Monday, March 22, 2004
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Critiquing one critique
Scott Kirwin posts his critique on why I’m wrong on outsourcing. It boils down to:
I’ve dealt with the “death of comparative advantage” argument in the past – or rather, Noam Scheiber has.
However, it’s worth pointing out that the current direction of capital flows bears no resemblance to what either Roberts or Kirwin fear. The U.S. currently runs a massive capital account surplus, which finances both our budget and trade deficits. When restricted to foreign direct investment, the overwhelming majority of U.S. outrward FDI goes to other OECD countries. This objection is the reddest of red herrings.
On relying too much on MGI data because they’re big into outsourcing – hey, I’ll relinquish MGI data if Kirwin and others renounce the use of data from Gartner, Forrester, Deloitte, etc. [You're being flippant!--ed. Here's a more substantive response.] All of these firms are equally into outsourcing but still put up overhyped guesstimates about projected job losses. As I pointed in the Foreign Affairs article, these firms also have a strong incentive make outsourcing a business fad. Think their job loss numbers might be exaggerated a tad?
On the future of better-paying jobs, Jacob Kirkegaard of the Institute for International Economics points out that the Forrester study that got everyone hyperventilating in the first place points out that most jobs projected to be lost are below the US average wage.
Certainly the data to date don’t support Kirwin at all. According to Kirkegaard:
Next!!posted by Dan on 03.22.04 at 06:46 PM
posted by: Bithead on 03.22.04 at 06:46 PM [permalink]
so I should dig up the yard and plant vegtables?posted by: Robert Schwartz on 03.22.04 at 06:46 PM [permalink]
Dan, you still haven't answered whether you intend to stand behind the BLS occupational outlook handbook number of 43% growth in the next six years when you also cite Catherine Mann's number of 6% in the past three.
That would be three and a half times the rate of hiring in the past three years, going forward. I have other questions of course, but I don't see anyone answering what should be a very straight forward question. Do you stand behind this number?posted by: Oldman on 03.22.04 at 06:46 PM [permalink]
The IT sector was pretty bloated after the bubble. The fact that we've had any growth at all from that point is pretty remarkable. I have no idea what the future growth will be, but I think it's reasonable to expect it to pick up.posted by: Xavier on 03.22.04 at 06:46 PM [permalink]
"IT jobs earning more than $50,000 expanded by 184,000 from 1999 to 2002, of which computer software engineers earning approximately $75,000-a-year accounted for 115,000 jobs."
High tech jobs were booming in 1999 and 2000. I've never seen anyone try to suggest that outsourcing of white collar jobs was putting people out of work those years. According to the Kirkegaard study you linked to, the computer software and mathematical jobs saw a 5.5% decline in 2000-2002. Now, it's really hard to say how many of those jobs were lost due to outsourcing, and how many jobs were lost due to the business cycle, but surely that timeframe is more relevant to the outsourcing debate than the one you picked.
And I agree Xavier that it should improve.That's a very reasonable point. Thank you for doing that.
I just don't think that immediately jumping to the conclusion that it would improve by three and a half times over Catherine Mann's number is a good assumption.
As Dustin points out Mann's is an optimistic number even compared to the 5.5% drop cited from 2000-2002. The assumption of such rapid growth is not warrented unless we're seeing hiring increase in general that way ... and it isn't.
Roberts hasn't checked himself out very well. I've had friends deal with jobs to India: and the cost of setting up there and hiring qualified workers is substantially less. The trick? You have to incorporate in the UNITED STATES. The cost of starting a business is relatively expensive for Indians, and cheap in the US.
Didn't sound too bad to me, but it's classic Ricardo. Capital export does not mean that those who invest it are willing to waste it.posted by: Arnold Williams on 03.22.04 at 06:46 PM [permalink]
""IT jobs earning more than $50,000 expanded by 184,000 from 1999 to 2002,"
I wonder what the numbers are. Did jobs increase to more than 184,000, then fall to the 184k number in 2002?
Is 184,000 the maximum during that period, and the number in 2002 would actually be a decrease?
Those numbers sound screwy. Consider- the 99-02 includes the period in which Y2K remediation efforts were widespread in the US, on top of the tech bubble.
184,000 sounds low, unless it's the number after a large post-peak decline.
Furthermore, if the time span were extended to 99-04, it might well be less than 184,000. At best, there wouldn't be much of an increase in the last two years.posted by: Jon H on 03.22.04 at 06:46 PM [permalink]
Actually, computer programmers are now replaced by software. There is a software in which an analyst supplies his requirements in a diagram form, and the software will do all the codings. Poor Indian and Chinese programmers are losing their jobs to the computer, while American analysts are reaping higher pay. Anyone who has shopped at a Home Depot or a Jewel should have noticed that machines are replacing cashiers too. Its really hard to live in a capitalist society where you have to be vigilant all the time, else you would lose your job. But in a socialist country like France, you won't have such pressure since you never have a job to start with, and in a communist country like China, after you became one of the richest, then the govt. would send you to jail on trump-up charges, and take over your business.posted by: ic on 03.22.04 at 06:46 PM [permalink]
lc writes: "There is a software in which an analyst supplies his requirements in a diagram form, and the software will do all the codings."
Doesn't exist.posted by: Jon H on 03.22.04 at 06:46 PM [permalink]
One often hears the assertion that it's only low-skilled/standardized/highly definable tasks (in software development) that are subject to offshoring. I've never heard a convincing rationale for this.
If you are a company big enough to establish your own organization in another country (as opposed to working through a 3rd-party outsourcer), why on earth would you want to fragment the software development between "advanced" tasks in the U.S. and "basic" tasks in Country X? This violates all principles of good organization design, by not only creating many unnecessary points of interface but by creating them across distance and cultures. Why would you not simply put an entire "chunk" of development (an application or a software product) in Country X? It's not as if advanced design skills weren't available in (for example) India.
posted by: david foster on 03.22.04 at 06:46 PM [permalink]
Genie in the bottle.
