Friday, March 12, 2004
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Consumer-driven offshore outsourcing
A common meme from those who blast offshore outsourcing is that it's driven by rapacious firms eager to maximize short-term profits. This raises an interesting question -- what if consumers are the ones driving offshoring?
CBS Market Watch has a story on this as well.
A question to those who oppose offshore outsourcing -- should this expansion of consumer choice be banned or restricted?
If so, what other limitations should be placed so this sort of thing doesn't happen? Eliminate Wal-Marts? Japanese auto imports?
In other words, to what extent is the outcry over outsourcing a slippery slope to policies designed to block all forms of trade and technological innovation?
UPDATE: This story talks about how other firms are dealing with the offshoring phenomenon in their marketing strategies. Key line: "'No outsourcing' could become the latest twist on the 'made in the USA' slogan."
Just to be clear, even though I've defended offshore outsourcing as a good thing, I have no problem whatsoever with this kind of marketing strategy. If consumers prefer to pay higher prices in return for the satisfaction of buying American, that's fine. Consumer choice should not be restricted in either way.posted by Dan on 03.12.04 at 11:30 AM
Cool! Americans can now choose to put other Americans out of work.
Neat....posted by: Susan Paxton on 03.12.04 at 11:30 AM [permalink]
They've always had that power.
The next thing you know people will start buying foreign cars because they're cheaper and last longer!!!posted by: Chad Peterson on 03.12.04 at 11:30 AM [permalink]
Bartposted by: bart on 03.12.04 at 11:30 AM [permalink]
I remember back in the '80s when the Japanese were going to destroy our economy with their cars and electronics (q.v., the Michael Keaton vehicle "Gung Ho").
Rather than address the root causes, a lot of people started wearing "Buy American" shirts and putting stickers on their cars. If only we bought American cars and TVs, then we could keep every single last one of our high-paying manufacturing jobs.
Ultimately, well ... didn't make much difference. People still bought Japanese cars and electronics.
In the meantime - Japan's economy went in the tank and has yet to really recover. Don't hear so much about them swamping us with their hyperefficiency.posted by: Steve in Houston on 03.12.04 at 11:30 AM [permalink]
I'm increasingly seeing comments that outsourcing puts Americans out of a job as a request for the American public in general to subsidize the continued employment of certain Americans in threatened industries.
For example, assume there’s no textile import restrictions or duties. If I buy presumedly more expensive American textiles out of some patriotic fervor to support NC shirt factories over cheaper imports, I am in effect transferring some of my income to a shirt maker in NC - very indirectly, but real nonetheless. Why should I do that? Why not buy a cheaper shirt and save the difference, or buy something for my kids or whatever?
Why are certain jobs/industries so sacrosanct?
Good lobbyists.posted by: Steve in Houston on 03.12.04 at 11:30 AM [permalink]
Wouldn't it make a better "test" if the company staffed the American side with more people so there wouldn't be the delay?
They could tip the scales even more by staffing the American side with people who only speak Spanish. That'd really drive people to use the Indian call center.
It's not like the 10 day delay is because the American employees are inherently slow. The delay is because the company refuses to hire enough people to meet customer demand for American workers.
So I'm not sure what this is supposed to "prove".posted by: Jon H on 03.12.04 at 11:30 AM [permalink]
"It's not like the 10 day delay is because the American employees are inherently slow. The delay is because the company refuses to hire enough people to meet customer demand for American workers."
Uh, it's a 2 day delay (10 total vs 12 total), due to the fact that the Indian center handles work during the off-hours of the US business day (from the sound of the article).
"So I'm not sure what this is supposed to "prove"."
This is so asinine. What exactly is the point here (beyond demonstrating that one is a blind ideologue who will use any argument?)
Of course individual decisions are going to benefit the (percieved) interest of that individual. So what. What does that have to do with setting policy. I believe we studied the tragedy of the commons in freshman year.
This is akin to arguing that taxes should be voluntary. The good professor then finishes with a flourish:
...to what extent is the outcry over outsourcing a slippery slope to policies designed to block all forms of trade and technological innovation?
Touché. The USA has been a basically free-trading country since Roosevelt... but since I express concern over a particular new turn of events, I'm against all forms of trade. (That people like me are against all forms of technological innovation is, I suppose, a given).
