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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

That's not how it works.

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

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

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

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

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

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

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

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

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

Hmm.

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

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

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

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

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

ed

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

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

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

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

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

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

ed

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

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

What is the difference between these two scenarios?

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

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

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

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

ROFLMAO!

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

ed

Every dollar we send abroad comes back.

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

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

"What is the difference between these two scenarios?"

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

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

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

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

ed

"Every dollar we send abroad comes back.

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

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

Really?

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

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

ed

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

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

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

It's an interesting world.

ed

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

What things?

I love the case made for outsourcing.

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

Then that went as well.

Se we were all supposed to get service jobs.

You guessed it. Going.

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

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

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

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

Lock your doors at night haves.

There are many ways to balance free trade imbalances.

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

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

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

Native American culture left us.

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

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

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

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

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

Anybody familiar with Machiavelli's The Prince?

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

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

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

Regards,

Chuck(le)

A few random thoughts from a programmer:

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

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

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

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

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

Um, ed, that was my point!

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

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

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

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

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

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

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

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

ROFL! Sorry Ken!

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

Sorry.

ed

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

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

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

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

Matt,

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

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

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

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

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

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

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

>>Native American culture left us.

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

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

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

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

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

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

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

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

>>Free traders are correct when economies eventually balance.

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

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

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

Besides that's what we did in Afghanistan.

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

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

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

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

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

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

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

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

ed

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

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

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

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

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

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

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

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

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

ed

Oh boy!

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Two comments:

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

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

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

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

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

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

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

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

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

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

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

Welcome to America, would you like fries with that?

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

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

Regards, Döbeln

-Stabil som fan!

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

So dour and as they say, "dystopic".

New jobs will come. This is for two reasons.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Mr. Coe,

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

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

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

New meme, please: "INsourcing".

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

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

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

Another thing the doomsdayers seem to forget.

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

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

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

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

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

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

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

mikeh

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

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

Ed,

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Open your eyes people.

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

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

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

Just wondering.

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

Simple, from India.

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

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

Some things will have to remain a permanent mystery.

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

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

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

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

Yes. You make my point very well.

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

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

Regards,

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

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

Problem with this are:

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

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

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

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

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

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

ed

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Ok tombo. I going to call your bluff.

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

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

well?

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

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

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

ed

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

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

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

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

Umm. Jeremy Goldkorn.

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

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

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

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

Sorry but I'm completely unconvinced.

ed

"Another thing the doomsdayers seem to forget.

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

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

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

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

This ain't assembly work.

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

ed

tombo writes: "Send the maintenance to India and, even after costs, 20 percent of the budget is freed up to come up with the next breakthrough app. The result: more workers focused on real innovation. "

Why not just send all the development, and keep just upper management and sales in the US?

It's only a matter of time before there are Indian firms who will provide R&D, development, and maintenance teams. Just provide the idea, they'll do the rest.

If I'm not mistaken, that sort of thing happens now with electronics. The companies that do the manufacturing have naturally expanded into providing engineering and design services. You might need one engineer in the US - probably the CTO - but they can handle everything else.

Economists have to defend their assumptions; and then modify them; and then concede they may have been false; and, finally, theorize that prevailing circumstances or contingencies are as they ought be, so they can begin to defend those assumptions. It’s not that their patently lying, but rather their optimistically misleading. Which is not necessarily a bad thing, and quite often not so helpful either

sigh. Tombo:

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

Umm. I haven't been discussing my situation. I've got more than enough experience where I have little if any problem getting a job. The longest it's ever taken me has been 2 resumes and 4 days. But I am extremely concerned about the impact of outsourcing on other people and the industry in general.

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

And what added value, exactly, could be reliably added that couldn't eventually be done entirely by Indians or the Chinese? Don't you think that the Indian staff you work with are learning each and every single time you've "added value"? Don't you think that they'll start doing the same thing? That your niche will disappear rather quickly?

People learn, what a concept.

ed

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

Just wondering."

*shrug* won't be from America. Fact is that it takes time and experience to make a veteran programmer or analyst. If that work is not available then no new veteran programmers or analysts will be created. Sure people can program at home and for personal projects, such as games, but that's not business programming. Doing home projects doesn't give you experience in real world situations, which can often not be predicted in any sane sort of way.

Additionally people tend to acquire truly horrendously bad habits when they learn programming in a non-business environment. Half the battle in making a recent college grad useful is beating the bad habits, acquired in school, out of them.

So don't think in terms of visionaries. Think in terms senior level developers, DBAs and analysts.

ed

1. "Software creates the need for more software. ..."
Yes. And that software will be created, designed and coded in India or China.

2. "Demand for offshore developers will inevitably increase the cost of those developers as supply outstrips demand. This will raise the price point of outsourcing, reducing its overall attractiveness."
Which simply means that they will then be outsourced to yet another country. That is if India or China allows it to happen. If they forbid, as they have *already* done, any foreign workers into the country then the outflow of such jobs will be extremely difficult as the new destination of outsourcing will have to enter into the market cold.