First tech support, then QE, then sustaining, then "end-of-life" product development, then isolated feature development for main line, then soon you're the only one in development and your job is to act as the go-between from PM and the overseas development team.
Virtually every industry in the US has had to go through this phase of "maturation." Since computer and software industry is by definition the "future", where the hell can I go next?
I love programming too much to give it up.
posted by: busan on 03.22.04 at 06:46 PM [permalink]
The example given in the &c article about the T-shirts and the software illustrates the fantasy world that those who only look at the bottom line inhabit. This is especially true among libertarians.
What if, for instance, the Chinese or the Indians think developing software is in their long term interests, and even if they can make more money selling T-shirts they decide to concentrate on software? What if they're thinking long-term and trying to make the U.S. lose its edge in software development? What if they want access to as much U.S. information as possible for, let's say, future reference? What if some of them want to insert trojan horses into things? Putting trojan horses into software is a lot easier than doing it with T-shirts.
As a software developer, I realize it's possible to insert difficult-to-detect bugs and trapdoors into software. Look up, for instance, MS's attempts to make it difficult to trace using a debugger portions of MS-DOS (or an early version of Windows, I forget). That was featured in one of those "Undocumented MS-DOS (or Windows)" books. Look up some of the other wacky tricks MS's crack engineers have used, like jumping into the middle of an instruction (turing data into an opcode). Imagine how difficult it would be to detect such trapdoors in a large system like an OS.posted by: The Lonewacko Blog on 03.22.04 at 06:46 PM [permalink]
1. "Actually, computer programmers are now replaced by software. There is a software in which an analyst supplies his requirements in a diagram form, and the software will do all the codings. "
There are some highly specialized 4GLs that do something similar, but the "code bloat", the increase in the size of the resulting code and the performance decrease, is substantial. In one case the code bloat was on the order of 8x. The company was planning on spending a massive amount of cash to upgrade the computers but instead decided to spend the time to reduce the bloat by hand.
I'd say it doesn't exist in any kind of useful form. If you're willing to take a huge performance hit then it might work out ok. But that's pretty doubtful.
Yeah this is pretty much a fish story. The reality is that entire developments are outsourced, not just bits and pieces. And whether or not it works well depends largely on whom you select to do the work.
I'm talking now with a local prosecutor's office about taking over an outsourced application that pretty much went to hell in a big way. The developers totally screwed up, then tried to black-mail their company into paying them more. The company went broke, got bought out, the developers fired and the new owners want no part of the software they developed.
So, God Save My Soul, I'm thinking of trying to help a good friend out by taking the damn thing over and trying to fix it.
1) I think Daniel Drezner is making up theories about things of which he really knows nothing. Anyone in the computer industry knows how difficult it is to keep a job or obtain a new job --and knows about the loss of real income and opportunity in the past three years of the Bush Administration.
2) Moreover, a look at the jobs listings will show extremely detailed requirements. Many unemployed programmers, computer scientists,etc could handle the jobs but companies insist on the "perfect candidate" so that they can hire a foreign programmer (Republican Congress greatly increased the H1B visas in 1998 and 2000 in exchange for huge donations from Silicon Valley executives. They allowed the companies to bring in over 1 million FOREIGN workers for six year stints in the period roughly 2000-2003. The visa ceilings are up for review this year.)
3) Finally, not all of the above job postings are for real jobs -- in several cases one will see a job posted for several months, suggesting that a company is simply trolling for candidates in order to cherrypick the market or is trying to disguise business difficulties by simulating hiring.
4) Bush and the Republicans claims re retraining are a crock of shit and I say that as a middle aged worker who neglected my family to go to night school and get a Masters in Computer Science a few years ago.
5) The situation is extremely bad for middle aged workers hit by layoffs, because of the additional costs of those workers (pension, medical coverage,etc.). Plus those workers can't support a family or put offspring through college on an entry level salary of $30,000 or so.
6) The only way to retrain workers is to have them hired by companies and the only way to accomplish that is with a labor shortage.
7) Drezner proclaims the value of globalization but averts his eyes from the huge costs. The most casual look at income statistics will show a massive movement of national income from the working class and middle class to the richest 2% of the population over the last 20 years. America's plutocrats and their CEOs have continually used cheap foreign labor to drive down American wages and living standards.
The largest cost , of course, is the $400 billion /YEAR of our Tax dollars taken for the military budget. The reason being that globalization would collapse if we did not pay for a huge military to maintain global order, enforce contracts, and twist the arm of foreign leaders (regime change) on occasion. Our defense budget is more than the COMBINED defense budgets of the next 23 largest military powers -- and most of those powers are our NATO allies.
Like most Republican apologists, Drezner has no problem with the profits of globalization going to a chosen few --while the enormous costs are paid for by Bush and the Republicans stealing $Trillions from our Social Security and Medicare Trust Funds (Bush's IOUS to the Funds are worthless because they merely say that we get back the money he has taken from us only if we first give the government the payments in the form of other taxes --most likely, via future high taxes on retirement withdrawals from our IRA/401K accounts.)
8) Drezner also fails to note that the "dot com" collapse was the result of political policy, not economics. When Bush came in, the focus shifted from healthy technological sectors to stealing the world's oil reservoirs (Caspian Sea, Iraq, Western Sahara,Columbia,etc) and beefing up the military to accomplish that. Plus pandering to a few billionaire supports of Israel who are major political donors (e.g, Haim Saban).