And I'd have have gotten away with it too, if weren't you pesky neocons and your darn professor.posted by: Voice of the Democracies on 03.12.04 at 11:30 AM [permalink]
The Americans should get their act together and match the 10-day turnaround on the mortgage processing. Or they could even beat it, while offering higher-quality service to boot. That's the way to prevent the outsourcing: by actually making your product worth buying over someone else's.posted by: Dimmy Karras on 03.12.04 at 11:30 AM [permalink]
TG writes: "Uh, it's a 2 day delay (10 total vs 12 total), due to the fact that the Indian center handles work during the off-hours of the US business day (from the sound of the article)."
It's called a night shift. It's not unheard of in the US. It's not some Indian innovation that we're unable to implement.
(Uh, okay, I missed the 2 day thing. My bad.)posted by: Jon H on 03.12.04 at 11:30 AM [permalink]
For me, at least, the problems and heavy concerns are fine and all, but my question always is: What's the remedy. And, if I may, a followup - will the remedy, in fact, make things WORSE?
Using my example above - is there any evidence that if we'd cut off all imports of Hondas and Walkmen in the 80s, we'd be better off today?
My libertarian impulses lead me to believe there are few problems in the world that can't be made worse by government intervention.posted by: Steve in Houston on 03.12.04 at 11:30 AM [permalink]
Dimmy writes: "The Americans should get their act together and match the 10-day turnaround on the mortgage processing."
They could do that if their managers weren't setting them up to lose. The managers don't want to figure out how to get American processing to go faster.posted by: Jon H on 03.12.04 at 11:30 AM [permalink]
Bart, one thing I have to wonder is whether it really takes US workers two days longer to process an application than the ones in India. Of course part of the time difference is explained by the fact that the workers in India are working pretty much an opposite schedule to the ones in the US, but two days worth? Hmm...methinks this company is stacking the decks in an effort to get rid of its American workers in what looks like a legit way.posted by: Susan Paxton on 03.12.04 at 11:30 AM [permalink]
I imagine one factor is you can probably hire more people at the Indian processing center for the same amount of money you spend at the American processing center. Unless they are getting more value in some way, cheaper prices, better product, etc. why would the company be looking at doing business there?posted by: Allen Phelps on 03.12.04 at 11:30 AM [permalink]
I'm surprised the processing of home equity loans is taking 10-12 days. With automation you will soon be able to get a home equity loan in the same time frame as a car loan.
As it stands now, the firm in India is redirecting work back to the US. Title searches, appraisals and document execution are still handled locally. The industry is pushing hard to narrow these gaps - such as getting the land records online nationwide. In theory, this is all supposed to reduce the financing costs borne by consumers.posted by: GreenSpam on 03.12.04 at 11:30 AM [permalink]
Yeah I think this example is complete bulls**t. It doesn't prove anything valuable and it certainly doesn't show that outsourcing isn't extremely harmful to America.
Here's the deal. I emailed Drezner about him submitting his points of view on outsourcing so that we could pick it apart. Instead he's hiding behind this kind of nonsense. If you're in favor of outsourcing and you really believe in it, then come on out and write about it. State your viewpoints, give your facts and make the issue. So far you've let others do your battling for you, and they've not done all that great a job.
*shrug* I'm frankly not all that impressed so far by this blog. Most of the debate has consisted of a determined attempt to simply ignore salient points and unappetizing facts about outsourcing. All along there are these trivial issues posted by Drezner that simply don't accomplish anything whatsoever.
Make your case or admit that you're wrong. But write something worthwhile. So far this blog has been largely a waste of time.
These naive people are unwittingly starting a trade war. Do you know why this is a bad thing? That’s because other countries can do the same thing to us! The world then becomes a less friendly place---and everybody’s economy stagnates. President Bush has been far less than perfect on this issue. He deserves much criticism. Still, the Democrat Party is far more dangerous. It has made protectionism into a dogma.
“Maybe it is now white collar worker is at issue as opposed to blue?”
You got it! The spoiled Yuppies believe that the world owes them something. Only blue collar jobs are suppose to be jeopardized by the law of creative destruction. I’m sorry but a thriving economy demands that no jobs can be protected. And it is theft when you advocate that the government protects your job. You are little better than a burglar or a bank robber.posted by: David Thomson on 03.12.04 at 11:30 AM [permalink]
“Most of the debate has consisted of a determined attempt to simply ignore salient points and unappetizing facts about outsourcing.”
