February 15, 2004

Notes: The Indian Software Industry

David Pink of Wired has a truly excellent article on the Indian software industry:

Wired 12.02: The New Face of the Silicon Age: ...Now meet the cause of all this fear and loathing: Aparna Jairam of Mumbai. She's 33 years old. Her long black hair is clasped with a barrette. Her dark eyes are deep-set and unusually calm. She has the air of the smartest girl in class - not the one always raising her hand and shouting out answers, but the one who sits in back, taking it all in and responding only when called upon, yet delivering answers that make the whole class turn around and listen.

In 1992, Jairam graduated from India's University of Pune with a degree in engineering. She has since worked in a variety of jobs in the software industry and is now a project manager at Hexaware Technologies in Mumbai, the city formerly known as Bombay. Jairam specializes in embedded systems software for handheld devices. She leaves her two children with a babysitter each morning, commutes an hour to the office, and spends her days attending meetings, perfecting her team's code, and emailing her main client, a utility company in the western US. Jairam's annual salary is about $11,000 - more than 22 times the per capita annual income in India.

Aparna Jairam isn't trying to steal your job. That's what she tells me, and I believe her. But if Jairam does end up taking it - and, let's face facts, she could do your $70,000-a-year job for the wages of a Taco Bell counter jockey - she won't lose any sleep over your plight. When I ask what her advice is for a beleaguered American programmer afraid of being pulled under by the global tide that she represents, Jairam takes the high road, neither dismissing the concern nor offering soothing happy talk. Instead, she recites a portion of the 2,000-year-old epic poem and Hindu holy book the Bhagavad Gita: "Do what you're supposed to do. And don't worry about the fruits. They'll come on their own."

This is a story about the global economy. It's about two countries and one profession - and how weirdly upside down the future has begun to look from opposite sides of the globe. It's about code and the people who write it. But it's also about free markets, new politics, and ancient wisdom - which means it's ultimately about faith...

Posted by DeLong at February 15, 2004 04:34 PM | TrackBack

Comments

The article is ok. However, Daniel Pink was interviewed by Bob Edwards on NPR's Morning Edition Feb 12, and he sounded like a jerk.

Posted by: Tecla on February 15, 2004 04:44 PM

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I don't blame Indians for wanting to take American jobs. In their position, I would want them, too. I blame our politicians for allowing it to happen, and for not looking out for the interests of their constituents.

Posted by: Firebug on February 15, 2004 05:06 PM

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Here's the link to that segment Tecla mentioned:

http://www.npr.org/features/feature.php?wfId=1671969

More "faith based" economic policy prescriptions...Market dynamism will pull us through, no need for state intervention. We're just moving up the value chain...Those who lose out in the globalization game can rely on that mythical safety net that exists in the fervid imaginations of economists and pundits. Sure Dan, whatever you say.

On an unrelated note, anyone know where I can find PPP deflated state-by-state income data? Does such a series exist?

Posted by: david on February 15, 2004 05:28 PM

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I enjoyed reading this article some time ago (prudentbear maybe)--the balance and especially the portraits, humanized the whole offshoring issue for me.

Posted by: calmo on February 15, 2004 05:34 PM

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Firebug,

I blame the politicians for spending too much
time worrying about your interests as a
computer programer, rather than mine as
a consumer of computer programs. After all
there's a lot more of us (consumers of
computer programs) than of you. Or don't
we count?

I blame them for trying to NOT allow it to
happen.

Why should you win and I lose? If computer
programmers were unskilled workers with no
other job prospects I'd have sympathy, but
here even that doesn't come into the picture.

Sorry for being bitchy about this but I am
starting to get really annoyed with this white
collar whining over outsourcing that goes on
in the comments section of this page. I
understand that it sucks, but like I
said, if you were talking about uneducated, poor
workers loosing textile jobs I'd have a few
iotas more of sympathy.

...and let's not even start with the whole
"if economists' jobs were being outsourced
they'd be against free trade too" crap. If
there was a ban on Chinese, Russian, and Indian
students coming to US to study economics I'd be
getting my degree from MIT. There is no such
ban and I could say it sucks (damn those
politicians allowing it to happen) and I
could whine about it but then that MIT degree
probably wouldn't be worth that much anyway.

Posted by: radek on February 15, 2004 05:43 PM

____

Sounds like a rush to the lowest common denominator. Our kids will be weaving straw baskets. By the way, there's no reason to think professorships won't eventually be "offshored" as well in this day of distance learning. :-) I suggest you and your fellow economists save your pennies now. Perhaps the most significant difference is that India has subsidized engineering education for decades based on merit, while here in the States it's up to individual families to provide almost all the resources for their children to obtain decent post-secondary education.