3. "Most software projects fail because it is extremely difficult to communicate business needs to those who are developing software. Outsourcing DOES NOT address this issue, and it may in fact make it worse by adding linguistic and cultural barriers to understanding. If a firm cannot succeed with an internal project, how on earth can it possibly succeed with an ‘outsourced’ project?"
This is only true as long as there is a disconnect between the users and the developers. Once all of the users and the developers are operating from the same cultural and langauge playbook, this problem reverts to the traditional "friction" between developers and users.

I.e. Move the white collar jobs to India too and then the problem is solved. Communications issues will also be greatly reduced as the users and developers can share locations. So the solution won't be to return development to America, it'll be to move the USERS to India.

4. "I expect to see a lot of failed projects and horror stories, resulting in a balance of local development efforts supported by discrete projects that supplement the local teams efforts, but only when people can actually come up with relevant requirements."
Sure there are going to be problems. Anything relatively new is going to have problems. But the more time passes, the more projects and development teams moved to India and the fewer problems will exist. This is simply the fact that people will learn over time and those issues will end up disappearing.

Did that answer each of your points?

ed

Here's a quote from a Bush assistant about the Bush/Fox Amnesty:

"We do envision that this would be open to any type of employee and any type of employer, such as nurses, teachers, high-tech workers, low-skilled workers. This is a concept that can apply broadly"

It's time to find and support candidates who will simply enforce our immigration laws. That doesn't include Bush.

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

YYYYEEAAAARRRRGGGGHHHHH!

Sorry. I have to wipe off the laptop now. :)

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

No need to be sorry. I know that my writings do look like I'm ranting so that doesn't bother me a bit. Frankly I wouldn't be so worried if my arguements were being responded by truly excellent answers.

I think the primary issue isn't the outsourcing. It's that there's nothing to replace those jobs lost other menial ones. Jobs that relied on highly specialized expertise have simply been shipped off to another country and there's nothing to show for it. You've got a huge number of people who have dedicated their lives to making that system work. Then when they've made it work, at sometimes enormous personal cost to their families, the rug has been pulled out from under them and they've got nothing else to transition to.

Fact is that there's not a whole lot after knowledge work. There might be something, sometime and somewhere, in biotech or nanotech. But either such industries would require so great a retraining that it would be almost cost prohibitive. Add in the 6-10 years of education required and then you have a situation where it simply wouldn't be useful. Then toss in the fact that there's no real reason to not outsource those industries as well, and then you're pretty much left with nothing.

*shrug*

Really the question that each and *every* person needs to realistically ask themselves is "can my job be outsourced?". The answer will most likely be a "yes". In which the question then becomes "what will I do for employment afterwards?".

Right now the answer is "want fries with that?". And that is the problem.

....

Now consider the effect of such job migration on the tax structure of the government. Consider the trade off between losing a $70k/year job and gaining a $17k/year job. The net result is a highly devalued tax base that will hit criticality within the next decade. The solution is to then bring those jobs back, but how?

Bush's answer is to import the workers with his "guest worker" program. By having a large pool of low cost, high value, workers here in America, those jobs and investments will return. Not to as great an extent as before per job, but the overall number of jobs would increase as the purchasing dollar will go farther. As those investments and jobs return, the tax receipts will become healthier.

The problem of course is that the loser is the American worker. Having to compete with foreign workers ON American soil means that all equivalent jobs become reduced to the lowest common denominator with a massive downward pressure on salaries. In effect we'll be a nation of minimum wage earners.

I've been a Conservative most of my life and a Republican for a fair chunk of it, but this scenario does concern me a great deal. Perhaps I'm seeing shadows. Perhaps not.

ed

Ed: calm down. No one's attacking you or impugning the market value of your skills. You're off on a rant about something you call "creativity" and then you seek to demolish your straw man, all the while failing to address my key point.

In my posts I highlighted "unique value" as the key differentiator between what activities will stay here and what will go overseas, and I define that primarily in market terms. That is, to add unique value, a worker should assess what services and products the market values most highly and map the production or delivery of those to his particular skillset.

The point is to get our people to orient themselves to the market rather than to a job definition, and to be as flexible as possible. Those people who get this point, who are the most closely attuned to the market, are the sales and marketing folks. Whether they're "creative" or not is beside the point.

Apologies re the point on "creativity"--that was Chris Anderson's spin, not mine. Innovation to me is valuable if the market considers it so. Do what the market demands, not what's "creative." The Russians tend to be brilliantly creative, and their IT exports are ca. $100-200M. The Indians tend to be less creative than the Russians, and their IT exports are two orders of magnitude greater than Russia's.

Heh, our sales and marketing teams know little about our product. Not to mention our sales has dept. has been gutted so that there are fewer sales people selling many more products which they know little about.

I work at the largest corporation in the Universe BTW. :-)

The other company I used to work for, had marketing people come from engineering, so they did know what they were talking about. Soon, these people won't exist anymore, perhaps we can bring in some to do that work as H1Bs, you know, English is not difficult skill to master.

But if the future is marketing and sales, wow, maybe it's time to move to India and live on that low wage. Oh wait, I can't do that, India doesn't let you work in their country, they're "protectionists".

ed wrote: "Did that answer each of your points?"