The Internet had the potential to greatly speed up the business innovation cycle --by allowing long distance collaboration. But this has been hamstrung by a fight between long distance fiber optic carriers and the Bells over the regulations for making the "last mile" connections to businesses and homes. Bush and the Republicans have let this issue linger for years because the Bells and the long haul carriers are tossing in massive political donations to influence the decisions and the Republicans saw no reason to stop this dispute. A February 2003 editorial in the Wall Street Journal noted this slow roll and expressed puzzlement over why Bush was indifferent to the resulting depression in the telecomms and computer industries.
9) In my opinion, One reason why public discussions re globalization are misleading propaganda is that they are dominated by "expert" economists, political scientists, and college professors more interested in kissing the plutocrats' butt -- and rationalizing the plutocrats' behavior -- than in speaking to the national interest. That's because the "national interest" does not hand out consulting contracts or government grants.
"When in doubt, throw them out." It's about time we had a proxy fight and fired our CEO, his deputies, and the Board of Directors.
ed writes: "Yeah this is pretty much a fish story."
It's more of a "Now now honey, don't cry, Fluffy went to a better place. You'll get a new kitty someday."posted by: Jon H on 03.22.04 at 06:46 PM [permalink]
The true threat to American IT workers continues to be the abuse of the visa programs. If these were eliminated or at least controlled it would alleviate a large portion of the jobs lost to offshoring.posted by: Henry P on 03.22.04 at 06:46 PM [permalink]
"It's more of a "Now now honey, don't cry, Fluffy went to a better place. You'll get a new kitty someday.""
The bizzare nature of that post is superceded only by it's irelevance.
""When in doubt, throw them out." It's about time we had a proxy fight and fired our CEO, his deputies, and the Board of Directors."
There is so much that is completely absurd in that rambling post that it deserves cremation more than it does a reply.
ed: "The bizzare nature of that post is superceded only by it's irelevance"
You used the phrase "fish story", which generally refers to an exaggeration - " I caught a 100 pound sturgeon, but the darn thing slipped away, so all I'm bringing home is this little thing."
That isn't really what's being done when people say things like "only simple tasks are going overseas".
My point was simply to show that a closer analogue is a made-up condolence story, like what a parent would tell to a child whose kitten was run over: "It's in a better place now, you didn't really like it that much, and anyway, someday you'll get a pony."
Which is basically what they're saying when they say "the simple tasks are going overseas, and you really don't want those jobs anyway, and besides, someday you'll get a new, better job, maybe of a type that doesn't currently exist."posted by: Jon H on 03.22.04 at 06:46 PM [permalink]
The two most common claims made by opponents of outsourcing are totally contradictory.
1. American IT workers cannot compete with Indian workers who are willing to work at a fraction of our wages.
If both of those are true (and I think outsourcing proponents agree with both of those statements) then an equilibrium will eventually develop between Indian and American IT jobs. Indians will continue to make much less but the disparity in their income will be in line with disparity in their quality. To the extent that your second proposition is true, you shouldn't be worried.
I strongly disagree with the arguments that there are long-term infrastructure benefits to developing an IT industry which will lead Indians to invest in IT even when it is not profitable. You're forgetting that private investors are also perfectly capable of seeing those long term benefits. Indians are not being irrational or violating any comparative advantage rules if they invest in their own IT industry to make a greater long term profit at the expense of investing for a greater short term profit in another industry. That's exactly what they should be doing, and no economist would consider it an unfair trading practice.
This argument is also frequently made to endorse government subsidies of a particular industry. It's even more clearly wrong in that context. If it's a rational use of government money to subsidize an industry because it is a successful investment in the long term, private investors can make that investment instead.
Many other outsourcing issues similarly fail to account for the fact that firms can judge for themselves the indirect costs of outsourcing. I think the security risks are pretty vacuous. First, I'm not convinced it's much safer to have that work done by Americans instead of Indians. American IT workers are perfectly capable of sabotaging software too. Second, outsourcing makes software development cheaper. That may make it cost effective to adopt coding practices that, while less efficient, are less subject to sabotage. Third, if these risks are real, the American companies doing the outsourcing should be able to evaluate them. It may be a factor that limits outsourcing, but it is no reason to completely eliminate the practice.posted by: Xavier on 03.22.04 at 06:46 PM [permalink]
Isn't it amazing?
Republicans can always come up with ways to rationalize huge subsidies to the rich -- but strongly attack the idea that the US government should work for the general welfare of all citizens.
In 1988, we had Ronald Reagan and George H Bush railing strongly against "welfare queens" --but two weeks AFTER the 1988 election, George the First told us he would have to take $150 billion to bail out some crooked Savings and Loan Executives ---many of them down in that exemplar of free enterprise, Texas.
Dick Cheney would know the free market if it bit him on the ass -- he has always prospered by exploiting his government connections to benefit his buddies --usually at taxpayer benefit.
All these globalization proponents of "free trade" were yelling for a massive taxpayer bailout back in 1998 --when Asia turned to shit.
The hypocrisy and deceit of the Republicans is disgusting.posted by: Don Williams on 03.22.04 at 06:46 PM [permalink]
Xavier writes: "1. American IT workers cannot compete with Indian workers who are willing to work at a fraction of our wages.
If both of those are true (and I think outsourcing proponents agree with both of those statements) then an equilibrium will eventually develop between Indian and American IT jobs."
The first should include the fact that they're also ABLE to work at a fraction of our wages. We'd be able to work cheap too if our cost of living dropped enough and we didn't have $30 grand in college loans over our heads.
The second point, about quality, probably involves long-distance management difficulties, more than just skills issues. Development offshored to a contractor by an offshoring novice is probably more at risk of poor quality than, say, that of a wholly-owned subsidiary set up in India. If Microsoft sets up a development center in India, they probably won't be hiring stooges.