Posted by: bob on February 15, 2004 06:00 PM

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David: check out: http://www.economagic.com/

It's got oodles of state by state data.

Posted by: Julian Elson on February 15, 2004 06:03 PM

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Once outsourcing starts making significant inroads in MBA type jobs, I imagine the screeching will rise to new and greater heights.

Posted by: Steven Rogers on February 15, 2004 06:08 PM

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bob,

Like I pointed out, economists' jobs have been
outsourced for quite a while now. Nothing
new here. Same with physicist's jobs and
mathematician's jobs. And yes, the academic
world, both in US and abroad is much better
for it.

As far as subsidizing education - well as a
person who's gone through almost 10 years
of higher ed on cheap government loans, scholarships and fellowships, I think you're way off the mark with your last sentence

But whether or not US govt. ought to subsidize
higher ed is a different argument.

And this "lowest common denominator" stuff...
not only does it not make sense logically but
empirically that cry has gone up for the
past two hundred years or so without anything
to show for it. Weren't we all
supposed to be weaving straw baskets after
the Japanese had the audacity to try to sell
us a better car?

Posted by: radek on February 15, 2004 06:10 PM

____

Two comments and two questions. First, I agree with the other comment that Pink's optimism is "faith based". The most important quote in the article was from Shirley Turner who said "I'd like to know where you go from knowledge." Well?

Second, how well has faith in the market served the manufacturing workers whose jobs went offshore in the 80's. Pink said on NPR that we're better off now. Really?

The question are. As labor arbitrage forces wages down in the US, how do we avoid deflation? If it's by a falling dollar, how does the currency exchange rate change affect savers and debtors in the US? Can somebody enlighten me?

Posted by: Ed on February 15, 2004 06:13 PM

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Notice the article fails to reference Norm Matloff professor of Computer Science at UC Davis. Matloff has just published an article in the Michigan University Journal of Law Reform, Fall 2003, “On the Need for Reform of the H-1B Non-immigrant Work Visa in Computer-Related Occupations.” (I’m sorry I lost the link) He debunks much of what you read in the Wired piece. In particular software development requires face-to-face contact in an integrated manner. If we really could ship most of our software projects to India then the industry would have done so already, and we wouldn’t need to import more the more expensive H-1B labor. This is the real source of job loss for American IT workers, not the out-sourcing to India or China. (And BTW the work from India is just cheaper not better.) Nor does the article mention anything about Rob Sanchez who has run the http://www.zazona.com for years, and furnishes a database of who has hired H1-Bs. This article contributes little to the understanding of tech unemployment in the US.

Posted by: A. Zarkov on February 15, 2004 06:31 PM

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Couldn’t the pro-off shoring argument, lower costs = lower prices = benefits for all, be used in virtually every area of labor law? Overtime laws, the minimum wage, mandatory lunch breaks, maternity leave etc. All of these are artificially inflating the price of a large number of goods and services aren’t they? I’m sorry you’re pregnant but we have to fire you now because doing otherwise would be detrimental the country as a whole.

I'm willing to accept that there is a point were the cost savings are too great to be ignored, but it seems like there must be a range where it's profitable for an individual company to move jobs yet not beneficial for the nation as a whole. It doesn’t seem at all obvious to me that a $100 cost savings a year for IBM benefits everyone more than a taxpaying citizen making 50K a year.

Posted by: DJ on February 15, 2004 06:44 PM

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I think the easiest advice is this:

Buy rupees

Posted by: p mac on February 15, 2004 06:56 PM

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radek,

Glad to hear you're not afraid of a little competition. Could you give me your current as well as your future boss' names and email address? I would like to keep him appraised of all potential qualified candidates for your position by sending him some resumes. Many of these candidates will unfortunately be willing to work for far less than your current salary.

As a consumer of economic information, I want to assure myself that I'm getting the highest possible value for my hard-earned dollar.

Since you are a highly-intelliegnt and well-educated member of society, I promise to quell any untoward feelngs of empathy at your resulting unemployment.

If you are reluctant to provide me with this information, could you provide me with a rationale that justifies your actions in light of its impact on the macro economy?

Thanks!

Posted by: djs on February 15, 2004 07:03 PM

____

radek wrote:"..and let's not even start with the whole
"if economists' jobs were being outsourced
they'd be against free trade too" crap. If
there was a ban on Chinese, Russian, and Indian
students coming to US to study economics I'd be
getting my degree from MIT. There is no such
ban and I could say it sucks (damn those
politicians allowing it to happen) and I
could whine about it but then that MIT degree
probably wouldn't be worth that much anyway."