That is simply false. The exact opposite is the truth. A number of us have bluntly admitted that some people will inevitably pay a severe price. This is a solid law of economics: every single increase in productivity will inevitably threaten somebody’s job in at least a minimal manner! Furthermore, some people are royally screwed. A person, for instance, who only has a 4th grade education earning $12.00 an hour in a union textile factory, is unlikely to find similar paying employment in the future. Welcome to the real world of adults. I am not a Democrat and therefore I won’t lie to you.posted by: David Thomson on 03.12.04 at 11:30 AM [permalink]
Someone asked "what's the remedy?" - In my opinion, which most of you will not agree, is to read the labels on the products you buy and do business with domestic companies - when possible. I run a small company and require all my suppliers to provide me all domestic products - yes it does cost me on the bottom line but it is also helping the economy in my general area and I use it as a selling point for my product.
1. I am not a Democrat and therefore I won’t lie to you.
Well good for you. Neither am I as I've been a lifelong Conservative Republican. Now we can both sing Kumbaya together and throw darts at pictures of Kerry.
2. These naive people are unwittingly starting a trade war. Do you know why this is a bad thing? That’s because other countries can do the same thing to us! The world then becomes a less friendly place---and everybody’s economy stagnates.
I hate to say this but, considering the $44 billion trade imbalance per month, I can't see how the rest of the world is actually **buying** anything made in America.
3. This is a solid law of economics: every single increase in productivity will inevitably threaten somebody’s job in at least a minimal manner!
This has nothing to do with productivity. American workers are *the* most productive workers in the world by a huge margin. Nobody is more productive than American workers. Nobody. Not the Japanese. Not the Germans. Certainly not Indians nor Chinese. Nobody works harder than Americans.
So this has nothing to do with productivity.
It has everything NOT to do with productivity.
4. Someone asked "what's the remedy?" - In my opinion, which most of you will not agree, is to read the labels on the products you buy and do business with domestic companies - when possible.
Which is really not possible anymore. There simply are no standards concerning "Made in America".
5. How many of you blasting this post are driving a foreign made car which you puchased because of the price - maybe you should have bought the GM, Ford or Chrystler built here in the U.S. by union the workers that loosing thier jobs because of outsourcing.
I drive a pre-Mercedes Chrysler. *shrug* call me juvenile but I like my Le Baron convertible. I've considered buying a new car, but I only put about 3,500 miles a year, if that, on a car so there's not much point.
1. Furthermore, some people are royally screwed. A person, for instance, who only has a 4th grade education earning $12.00 an hour in a union textile factory, is unlikely to find similar paying employment in the future.
The problem isn't adults with 4th grade educations not getting factory jobs. The problem is experienced college educated adults not getting jobs.
There is a bit of a difference.
Is there a door prize?
Can't speak for everyone else, but there's no possible way I can monitor every purchase I make to ensure it's 100% pure all American.
Split open a computer with, say, a Dell or HP label - do you know how much of that stuff is produced in America? Very little. And because of improvements in procurement and outsourcing, computers deliver orders of magnitude of power than they used to ... at fractions of the cost.
Or would it be better if we went back to our 386s with 256k of RAM and 5 megs of storage?
Take apart your car ... was everything there manufactured in the US? Japan? Slovakia? How about the gasoline used to power it?
Your TV? Or the programming on it? Or the programming at the local cineplex?
Seriously, if you want to buy only stuff made in the US - that is, with no components from elsewhere - good luck. Really. You're better than I am, even if you're having to pay more for less.posted by: Steve in Houston on 03.12.04 at 11:30 AM [permalink]
"I hate to say this but, considering the $44 billion trade imbalance per month, I can't see how the rest of the world is actually **buying** anything made in America."
We have a 10 trillion + a year economy, we can easily have a 44 billion a month trade deficit and still export things. Go to www.nationmaster.com select all countries, economy, exports. Look at who comes out on top. We export more than anybody else (in total, others have us beat per capita). We just also happen to import even more.posted by: Allen Phelps on 03.12.04 at 11:30 AM [permalink]
1. We have a 10 trillion + a year economy, we can easily have a 44 billion a month trade deficit and still export things. Go to www.nationmaster.com select all countries, economy, exports. Look at who comes out on top. We export more than anybody else (in total, others have us beat per capita). We just also happen to import even more.
Thanks for the link! I want to double check the numbers it's showing but they look good and it looks like a fun site to play with.
If we export $700 billion and import $1,120 billion, then we could stop all imports/exports and save a whopping $400 billion!!
First, outsourcing has nothing to do with productivity. It has to do with the cost of labor.
Second, everyone says America consumes more products and goods then any other state. Does anyone one know where I can find some hard numbers on per capita consumption of goods and services? Part of the reason we're so expensive is our desire to consume and our willingness to pay more than other countries/people do.
