Posted on 04/21/2005 7:36:41 AM PDT by A. Pole
Is offshore outsourcing good or harmful for America?
To convince Americans of outsourcing’s benefits, corporate outsourcers sponsor misleading one-sided "studies." Only a small handful of people have looked objectively at the issue. These few, and the large number of Americans whose careers have been destroyed by outsourcing, have a different view of outsourcing’s impact. But so far, there has been no debate, just a shouting down of skeptics as "protectionists."
Now comes an important new book, Outsourcing America, published by the American Management Association. The authors, two brothers, Ron and Anil Hira, are experts on the subject. One is a professor at the Rochester Institute of Technology, and the other is professor at Simon Fraser University.
The authors note that despite the enormity of the stakes for all Americans, a state of denial exists among policymakers and outsourcing’s corporate champions about the adverse effects on the United States. The Hira brothers succeed in their task of interjecting harsh reality where delusion has ruled.
In what might be an underestimate, a University of California study concludes that 14 million white-collar jobs are vulnerable to being outsourced offshore. These are not only call-center, customer service and back-office jobs, but also information technology, accounting, architecture, advanced engineering design, news reporting, stock analysis, and medical and legal services. The authors note that these are the jobs of the American Dream, the jobs of upward mobility that generate the bulk of the tax revenues that fund our education, health, infrastructure and social security systems.
The loss of these jobs "is fool’s gold for companies." Corporate America’s short-term mentality, stemming from bonuses tied to quarterly results, is causing U.S. companies to lose not only their best employees—their human capital—but also the consumers who buy their products. Employees displaced by foreigners and left unemployed or in lower-paid work have a reduced presence in the consumer market. They provide fewer retirement savings for new investment.
No-think economists assume that new, better jobs are on the way for displaced Americans, but no economists can identify these jobs. The authors point out that the track record for the re-employment of displaced U.S. workers is abysmal: "The Department of Labor reports that more than one in three workers who are displaced remains unemployed, and many of those who are lucky enough to find jobs take major pay cuts. Many former manufacturing workers who were displaced a decade ago because of manufacturing that went offshore took training courses and found jobs in the information technology sector. They are now facing the unenviable situation of having their second career disappear overseas."
American economists are so inattentive to outsourcing’s perils that they fail to realize that the same incentive that leads to the outsourcing of one tradable good or service holds for all tradable goods and services. In the 21st century, the U.S. economy has only been able to create jobs in non-tradable domestic services—the hallmark of a Third World labor force.
Prior to the advent of offshore outsourcing, U.S. employees were shielded against low-wage foreign labor. Americans worked with more capital and better technology, and their higher productivity protected their higher wages.
Outsourcing forces Americans to "compete head-to-head with foreign workers" by "undermining U.S. workers’ primary competitive advantage over foreign workers: their physical presence in the United States" and "by providing those overseas workers with the same technologies."
The result is a lose-lose situation for American employees, American businesses, and the American government. Outsourcing has brought about record unemployment in engineering fields and a major drop in university enrollments in technical and scientific disciplines. Even many of the remaining jobs are being filled by lower-paid foreigners brought in on H-1b and L-1 visas. American employees are discharged after being forced to train their foreign replacements.
U.S. corporations justify their offshore operations as essential to gaining a foothold in emerging Asian markets. The Hira brothers believe this is self-delusion. "There is no evidence that they will be able to out-compete local Chinese and Indian companies, who are very rapidly assimilating the technology and know-how from the local U.S. plants. In fact, studies show that Indian IT companies have been consistently out-competing their U.S. counterparts, even in U.S. markets. Thus, it is time for CEOs to start thinking about whether they are fine with their own jobs being outsourced, as well."
The authors note that the national security implications of outsourcing "have been largely ignored."
Outsourcing is rapidly eroding America’s superpower status. Beginning in 2002, the United States began running trade deficits in advanced technology products with Asia, Mexico and Ireland. As these countries are not leaders in advanced technology, the deficits obviously stem from U.S. offshore manufacturing. In effect, the United States is giving away its technology, which is rapidly being captured, while U.S. firms reduce themselves to a brand name with a sales force.
In an appendix, the authors provide a devastating expose of the three "studies" that have been used to silence doubts about offshore outsourcing—the Global Insight study (March 2004) for the Information Technology Association of America, the Catherine Mann study (December 2003) for the Institute for International Economics and the McKinsey Global Institute study (August 2003).
The ITAA is a lobbying group for outsourcing. The ITAA spun the results of the study by releasing only the executive summary to reporters who agreed not to seek outside opinion prior to writing their stories.
Mann’s study is "an unreasonably optimistic forecast based on faulty logic and a poor understanding of technology and strategy."
The McKinsey report "should be viewed as a self-interested lobbying document that presents an unrealistically optimistic estimate of the impact of offshore outsourcing and an undeveloped and politically unviable solution to the problems they identify."
Outsourcing America is a powerful work. Only fools will continue clinging to the premise that outsourcing is good for America.
Outsourcing bump!
I never hear the word "quality" mentioned when people make a case for outsourcing.