Do you really think this is at all analagous to IT workers? You are talking about having to settle for a less prestigious university. They are talking about not having a job in their field at all. Furthermore, one could say that in your case, being a better student would help you get into MIT. In the case of IT workers however, being a better programmer really deosn't help. ONe simply cannot compete with a competent programmer making $11,000 a year in India, no matter how brilliant your work is.

radek wrote:"As far as subsidizing education - well as a
person who's gone through almost 10 years
of higher ed on cheap government loans, scholarships and fellowships, I think you're way off the mark with your last sentence"

Kindly let the rest of us in on your secret for cheap higher education. I'm currently $40,000 in debt and would like to save my teenage brother from such a fate.

I'd like to note for the record that I am a graduate student in an unrelated field (Aplied Physics) and so have no dog in this fight. However, from the sidelines, your arguments seem entirely uncompelling.

Posted by: WillieStyle on February 15, 2004 07:05 PM

____

djs

All you have to do is click on my name
to get the necassary information to carry
out your nefarious scheme.

Posted by: radek on February 15, 2004 07:10 PM

____

One of the basic rules of systems design notes that questions which are producing intractable contraditions are being asked at the wrong scale of concern.

The twentieth century was a fight between those who wanted an artificial labour surplus and those who wanted an artificial labour shortage; the folks going for the surplus have unquestionably won the fight.

Neither policy gives, or can give, good results.

The good policy is one of having a real -- but not too severe -- labour shortage. Wages rise, and productivity rises, too, because there are real structural economic rewards for doing things that increase productivity, structural rewards large enough to make people prefer them to avoiding social change.

(A money economy in the medium term is a machine for avoiding social change, because social standing is defined by controlling the abstraction of money, rather than how the abstraction is produced. Most economic analysis I've seen ignores this, or treats it -- like the current Time of Tax Cuts -- as aberrant, rather than a core purpose.)

Trying to keep India and China poor, treating the problem as a question of a finite amount of work to be done for the minimum possible cost, is a choice of viewpoint; it's very much the corporate viewpoint, because it's the short term profit maximizing viewpoint.

(Everyone clear on profit maximizing systems being unstable and ultimately destructive of economic capability, even when they don't descend into outright swindles?)

Compelling a capitalist system to do enough stuff to reach full labour utilization, enough to create an actual labour shortage, on a very full planet, where a high degree of comfort isn't very expensive in relative terms, is really challenging, but that's the problem we've got.

We won't solve it by treating profitability as an acceptable reason to have an economy; you need to make a profit, but if that's all you're doing, you're back into profit-maximization land, with guaranteed dire results in the fullness of time.

Posted by: Graydon on February 15, 2004 07:10 PM

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Radek jumps to a number of unfounded conclusions.

First of all, he assumes that I am a programmer because I raise questions about outsourcing. Actually, I'm not. I decided not to enter that field specifically because it is a fool's game to enter a competition on price with Indians and Chinese living in squalor.

Secondly, he assumes that lower labor costs for software will be passed on to the consumer. They won't. Why would companies do so? Of all commodities, software has among the greatest disconnects between the costs of production and the price charged to the end user. Companies set software prices based on what the market will bear, not on how much it cost them to have it written and produced.

Finally, he conflates the competition on quality faced by aspiring professors to the competition on price that exists in business offshoring. Yes, Brad may have had to compete for his professorship with individuals from other countries, but he was competing for an American job with fixed American standards of pay and benefits. What I have heard programmers complain about (and I'm sure the same is true of most other outsourced professions) is that they are being expected to compete on _price_ with labor from Third World nations - a rigged game which they cannot possibly win. If the competition was on quality, then there would be little trouble.

Posted by: Firebug on February 15, 2004 07:16 PM

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The future is biotech... oops, moral issues, so that goes to South Korea.

The future is renewable fuels... ooops, that might interfere with Exxon, so off to Europe with that one.

Whatever the future is, it won't come from this administration, or its rear-facing crony-capitalist friends, who think that a good society is one with lots of financial transactions mediated by legislative favors.

Posted by: masaccio on February 15, 2004 07:16 PM

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Imagine, a programmer who can quote something other than Tolkien. Outsource away!

Posted by: seth edenbaum on February 15, 2004 07:17 PM

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I wrote a letter to Wired because I thought this article was bogus. I'm sure they won't publish it; editors seem to think I'm anti-social or something. Whatever. Here it is.