Not really, unless one were to agree with your end state of everything being 'outsourced' anyway. In which case we are all so well and truly screwed that it really doesn't matter what we do. The scenario your create is not solvable. It is the ultimate argument to the Extreme Case.

Further, say it becomes viable for India to solve all of its own IT needs. Wouldn't it then follow that they would solve their own software needs, and not worry about what the Americans want? This brings me back to my postulate that this is in essence a self-correcting 'problem'. When India’s consulting shops get to the point that they can provide end to end solutions, the demand for their services will exceed their supply, resulting in increased costs for them to deliver their service. Further resulting in increased demand for cheaper alternatives – outsourcing the outsourcers perhaps?

But all of this ignores one very important fact: it is easier to work with the person across the hall then someone 12 time zones away.

And, IMO, this fact will trump all others. Are we going to see IT wage deflation? Sure. To be honest, it needed to happen. The .com era can be best described as irrational exuberance over profitless buzzword driven business plans.

Again, IMO there is more than enough software work to provide Indians, Americans, East Europeans and whomever else comes along with plenty of work. Just, perhaps at $30/hour instead of $150/hour. So I have to move to Cheyenne to maintain my standard of living. Sign me up.

In conclusion, I disagree with your thesis that we are all dommed, unless by doomed you mean things are going to change. In which case what else is new?

Okay ed. How will India and China act to keep prices down? Offshore their work?

Damn Mike. Great minds and all...

:)

1. "Ed: calm down. No one's attacking you or impugning the market value of your skills. "

At the top of your post you identified me by name and structured your post as if it were directed to me. Am I supposed to read this:

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

In any other way than as a phrase directed to me?

2. You're off on a rant about something you call "creativity" and then you seek to demolish your straw man, all the while failing to address my key point."

I'd like to point out that it's not my strawman. I personally don't buy into "creativity" being the answer since nearly every job requires a level of creativity. Even in accounting, though that tends to cause more problems than it solves.

As one of you more recent posts points out that "Creativity" was outlined by another writer. However I'll point out that you specifically included that text in your post. If you don't stand behind such words or wording, then I'd suggest not including it in the future.

3. "In my posts I highlighted "unique value" as the key differentiator between what activities will stay here and what will go overseas, and I define that primarily in market terms. That is, to add unique value, a worker should assess what services and products the market values most highly and map the production or delivery of those to his particular skillset."

I hate to point this out but that phrase is rather obvious. Also I'll point out that unique values are associated solely with skill sets, opportunities or situations. If none of those apply, then there cannot be unique values. Plus there is the additional burden of implicit and explicit limitations on what value can be added dependent upon the job/task. Thus an expert in intermodel shipping can add value to an application dedicated to calculating international shipping costs and risks while that same expert added value would be almost nil in a tax structure analysis application.

Ultimately any such unique value or added value scenario would be of limited usefulness. Such situations can only continue to exist where cost-effectiveness allows the relevant required interactions, to support and enable such unique or added values, to be within the acceptable budget range. Once this range is exceeded, either by offshoring of interactive elements or excessive travel/(mis)commuication costs, then such situations must therefore end.

Additionally such market forces that would allow for such unique or added value would also enable other competitors to acquire the same skill sets, opportunities and situations. Unrestricted such examples will result in a Darwinian process whereby more efficient and experienced competitors would result until maximum level of competitiveness has been reached, whereupon there will ensue a natural contraction in the available market as weaker competitors are either absorbed or completely fail. Not a small part of such endeavors are the costs of labor, which will always be a factor. In such a circumstance the market will always favor the cheapest and any such iteration in market maturation will force the effort to gravitate to the lowest common denominator.

i.e. you got a job only as long as such possibilities exist for your abilities and only so long as it's cheap enough to make it worthwhile. Meanwhile everyone else is going to compete with you and ultimately ship the work to India. After that, your shoes hit the pavement.

Unless of course you're the only person in the world who can accomplish some task. But those are far more rare than it might be supposed.

ed

Hypothetical scenarios time imagine I were to develop a genetic algorithm / weak AI system that allowed a business analyst to input business problem parameters which would then, over time, spit out a software solution. Such a beast would cause massive disruption in the economy as people replaced software developers with a shrink-wrapped project.

Do we engage in protectionism and ban the software (even though other countries and overseas companies will adopt it thereby reducing our competitiveness) or do we allow software developers to retrain themselves into new and productive endeavors?

Because this, at the end of the day, encapsulates the two positions being argued in this outsourcing debate. Do we slap tariffs on India? Enact punitive tax measures on companies that outsource? Or do we let the market sort it self out, while providing an adequate safety-net for those who need help?

To me this seems a simple answer based on the historical record. Protectionism generally causes more harm than good. Or at the very least displaces the pain. For example, while the recent steel-tariffs may have been a boon to steel manufacturers, ask the shippers in Louisiana how it impacted their jobs.

sigh.

Mike:
"When India’s consulting shops get to the point that they can provide end to end solutions, the demand for their services will exceed their supply, resulting in increased costs for them to deliver their service. Further resulting in increased demand for cheaper alternatives – outsourcing the outsourcers perhaps?"

