Thursday, November 3, 2005

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Offshoring tales from across the land

Writing about offshore outsourcing for a public audience carries many, many perks. One of them is getting e-mails like this one:

Since you seem to be a proponent of outsourcing, perhaps you would care to explain the national deficit and the fact that the United States in now the single biggest debtor nation in history. Your facts or lack of same simply do not wash.

OK, I'm confused -- are my facts wrong, or is it that I don't have any of them? Really, it's very hard to keep track.

Seriously, I also get more interesting anecdotes about those who experience outsourcing first hand. Consider this e-mail from a colleage who is in the middle of getting a book published:

I'm doing a book with Palgrave, and it turns out they've moved their entire production back-office operation to India. What I found interesting about this is that we generally think of the U.S. as high-tech and professional, and poor developing countries as more cottage-industry-ish. The opposite is true in this case. Copyediting here tends (in my experience) to be done in cottage-industry fashion, with the manuscript sent out to an individual who works for the publisher on a piecework basis. The Indian copyediting operation is high-tech (our interaction involves no paper, and they've taught me about all sorts of things that I had no idea one could do with Microsoft Word), corporate (there were no fewer that six people working on my manuscript, with a clear division of labour - an endnote person, a bibliography person, a grammar person, a 'sense and meaning' person, and one person whose sole job seemed to be to take out extra spaces after periods [I have a habit of double-spacing after periods]), and highly professional (they're really a pleasure to work with). Also, their English appears to be better than that of the average American copyeditor. So, in this case, not only has offshoring resulted (presumably) in lower costs for Palgrave, it's also likely to result (and I'm typing this with crossed fingers, because the process isn't finished yet) in a better book.

This is pretty interesting, in that the process that's described is not only about offshore outsourcing -- it's also about the fact that what used to be considered a complex task (the cottage industry of copyediting) has been segmented into a lot of very simple tasks (the person whose sole job it is to shorten the spaces after a sentence, for example). It's both high-tech AND low-tech.

This reminds me of something.... oh, yes, Karl Marx's Wage Labour and Capital (1849):

The greater division of labor enables one laborer to accomplish the work of five, 10, or 20 laborers; it therefore increases competition among the laborers fivefold, tenfold, or twentyfold. The laborers compete not only by selling themselves one cheaper than the other, but also by one doing the work of five, 10, or 20; and they are forced to compete in this manner by the division of labor, which is introduced and steadily improved by capital.

Furthermore, to the same degree in which the division of labor increases, is the labor simplified. The special skill of the laborer becomes worthless. He becomes transformed into a simple monotonous force of production, with neither physical nor mental elasticity. His work becomes accessible to all; therefore competitors press upon him from all sides. Moreover, it must be remembered that the more simple, the more easily learned the work is, so much the less is its cost to production, the expense of its acquisition, and so much the lower must the wages sink for, like the price of any other commodity, they are determined by the cost of production. Therefore, in the same manner in which labor becomes more unsatisfactory, more repulsive, do competition increase and wages decrease....

The economists tell us, to be sure, that those laborers who have been rendered superfluous by machinery find new venues of employment. They dare not assert directly that the same laborers that have been discharged find situations in new branches of labor. Facts cry out too loudly against this lie. Strictly speaking, they only maintain that new means of employment will be found for other sections of the working class; for example, for that portion of the young generation of laborers who were about to enter upon that branch of industry which had just been abolished. Of course, this is a great satisfaction to the disabled laborers. There will be no lack of fresh exploitable blood and muscle for the Messrs. Capitalists the dead may bury their dead. This consolation seems to be intended more for the comfort of the capitalists themselves than their laborers. If the whole class of the wage-laborer were to be annihilated by machinery, how terrible that would be for capital, which, without wage-labor, ceases to be capital!

But even if we assume that all who are directly forced out of employment by machinery, as well as all of the rising generation who were waiting for a chance of employment in the same branch of industry, do actually find some new employment are we to believe that this new employment will pay as high wages as did the one they have lost? If it did, it would be in contradiction to the laws of political economy. We have seen how modern industry always tends to the substitution of the simpler and more subordinate employments for the higher and more complex ones. How, then, could a mass of workers thrown out of one branch of industry by machinery find refuge in another branch, unless they were to be paid more poorly?

Sounds very dire.... except that Marx, for all of his understanding of the forces behind technological innovation, never really got the idea that such innovation also creates entirely new categories of complex, high-skill jobs. It took Schumpeter to figure that one out.

[Er.... what about the demise of copyediting jobs? Doesn't that mean that offshoring leads to a net loss of employment?--ed.] Not according to AFP:

The outsourcing of technology jobs to low-wage countries will provide a $68.7-billion (U.S.) benefit to the U.S. economy in 2005, said a study released yesterday, challenging key assumptions about shifting work offshore.

The study, updating a report released in 2004 drawing the same conclusion, was commissioned by the Information Technology Association of America, a high-tech industry group, and conducted by research firm Global Insight.