Dear Daniel Pink,

You assert that there are...

"two simple options: a) become competitive again by sending jobs someplace they could be done better and cheaper, or b) face a slow death"

First of all, cheaper is not better. Here is a link that will give you another sort of first hand view of outsourcing:
http://ask.slashdot.org/comments.pl?sid=89880&cid=7765227

People assume that we can outsource software and the consequences will be no different than the consequences of outsourcing hardware manufacture in the past: a continuation of American dominance in innovation which will make up for the loss of jobs.

My views of the consequences of outsourcing the software industry are based on almost two decades of experience in the industry and contradict this view.

Software is not a product like hardware. It is more like a habitat. This is a reflection of its dynamic complexity. Chip design is complex, yes, but for every chip design that goes to fab, there are probably millions of applications (which require maintainence and even re-design after release). I wouldn't be surprised if the ratio of bugs discovered in the field for software vs hardware is at least a million to one. Software requires a depth & breadth of intellectual capital which hardware does not, due to the more concentrated complexity of hardware.

Software is hard to develop successfully even in one place, one culture. I wouldn't be surprised if the failure rate for major projects is one in four. The simple projects train engineers and managers for the complex ones. There is no escaping this. If you outsource the 'low-level' software functions to another country, you outsource your training bed. You simply cannot 'move up the value chain' or whatever you guys say. The people who move up must have deep experience in the base. This is due to the dynamic complexity of software, it is not related in any way to trade.

Outsourcing software does not free up intellectual capital for other purposes, it outsources a chunk of the software habitat, and intellectual capital develops within that habitat. That is what is going to India. The outsourcing companies in India are tomorrow's software exporters & system designers. They will have the skills because we have given them the habitat.

One final point. The huge push towards improving productivity in the software field comes from one thing: the high cost of labor. Drag down that cost and you remove the incentive for innovation and productivity growth. So one consequence I see for outsourcing the industry to India is a decline in productivity growth and innovation. This is not due to any inferiority in the Indian software industry but simply to the cost incentives.

Posted by: camille roy on February 15, 2004 07:22 PM

____

"Do you really think this is at all analagous to IT workers? "

Yes.

"You are talking about having to settle for a less prestigious university. They are talking about not having a job in their field at all. "

I'm certain (in fact I know) that there are plenty of would be economists who have
settled for jobs outside of economics (or lower
paying jobs in economics) due to competition,
both foreign and domestic. This should be
obvious.

"Furthermore, one could say that in your case, being a better student would help you get into MIT. In the case of IT workers however, being a better programmer really deosn't help. ONe simply cannot compete with a competent programmer making $11,000 a year in India, no matter how brilliant your work is."

I really really doubt that being a better programmer doesn't help. Otherwise there'd be
no programmers left in US. Not to mention that
in addition to that 11K a year there's other
costs a company has to incur to outsource. Even
if there's some truth in your statement - that
competition in economics is different then the
competition in IT - my general point that US
economists DO compete with foreign economists
is still qualitatively valid.
Are you really arguing otherwise?

"Kindly let the rest of us in on your secret for cheap higher education. I'm currently $40,000 in debt and would like to save my teenage brother from such a fate."

Subsidized does not mean free, or even cheap.
Just less then it would've cost if the government
didn't put some of taxpayers' money into the
kitty. I've got some debt myself. Again, if
you want to argue that US gov should subsidize
higher ed more that's fine. But that's a different
argument.


Posted by: radek on February 15, 2004 07:35 PM

____

Radek: Would you buy software written by people who were slaves? Is that ok, or is there a moral boundary to economic models?

Posted by: A. Zarkov on February 15, 2004 07:48 PM

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Firebug writes

"First of all, he assumes that I am a programmer because I raise questions about outsourcing. Actually, I'm not."

I apologize for that though it did seem
like the most likely case judging on your
post.

"Secondly, he assumes that lower labor costs for software will be passed on to the consumer. They won't. Why would companies do so? "

To increase quantity demanded perhaps?

"Of all commodities, software has among the greatest disconnects between the costs of production and the price charged to the end user. Companies set software prices based on what the market will bear, not on how much it cost them to have it written and produced."

What determines "what the market will bear"?
Look, lower price means higher quantity sold,
higher price means lower quantity sold - even
if it's a monopolistic market. A firm will set
its price so that its revenue (price times
QUANTITY) net of costs is maxmimized.
Otherwise it's a stupid firm.