I fully expect that at some point in the far future India may, only may, engage in outsourcing. But you should consider that there's 1.2 billion people in India so there's quite a bit of room to grow there.

Quite frankly I think you're painting a ridiculous scenario where the Indian programmers are completely overwhelmed by too many jobs. I'll point out how ridiculous this is by pointing out that India has largely revamped it's higher education to produce prodigious numbers of engineers, analysts and programmers. I don't believe that, in any way shape or form, they're in any danger of becoming overwhelmed with work.

2. "But all of this ignores one very important fact: it is easier to work with the person across the hall then someone 12 time zones away."

If you've already outsourced the manufacturing, the engineering, the design, the tech support and the IT infrastructure. Just how many pieces are left? Wouldn't it be just as easy, and in fact easier, to move the clerical and middle management white collar jobs to India as well? Then you wouldn't *have* to worry about different time zones then would you?

3. "Again, IMO there is more than enough software work to provide Indians, Americans, East Europeans and whomever else comes along with plenty of work. Just, perhaps at $30/hour instead of $150/hour. So I have to move to Cheyenne to maintain my standard of living. Sign me up."

sigh. An American engineer costs, just for an example, $56/hour USD. A Chinese engineer costs $12.50/hour USD. Ok. Now you go compete with that Chinese engineer. Wow! $12.50! Man I bet I could buy a yacht for that!

For my bathtub.

Sorry Mike but the number isn't $30k a year. I used to work a highly experienced Oracle DBA from India. His gross monthly pay was $800.00 USD. That's right, before taxes. He was happy because he sent most of that money home and his family could live very very well on it. And his expenses here in America were paid for by his employer. This was about 7 years ago.

So now you get to play "live on $800 a month, before taxes". Your turn.

Mishu:
4. "Okay ed. How will India and China act to keep prices down? Offshore their work?"

sigh.

Both India and Chinese are proactive in lowering the value of their national currencies. The Chinese, Renminbi I think, is currently estimated to be undervalued by at least 40% and perhaps as much as 80%. By keeping the value of their currency low they encourage investment, prop up exports and discourage imports. This results in massive trade imbalances that can only be countered with either protectionist legislation or executive orders or by forcing an upward re-evalutation of that currency.

Got it?

ed

Mishu asks "How will China and India act to keep wages/prices down"?

You're joking right?

How are they doing it even as we speak?

Last I checked, China does it by buying massive quantities of US dollars on the international market in order to keep the yuan from rising vis-a-vis the dollar.

India will do it as it has always done it--by distorting the cost of higher education (i.e. massively subsidizing it at the expense of primary and secondary education for the non-elite masses). John Edwards ought to go there and give the "two nations" speech. Look, I love India and am glad to see hundreds of thousands prospering in meritocratic business pursuits. However, the cost of living is not going to go up radically because the half-billion people living on $2 a day aren't going anywhere, and they make great servants for the IT nouveau riches.

Damn, Ed. You keep beating me to the punch! Are you sure your name isn't "Dave Thomson?" He's suspiciously AWOL today...

ElCapitan, do you work at Walmart's headquarters or in one of the stores?

Hypothetical scenarios time imagine I were to develop a genetic algorithm / weak AI system that allowed a business analyst to input business problem parameters which would then, over time, spit out a software solution. Such a beast would cause massive disruption in the economy as people replaced software developers with a shrink-wrapped project.

Such a piece of software, developed in the US here, would be of great benefit and would advance our economy, after all the software will have to be maintained , improved, marketed and sold by people here in the US. However, more than likely, it will be developed in India in the future and we only get the negative effects of it.

Nice example BTW, the AI system only replaces software developers, the people who in fact would have to maintain it. Nice that you didn't provide an example of an AI that just replaces mostly everybody, seems like you have a thing against CS people. What a nice guy.

Hey, were you the guy that said the next thing for us is to go into sales and marketing right, ok, it's all making sense now catbert. I look forward when you work for an Indian firm trying to sell me their software.

> ElCapitan, do you work at Walmart's headquarters or in one of the stores?

Crap, I forgot Wal*Mart is bigger than us, no, that'll be the 2nd or 3rd largest .. hum ...

"sigh"
"ridiculous scenario"
"If you've already outsourced the manufacturing, the engineering, the design, the tech support and the IT infrastructure. Just how many pieces are left? Wouldn't it be just as easy, and in fact easier, to move the clerical and middle management white collar jobs to India as well? Then you wouldn't *have* to worry about different time zones then would you?"

As I said, you are arguing to an extreme case. I really can't dispute your hypothetical scenario. If everything is outsourced then we are screwed. I simply see no reason for that to happen because it doesn't strike me as reasonable.

But I suppose you could pendantically sigh at the obtuse, blind programmer again who simply can't see the truth that we are all doomed without providing any ways around your hypothetical scenario.

*shrug*

I've said my peace, and I'll close with ed, I disagree with the reasonableness of your bleak vision. But if your right, 'do you want fries with that?'

Mike;

Do you work in an industry that deals with any type of technology at all?

"outsourced the manufacturing, the engineering, the design, the tech support and the IT infrastructure."

These items pointed by Ed are already being outsourced, this is not an extreme case, but a reality.