A shoddy contractor trying to take advantage of US customers, and relying on the geographic distance and alien legal system for protection, might well hire low quality developers, resulting in poor results.
But for the most part, I suspect quality problems stem from communication problems and insufficient management oversight.
That said, I've seen an anecdote about a minor industry existing in India, of companies who will do students' programming projects for them. Which, if true, doesn't bode well for quality of some fraction of future Indian graduates.
...that the "dot com" collapse was the result of political policy, not economics.
You would, I presume, be referring to the Clinton Justice Department assault on Microsoft on behalf of a couple of wealthy individuals at Sun and Oracle.
1. "The hypocrisy and deceit of the Republicans is disgusting. "
Mr. Williams, you've accidently directed your browser to the wrong URL. Your intended site is http://www.democraticunderground.com. Thanks for visiting.
My apologies then. I understand the reference. My use was more the "that's ridiculous" viewpoint.
#1 is true, #2 is generally false. The assumption by a lot of people that low skill programming (is there actually such a thing?) is what is being exported. This is nonsense.
What is being exported are complete development efforts. What might be kept domestically are the business analysis functions, for the moment, where analysts with industry experience lead the overall design efforts. The actual system design and coding however are outsourced as a package. It frankly wouldn't work well otherwise.
It's a basic aspect of software development that communications is the primary inhibitor of success. The more people involved, the more communication required. At a certain point any excess work-hours added to a project is consumed by efforts at communicating. This is why you cannot credibly throw a thousand programmers at a problem. At best less than 10% would be actually working, the rest would be quagmired in communications.
Long distance communications between team members simply makes this even worse.
From my personal experience working with a number of L1 and H1B visa holders, I've found them to be generally very effective in their positions. Have I encountered lousy Indian programmers? Yup. But that's true of American programmers too so go figure.
"You would, I presume, be referring to the Clinton Justice Department assault on Microsoft on behalf of a couple of wealthy individuals at Sun and Oracle."
If that were the case, the tech world should have boomed after the DOJ essentially capitulated under Bush.
US v Microsoft had nothing to do with the tech burst.
If any government policy is involved, one major suspect is probably all the horrible software patents that have been granted. A new company is walking into a minefield. Small companies have little chance of overturning a bogus patent which is being used against them.
The tech bubble burst occurred not because of Clinton nor because of Bush. It burst because of profits (the lack thereof).
As for outsourcing, it is here to stay. If the U.S. government successfully stops the practice, it would only make U.S. corporations less competitive, which in the long wrong would be more damaging to the U.S.
Thanks for the great article. How about an article about the trade deficit. How is it possible for the U.S. to have a trade deficit for as long as I can remember and still have a the strongest economy? Is it that the trade deficit sounds bad, but really isn't that bad? Or is it really bad and eventually we are going to pay the piper?
posted by: mmpost99 on 03.22.04 at 06:46 PM [permalink]
mmpost99: "As for outsourcing, it is here to stay. If the U.S. government successfully stops the practice, it would only make U.S. corporations less competitive, which in the long wrong would be more damaging to the U.S."
So what? Most middle-class Americans today would probably be willing to trade some of the "competitiveness" of faceless corporations for some of the economic security that their parents and grandparents enjoyed.posted by: Firebug on 03.22.04 at 06:46 PM [permalink]
Why on earth don't I see anyone addressing what I see as a basic economic problem?
However, check the prices and cost of living here in the US. Outsourcing has not resulted in lower prices for those of us living in the US.
Won't this eventually affect the health of the corporations? If not, if they are able to continue due to the internationalization, won't it adversely affect US economics? It seems that the corporate world is neglecting the long term view.
As far as retraining, retrain to do what? What knowledge based job cannot be outsourced? Many of our labor based jobs have been outsourced already.
Getting more gloomy and fully expecting an all out crash in the fairly near future...
1. "If any government policy is involved, one major suspect is probably all the horrible software patents that have been granted."
Agreed. The number of ridiculous patents approved is staggering. The worst aspect as patents that cover business processes. It's a wonder that nobody has patented the process of putting bricks and mortar together to form a wall.
And your point is? So if we have a company nominally American that doesn't have any Americans in either it's employment rolls or it's list of shareholders, is it really American? Should anyone care if this company is discomfited?
IMHO I think the economy will do a hard crash near Jan 2005. Either slightly before or slightly after. This economy isn't funded by increased employment, which usually increases enough to propogate a recovery. Instead this economy is driven largely by tax refunds and recovered home equity. Both of which are very much finite sources of money.
I figure the money situation will cause a large number of people to "tighten the belt" which will have a cascade effect. The ultimate near-term end is a recession/depression far worse than anything in recent memory. And any subsequent recovery will be even harder to accomplish.
"On relying too much on MGI data because they’re big into outsourcing – hey, I’ll relinquish MGI data if Kirwin and others renounce the use of data from Gartner, Forrester, Deloitte, etc. "
This scares me, no it terrifies me... you are an academic. Aren't you the least interested in the actual numbers? Can you do your own number gathering?
Dan's a political scientist. Technically he studies political movements, policy, governments, and the social aspect of politics. It should be remembered that he is not an academic specializing in the actual issues of trade, employment, their technical methods, etc.
Technically, he shouldn't be advocating as much as presenting and analyzing. In practice, in my experience political scientists do have some degree of advocacy underlying their work. Some times I think that he does step over the line or at least fudges it.
Dan has avoided multiple criticisms over time, with a trend being that many of them deal with the assumptions and sources of his numerical information and analysis. He is of course not obligated to answer any questions, however I'm not sure sometimes on this blog if he's acting as an academic or as an advocate. Either is an honorable pursuit, but sometimes it seems he fudges things by dressing up one as the other.