The amount of the fall in costs that is passed
on to consumers is determined by elasticity of demand (more elastic, less passed on, roughly). I never said that the price will fall one for one
with the fall in labor costs - some of the fall
will go to consumers and some to the firm.
In this case you're the one reaching unfounded
conclusions (an extreme highly unlikely
case) based on extreme assumptions.


"Finally, he conflates the competition on quality faced by aspiring professors to the competition on price that exists in business offshoring. "

I'm not conflating anything. They're
essentially the same.
Just think of it as competition on price
PER UNIT OF QUALITY.

"Yes, Brad may have had to compete for his professorship with individuals from other countries, but he was competing for an American job with fixed American standards of pay and benefits."

And how is that different then a programmer
competing for an "American job" with fixed
American standards of pay and benefits?

"What I have heard programmers complain about (and I'm sure the same is true of most other outsourced professions) is that they are being expected to compete on _price_ with labor from Third World nations - a rigged game which they cannot possibly win. If the competition was on quality, then there would be little trouble."

First, there's nothing rigged about it. Second
obviously they compete in both price and quality.
A guy in America who only knows how to dig ditches
would probably be willing to work for 11K a year
writing nonsensical computer programs. But
obviously his quality is zero so no firm would
hire him. On the other hand if an American
programmer is ten times more productive then
an Indian one then a firm would much rather
hire him at 70K a year than the Indian at 11K
a year.
Your assertion doesn't make any sense.

And how is this different then competition in
economics or academia in general? A few years
back my graduating math friends were busy
complaining about a large influx of cheap
Russians into the American universities. It's
the same thing in economics and some other
departments (though the scapegoats may differ).
It's just that's been going on for so long that
we've adjusted and don't notice anymore.
And no one ever thought of calling it outsourcing
before.

(Just so this doesn't get lost in all this
arguing: I'm quite happy about the outsourcing
of economists' jobs or grad student positions)

Posted by: radek on February 15, 2004 08:07 PM

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radek,

Come to think of it, in order to maximize economic efficiency, I think you should be evaluating and submitting the resumes for your eventual replacement. You obviously have the best understanding for the requirements of the job and probably have a good understanding of your personal weaknesses that could be improved upon.

Oh, and would you mind providing a few months of training to your replacement? That could really help him get up to speed and further increase his effectiveness.

I'm so glad you agree that improvements at the macro level are the only true method of gauging responsible public policy; other people have been far less enlightened in these matters.

Posted by: djs on February 15, 2004 08:08 PM

____

Radek wrote:
"I really really doubt that being a better programmer doesn't help. Otherwise there'd be
no programmers left in US."

I'm sorry but that's simply a foolish argument. There aren't enough competent in India to replace all of those in the U.S., yet. Moreover, it takes time for companies to ship jobs abroad. There is simply no way for a programmer in the U.S. to earn a middle class wage of $50,000 a year and still make herself cost effective v. a competent Indian programmer.

Radek wrote:
"Not to mention that
in addition to that 11K a year there's other
costs a company has to incur to outsource."

Come on man. Are you really going to embarass yourself by attempting to argue that the cost of an American programmer making $50,000 a year with benefits and payroll taxes and healthcare costs are anywhere comparable to that of an Indian programmer?

Radek wrote"
"Even if there's some truth in your statement - that
competition in economics is different then the
competition in IT - my general point that US
economists DO compete with foreign economists
is still qualitatively valid.
Are you really arguing otherwise?"

Yes. It isn't "qualitatively valid" because Universities (or whomever else hires economists) have not as yet figured out how to ship economist jobs to countries with much lower costs of living. If ever they do, then you will be faced with a situation wherein you will be competing with someone not for the same job at the same salary, but for the same job at a salary which is tantamount to abject poverty in the states. If ever that day comes, you will be faced with a situation were wage differences put you at a MASSIVE disadvantage merely because of where you live. THEN you will be in a "qualitatively comparable" situation.

Posted by: WillieStyle on February 15, 2004 08:14 PM

____

radek writes:
"and let's not even start with the whole
"if economists' jobs were being outsourced
they'd be against free trade too" crap. If
there was a ban on Chinese, Russian, and Indian
students coming to US to study economics I'd be
getting my degree from MIT. There is no such
ban and I could say it sucks (damn those
politicians allowing it to happen) and I
could whine about it but then that MIT degree
probably wouldn't be worth that much anyway."