I dpnt know much about trade deficits, or profits for companies or financial dealings. I do know a lot of our jobs are being sent to China. Now we see China starting trouble in the Taiwan straits, wanting to buy weapons from the EU, Buying oil all over the world, raisng the price of that oil, becoming more belligerent every day and now seeking to go to the moon , and who's mponey are they using to do all this. Thats right folks, the money Americans are spoending on Chinese good and the money thats been outsourced to them. I see Idian buying F-16's and Submarines, More of our money. Now I dont mind seeing the living conditions in these countries improving because of our outsourced jobs, but I do have a little bit of a problem with them using our money and jobs to strengthen their militarys'and possibly to become a threat to peace.
It is in no American company's best interest for Americans to be broke and jobless. I have been saying all along, if outsourcing works and increases profits, companies will continue to do it. If it doesn't, they wont. Times change and economies change, thank goodness.
Read more about the coming financial crisis and how Americans are chained to debt ?
This is the key idea. What the authors don't say is that enough Americans benefit from the lower cost of the service that the net benefit to the nation may be positive. This does not make being laid off easier to take, but does make it easier to understand.
In short, if you have a job that some one else can do for less money, you had better hope that the customer who is paying you does not find out about the other guy. If he does, he presumably will switch unless you offer better service, better language skills, more attention or something. It is hard for me to imagine a person who wants a building designed to seek an architect in India to do the work. (Maybe an Indian who has moved here?) But if it were to happen, I suspect the US architect could find ways of competing. What I can imagine is that someone who needs a bunch of "fill in detail" on a design going to an Indian firm for the routine work. So the message to take from this if you are in architect school is: prepare well, be better than your contempories overseas, and stay up with the technology. If you can look at your job and honestly say that a technition can do this work, you are in danger.
The question of protectionism is real, the other alternative is to tell managers that they can look for cost reduction and profit margin only in certain places. This does not seem to make sense when at the same time we want bar owners to be able to decide whether to allow smoking or not. Either we are free or we are managed by our govenrment. Which will it be? Of course if the US school system still turned out the best product in the world we would not even be discussing this.
The US cannot sustain an economy of our size without the "technicians" that currently inhabit it. Without these so-called middle-class jobs our economy would fall apart. Not everybody gets to be an executive and no-one wants to be a serf so we're headed for big trouble.
Offshore outsourcing is bad for America, anyone can see that if they examine:
1 - It's bad for national security. How can you defend yourself in wartime, if you don't MAKE many of the things your military requires.
2 - It's bad for the economy. Unemployed workers remain unemployed for emotional and physical reasons. Unemployed workers do not buy goods, or pay taxes.
3 - It's bad for the government. Businesses are a traditional source of tax revenue. If your physical plant is in India. Unemployed workers do not pay taxes!
4 - It costs us our future. Kids in college are smart. They look and see that technical and engineering jobs are easily oursourced. So they gravitate to what seems to be more stable. Service type careers, sales and marketing. If our country is outsourcing most of it's technical type work and a conflict arises, we can and most likely will, lose access to this "hired help".
Nationalism in America is dying, and the liberals continue to hasten nationalism's death. Without nationalism, corporate leaders don't care about their workers, or their community. Only one thing matters: "how much money did you make this quarter?"
Since our politicians are bought and paid for by lobbists. And there is a lobby for outsourcing, but very little against, there is no help coming from our legislators.
There is only one hope. People wake up and pay attention. Vote for anti-offshore outsourcing candidates. Buy from domestic producers.
If people continue to behave like our politicians and corporate leaders, worrying only about what benefits them today. We are doomed to becoming an also ran, not a super power. Think it can't happen?
Gee, who would have ever thought England would be where it is today?
What of Spain, or Rome if you want to go way back.
We're going to make it there, then we're going to sell it there. Ok, obviously this will lead to higher corporate profits. I'd like to know exactly how this translates into higher paying American employment opportunities?
Lenin said American capitalists will sell us the rope we hang them with.
"It is in no American company's best interest for Americans to be broke and jobless."
Actually, a global corporation has no stake in the status of American workers. If they are broke and jobless it just means someone, somewhere else is employed and prospering. They'll sell to them. You'll have corporate offices in the US that manufacture in China, and sell in India and China.
The only concern that corporation has for America is that their own gated communities are safe. When that becomes an issue, they'll move the corporate offices too!
Greed is good??
It's not whether or not you are better than the cheaper guy. It's a question of 'is the cheaper guy good enough.'
"I'd like to know exactly how this translates into higher paying American employment opportunities?"
Doesn't. But they don't care. If the CEO of X corp. will make $11 million a year if the outsource, and $10 million a year if they don't: Good bye America, hello India!
Well if you are one of these "technicians" at the very least you have to realize that your job may one day be done by a machine or a cheap international. I would move into a technician job that can't be outsourced, Military work, Government work, school system work, real estate work, and franchise work are some examples. Don't stay in a job where you are a "coder" when the designers of the world are making coder jobs obsolete. BTW, the outsourced jobs will not last long either. Smarter chips will eliminate them anyway. Also, companies who have tried outsourcing have often found that language barriers or quality of workmanship have forced firms to move some jobs back to the US. Waht is really happening is people are trying things withoug knowing ahead of time that they will work. Our employees need to stay ready for change.
Right, it is the guy who does not need quality, or care about service who outsources. This is typically the guy whose next step is to go out of business entirely. Not a good future in either case. It is part of our capitalist system and will continue to change.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.