When the oldman advocates, he advocates. When he analyzes, he analyzes. There has to be a mental firewall, or you lose track of what you're doing.
For instance, the oldman openly advocated Dean. However, his analysis from the ground's eye view prompted him to report the groundswell of support for Kerry and Edwards.
As for the notion, that equilibrium must happen between two freely trading economies I don't think history bears that out. Consider Mexico and NAFTA. One can make arguments whether it was good, bad, etc. but there is no doubt that equilibrium did not happen and is not accellerating toward a convergence.
I wouldn't look for fixed costs in India to converge to fixed costs in America any time soon.
This is because prices are "sticky". This is why there's a phrase "fixed costs". The question is not whether competition will drive down prices, but whether competition will driven down revenue so that fixed costs will not be met and an infrastructure relapse or collapse happens to correct fixed price divergences. When this happens to a company, it's called bankruptcy. When this happens to a country, it's called a Depression.posted by: Oldman on 03.22.04 at 06:46 PM [permalink]
Jcarlson: I was being somewhat flippant on the point regarding data from different consulting firms.
The fundamental point regarding the numbers used in the article is threefold:
1) The official data (BLS, BEA, etc.) that exists regarding economic activity to date provides no support whatsoever for claims that outsourcing causes massive job losses.
2) Projections about the future are always uncertain -- it's possible that Forrester, Gartner and the BLS Occupation Handbook will be wrong. The TPI report showing outsourcing to be flat in 2003 was particularly sailent here because their report went against their (and Gartner, Forrester, et al's) interest, i.e., to show outsourcing as an inexorably increasing trend.
3) The MGI report was quite clear in explaining the assumptions used to make its projections regarding the costs and benefits of outsourcing. These assumptions did not look outlandish. Furthermore -- and I asked ex-McKinsey employees -- MGI is insulated from the for-profit component of consulting. The Gartner study, in contrast, did seem to be based on a seriously flawed assumption (60% job loss in positions directly affected by outsourcing), which is why I give it much less credence.posted by: Dan Drezner on 03.22.04 at 06:46 PM [permalink]
Kelly..you say: "Outsourcing has not resulted in lower prices for those of us living in the US."
I *do* think international trade (specifically, offshoring of manufacturing and services) has resulted in lower prices on many, many items, far beyond the usual example of the DVD player.
1)Clothing. Most garment manufacturing (cutting & sewing) is now done outside the US; if this weren't the case, clothes would be far more expensive than they now are.
2)Computers. If all components (RAM chips, dispay screens, etc) had to be made in the US, there would be a lot fewer people who could afford a computer.
3)Cars. Even "made in the US" cars have significant foreign parts content, and imports played a big role in knocking Detroit out of their slumber.
4)On-Line Services. It is very expensive to provide customer support for consumer services; one long phone call can wipe out your potential profit on an account for a year. If it weren't for the ability to offshore some tech support, prices for consumer Internet services would probably be headed skyward.
"1) The official data (BLS, BEA, etc.) that exists regarding economic activity to date provides no support whatsoever for claims that outsourcing causes massive job losses."
Then would you mind giving a clear, concise and detailed explanation as to how China is producing 10+ million new jobs per year *increase* year-on-year?
There's plenty of outsider's notions about the offshoring trend, especially regarding the so-called "IT industry", polluting this selectively researched article. Stating that the offshored jobs are "low skill" not only shows a deep lack of knowledge about computer professions, but an insult to the thousands of former programmers now out of work.
I specifically call out your assertion that the majority of jobs offshored are below the average income. Even if true, this is a meaningless fact. It only has weight if you, like the party in power, confuse "jobs" with "income".
Let's say that you lose 10 jobs making 30,000, and you lose 5 jobs making 80,000. You can happily then tell everyone that a whopping two-thirds of lost jobs were below average income, therefore there's nothing to worry about. Except of course that if you do the math, that remaining 1/3 of lost jobs actually accounted for *more than half* of *lost income.*
This is also why even the promise of "more jobs" means nothing. Gasoline (i.e. commuting) prices go up, food prices go up, utilities and other bills go up -- but *actual income* remains low, or at best, stable.
This is why no one supporting offshoring, or defending the prevailing party's economic strategies, ever mentions *income* -- only "jobs".
If *incomes* -- not merely jobs -- don't improve for Americans, and expenses continue to climb, the economy is doomed. People can only buy products if they are earning money; and moreover, only if they are earning enough money to have some left over after expenses. The only people with a chance to improve their economies thanks to offshoring are executives that offshore labor, not employees.
Furthermore, you take on the main overall arguments against offshoring, and the problems it will case, and rebut them with statistics *from just one sector!* For example, to rebut the notion that a company's decision to offshore labor means that a large portion of workers will lose their jobs, you cite a research report supporting this *for the financial industry only!*, then rebut that very specific case with a BU report on, again *the financial industry only.* Ignoring entirely, of course, the dozens of other sectors (software development, hardware development, R&D, QA, customer support, etc. -- in the technology industry alone) that are affected by offshoring.
One more thing. You bandy the words "offshoring" and "outsourcing" around so much as if to make them interchangeable. I realize this is probably due to traditional good writing habits, but the words are simply not interchangeable.
Outsourcing is a GOOD thing, and it very visibly contributed not only to the increased employment of the technology boom of the late 90s, but to an increase of self-employed workers, workers with greater freedom and greater self-direction and greater interest in their work, which not only does wonders for productivity, morale, and quality work, but also does wonders for quality of life. This was good both for companies, and for workers.
Offshoring, however, takes away the ability of an American technical professional to strengthen themselves in their field, driven by their independence and self-determination. As a contractor or even a full time employment seeker, you cannot hope to compete with a depressed (or artificially cheaper) national economy and still manage to pay your bills, your mortage or rent, and maintain your means of transportation.