This simply has no relation to free trade at all. You know what I'll write it again, Brad simply has does not have to worry about his job being outsourced. That's a fact. No amount of vitriol from you is going to change that. I actually feel that it is inevitable these university positions are going to be outsourced. If you believe in the theory of comparative advantage, they HAVE to be, since an Indian/Chinese/Russian PHD would be able to do the job much cheaper.

Posted by: SteveC on February 15, 2004 08:19 PM

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One way to compete better with Indian and Chinese programmers would be to tax away Ricardian rents on the unimproved value of land.

What's the connection? Sure, Indian programmers pay a lot less for health care and "social security". But they also pay less land (Ricardian) rent to their landlords (in dollar terms, if not as a fraction of domestic GDP).

If the government (in the US) received the payment instead of the landlord, income and payroll taxes could be reduced by a corresponding amount.

Posted by: liberal on February 15, 2004 08:19 PM

____

djs, you know your joke wasn't that funny
the first time around.

But since you bring implicitly bring it up,
I'd like to say that I'd have a lot more
respect for some folks if they just said
"Yes, I know outsourcing can benefit the
economy as a whole but it will hurt me personally
and that's why I'm against it" rather tying
themselves in pretzels with faulty logic in
trying to argue that outsourcing is somehow
different from conventional trade or why
standard trade theory is wrong. In fact, I would
not only have respect for such people, but
also understanding. If you want to argue out
of self-interest that's fine, but at least
admit that that is where you're coming from.

Posted by: radek on February 15, 2004 08:22 PM

____

Speaking of comparative advantage and labor costs; why is there no outsourcing of CEO's? Wouldn't you think that at least a couple dozen companies would have tried this since the cost savings are so particularly attractive?

It's rather curious, isn't it?

Posted by: djs on February 15, 2004 08:26 PM

____

Williestyle,
I think I might have to take this one part
at a time.

"Come on man. Are you really going to embarass yourself by attempting to argue that the cost of an American programmer making $50,000 a year with benefits and payroll taxes and healthcare costs are anywhere comparable to that of an Indian programmer?"

The point is that simply comparing the 50K to
the 11K is misleading. You have to adjust for
costs of other inputs. You have to adjust for the
quality of the programmer - as quite a few people
were anxious to point out American programmers
are supposedly of better quality. So if an
Indian programmer is only a third as good as
an American programmer that 11K becomes 33K when
adjusted for quality.
Of course once all these are accounted for an
AVERAGE Indian programmer is still cheaper
(per unit of quality) than an AVERAGE American
programmer. That's why the outsourcing takes
place.

And I still don't believe that quality of
US programmers doesn't matter. But in some way
this is straying from the original point which
is that US economist do compete with foreign
economists.
Anyway, in my original post that was an aside.

Posted by: radek on February 15, 2004 08:33 PM

____

It's not really intended to be funny; wouldn't the macro economy benefit if you were forced to act against your own self interest?

You seem peeved that others do not happily subjugate their self interest in the interests of the broader good; why do you resist using the same standard in your own situation? Your finding a better replacement for your job benefits us all.

Posted by: djs on February 15, 2004 08:35 PM

____

Steve writes

"This simply has no relation to free trade at all. You know what I'll write it again, Brad simply has does not have to worry about his job being outsourced. That's a fact. "

Yes and Barry Bonds doesn't have to worry
about his job either. But us folks in the
minor leagues do have to worry about competition.


"No amount of vitriol from you is going to change that. I actually feel that it is inevitable these university positions are going to be outsourced. If you believe in the theory of comparative advantage, they HAVE to be, since an Indian/Chinese/Russian PHD would be able to do the job much cheaper."

Typical example of confusing comperative
with absolute advantage, but never mind...

Posted by: radek on February 15, 2004 08:40 PM

____

Radek still misses the point. In one post, he says:

"I'd like to say that I'd have a lot more
respect for some folks if they just said
"Yes, I know outsourcing can benefit the
economy as a whole but it will hurt me personally
and that's why I'm against it" rather tying
themselves in pretzels with faulty logic in
trying to argue that outsourcing is somehow
different from conventional trade or why
standard trade theory is wrong."

Well, first of all, what do you mean by "the economy as a whole"? Currently it looks to me a lot like most of the benefits of offshoring are being captured by (a) the offshore workers, and (b) a small handful of large investors and executives. GDP is not the be-all and end-all; if the average middle-class American bears most of the costs of offshoring and sees few if any of the benefits, then most Americans might be willing to accept lower GDP if their own personal standards of living are improved as a result. And that is why I have pointed out that if you want to fight protectionism then you had better get moving in the creation of good jobs. Otherwise, no one will listen to you.