Why do you think there are research centeres located offshore now? This is not about call centers.

"seems like you have a thing against CS people. What a nice guy."

Yep. Everyone knows that professional software developers favorite pasttime is screwing themselves, their profession, and those they work with.

...

"Why do you think there are research centers located offshore now? This is not about call centers."

If you must know I'm an independent consultant who architects and develops software solutions for business. You know, a professional software developer and all of that. So one could say I'm 'passably' acquainted with the IT field. One could also say that I directly compete with 'outsourcers' for work.

This allows me to state from experience that most outsourced projects end up costing more in the end, because the project fail due to communication problems - resulting in local IT work.

But I just hit my ad hominem limit; so enjoy the rest of the debate El Capitan. I’m done here.

Ed,

Your narcissicism's showing through. This discussion does not focus on you, or DBAs, or even tech workers exclusively, neither are my points addressed to you alone.

"...the winners will outnumber the losers, because the adjustment creates new efficiencies. Each worker can produce more, meaning that he or she can be paid more."

Riiiight. Anyone still with a job after the past few years knows how this really works: Each worker produces more, meaning that he or she will be paid the same or less, because he or she should be thankful his or her job didn't get sent to India, like the coworkers who once occupied all those now-vacant cubes.

While I'm at it, let's put one more nail in the coffin of the ROI argument for outsourcing (and emphasise some of the excellent points Oldman made). Let's say you produce some software program which costs $70 in labor costs per unit to produce and you sell for $100. You decide to outsource your labor to India, thereby reducing your labor costs to $30 per unit, allowing you to pocket $70 per unit, meaning an ROI of $40 per unit. Right? Right. For about fifteen minutes, until your competitors are doing the same thing, reducing their labor costs and allowing them to met or beat your price. Also, your customers will catch on to your little outsourcing game, and demand that your excess margins be wrung out of your pricing.

I think it's an enlightening exercise to assume that 100% of all jobs in the US can be outsourced, and then start removing jobs from the list when you encounter a physical-presence or regulatory reason for it needing to be in a specific location. Doesn't leave much but stocking shelves at Wal-Mart, building houses or selling real estate, does it?

Also, let's remember that most of the wages earned by offshore workers represents a leakage out of our economy. True, some of it comes back in the form of goods purchased from the US and tuition paid to US universities. But none of it represents the purchase of local services such as home building and home improvement (which almost single-handedly kept our economy from going completely in the tank the last few years) or health care services. And none of it comes back in US income taxes.

Lastly, where does this idea that America somehow has a monopoly on innovation come from? Anyone else remember when "Made in Japan" meant crappy little transistor radios and cheap plastic toys? Now it means top-of-the-line cell phones, CD and DVD players and other electronics. How much do you think Japan learned while being the assembly shop for US electronics companies?

I read most of the arguments about comparative advantage. The problem in the U.S. is that we have more comparative disadvantages than advantages.

Naturally, the winners in the U.S. will be better off by definition. Remember, the losers go away and are not around to provide statistical evidence. I repeat my example of the Native Americans whose comparative advantage was an ability to die from small pox.
Are Native Americans better off after 300 years of free trade? You bet, the very few who can claim heritage are in the gaming business, doing quite well.

There is a lot of things we can stop doing to enhance our comparative advantage, and most of these things involve large government, which appears on labor accounting as an overhead. Our first comparative disadvantage is the 40% in direct and indirect costs labor has to cover government.

“This allows me to state from experience that most outsourced projects end up costing more in the end, because the project fail due to communication problems - resulting in local IT work.”

You may be right---only in the short run. In the long run, those partnering in outsourcing will decide upon what does, and does not work.

“Are Native Americans better off after 300 years of free trade? You bet, the very few who can claim heritage are in the gaming business, doing quite well.”

Many of our Native Americans receive welfare benefits. Their goal is simply to obtain enough money to get drunk on. This is why they remain in poverty.

“Doesn't leave much but stocking shelves at Wal-Mart, building houses or selling real estate, does it?”

Intelligent people will always drift into something economically rewarding. The historical evidence unhesitatingly suggest that you are worrying about a problem that will eventually take care of itself.

“Damn, Ed. You keep beating me to the punch! Are you sure your name isn't "Dave Thomson?" He's suspiciously AWOL today...”

The scum bags at Time Warner cable goofed up my broadband connection. I was not able to access the Internet for about seven hours. It was obviously a Communist plot. As for Ed, the empirical data contradict his overly pessimistic perspective. The vast majority of Americans are increasingly becoming wealthier.

Y'all are assuming that there's only so much IT work to go around. I think that there's plenty of new places we could stick computers, that we hadn't before because of an insufficiency of programmers.

More programmers means more computers. We haven't run out of uses for the things yet.

"And what added value, exactly, could be reliably added that couldn't eventually be done entirely by Indians or the Chinese? Don't you think that the Indian staff you work with are learning each and every single time you've "added value"? Don't you think that they'll start doing the same thing? That your niche will disappear rather quickly?"

There's only so many things the Indians can do. There aren't an infinite number of them, after all. And we've got thousands of years of technologcal advance ahead of us, at least; there's plenty to keep us busy.

