly there is no such thing as a "free market" in the world today. There are many subsidies of domestic industries and corporations, both here and abroad. Along with any number of protectionist laws that prevent foreign competition. The real question is how much protectionism can you have and still maintain a good economy, and how much protectionism is preventing domestic industries from competing with foreign ones.

It seems now that whomever has the *least* protectionist laws ends up the loser.

4. Additionally I've never really read a number and fact based analysis of "free trade" or the "global economy". I've read a lot of hype, hyperbole and hysteria. But not a lot of fact. In fact I'd say that descriptions tend to get very misty-eyed and abstract when such things are discussed with implicit conditional phrases of "trust me, I KNOW" added in for good measure.

Personally I think the whole concept is pure bulls**t.

ed

The main opponents of outsourcing seem to be practitioners of FUD and class warfare. However, more importantly, they seem to be ignoring some salient facts of IT:.

1. Software creates the need for more software. Right now we deal in shrink wrapped products that don’t really solve anyone’s problems without ad hoc modifications after the fact. What we really need to do is lower the price point for custom software packages such that any business that needs it can create custom software products that maps to their specific business needs.

2. Demand for offshore developers will inevitably increase the cost of those developers as supply outstrips demand. This will raise the price point of outsourcing, reducing its overall attractiveness.

3. Most software projects fail because it is extremely difficult to communicate business needs to those who are developing software. Outsourcing DOES NOT address this issue, and it may in fact make it worse by adding linguistic and cultural barriers to understanding. If a firm cannot succeed with an internal project, how on earth can it possibly succeed with an ‘outsourced’ project?

I expect to see a lot of failed projects and horror stories, resulting in a balance of local development efforts supported by discrete projects that supplement the local teams efforts, but only when people can actually come up with relevant requirements.

Contrary to popular belief, simply throwing more developers at a problem never increases the odds of a projects success.

Or at least in the opinion of this non-backpedaling Libertarian free-trader.

P.S. to YoursTruly, if you drive 5 minutes out of Boulder you’d see that Westminster, Broomfield, Lousville, Lafayette, Longmont and Erie are doing quite well. The problems you are seeing in Boulder may have a lot more to do with the idiotic City Council and tax policies of Boulder instead of outsourcing. IMO of course.

"For how many" - that is the question. But you are describing changes that completely obsoleted prior technologies. Outsourcing is not such a change. Instead, it is a change in one of several sources of human labor for this work, at a different price/performance tradoff. Despite years of frustration by managers, and endless sales of miracle snake-oil products and methodoligies; in the end, to get a computer to do what we want it to do, it must be programmed. By people. People who have invested time in "thinking like a computer", and turning requirements into working code. Until strong AI is achieved (if ever) this simple fact can't be avoided.

I am not trying to be pollyanna about this - but on the other hand I would take this "the world is coming to an end" talk with a big grain of salt. Remember Y2K? How everything was going to come to a screeching halt? Planes would fall from the sky, ATM's would crash, we would all be looting the grocery stores as the cities burned and society collapsed? Well, nothing like that happened, despite the loud predictions of many. A few gliches here and there was all. (And lots of consulting profits.)

You also have to consider where we are in the business cycle. The dot-com boom is not coming back. The emergency Y2K work is over with. The employment level is the laggart of the recovery, as usual. Things are especially bad in CA, so I hear (I live on the East Coast, which missed a lot of both the boom and the bust). So how much of the problem is the business cycle, regional issues, and how much is permanent? (And since people have a political interest in the answers, who can you beleive?)

I don't doubt that larger companies will often outsource their work - after all, they have to have some excuse for their vaunted "economies of scale" they always tout. But, smaller companies, startups, etc? Not likely. Too risky. Especially if the code addresses a core competence of the business. After all, they don't have the money to throw around for experiments. How can they be sure things are OK when all the technical people involved are on the other side of the world? Even if you telecommute on a regular basis, you still have to come into the office sometimes - a face-to-face with your boss can be reassuring to both you and him (or not). You can't do that with a team of people with a thick accent that you don't know on the other side of the planet.

No-one can waste money with more careless abandon than a large corporation (except for possibly dot-com's in their hayday - but big corporations do not even have the excuse of a bubble mentality). This is not an exaggeration; I have specific personal experiences in mind (both ways). One of the biggest ways to waste money is to have a large IT project.

Many IT projects fail anyway, especially the ones that involve impossible requirements, budgets, deadlines. (I.e. Death March projects.) Yet they get sold to upper management all the time, and no one in charge seems to notice the place where the magic is supposed to happen. If the magic part is buried inside an outsourcing contract, it's even less likely to be noticed. This is the cause of the "manangement fad" part I mentioned before. Over time, the unbridled enthiusiasm for "all outsourcing all the time" will fade, and it will take a more proportionate place in management's toolkit. Of course, until then, a lot of people could get hurt.