Posted by: Firebug on February 15, 2004 08:45 PM

____

So if you reserve the right to resist actions that are detrimental to your employ, why shouldn't others avail themselves of the same approach?

If you had a 30 year mortgage hanging over your head and 3 kids and a wife at home, would you be tempted to bad-mouth your potential replacement to the boss to minimize your chances of losing your job?

Would you welcome personal ruin in order to advance the cause of free trade?

Posted by: djs on February 15, 2004 08:45 PM

____

djs writes

"You seem peeved that others do not happily subjugate their self interest in the interests of the broader good; why do you resist using the same standard in your own situation? Your finding a better replacement for your job benefits us all."

I already answered this. Please scroll above
and read. And by the way, not wishing to bother
others with this quibble I was going to email
you personally - unfortunetly your email address
is fake.

At least I put my name and email address where
my mouth is.

Posted by: radek on February 15, 2004 08:47 PM

____

radek:
You didn't respond to my point. That is that Brad and these other academic economists don't have to worry about outsourcing-yet. Also, as far as my use of comparative advantage, I'm going by the definition I have seen economists use to justify these jobs moving overseas.

Posted by: SteveC on February 15, 2004 08:48 PM

____

So, in the end, what is the difference between using your local influence to save your job (by bad-mouthing the competition) and using diffused influence such as petitioning your congressmen?

I see no difference between the two; either you are willing to exert influence through whatever means are available to save your job or you willingly sacrifice your well being for the greater good of mankind.

Posted by: djs on February 15, 2004 08:53 PM

____

>>
I'd like to say that I'd have a lot more
respect for some folks if they just said
"Yes, I know outsourcing can benefit the
economy as a whole but it will hurt me personally
and that's why I'm against it"
<<

Great; I'm not asking about respect; I'm asking if you personally would try to save your job via local affects. If you (as most people) would, how do you draw a distinction between using local vs diffused influence? Why is one mechanism apparently more worthy of your respect than the other?


Posted by: djs on February 15, 2004 08:59 PM

____

Camilla-- good comments, coherent (unusual on this particular list) and insightful distinction between DRAMs and code.

Take heart, though, Catherine Mann has done some excellent work to show that the jobs being exported are not the ones you would miss. As long as US software engineers continue to add value, only lower-level coding jobs would be sent overseas.

http://www.nytimes.com/2004/02/15/weekinreview/15porter.html

and

http://www.iie.com/publications/pb/pb03-11.pdf

and associated (includes manufacturing jobs export):

http://www.iie.com/publications/papers/kirkegaard0204.pdf

Griswold (CATO) wisely opines that American workers have to assume some responsiblity to create a middle class overseas in order to presume continued product exports to a global middle class:

http://www.freetrade.org/pubs/speeches/ct-dg103103.html

Some of the rest of you commentators might consider studying a little bit of economics and data source material before opining? This was a pathetically underinformed thread to read through!

Posted by: Faith Witryol on February 15, 2004 09:08 PM

____

>>
Take heart, though, Catherine Mann has done some excellent work to show that the jobs being exported are not the ones you would miss. As long as US software engineers continue to add value, only lower-level coding jobs would be sent overseas.
<<

If the point of outsourcing is to save money, you would be drawn to outsourcing the jobs with the greatest savings, ie, the most expensive positions.

The only caveat is that the first round of outsourcing would send low-level work just to debug the outsourcing process with low-value tasks just to evaluate the feasibility of larger scale/higher value projects.

This is no longer the case; the second round of outsourcing has exported more demanding/creative tasks than the first. I thoroughly expect the trend to continue.


Posted by: djs on February 15, 2004 09:23 PM

____

The tone of the Wired article - "you're just going to have to adjust," "get used to it", etc., basically says "screw you" to the people who are (at least temporarily) left behind by globalization.

I think that attitude, as much as anything else, helps explain why people get so angry about this issue.

These US programmers have educated themselves, they had productive well-paying middle-class jobs, they played the game by the rules, and many are now getting the rug pulled out from under them.

We, as a society, cannot just say "screw you" to them. We have to get serious about providing real programs to cushion the blow, to run the economy much closer to full employment, etc.

Or else these self-destructive protectionist arguments will continue to resonate with many people.

Posted by: Tom Geraghty on February 15, 2004 09:24 PM

____

Tom Geraghty is exactly right. Proud, independent Middle Americans are not going to be very inclined to be told by those who would be their masters that 'this is the way the world works' or 'suck it up' especially when these rationalizations are so transparent and the excuses used are so flimsy. (Like the claim that somehow all these people will find good-paying jobs in some other unknown field - which isn't happening, and there's no sign it ever will).