So, outsourcing makes perfect sense to the investor who owns company A and is the outcome of Company A's employees costing 10 times as much as the outsourced labor.
You may now debate if outsourcing is neo-colonial or neo-merchantalist. My pessemitic side says we're turing into another variant on the Spanish Empire. My idealist side says we might be ok if we change our modes and products of production; but that's easier said then done.
Carolinaposted by: Carolina on 03.12.04 at 11:30 AM [permalink]
"The problem is experienced college educated adults not getting jobs."
Ed, the problem is that Americans started to believe that college education automatically gave you greater economic rights then a person with a GED. Alas, it ain't so much the education as what you do with it. When you feel entitled to advance 'cause you passed underwater basket weaving, as opposed to sweating with the proles, you've got a problem.
You might also ask how many of the college educated adults expect higher saleries (in some case, ridiculously high) due to their degree. I'm reminded of a chat I had in cab with an investment banker who did hiring for her company during the dot.com boom. Kids fresh from school with no business experience would come in asking for six figures. She noted that most of those kids were the first to be cut when boom busted. If they're hanging out in Starbucks trying to find a six-figure job with their 2 years of junior job experience, they're delusional. There's something to be said about being willing to work at lower pay if it means financial stability later in life.
"I emailed Drezner about him submitting his points of view on outsourcing so that we could pick it apart."
Do not hold your breath.
And I would not hold it against any professor if they are free-trade, open-borders, unlimited immigration and outsourcing jihadists. Being virtually equavalent to the goverment employees, they benefit enormously by availability of cheap labor and cheap goods. Gov employees are emerging as a permanent over-class. With incomes much higher than average, outstanding benefits and total job security, is it any surprise that we have by-partisan economic policies that hurt many if not most Americans?
The article Drezner discusses wasn't intended to prove that outsourcing is better than not outsourcing. The article was intended to demonstrate that if Americans are presented with the knowledge that the product they are choosing includes outsourced labor, they will still choose it over a product using purely domestic labor so long as it provides even a meager amount of added convenience.
See, the choice isn't between an only-American process and an only-Indian process. It's between an only-American process and an American AND Indian process. And in order to pick up a mere two days turn time they are willing to select the process that involves outsourcing.posted by: Jeffrey Utech on 03.12.04 at 11:30 AM [permalink]
"First, outsourcing has nothing to do with productivity. It has to do with the cost of labor."
The cost of labour is a factor in productivity. Lower labour costs mean that a comany is able to invest less resources to get the same (or more) products out, hence productivity is increased. Welcome to econ 101.posted by: Andy Danger on 03.12.04 at 11:30 AM [permalink]
The cost of labour is a factor in productivity. Lower labour costs mean that a comany is able to invest less resources to get the same (or more) products out, hence productivity is increased. Welcome to econ 101.
:) Ok, you nailed me with that one. Too much time hanging out with armchair economists. I'll go re-read my text this weekend.
Carolinaposted by: Carolina on 03.12.04 at 11:30 AM [permalink]
The story shows that customers prefer to have their loan applications processed faster. What does that have to do with offshoring? I doubt that the company couldn't have achieved equally quick processing times here in the U.S.
If you want to be against protectionism, fine. I've taken that position too, despite the possibility that I could loose the ability to make a decent living because of it. If nothing else, I can't stand the idea of being a protected worker.
Still, I just don't get the fetish some people have for free trade. Just because protectionism is bad, doesn't mean free trade is good. Most of the benefits people ascribe to free trade are in fact results of technological innovation. Sure, protectionism hinders innovation. But it doesn't follow that free trade encourages innovation. It seems to me that at best, free trade is neutral.
I'm surprised the processing of home equity loans is taking 10-12 days. With automation you will soon be able to get a home equity loan in the same time frame as a car loan.
Hmmm. How do I approach this one? OK, let's just say that I can speak with some authority on this subject, particularly as regards the automation peice of it, hence my web name. I'm kind of restricted from saying a whole bunch more, but I think I can say this without causing any issues:
Trust me when I say if the big HE players could do it faster, by automation or whatever other means, they would. I spend much of my time trying to accomplish just that.
The process takes as long as it does for many reasons, but I'd have to say the biggest reason is the regulations.
Your point about automation is well taken... and in fact I see a lot going on in that area of the business. It's keeping me quite busy, thank you, and the investment in automation to speed processes is substantial.
But the problem with automation at the moment ...(IE; the biggest holdup to it having the effect you suggest possible)... is it's ability to deal with ever changing regulatory situations at the federal level, but also in each of the 50 states.