At least, that is my expectation, based on observing previous management fads from underneath. ISO-9000, anyone?

from Wired magazine's recent survey: "It's not hard to see how outsourcing to India could lead to the next great era in American enterprise. Today, even innovative firms spend too much money maintaining products: fixing bugs and rolling out nearly identical 2.0 versions. Less than 30 percent of R&D spending at mature software firms goes to true innovation, according to the consulting firm Tech Strategy Partners. Send the maintenance to India and, even after costs, 20 percent of the budget is freed up to come up with the next breakthrough app. The result: more workers focused on real innovation. What comes after services? Creativity...."

> Send the maintenance to India and, even after costs, 20 percent of the budget is freed up to come up with the next breakthrough app. The result: more workers focused on real innovation. What comes after services? Creativity....

Which is totally bullcrap as shown by the facts, that's why this article is so irresponsible. The author forgot to note large corporations like General Electric (I should know) that have moved their RESEARCH CENTERS offshore.

See, once the maintenance is being done by people halfway around the world, you start finding out that you can also cut cost by moving everybody else over there.

We have a Chinese H1B who I'm sure they wouldn't hesitate to send back to China to pay him a lower wage, but keep his expertise. This is great for the company, and not so great for the country. It used to be that the best of the best wanted to come to this country to work and become citizens. The current situation, is to send the best of the best back home.

Ok tombo. I going to call your bluff.

You mention "Creativity". Fine. Define it exactly.

1. What is Creativity work?
2. Where would it be done?
3. How would it work?
4. How would such an industry replace the knowledge industry?
5. How would it be organized?
6. What steps would be needed to retrain for it?
7. Why such work couldn't be done cheaper overseas?

well?

Frankly far too many use that term as a way to dodge real answers to real problems. It's evidently ok to just spout off some idiotic word or two and then sit back and expect people to just drop everything and adore every d**n word said. Well it doesn't work that way.

You want to quote it like it's some sort of holy grail, you get to answer the tough questions. Especially #7. I've got decades in programming computers and, from where I'm sitting, that is a nonsensical response. If you've exported the coding of a project to India why not export the design as well? It's not like the people living in India are somehow mentally defective and are incapable of creativity.

Creativity is NOT an isolated discipline. Unless you've got real answers for #1 - #7 that is. And don't be abstract. Astound us all with detail, highly specific detail.

ed

This is the part of the "outsourcing debate" on Dan's site that I REALLY look forward to. When everyone's in Howard Dean scream mode.

I have yet to see anyone really refute ed's rant (sorry, ed, that don't make it wrong) about how step one will lead to step two and pretty soon you've lost much of the IT sector, just as we've lost the manufacturing sector.

After reading the Wired piece (which isn't as lame as some of you make it out to be) I'd say the worst mistake it makes is in seeing the manufacturing crisis in this country as OVER, which is simply not true. Right now many of the smaller guys in the foodchain (suppliers to the big corporations, who've already bailed) are packing up and heading to China (others have gone under). This process is ACCELERATING, not over.

That he got this fact so very wrong, and uses his false conclusion as "proof" that things won't go TOO far in software development, shoots holes in his credibility as far as I am concerned.

Umm. Jeremy Goldkorn.

"As a foreigner running a business in Beijing, China, I am ... But protectionist legislation to avoid job losses is a temporary solution that will only delay the inevitable pain. It will be much more productive for US politicians, companies and employees to discover how to profit from the realignment of the global economy."

Ok. So what's your solution then? No passing the buck to someone else to figure it out. It's your point so you get to answer it. Fact is that I frankly suspect your opinion since any protectionist legislation would probably doom your business. No offense, but that's what I see.

As for "Well, in addition to these physical advantages, the USA also has historical and cultural strengths when it comes to attention to detail and innovation." Oh come on! America is not the only nation capable of this! Am I to understand that the Chinese, of all people, are incapable of paying attention to detail?

Sure there might be some cultural friction where there are misunderstandings about cultural concepts, but that sort of nonsense will fade very quickly as software engineers and programmers gain experience.

Sorry but I'm completely unconvinced.

ed

"Another thing the doomsdayers seem to forget.

When jobs are outsources to a country. That country becomes more prosperous and the cheap supply is choked therefore the price for services in outsourced country go up. Thus removing the incentive for outsourcing.

This happened to insurance companies in Britain when they outsourced their call centers to South Africa. South Africa prospered so much withing two years that the rand appreciated 35% relative to the pound. That's 35% of your cost savings lost in just two years."

Except, and I say this yet again, an entire industry can be lost in only a few years. It takes at least 3-4 years to make a novice programmer into a veteran one. If all the work, that would allow the novice to improve, is moved offshore, that novice will never improve. In that situation there simply won't be enough high quality domestic IT people to get employed.

This situation was made worse by the L-1 and H1-B visas which did little more than choke off the apprenticeship of junior programmers here in America. It also enabled foreign workers to gain that valuable experience that eventually led to outsourcing.

This ain't assembly work.

Additionally I need to point out that the disparity in incomes is still very great and will remain so at the direction of the prospective governments. I.e. both China and India will act to keep wages low in order to encourge additional investment into outsourcing. They're smart enough to know that this is the Golden Goose and they're not about to act to kill it.

ed