I suppose all of this "quality of life" talk and "self-determination" talk is metaphysical nonsense to a bean-counting, bookworm economist (well, unless you're Lyndon Larouche), but the morale of the American worker can't be ignored when you're talking about the economy. When the American worker regains the spirit that it was infused with in the late 90s -- that there were exciting new opportunities that they could work toward learning and gain skilled education in, with which they could obtain a living wage -- it will mean that the economic world (corporations, governments, and economic writers) has decided that the skilled American worker is once again worth keeping alive. And when the American worker can once again pay their bills, and finally pay off their debt accumulated during the lower-incomed and/or joblessness period that has oddly coincided with the term of the current administration, the economy will have an ounce of valid hope.posted by: Keith Tyler on 03.22.04 at 06:46 PM [permalink]
1. "This is why no one supporting offshoring, or defending the prevailing party's economic strategies, ever mentions *income* -- only "jobs"."
I agree with most everything you've written except one thing. Don't get focused on any single political party as being responsible for this shoddy state of affairs. Both parties are equally responsible and should be held accountable for it. The GOP is responsible because they actively worked for this result due to their business interests. The DNC is responsible for this due to *their* business interests in addition to their "One World, One Government" agenda.
So don't get fixated on just one group. Blame all of those bastards equally.
Like a turd on the coffee table, nobody wants to touch it .... :)
I've asked this question several times on this blog and nobody has tried to really answer it. The best someone came up with is that 90% of these jobs must come from internal trade. Which still means that at least, assuming that he is correct, 1+ million jobs is coming from *somewhere*.
The main problem I have with pro-trade and pro-outsourcing mavens is that their numbers are complete crap. None of them add up in any logical way and any sort of reasonable analysis of those numbers can only lead to the conclusion that people are either willfully mislead or complicit in deception.
I can now see that outsourcing jobs to other countries is absolutely GREAT for America! You guys won the battle! I'm convinced! I'm converted! I can SEE the LIGHT!
*Economy Grows at Solid 4.1 Percent Pace *
"The economy added just 21,000 jobs in February — all of them in government — a Labor Department survey of payrolls showed. Job growth has been painfully slow despite better economic activity. "
*U.S. Making Progress on China Currency *
"American manufacturers have contended that China's policy of tightly linking its currency to the U.S. dollar has made the yuan undervalued by as much as 40 percent, giving Chinese producers a huge competitive advantage against American companies."
*Greenspan defends free trade, productivity, despite shifting jobs*
"Greenspan drew on the history of rural American development to rebut protectionism amid deepening concern over the loss of US jobs to countries with cheaper labor such as India and China."
*Weekly US jobless claims rise slightly to 339,000*
"WASHINGTON (AFP) - The number of US unemployment claims rose by 1,000 in the week ended March 20, to 339,000, the Labor Department "
I must admit. You guys have a very convincing argument .....
I don't think you understand the severity of the situation. I happen to work for a large american employer that is patiently offshoring my job. They're not firing me, per se, they're just no longer giving new projects to people in the U.S. In about 5 years, they probably will let me and the rest of the engineering in my division go once the overseas workers have proved themselves. My coworkers and I average >2 electrical engineering degrees each, and honestly, we don't need to be "retrained."
Our middle and upper-class jobs are slowly, but steadily, bleeding away. You see, it's not just unskilled computer programmers, manufacturing workers, IT..... My company has begun offshoring engineers, accountants, and scientists. Our replacements work for a quarter the cost with comparable quality. And, of course, their work should be of good quality--we trained their management when they were here during the 90s on H1-B visas. There are no floodgates, but the trickle will slowly turn into a stream. And the stream into a river.
The clearest answer to this whole mess is to pump billions into the university system for research. Universities have long been the vehicle of growth in the US, spawning computers, the internet, biotechnology, etc. I'm particularly pissed that the government believes the ROI of 9 billion dollars in agricultural subsidies can even compare to, say, the ROI of 9 billion in research.
Best of luck convincing the public that all is well. Us people in the trenches know that our jobs, no matter how "knowledge-oriented," are not safe. We'd best get to innovating and adapting, or we're going to end up like France.posted by: patrick on 03.22.04 at 06:46 PM [permalink]
1)Clothing. Most garment manufacturing (cutting & sewing) is now done outside the US; if this weren't the case, clothes would be far more expensive than they now are.
Kellyposted by: Kelly on 03.22.04 at 06:46 PM [permalink]
Clothing. Most garment manufacturing (cutting & sewing) is now done outside the US; if this weren't the case, clothes would be far more expensive than they now are.
I'm sorry, $50 pairs of jeans, $20 t-shirts, $40 pairs of shorts, etc. are not reasonable prices. Clothing prices, like music prices, are horrendously inflated -- despite all the alleged corporate savings.
Funny how corporations manage to find all these great ways to save money for themselves, like disassembling the public American income, yet prices on every American-marketed product these corporations produce continue to climb.posted by: Romulus on 03.22.04 at 06:46 PM [permalink]
"The clearest answer to this whole mess is to pump billions into the university system for research. Universities have long been the vehicle of growth in the US, spawning computers, the internet, biotechnology, etc."
While I agree with just about everything you wrote, I'm sorry to say that I disagree with the above statement. Not that pumping billions into research won't have positive effects. It's just that there's no guarantees whatsoever that those efforts at research won't simply be offshored and outsourced right from the beginning.
Right now the main thrust behind outsourcing/offshoring is to move current business processes offshore. The future is to not even bother creating them domestically and doing the startup work offshore. So any new technology would simply migrate immediately rather than with a delay due to investments in infrastructure that would have to be replicated elsewhere.