(Can YOU say "If....Then" Hell? I knew you could)
The changes themselves take long enough, but the level of process testing required at a financial institution further complicates matters. (Given the financal consequences for errors, here, particularly given the ever smaller profit margins one can understand a level of caution, of course...)
The overall complication of a fully automated process for this kind of environment, or even the semi-automated situation currently at all the big HE players, is staggering, and the process of making changes is even moreso. IN hardware alone, most HE Dept's have more hardware than most 3rd world countries, and they're buying more in large amounts.
All this takes money, and people... and fairly expensive people at that.
Automation in this area, as a result of all of this is an aid, if an expensive, slow to change aid, but it is by no means the panacea you're thinking it should be.posted by: Bithead on 03.12.04 at 11:30 AM [permalink]
"E-LOAN Inc.We're putting a bunch of blue collar Americans out of work so those American workers who are lucky enough to not have been "outsourced" by their bosses, and want to buy a house can close their transaction two days sooner and we at E-LOAN can start charging them interest on their loan two days earlier as well."
I am constantly amazed at the false dichotomy put forth. Current trade regime proponents seem to suggest that the only choices are that either accept protectionism which is clearly harmful or to accept the current trade regime which by contrast has to be helpful if protectionism is harmful.
There is much that could be changed, to change trade, and to improve the situation without ever going near protectionism.
However, history has conclusively and repeatedly shown that societies that allow too much wealth concentration in too few hands and introduce market forces that destabilize general prosperity - and history shows that trade has often had a large role in the latter - then eventually social instability and protectionism or revolt happens. This has happened throughout the twentieth century, and quite recently, as well.
I'm not sure if it's Americans' general ignorance of history or cluelessness about foreign countries, but from France to the Czars to the Communists etc. history repeatedly shows that "social justice" is a necessary precondition to "social stability".
It's quite bizarre how this is completely ignored. China quite openly constructs its trade policies in order to benefit the masses - all the better to maintain social control. Recently they've declared that they need to help the farmers too, because it would be unwise to leave large segments of the population out of the gains. Many of those who support blindly the current trade regime, nod sagaciously at the wisdom of China in governing their country this way.
Are we dumber than the Chinese? Can't we as Kelli and I have noted, realize that social instability can protectionism will be an *inevitable* consequence of pursuing the present course in trade? Keep up this chanting that "trade is good" against all mentions of concerns, and in four or eight years you'll be asking yourselves whether or not you it's a popular political revolt or protectionism that will be result of such policies!!!posted by: Oldman on 03.12.04 at 11:30 AM [permalink]
“How many of you blasting this post are driving a foreign made car which you puchased because of the price - maybe you should have bought the GM, Ford or Chrystler built here in the U.S. by union the workers that loosing thier jobs because of outsourcing.”
Let’s have some fun. The above quote needs to be slightly revised. Here are a few examples:
“How many of you blasting this post are driving a California made car which you puchased because of the price - maybe you should have bought the GM, Ford or Chrystler built here in the Ohio by union the workers that loosing thier jobs because of outsourcing.”
“How many of you blasting this post are driving a Los Angeles made car which you puchased because of the price - maybe you should have bought the GM, Ford or Chrystler built here in the San Diego by union the workers that loosing thier jobs because of outsourcing.”
“How many of you blasting this post are driving a Main Street made car which you puchased because of the price - maybe you should have bought the GM, Ford or Chrystler built here on Parker Avenue by union the workers that loosing thier jobs because of outsourcing.”
posted by: David Thomson on 03.12.04 at 11:30 AM [permalink]
By going to India, E*Loan gives us a faster turn by 2 days. E*Loan does it by hiring more, but less expensive workers in India. E*Loan probably could do it here, but would then add a third option, that being "3. Or you can get the loan approved in 10 days with US workers for only $XXX.XX more".
Let's not forget that companies in other countries are outsourcing too. And they're outsourcing to the US. I googled "insourcing" and found this from the Washington Council on International Trade (02-04-04):
"While outsourcing has captured current attention, it is not a new phenomenon. If the term is defined as jobs operated by U.S. companies in foreign countries, the current total is 10 million positions, or 7 percent of domestic U.S. employment. Further, there's been an upward trend in the number of outsourced jobs since the mid-1990s, when trade barriers were significantly reduced following the signing of the NAFTA and GATT agreements.
What is less well publicized and understood is that "insourcing" also occurs in our economy. Insourcing happens when foreign companies establish jobs in the United States.