The report concluded that despite the loss of some jobs to low-wage countries such as India, that worldwide sourcing of IT services and software generated 257,042 new U.S. jobs in 2005.

"No one is denying that there are job losses, but the net effect is that you create more jobs than you lose" in the overall economy, said Nariman Behravesh, chief economist at Global Insight and lead author of the report.

The benefits come from lower inflation, higher productivity and lower interest rates that boost economic activity, the report concludes.

The researchers calculated this provided a net benefit to real U.S. gross domestic product of $68.7-billion in 2005, and that this would rise by 2010 to $147.4-billion compared with a situation without any offshore outsourcing.

"The main thing is cost savings which radiate out in the form of lower prices for high-tech goods, and higher profit margins for the companies," Mr. Behravesh said.

"So you have lower inflation, which means higher real income; you have higher profits. Companies use higher profits to invest more; consumers use higher incomes to purchase more . . . all these produce a much stronger economy and produce more jobs than the offshoring destroys."

In terms of jobs, the report concluded that offshore outsourcing led to the creation of more than 419,000 jobs, more than offsetting the 162,000 technology jobs displaced by the shift.

[That's the number of jobs; what about wages?--ed.] The Global Insight page offers this tidbit on wages:

Workers enjoy higher real wages. Global sourcing adds to the take-home pay of the average U.S. worker. With inflation kept low and productivity high, worldwide sourcing will increase real hourly wages in the U.S. by $0.06 in 2005, climbing to $0.12 in 2010.

Click here to read the executive summary of the Global Insight report -- and click here to read my take on the 2004 version of the report.

posted by Dan on 11.03.05 at 10:16 AM


Another take on the relative magnitude (and timing) of the job displacing versus job creating effects.

posted by: Robert Bell on 11.03.05 at 10:16 AM [permalink]

I'd be curious about how the quality of the highly-segmented copyediting compares with standard copyediting. In many fields, excessive division of labor turns out to be suboptimal for quality and productivity (see Michael Hammer's work on business process re-engineering)

posted by: David Foster on 11.03.05 at 10:16 AM [permalink]

First off, to Dan: I don't want to be accused of "looking on the bright side" (hate that), but your blog output and its fiesty/snarky (love that) tone are all way up since your denial of tenure. As a loyal, but sometimes frustrated reader, I just want to say welcome back.

Re. David's point about the value of dividing this labor up in such an odd way, I'll add my two-cents as a former copy editor. Whatever the immediate task at hand (who wants to be the "comma guy"?) it's always a good thing to have multiple sets of eyes going over raw text. Someone is bound to query a typo or odd turn of phrase and it is much more likely to be fixed.

What's fascinating to me right now is how suddenly--was that a giant sucking sound in the direction of the Indian Ocean?--everyone I know has a story about outsourcing some function to India. As an old India hand I find much more interest in the place and am asked what to expect by friends and relatives about to go on business (as if I would even know, having not been back for almost a decade).

As with all bandwagons, the early rush to get on will make for some hilarious disasters, as people get involved in ventures they ought not to, lest they appear "behind the curve." Indian reform is already showing signs of stalling out under the new Congress raj (remember: we're still essentially running on the momentum of the ex BJP regime). Way too soon to say where any of this is going. I'm looking forward to talking with some of these pioneering execs I know AFTER they get back from South Asia.

Dan, you make a great clearing house for all this word of mouth info. You'll make it to the Daily Show yet!

posted by: Kelli on 11.03.05 at 10:16 AM [permalink]

"that worldwide sourcing of IT services and software generated 257,042 new U.S. jobs in 2005."

Show me the list of jobs!!

I think much of what we get from the government and think tanks is just statistical baloney.

posted by: save_the_rustbelt on 11.03.05 at 10:16 AM [permalink]

Average wages are up - emphasis on average.

What the economists tell us...

"Trade increases propsperity"

What the economists should tell us....

"Trade increases prosperity for some and devastates others."


Universities in Ohio are complaining about not getting enough money from the taxpayers. Problem is, Ohio is still, for all real purposes, in a recession. The taxpayers are busy filing bankruptcy petitions.

Ah ha, even professors are suffering.

posted by: save_the_rustbelt on 11.03.05 at 10:16 AM [permalink]

IT employment remains 25% below the peak in 2000 even with the few jobs created this year. Let's see, 250k new jobs, but they requested 125k visas. Doesn't sound like very impressive job creation at all. Certainly not here anyway.

posted by: Lord on 11.03.05 at 10:16 AM [permalink]

Apparently, your e-mailer is unaware of the find-replace command, a pretty essential feature of Microsoft Word. That's all it takes to handle the two spaces after a period problem. If that Indian firm really has one person doing that job, that would actually be rather unproductive.

posted by: Peter on 11.03.05 at 10:16 AM [permalink]

A close reading raises the possibility that "the creation of more than 419,000 jobs" could mean 419,000 part-time, reduced benefit Wallmart-type jobs or anything else.