What amazes me are the people who can spout theory but not answer questions. It's a bizzare thing really.
"What amazes me are the people who can spout theory but not answer questions. It's a bizzare thing really."
This wasn't directed at you patrick. It was directed at Mr. Drezner and others who have spouted endless amounts of economic theory to me but have constantly dodged a number of very basic questions.
You're obviously new to the retail system. That's how it's worked for many decades. Huge markups. Having been prevy to the system for 10 years, I've seen markeups as high as 300%. The cream of the department stores' profits are those who must be first to have a new fashion and will always pay full price. There are stat formulas that predict fairly well how many units will sell at full price. Every sale after that count is gravy, even reduced all the way to breakeven.
You're clearly not buying off-brand merchandise. Branded and fashion merchandise is a seller's market, not a buyer's market. If you want to see the benefits of lower manufacturing costs, you'll have to buy off-brands or take the chance on your size being there when/if they put it on sale (if you wear a popular size, the formula is stacked against you).
>I've asked this question several times on this blog and nobody has tried to really answer it.
FWITW, Not sure what you consider a real try but there are several contributing factors to that phenom:
1) China is building out it's support infrastructure at the same time it is taking on the words manufacturing jobs. Lots of new jobs created there as well.
2) Because their support infrastructure is not fully in place, their economy is less efficient at moving goods and services. That inefficieny requires more humans to get the job done: more jobs. The reality is, once their support infrastructure is in place, if they do it right, that startling job growth stat will continually drop to some much lower equilibrium point. Point being: it's temporary.
If they don't do it right, the ineffiiencies will become nagging liabilities.
I am puzzled by the nature of artificial barriers-to-entry, Re: tariffs, laws, etc. The claim that placing such in the path of outsourcing will only lead to a worsening US ecomony in the long run are clearly backed up by history and math.
But here's the kicker: There are at least 3 industries in the US that not only benefit from barriers-to-entry but in fact THRIVE under them to the point of near obsene excess:
Medical care, Legal services, and Pharmaceuticals.
All three are highly regulated and protected by all manner of legislation.
So, why are these immune to the effects of BTE's?posted by: I WOKE UP on 03.22.04 at 06:46 PM [permalink]
Here in NC, there's a big push to invest our share of the Tobaco settlement money heavily into developing a Biotech industry in the State. My first reaction was, in light of the power the net provides to offshore even biotech jobs, why would we invest in it over any other industry, new or old? But, if Barriers-to-entry are put in place as are for the industries I named above, it becomes a great idea. Even many resulting "factory" jobs could be protected just as Pharma manufacturing is restricted.
"If you want to sell it in America, it has to be manufactured under the watchful eye of our regulatory agencies".
That means "Made in the USA".posted by: I WOKE UP on 03.22.04 at 06:46 PM [permalink]
I can accept that perhaps only 10%-15% of the total come from producing exports, which I'm still not sure about, but that still amounts to 1-1.5 million new jobs each and every year. Yet the official statistic on the total number of jobs outsourced over the last *decade* is only around 300k-700k!
How on earth is that at all possible?
Aren't agricultural products included? From previous discussions sugar is heavily regulated. So is commercial tobacco farming and peanut farming. In fact to farm peanuts commercially you need a permit which dictates exactly how many tons you're allowed. Some peanut 'farmers' haven't put hand to hoe in decades. All they do is lease their permits.
I haven't heard of any peanut farmers going broke.
ROFLAMO!! My GOD!
I haven't laughed this much in weeks!
Look, not to get into the whole ego thing, but I'm semi-retired from a pretty successful career. I've been programming in a multitude of languages, industries and vertical markets for over two decades. My resume runs to seven pages, and that's the condensed version*.
I used to do contract programming for fortune 500 companies. When I was doing that I used to get contracts from both networks of former employers, bosses and co-workers and from the internet. So they're all useful.
So thanks for the advice. I'll certainly keep that in mind.
(* I get a lot of crap from people about having a long resume. From my experience it's worked. Every time I've ever submitted a short resume I've gotten a request for a detailed one. So I've stopped bothering with the whole "one page resume" schtick.
Does it work? I don't know. But it hasn't taken me more than two resumes, a couple phone calls and an interview to get a job or contract in several years. Go figure.)
The only problem is that India is looking to be the home for outsourced biotech. There's a massive push for the Indian government to provide subsidies and grants to domestic companies to build facilities and an educated workforce to take biotech research over.
What can you do man? RTP is dead I think. I used to live in Raleigh-Durham and I loved the area. The people were great, the climate was wonderful and the living was a pleasure. The only downside was that the Italian food was utter garbage, but that's a problem all over the South.
Too bad really. There's nothing I miss more than a pulled-pork sandwich with fresh coleslaw on top. :/
Damn. I'm hungry.
"'India could become hub of biotech outsourcing'
HYDERABAD: Outsourcing in biotechnology offers India a billion-dollar opportunity but the country needs an effective intellectual property rights (IPR) regime to tap its potential, US experts say.
Steve Lawton, vice president of the US Biotechnology Industry Organisation (BIO), said Thursday with strengths like immense talent, strong chemistry technology and research and development, India could become a hub of outsourcing in biotechnology.
He however added that the lack of legislation to protect intellectual property rights was keeping American companies away.
..."posted by: ed on 03.22.04 at 06:46 PM [permalink]
Thanks for the info ed.posted by: I WOKE UP on 03.22.04 at 06:46 PM [permalink]
"Thanks for the info ed."
Sorry man. But the economics of outsourcing are extremely persuasive for businesses. The difference can be absolutely massive for the bottomline. What that does to the local economy, often enough in one-business towns, is devastating. Not even tax cuts are enough to offset outsourcing decisions.