The latest statistics show insourcing accounts for over 6.5 million jobs nationwide. Although this is less than the number of outsourced jobs, the gap has actually narrowed in the past quarter century. That is, there's been a recent trend of foreign companies adding jobs in the U.S. faster than U.S companies have increased jobs in foreign countries."
The upshot of all this is that IN THE LONG RUN, we are all better off with trade going where it can be most efficient.
HOWEVER, we should not dismiss the temporary dislocations this causes to our citizens. I would like to see a discussion about how we should help those caught in the transition; support for the displaced, re-education and training for the better jobs that will come along later. I would like to see us discuss how we can create citizens that are best able to compete and lead the world in inventiveness and job creation.posted by: Mike on 03.12.04 at 11:30 AM [permalink]
Are we dumber than the Chinese?
No. We've managed to steer away from the socialism you and they espouse.
Why are we getting so worked up about a process that accounts for a tiny percentage of U.S. job destruction (itself part of a natural process called "churn")? Why not focus on where truly big gains can be made? I propose we pass a law forbidding plant automation, technological advances, and other sundry sources of domestic job loss. Only once this legislation takes effect should we focus on the brown and yellow people overseas.posted by: P. B. Almeida on 03.12.04 at 11:30 AM [permalink]
"Are we dumber than the Chinese?"
Yes, actually, according to IQ testing.
Are the Chinese socialist? Their government takes about 20% in direct outlays, but we take about 35%, up 5% since the Republicans took over.
Are we just dumb?
Probably. I have not found another society, except Europe, where every social ill must be solved by another government program.
Probably the society dumber than we is Spain, which has voted on numerous occasions for national suicide, and now have a fertility of 1.2 and a government that takes over 50% in direct government outlays.
I apologize in advance, a couple of observations. Recently I began a search for a pick mattock (a digging tool), it's good for digging clay. I looked particularly for one made in the U.S.A. because I believe the quality superior to those made in India/China/Mexico. As of now, there may be exactly one made in the U.S.A., I'm awaiting confirmation. There are a couple of ways of looking at this. Those steel manufacturing jobs are already gone, see rust belt. If demand were there, I know I would pay more, boutique industries could spring up thus creating jobs. One other option, which didn't exist until lately, is Ebay where I found an old one made domestically. The economic benefit of Ebay I leave to the commenters.
For those who decry the college educated not having jobs, I would suggest to any college student to pursue career that requires boots on the ground. As a civil engineer there are some aspects of my job that are completely secure. Surveying will always be produced domestically for example. There is also, as one commenter noted, government jobs. I am troubled by the nature of the government employee with its’ entitlements, severe job security and obvious bureaucratic mindset. Thus, I instinctively approve of smaller government.
By the way, I got a kick out of Kerry standing in the closed down steel plant as he campaigned in Ohio recently. That place had been closed for 20+ years, reminded me of the 70’s.
[ As a civil engineer there are some aspects of my job that are completely secure. Surveying will always be produced domestically for example. ]
No, such jobs are not immune to competition from immigrants willing to work for lower wages. For example, I've heard people cite plumbing or automobile repair as fields immune to foreign competion. This is not so. Mexicans are arriving in the US who are willing to plumb your pipes or fix your car for lower wages.
Lower wage immigrant civil engineers can't be too far behind these Mexicans. Just wait a while longer. American civil engineers will be earning less in the future.
Too bad tenure-track academic posts are immune to such competition. If the American professoriat were subject to comepetition from foreigners or recent immigrants willing to profess in exchange for cheaper pay, then laissez-faire fundamentalists such as Prof. Drezner would be singing a different tune.posted by: David Davenport on 03.12.04 at 11:30 AM [permalink]
In response to Ed, I am going to sketch out a case study in white collar outsourcing that will be affecting the tax practice at the outfit I work for.
One of the expected functions of the tax practice is the preparation of individual and corporate returns. It's a commodity business, (rather than consulting.) Therefore, there is a lot of pressure to keep the pricing low, and therefore, to keep the cost of labor low.
If you struggle with the preparation of your 1040, you may be shocked to learn that a trained practitioner, provided he has all the information required, can knock off a tax return of a wealthy guy in an hour or two. Though there are exceptions to everything, this is pretty much a rote exercise. A lot of just out of college people work very hard and get very bored this time of year churning out these things.
Somebody in the central office has realized the rote nature of tax prpep, and the decision has now been reached to try to outsource this function. There's no reason to believe that people in India and South Africa, with a little training, can't do these things as well as US kids, and they do thse things for a lot less money. And, hey, our competition is doing the same thing, meaning that if we don't, they can underprice us.