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

You sure about that? Humanity's best and brightest have been gathering here for centuries and having children here. I think we can earn more than "world wages".

"I think the primary issue isn't the outsourcing. It's that there's nothing to replace those jobs lost other menial ones. "

There can be. The computer industry grew to replace the jobs lost last time around. Of course, had it been heavily regulated by other industries, it would not have been able to do so nearly as effectively.

Deregulate across the board. No demanding permission to sell, buy, or use products. No demanding licenses or credentials to work in the industry; leave that up to the folks who actually need work done. I don't know where the next big thing is going to come from, but if we leave enough of our economy unregulated, it'll come from somewhere. Smart people aren't going to sit around idle forever; somebody's going to find a use for them.

"Sorry Mike but the number isn't $30k a year. I used to work a highly experienced Oracle DBA from India. His gross monthly pay was $800.00 USD. That's right, before taxes. He was happy because he sent most of that money home and his family could live very very well on it. And his expenses here in America were paid for by his employer. This was about 7 years ago.
So now you get to play "live on $800 a month, before taxes". Your turn."

Fine. Deregulate housing and medical care. Let cheap housing flourish. If the price of housing, drugs, and so forth dropped like the price of electronics, we would have no problem living on $800 per month.

1. "The scum bags at Time Warner cable goofed up my broadband connection. I was not able to access the Internet for about seven hours. It was obviously a Communist plot. As for Ed, the empirical data contradict his overly pessimistic perspective. The vast majority of Americans are increasingly becoming wealthier. "

(Just a quick note as I've got a pretty heavy workload today. Though I'll be online later to add more pseudo-pithy comments.)

I'd disagree with that last sentence. It is a fact that Americans have more *stuff* but it is *not* true that we are wealthier. Unless of course your definition of wealth is in fact more "stuff". In terms of real world wealth though our standard of living has been steadily dropping for years. It has largely been hidden by positives generated by manufacturing, as the overall cost of "stuff" decreases over time. However I'd suggest that measuring wealth based on "stuff" isn't really viable.

Consider carefully the lifestyle of people living in the 1950's vs. today. People then were able to maintain an excellent, for that time period, lifestyle based largely on a 40 hour week. They took a couple weeks a year for vacations and they generally had time for each other. Perhaps this is an overly rosy point of view, but everyone I know would agree with it.

Consider today though in comparison. People generally *cannot* take a couple weeks. Instead we've become the nation of the extended weekend. Our days are filled with stress and it is extremely common for husband and wife, in a two income family, to see each other for only an hour or so a day and on weekends. Our lives are ruled by the demands of our jobs and we are as effectively chained to it as if there were a slave collar.

I know people who are so fearful of losing their job that they won't take a vacation. They're afraid that doing so, and having nobody notice the difference, would result in their termination. Something that would be catastrophic for them as they're liabilities exceeds their assets.

*shrug* I could continue on, but I would just be telling all of you what you already know. Life today is very tough and far far different than from 50 years ago. We're in a situation of extraordinary stress and uncertainty. Largely because the demands of productivity and working harder have eliminated a great deal. When was it that people tried accepting the fiction of "quality time"? How many of you have sung your beloved child to sleep, over a telephone from your office?

This is not wealth.

ed

“I'd disagree with that last sentence. It is a fact that Americans have more *stuff* but it is *not* true that we are wealthier. Unless of course your definition of wealth is in fact more "stuff".”

Does Ed really want to return to the allegedly glorious 1960s? My definition of wealth is unapologetically based on the fact that we can buy more “stuff.” I prefer more empirically verified evidence than the nebulous “lifestyle” arguments. We pay less (per hours worked) for our food, clothes, entertainment, and just about everything else than those living forty years ago. On top of that, we live longer and healthier. Many people work extra hours because they have opted for a lifestyle beyond their means. They are, for instance, often dissatisfied with their five year old car and desire a newer model. There are also a number of studies indicating that many Americans live in homes far larger than they need.

...Anyone else remember when "Made in Japan" meant crappy little transistor radios and cheap plastic toys? Now it means top-of-the-line cell phones, CD and DVD players and other electronics. How much do you think Japan learned while being the assembly shop for US electronics companies?...

Apparently Japan forgot it, as they are the biggest offshorers of manufacturing jobs to China, bigger than even the US (just look at the back of your Sony Discman sometimes).

I'm kinda torn by this. Forrester Research predicts 3.4 million jobs will be offshored to all overseas locations by 2015. In the overall scheme of things, I think this is understated by a factor of 2. However, I see that Forrester Research is themselves involved in outsourcing. My experience in sales/customer service tells me that a company is more likely than not to pump up its prospects in any given field. So this tempers my aforementioned thoughts.

BTW, don't dis the creativity of sales people. You'd be surprised at the myriad ways we can get you to buy what you ostensibly don't need:)

...However I'd suggest that measuring wealth based on "stuff" isn't really viable...

Unless you count owning a house as "stuff." The percentage of households owning a home has hit 70%, an ongoing record. This is inspite of arguably less cohesive households than back in the 50s/early 60s (where the home-owning household percentage was about 44%, according to the National Association of Home Builders).