There is no assertion in the text that skilled jobs are being created.

Likewise, nowhere is it even suggested that the wages of these newly created jobs are equal to or greater than the jobs lost to outsourcing.

posted by: Harold H on 11.03.05 at 10:16 AM [permalink]

Any particular reason why the actual writing of the text of the book couldn't be outsourced to India as well? I have met some very good theortical people who graduated from Indian universities. What exactly would the United States do then?

In a larger sense: we have used up all the oil, iron ore, and easily exploitable land in the United States. We replaced the income from same with work of the mind. Now we are sending work of the mind to cheaper countries. What exactly is the competitive advantage of the United States at this point? What do we do better than anyone else, except make fighter/bombers (and if Russia and Japan were to collaborate on that last...).

I am serious - what exactly?


posted by: Cranky Observer on 11.03.05 at 10:16 AM [permalink]

Interesting post. I was wondring if anyone read Paul Krugman's column from a week or two back? He has become pessimistic since his days arguing against the anti-globalizers.

He's still not against outsourcing or "globalization" but he does think it's hurting the American middle class, unfortunately.

I agree with him. I disagree with Senator Shumer and protectionists when they argue that Indians don't deserve those jobs, if they can do the work. How can one argue that Americans are inherently more deserving than Indians?

However, I know some of the money being saved by paying the Indians less than Americans for the same amount of work is not being plowed back into investment and innovation and education. It's lining some rich guy's pockets. Still, as Krugman points out, what can you do?

posted by: Peter K. on 11.03.05 at 10:16 AM [permalink]

Cranky: we make the best lawyers and lobbyists inthe world.

Peter K: it is interesting to see Krugman come close to eating crow

The free traders scoffed at the loss of 4+ million manufacturing jobs, but suddently the bankruptcies of Delta and Delphi got them all excited.

The political backlash is coming.

posted by: save_the_rustbelt on 11.03.05 at 10:16 AM [permalink]

Good article today in the Detroit Free Press on-line about Michigan's lame economy and the 50/50 chance that it will recover and go into a death spiral.

posted by: save_the_rustbelt on 11.03.05 at 10:16 AM [permalink]

Where does one sign up for all these new jobs; what a load of horseshit.

posted by: Dan on 11.03.05 at 10:16 AM [permalink]


I followed the link and read the report, it is horse@#$%.

It is assumption piled on assuptions piled on assumptions.

costs are lower therefore this happens therefore that happens therefore the GDP goes up, therefore inflation goes down therefore real wages go up etc, etc, ad nauseum

This reminds me of some pro formas I have seen for convention centers, sports stadiums, economic development organizations, etc. If all of these proformas came true this country would have a trillion jobs.

It is all horse@#$%.

posted by: save_the_rustbelt on 11.03.05 at 10:16 AM [permalink]

Cranky Observer,
Just one point. The benefits of trade do not depend upon competetive advantage. They depend upon comparative advantage. Time to take another look at Ricardo perhaps?

posted by: Tim Worstall on 11.03.05 at 10:16 AM [permalink]

I'm a freelance copy editor. My experience has not been as glowing as that of the book author who raves about the wonders of "offshored" editing. Many times I have had to repair the mangling done by offshore companies, resulting (presumably) in increased costs for Gargantuan Publishers, Inc. That is, if GP, Inc. gives a d*&% about quality at all, which many of them simply don't.

Not being familiar, I can't address any real or puffed up or outright lying stats about whether offshore book production loses American copy editor jobs. I have not received any questionnaires from the gov't that ask me how I'm doing. My colleagues frequently voice concerns, and my sense is that it can't help but do so.

Another thing I assume it can't help but do is suppress American copy editor/proofreader pay. (Economists can explain the mechanisms better than I.) The pay I'm offered for some jobs is appalling (if I'm in a bad mood) or hilarious (if I'm in a good mood), and I'm not alone. Much worry and discussion and agitation goes on among freelances regarding the difficulties of getting paid at a level appropriate to their skills, training, and experience.

As you can imagine, it can be a sensitive subject among us copy editors and proofreaders.

posted by: Maggie on 11.03.05 at 10:16 AM [permalink]

Your friends comments on the strengths of the publishing process overseas outlines something that will hit us hard. A large number of our white collar and professional niches are protected, the labor "market" applies only to some industries and jobs. New technologies have the potential to radically alter and improve certain processes. When "backwards" countries start to take up some of the choicest work they will do so in ways that are new. Use of the cellphone and it's evolution as a computer portal are an example. We are going to see quite bit of shakeup and "creative destruction."

posted by: helen on 11.03.05 at 10:16 AM [permalink]

Global Insight ran the Wal-Mart econ conference and came up with all sorts of positive attributes for Wal-M. In fact, the attributes looked a little too good to my eye.

The independent economists at the same conference really hammered Wal-M.

posted by: save_the_rystbelt on 11.03.05 at 10:16 AM [permalink]

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