Now, the upside is this:
* The folks my firm does hire will not have to go through the joy of individual tax return prep as part of their pathway up the ladder. There will be less boredom and less burnout, and these kids will have the opportunity earlier to get in on real consulting, and actually learn the profitable part of the business.
* Our clients will be getting their forms more cheaply in the future. This will reduce administrative costs for many companies, and will help in their efforts to keep these coosts low.
The downside is that we will be hiring less, and may be laying off some of the lower level folks.
Ed, I'll admit that I don't really have an opinion on this yet. I am concerned that it seems increasingly difficult for the yopung to break into the business world. Interested in what others have to say...posted by: Appalled Moderate on 03.12.04 at 11:30 AM [permalink]
David, since the article was about outsourcing, I was referring to the fact there are aspects to certain jobs that you simply can't outsource. I was not commenting on immigration per se. I am well aware of the fact that you could probably find a Mexican rod man.
You state, ” Lower wage immigrant civil engineers can't be too far behind these Mexicans. Just wait a while longer. American civil engineers will be earning less in the future.” My boss is Iranian and he’s making more money than me. Seriously, as far as immigration depressing wages within civil engineering, I'm not so sure this would occur. Technological progress aside, any increase in immigration would require a similar increase in infrastructure, my job.
As an aside, I found that government regulation also provides for job security. As the E.P.A. regulations were passed and promulgated, companies hired consultants to help them comply with the law. The 80's were the hey day as companies just threw money at environmental compliance rather than have to worry about it. Environmental engineering firms obviously benefited from that. These days, light rail has replaced Title V as the cashpot.
BTW, although it goes against my smaller government tendencies, I can’t help but root for the $356 billion version of the transportation bill. I just find it ironic that this is the first bill Bush has threatened to veto.
Back in the early 80s there was a billboard that the UAW or some similar group put up that said something like "Buy a Foreign car, put 8 Americans out of work", and it showed a bunch of sad looking workers.
I'm sure that was an issue for American automakers, but it was probably even worse for mechanics.posted by: Dave S on 03.12.04 at 11:30 AM [permalink]
"Voice of the Democracies," the "point here" is that outsourcing isn't something driven by "greedy companies," or "Benedict Arnold companies," or whatever colorful political rhetoric pandering politicans can invent. It's driven by individual choices. If people want to point fingers, they ought to direct those fingers not at Washington or at corporate executives, but at mirrors.
Oh, and that you ask what individual preferences have to do with setting policy shows the problem. (You may have studied the tragedy of the commons, but you misunderstood it. The problem wasn't individualism; the problem was the existence of "commons." When everyone owns something, nobody really owns it; when nobody owns it, nobody watches out for it.)posted by: David Nieporent on 03.12.04 at 11:30 AM [permalink]
The bottom line: if you're kept in your job for the sole reason that the government is prohibiting someone else from offering the same service for less money, then you're not on salary: you're on welfare.posted by: Andy Danger on 03.12.04 at 11:30 AM [permalink]
I would point out that while some of the commentators here make abstract comments about the benefits of the current system of trade - I refuse to call it unequivocally "free trade" as it is hardly true market liberalization - that the facts on the ground say that their arguments are running out of viable political steam. Just recently a Bush43 candidate for "manufacturing czar" had to withdraw his name from consideration because it came out that he laid off a thousand of his workers and opened a plant in China.
Now you can think this is good, bad, whatever side of the trade issue you are on, but if you don't recognize this as a symptom that the current "free trade" arguments are losing popular political support at the grassroots levels then you really are disconnected from reality. My suggestion to those who defend "free trade" as it is, that you better wake up because you are the ones getting left behind.posted by: Oldman on 03.12.04 at 11:30 AM [permalink]
I got an idea, lets create the Tennessee Valley Athority, and a whole slew of other alphabet soup of government organizations, call this form of communism PROGRESSIVE and watch us sail into economic prosperity....after a f-ing DEPRESSION first.
If you want to create an enviroment condusive to economic expansion that DOES NOT contain tax CUTS, please tell me about it, I'm VERY interested. Someone, please tell me how any tax increase improves any business enviroment.posted by: ERA on 03.12.04 at 11:30 AM [permalink]
“My suggestion to those who defend "free trade" as it is, that you better wake up because you are the ones getting left behind.”