Regardless of how easier it is to finance a home, you have to have a job to pay for that home. Most who (rightly) worry about outsourcing have to explain how we are at a record percentage of households owning homes.

"They are, for instance, often dissatisfied with their five year old car and desire a newer model. There are also a number of studies indicating that many Americans live in homes far larger than they need."

And that's because (a) they don't want to get shot, and (b) our system of public education requires you to buy a better house along with a better school.

Proper policing of cheap neighborhoods would be extremely helpful. Dropping prohibition, which sent homicide rates plunging in the middle of the Depression, would be a good start. Less interference in the construction of new cheap houses would be helpful too.

Back to outsourcing, some of you claim that no matter what Americans retrain themselves to do, the Indians will just take those jobs away too. What makes any of you think that the Indians can retrain faster than we can? Given the fact that it took this long for India to become a serious threat on the IT front, I'd say we've got the training advantage.

Ed,

If you had a time machine, would go back to the glory days of the 50s or 60s? Maybe until your wife drove you crazy with her tuna casseroles (course, you could drink all the hard liquor you want with that leaden, tasteless crud and no one would say boo--certain advantages, I suppose). And how 'bout watching your kid die of a disease now utterly curable or preventable? How would you feel about separate lunch counters or overt racists telling it "like it is" all the time?

We have problems, sure, but I'm not ready to trade in my moonboots for a poodleskirt.

If you overdo the rhetoric, you lose the debate. Haven't we learned ANYTHING this week (a special knock for you Deaniacs)?

Sorry, but I just couldn't let this pass"

...Consider carefully the lifestyle of people living in the 1950's vs. today. People then were able to maintain an excellent, for that time period, lifestyle based largely on a 40 hour week. They took a couple weeks a year for vacations and they generally had time for each other. Perhaps this is an overly rosy point of view, but everyone I know would agree with it...

My late grandfather, a migrant farm worker, and a lot of his hardscrabble farmer neighbors in Wisner, Nebraska (and a lot of other places in the Midwest/Great Plains)in the '50s would take apart that statement like an old tractor! As would just about every African-American and every Hispanic under the Bracero program. The home-owning stat I mentioned earlier directly implies things were not better in the '50s. My own late father, an OTR trucker, never was able to take a vacation due to work. Simply being with family at home was his version of a vacation.

BTW, just curious how many people on this thread worried (rightly) about outsourcing are going on about ag subsidies? I know many a farmer and rancher in my former state of residence (South Dakota) who would greatly defend those subsidies on a jobs-protection argument. Wait a minute; those farmers tend to be more "lower-class" and less "hip" than an IT programmer. My bad.

The upshot of this excellent thread is that one must be "creative" and "respond to the market", but most people are simply not that creative, nor able to respond with lightning speed to "market conditions". There will be a permanent and large class of burger-flippers who had previously been able to afford decent livings, many crippled by large mortages and student loans that will never be repaid at McWages.

The United States will be just one more country in a world of low-paid workers and wealthy to ultra-rich stockholders, barring unforeseen technological and social developments.

As a "creative and responsive" person, this scenario isn't all that personally frightening, unless it leads to revolution, but it is saddening.

Ed's right. His argument is wrong. But his heart is in the right place. Yeah, it's awesome to have better medical technology - but he wasn't complaining about that in the first place. Yeah it would suck to have overt racism back and have women trapped in the house - but he wasn't advocating that either. What he was arguing for, is that well we got all these great things - can't we figure out a way to have them and have a half-way decent personal life as well? Do these things necessarily have to be a zero-sum game? Isn't that the great challenge of modern society? Isn't there a way we could work smarter instead of working harder, and reallocate some of that time back to what everyone is constantly saying is the most rewarding thing of all - our emotional and personal relationships and family?

Ed's got it right, he just can't find a way to say it right.

Oldman and Ed,

Take heart, you old softies! I don't know a lot of people PERSONALLY who fit the stereotypical two-big-career-no-personal-life image. Don't believe the hype! Most people DO jigger their schedules to be home for dinner; many, many of them do better than a bucket o' chicken once there. Perversely, people are actually EMBARRASSED to have plenty of time with the spouse and kids (what's wrong with me? where did I go wrong?) hence tend to exaggerate the scarcity of that "quality time."

Compare to our parents we spend less time at house and yard work, less time bowling/socializing, more time watching tv and online (ahem). In short, we do what we like when we like. Save the crocodile tears for people who've earned them.

"On top of that, we live longer and healthier."

Oh yeah, that makes me feel much better. Now I can work even longer assuming I can find a company willing to hire a 70 year old!

Here's another thing to consider. There are a number of things taking up the federal budget, like military spending and Social Security. When you outsource jobs and leave lower and lower paying ones, the country will take less in from taxes. We'll have less to spend on these things. The outsourcing countries will have more. Is it a good thing for China and India to have more to spend on their militaries?

I don't see any way to realistically get down to that "life on $800" a month. I spent many years making $13000 a year, living in a mobile home that I bought for $2k. And I still had problems keeping the bills paid, on that figure back in the 80s. You'd have to repeal all of the building codes for a start. And you'd have to find a way to lower the cost of things like cars, gasoline, and energy. You couldn't afford medical insurance. Food would be okay, as long as they keep their subsidies.

