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Outsourcing High-Tech Jobs: Why benign neglect isn't working.

And why we should care. The hard facts about outsourcing and the need for new policies. Examined from the IT worker's point of view, both in the U.S. and globally, and with a look at dangers that undermine world prosperity and stability. By Nancy Brigham. May, 2005

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By Nancy Brigham
May, 2005

nbrigham (a)

"What do you say to someone in this country who has lost his job to someone overseas who's being paid a fraction of what that job paid here in the United States?" That question was posed directly to President George Bush in the third presidential debate last fall.

In the past, such a question might not have roused much interest among U.S. high-tech workers, who felt confident that their skills shielded them from the job losses that blue-collar workers had been suffering. But the new communications technology that high-tech workers helped build makes it possible to send huge amounts of information across the globe in lickety-split fashion. Now Information Technology (IT) jobs are also being sent around the globe. As Silicon Graphics CEO, Robert R. Bishop recently commented, " US software developers are now competing with everyone in the world who has a PC." It's remarkably easy to outsource white-collar computer-related job overseas, especially because there's no heavy capital equipment to worry about. (Baker)

So how did the president say he'd console the person losing a job to such competition? He said: "Here's some help for you to go get an education. Here's some help for you to go to a community college." But when the president switched the subject from jobs to education, he was not consoling many high-tech workers. "Bush wants to send me to college for retraining?. . . I have a Computer Science degree, so I should go back and get a degree in. . . what?" asked one jobless worker posting in a ZDNet forum. Said another: "I'm nearly 50, with 20 years in the IT field, and can't get a job 2 years after being laid-off due to outsourcing. I'm supposed to go back to school -- and do what?" (Commission on Presidential Debates , diwillia, jwhooper)

Moreover, as Senator Kerry pointed out, the American economy lost 1.6 million jobs under Bush's watch, yet the Bush team actually cut funds for worker training, and it supports tax policies that subsidize moving jobs overseas. As offshoring became a political hot potato, Kerry had begun to distance himself from his own past support of Bush-style free trade, to that point that he called What difference does that make? some outsourcing executives "Benedict Arnold CEOs". (Commission on Presidential Debates, Koprowski)

But the president has held firm. George Bush does not believe global outsourcing, often known as offshoring, is a problem. His campaign web site claimed that "free and fair trade and global economic growth mean more jobs, higher wages, and greater prosperity for Americans." His chief economic advisor Gregory Mankiw even praised outsourcing as "a plus for the economy in the long run." The man who founded Russia's first successful outsourcing company said that he was told by a top Commerce Department official that "offshoring is good for the United States." (Bush-Cheney '04, Vieth, Arvedlund)

What, me worry?

The Bush team isn't alone in downplaying the issue. "We have a labor market of over 138 million people; 300,000 people [who lose jobs each year to offshoring] is almost a rounding error," says Ed Potter, president of Employment Policy Foundation in Washington, DC. The Information Technology Association of America, a trade group that fronts for outsourcing companies like tech giants I.B.M., Electronic Data Systems and Accenture, funded a Global Insight study released in March, 2004 that claimed that global outsourcing will create more than twice the number of jobs that it displaces -- and grow the economy, cut inflation and what's more, boost the average real wage. (Rossheim, ITAA)

But the question President Bush dodged in the debates continues to trouble more and more high-tech workers. "Explain how offshoring helps me!" a reader shot back in one ZDNet discussion. "Until December 2001, I was a staff consultant for the same IT firm since 1995... In 2001, my gross income was $85K. After I got laid off and became a 'project consultant,' I went 19 months without a job. . . In 2004 I've had three contracts three months or less... I'm still not making what I was and doubt I ever will again. My last contract ended abruptly when the IT manager decided to offshore the project to an Indian firm with whom he a had personal interest."  More than nine out of ten technology workers polled by the west-coast Washington Alliance of Technology Workers (WashTech) in December, 2003 said they were worried about offshore outsourcing. (itpro420, WashTech 2003)

Are worried workers laggards, out of step with what's really happening?  Probably not.   Even a study released two weeks before the election from the Organization for International Investment called Insourcing Jobs: Making the Global Economy Work for America,   had a sour ending. Written by Dartmouth's Tuck School of Business professor Matthew J. Slaughter, it documented the jobs Americans have gained from foreign companies setting up shop on U.S. soil  -- so-called "insourcing companies," as a plus for U.S. economic growth. Over the 15 years from 1987 to 2002, Slaughter said the number of people working at such "insourced" jobs more than doubled. "Home and foreign employment can be complements rather than substitutes" he asserted. And low wages abroad mainly just reflect low worker productivity.

But as Slaughter completed his study, something changed.   "In late 2004, a note of caution is warranted," he conceded, and went on to warn that "It has never been guaranteed that the world's best companies would invest in the United States." Since it's now easier for multinational companies to move operations   into more countries, he acknowledges, the lure of investing in the United States may be fading. The proof? Global capital investment in the U.S., which peaked in 2000 at $314 billion, dropped precipitously to one-tenth that level -- $29.8 billion -- by 2003. F or the first time, China attracted more productive foreign direct investment than did the United States - as did France , Luxembourg , and the Latin America and Caribbean regions. If those trends continue, Slaughter concluded, "a generation from now, this report would likely show flat or even declining levels of employment, R&D, investment, and trade at insourcing companies." (Slaughter)

In any case, "most US jobs associated with new foreign investment consist of foreign purchases of US companies" rather than creation of new jobs in America, says Robert Scott, a senior economist at the Economic Policy Institute. "Inshoring is creating very few, if any, new jobs. And it destroyed 2.8 million jobs between 1991 and 2001."  The outsourcing picture is even worse. ( Rossheim)

-> p. 2: Growing Job Losses

Created by nbrigham
Last modified September 07, 2005 02:35 PM

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