People who tell the truth are often “left behind.” Oh well, at least we will still retain our self respect and dignity. That is far more preferable than either being a cowardly Republican or sleazy Democrat. I can only tell the truth. It is up to others to do with it as they wish.posted by: David Thomson on 03.12.04 at 11:30 AM [permalink]
[ My boss is Iranian and he’s making more money than me. Seriously, as far as immigration depressing wages within civil engineering, I'm not so sure this would occur. Technological progress aside, any increase in immigration would require a similar increase in infrastructure, my job. ]
Mexicans are taking over non-union blue collar constructions occupations in many parts of the US, thereby lowering wages for such work.
Your complacency about civil engineering being immune to wage-lowering competition from foreigners is comically similar to the smugness of American computer software people a few years ago.
American civil engineers' paychecks are gonna get skinnier, just wait and see.posted by: David Davenport on 03.12.04 at 11:30 AM [permalink]
The underlying problem of offshore outsourcing is that the (mostly Asian) trade partners of the US accept pieces of paper in exchange for their merchandise, which is tantamount to a massive current undervaluation of their workforce (as people's living is pretty much pay-as-you-go; today's laborers may be dead or too late in their life when - if - the paper is redeemed). How much these paper pieces are worth nobody knows (but then the US has some nice pieces of land with great nature and climate it may be willing to offer to the creditors to make good on the paper).
If the US had to replace the paper with merchandise and do some _real_ trade, the whole outsourcing thing would break down.
Japan a few decades ago did not have the benefit of being able to pay for merchandise with massive amounts of paper, so it was forced to go the road of large-scale manufacturing automation, and it was very successful at it. (That's one reason Japanese-brand cars are of such high quality.)
In the face of an undervalued foreign workforce, the only route for domestic businesses to compete is to automate, automate, automate, which means further worker displacement. (But why should anybody do work that can be done by a machine?)
Unfortunately, how the incentives for automation can be provided and the necessary social safety net established to deal with the fallout, and redistribute the benefits of increased productivity to the population (otherwise, what's the point?) without some measure of protectionism is not clear to me. Anybody?
It strikes me as interesting, that so many on the left, who usually can be counted upon to lean toward the 'one world not three' nonsense, are here encouraging protectionism. Even Oldman, who is is about as left as you'll find in here, with such lines as ""social justice" is a necessary precondition to "social stability"." seems to me to be making the rather xenophobic argument that social justice is keeping the developing nations from.... well... developing.posted by: Bithead on 03.12.04 at 11:30 AM [permalink]
posted by David Davenport above:
For just about ANY job, an immigrant from India would be willing to do it for less money than an American. Maybe not immediately, but we are at only the tip of the iceberg with India. This is not only for computer programming, but engineering, teachers, nurses, doctors. Personally, I think it's a good thing if a doctor has his salary lowered from $300,000 to $150,000 due to more competition. But I don't want everyone else earning only %25,000 a year for a full time job. Yet there are plently of people in India who would be willing to be a nurse in America for only $25,000 a year or so. If we have pure economic globalization (absolutely no protections, unlimited immigration), wages in America for virtually all jobs would decrease due to competition not only from Mexican immigrants but also Indian immigrants.posted by: Jay on 03.12.04 at 11:30 AM [permalink]
Hmm. This is amusing.
Yes. I see my mistaken ways now. I can see that outsourcing could never be a problem of any kind.
what a day, what a day.
25 percent of tech jobs to be outsourced by 2010: survey
NEW YORK (AFP) - One out of every four high-technology jobs in developed countries today may be outsourced to emerging markets like India by 2010, according to a report by the research firm Gartner Inc.
"Global sourcing is becoming a mainstream delivery model," said Ian Marriott, vice president at Gartner, at a Barcelona symposium and released by Gartner Wednesday.posted by: ed on 03.12.04 at 11:30 AM [permalink]
Gee, one hole I can see in this story right off the bat; Will the overall tech employment picture be growing at all, so as to accomidate the extra tech workers being exported, I wonder?
WELL WE ASK FOR IT, DON;T YA THINK? WE WANT CHEAPER PRICES,AND TO ME YOU GET WHAT YOU PAY FOR CHEAP.I HAVE STARTED TO READ LABELS, AND DO RESEARCH, TO MAKE SURE I BUY U.S.AND AS WE CHATT MY HUSBAND AND SON JOBS ARE NOW AT RISK,CHINIA IS TRYING TO PUT THE COMPANY OUT OF BUSINESS. BECAUSE COMSUMERS WANT CHEAP!!! LIKE I SAID YOU GET WHAT YOU PAY FOR.posted by: skeeter on 03.12.04 at 11:30 AM [permalink]
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