In Michigan the govenor arranged for about $120 million in tax cuts for Electrolux Corp. The company has decided to move their factories to Mexico anyways. The pay scale for their workers in Greenville, MI, is around $10/hr. In Mexico it's like $1.5/hr. That's hard to beat.
"DuPont mulls biotech outsourcing
TIMES NEWS NETWORK[ SATURDAY, FEBRUARY 08, 2003 05:45:03 AM ]
Drezner's research is incredibly shoddy-it makes be embarrassed to be an alumni of an institution that would hire someone like Drezner. For example, the issue isn't just salary rates-but what those rates mean in terms of disposable income(say after taxes). A company with offices in New York City and Provo Utah might raise the overall salary at its company by simply closing the facility in Provo Utah.
"Temporary" worker visas and offshore outsourcing are intimately connected. Temporary worker visas essentially allow major corporations to use a chance at a green card as a corporate benefit(what Milton Friedman calls a "subsidy"). The massive influx of subsidized labor plus the fact that once here, a temporary worker can send business to friends back home has had a serious impact in the US-particularly in areas like Oregon and Washington that were previously lower cost sources of IT labor in the US itself(and now have among the highest rates of unemployment and hunger in the US).posted by: Randall Burns on 03.22.04 at 06:46 PM [permalink]
I AM MR.CHUMA UCHE,the CHAIRMAN/MD OF AMCE GROUP OF COMPANIES,A BUSINESS CONSULTANT WITH SPECIAL INTEREST IN INTERNATIONAL BUSINESS CONSULTANCY.
I GOT YOUR ADDRESS IN THE COURSE OF MY BROWSING THROUGH THE INTERNET FOR GLOBAL BUSINESS OPPORTUNITIES.MY REASON OF CONTACTING YOU IS TO SEEK YOUR ASSISTANCE IN A BUSINESS OPPORTUNITY THAT A RAN INTO RECENTLY.I HAVE A FRIEND WHO IS INTO CRUDE OIL EXPLORATION AND NEEDS A TRUSTED FOREIGN PARTNER WHO CAN BE BUYING THIS CRUDE OIL FROM HIM AS A PARTNER OR LINK HIM TO A GOOD BUSINESSMAN THAT IS READY TO BE BUYING THIS CRUDE FROM HIM AS PARTNER.
NOTE THAT THIS IS A GENUINE BUSINESS AND THE FOREIGN PARTNER WILL MAKE PAYMENT ON DERIVERY OF THE CRUDE OIL AND NOT BEFORE.ALSO EVERY DOCUMENTATION/AGREEMENT REGARDING THIS BUSINESS WILL BE SIGN AND SEALED BY BOTH PARTIES CONCERNED ON TRUST AND ITS HAS TO BE BINDING ON BOTH PARTIES BEFORE SHIPMENT OF THE PRODUCT TO THE PROSPECTIVE BUYER.
I WOULD THEREFORE LIKE YOU TO REACH ME IMMEDIATELY IF YOU ARE INTERESTED, ON MY PRIVATE EMAIL ADDRESS:firstname.lastname@example.org or email@example.com
MR CHUMA UCHEposted by: chuma uche on 03.22.04 at 06:46 PM [permalink]
Well, yes, I suppose that kind of job is one that HAS been outsourced, Mr Uche.
But even there, as I recall, they're JAILING people senidng out crap like yours.posted by: Bithead on 03.22.04 at 06:46 PM [permalink]
What is really frustrating with this outsourcing debate is -- proponent have their economic information so does opponents. But, do the numbers tell the real story? For the moment, I want to put aside the all this data and look at information that is not disputable.
First, you need to define "Free Trade"? My Encarta dictionary defines "Free Trade" as "unrestricted trade: international trade that is not subject to protective regulations or tariffs intended to restrict foreign imports". Shouldn't this trade unrestricted on both sides? Under the strict use of this definition, there is no free trade between US and all the other countries on this planet. I find it rather oxymoron to say that people that oppose some provisions of free trade policy are economic isolationist. What country on this planet would be considered a "free trader"? The United States definitely have policies that benefit certain local industries like grain production and other agricultural goods, in which are in this nation's strategic interest. China and India have policies to protect their economic interests. So let us get beyond the name calling. Please!
Second, both Democratics and Republicans are guilty of giving away the store, in the hope, to spread democracy and capitialism across the world. Unfortunately, the results are sort of mix. Here is what I see. Democracy has been very elusive in China. The country is morphing from a Communist to Capitalist oligarchy with the same less than 1% run the show. India is a democratic country with very socialist economic policies. This country is a poster child for economic isolationist!
Finally, no one wants to become India. However, shouldn't the United States protect its vital resouces, her citizens? You can debate pros and cons of cheap goods verse good jobs to no end. Ultimately, if the US is serious about spreading democracy and capitalism around the world, our trading partners need to meet minimum standards (respect for intellectual property, worker rights, and environmental requirements). There is a chasm between from the haves and have-nots, and from the masses and the oligarchs, hopefully, economic trade will great equalizer only if applied with great wisdom. Unfortunately, present policy supports big multinational corporations that have the money and resources to take advantage of cost saving solutions, without regard of the consequences. There are big cost savings to be made by reducing labor costs! Yes, stockholders are very happy in short run. As a nation, we need to think long-term. This is the present reality. The question revolves around by how much and who will it affect. This bring us back to the beginning and this whole debate about what do this economic statistics really mean? Most likely, someone will make sense of the present situation ten years down the road. But, do we really want to go that road? We need to take a tougher stance against unfavorable trade conditions and renegotiate our trade agreements.posted by: Lou Stein on 03.22.04 at 06:46 PM [permalink]
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