What I am waiting for is the day they wake up and outsource management. Executive pay is still outrageous. Companies could REALLY be profitable if they cut those costs.

Dear Editor,

This proposal will generate

-20 million USA jobs within 5 years, with an immediate impact

-In the USA

-For USA citzens

The proposal:

-Simple

-Is easy to implement (we already have the data)

-Requires extremley tiny management (about 1 day of programming time at IRS) to join the BMF/Business Master Files with IMF/Individual Master Files.)
I know, I did the analysis, design and code of multiple parts of that system. I also wrote the "revenue procedures" that specifiy what employers must report and how.

-Is EIN based. This means there is no escape by a company using "holding companies" or "joint ventures" or "subsidiaries".

-Increases incentive for employers to report accurately their data.

-Generates huge numbers of new taxpayers as each year rolls into the next years baseline numbers (employee counts, average employer costs, total employer costs, etc). It is like the Federal Government investing 20% in a future that returns 20% forever into the future.

-Does not interfere with how an employer increases their net employee numbers or what the business is. It doesn't even matter if the employer is foreign. It does not matter if the employer business is profitable or not.

THE PROPOSED LEGISLATION as outlined by me:

1. The IRS and SSA currently have in their data
(I know, I worked there):

1.1 All employers by EIN (Employer Identification Number)

1.2 Counts of USA citizens by employer

1.3 Total employer cost of all employees, who are USA citIzens

1.4 Average employer cost per employee, and per USA citIzen

1.5 Employer cost of unemployment insurance

1.6 Employer cost of medicare & medicaid

1.7 Employer cost of health insurance (in the IRS/ BMF/Business Master Files)

2. It is proposed that:

2.1 For each **additional** USA citizen employee an employer hires, the US Government
will pay 20% of the cost of that employee.

2.2 In order to qualify, the company must:

2.2.1 Have more employees at the end of 2005 than at the end of 2004 who are **USA** citizens. In 2006 the numbers are compared to 2005 year end, and so on.

2.2.2 The average employer cost per employee must exceed the prior year.

2.2.3 The new hire employees who are counted as qualified for the employer rebate must be assigned to a USA work location.

2.2.4 Only USA citizens are counted

2.2.5 The employer may choose to receive as a rebate either of the following:

2.2.5.1
Total employer paid health insurance
and
Total employer cost of unemployment insurance
OR
2.2.5.2 A flat 20% of the employee cost of the new hires.
2.2.6 The employee must be permanent status, not temporary.

It will not matter where the company is headquartered.

The focus points of the plan are:

a. Increased employment of USA citizens.

b. Increased economic acitivity inside the USA 50 states.

For those interested in the plan, sugget they write **immediately** to all of their Senators & Representatives.

Note: India and China protect their employment situation by strong incentives for employment such as tax incentives and specific industry group incentives. Thus, the above plan is in line with what they do. Also, if you are a USA citizen and try to become an employee in India or China, you will face horrendous obstacles.... even if you accept the salary levels there. That is a fact.

The net effect of the above plan:
1. The employee counts roll from year to year, providing long term incentives. In each case, the counts and employer costs per employee must meet the criteria (in addition to being USA citizens).

2. The above will provide one huge competitive advantage to employers that employ USA citizens.

3. The estimated 2005 increase in employment numbers in USA for USA citzens will be 2.9 million in USA, within the 50 USA states.

4. If a company has 1 employee with average employer cost of $50,000 at the end of 2004
and hires 1 permanent, USA citizen, inside the USA 50 states employee, then, the employer will receive $10,000 rebate..

If the employer has 100,000 employees at the end of 2004 and the number of USA citizens is 90,000, and at the end of 2005 has 89,000 USA citizens in the USA, that employer will NOT receive an incentive.
If this same employer increases both the average employer cost per USA citizen employee and number of USA citizen increases to 91,000, and the average employer cost per employee is 60,000, this employer will receive a rebate of $12,000,000 rebate.

5. It DOES NOT MATTER if the employer is a USA employer. The focus will only be on the employer USA citizen numbes in the USA 50 states.

6. It DOES NOT MATTER if the employer business is profitable. The focus is on jobs and economic activity. An employer reporting losses will still receive the rebate at the end of 2005 so long as the employer meets the criteria.

If you are interested in a plan such as the above, suggest you act now.

Tell your congresspersons and senators how you would write the legislation.

DO NOT EMAIL. EMAIL does NOT work with your representatives. Use regular mail.

Other:

Under review is a suggestion to extend the Bush tax cut for another 10 years.

This may be good for older Americans but extremely bad for those under age 50.

The jobs incentives proposal would ** replace** the tax cuts.

Those tax cuts amount to about $10 trillion, so this would be one **huge** incentive.

Thank you,

Ken
Over 20 years experience in the IT industry, both HRMS/Payroll related and Financial Systems. I cannot think of a way the above would not work.

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

that includes most if not all the CEo's of these companies. they must lower their wages for th ebenfit of all.