What many in the economist class have forgotten is that so-called "free" trade (actually trade dictated by 10,000-page documents) is not a fact of nature or an entitlement. It is a political establishment and it exists at the sufferance of the American people. If you want free trade to be popular, then you had better show middle-class Americans how it will be in their individual best interests. Otherwise, don't be surprised when they shut off the tap because they're tired of being used as milch cows for foreign peasants and corporate executives.

Posted by: Firebug on February 15, 2004 09:39 PM

____

Faith,

The Kikegaard paper includes the period 1999-2000 as part of its dataset; since outsourcing didn't start in earnest until about 2001, this is a highly suspect approach.

Any projections including the 1999-2000 IT bubble are really inappropriate and will almost certainly lead to erroneous conclusions. It's akin to projecting buggywhip sales based on historical data terminating with the Model T's first year of production.

Posted by: djs on February 15, 2004 10:02 PM

____

Steve wrote:

"No amount of vitriol from you is going to change that. I actually feel that it is inevitable these university positions are going to be outsourced. If you believe in the theory of comparative advantage, they HAVE to be, since an Indian/Chinese/Russian PHD would be able to do the job much cheaper."

Radek replied:
Typical example of confusing comperative with absolute advantage, but never mind...

And I point out that neither of you guys have looked at the faculty list in your typical community college/second or third rate college or university.

The future is here already.

Posted by: Eli Rabett on February 15, 2004 10:03 PM

____

If I were a big corporation, I would be afraid of all this talent running around the U.S. with nothing to do. Have you noticed all the worm attacks lately? They seem worse to me than ever before.

I hope that right now a bunch of IT guys are cooking up a new company in somebody's garage to kick IBM's and Microsoft's butt out of the water. Go for it!!!!!!!!!!

Posted by: Hi on February 15, 2004 10:19 PM

____

I wish someone would outsource Mickey Kaus's job.

Posted by: hackticus on February 15, 2004 10:20 PM

____

Dear Tom G. and Firebug,

As Clinton was wont to say, I understand your pain. But think of this, as the West industrialized first, we basically told the brown peoples of the world: "Screw you". And when they first began to get with the global program and actually have the temerity to try and sell us goods and services, we pretty much had the same response (I'm old enough to remember the "cheap japanese transitor radio" jokes).

Now that we pretty much have been forced to buy their output (thank you free flowing international capital) we weep crocodile tears because they can now tell us to go take a flying leap.

Certainly, the discarded American worker here is getting the shaft, but why all the faux chagrin when the victim can stand up and casually remark to us, "Suck it up. Get used to it."

What is needed is a "race to the top". Just assuming we should be #1 won't keep us there. Free trade may be just the jab to rouse us from our stupor, but there is a definite role for government here beyond mouthing free market platitudes whilst handing over the keys to the store to your corporate cronies.

Posted by: bobbyp on February 15, 2004 10:41 PM

____

djs, it's not radek's responsibility to find a potential replacement for himself. It's employers' responsibility to find the best workers at the lowest price, and it's employees' responsibility to find the best jobs at the highest wages. A free-market economy operates on the assumption that if everyone does that, and looks after their own self-interest, the results will be generally beneficial. You can disagree with that conclusion, but no economist would argue that radek (or any employee) should do anything less than try to get the best wages for himself or herself.

As for CEOs, there already is an international labor market for CEOs, and it's undoubtedly only going to get bigger in the future. Jacques Nasser (Australian) ran Ford. Carlos Ghosn (Brazilian) runs Nissan. Dieter Zetsche (German) runs Chrysler. CEOs are more insulated than programmers are because code really has no nationality, while corporate cultures, social interaction, and leadership styles probably still do. But it seems undeniable that the executive labor market is becoming ever more internationalized. And that's not even to mention all the executives and CEOs who have lost their jobs over the last thirty years to foreign competition.

More concretely, it might be worth looking at the stats from the Commerce Department cited in Eduardo Porter's NY Times article today. Between 1999 and 2003, "manufacturing lost 2.8 million jobs; 800,000 management positions disappeared," but 600,000 jobs were added in "business and financial services" and another 150,000 jobs were added in "mathematical occupations." This is what's especially weird about this hysterical drumbeat from programmers: there's almost no concrete evidence that it's made a serious dent in people's jobs. Programmers and other computer people were able to make lots of money in the late 1990s because capital was practically free and the money flowed like water. The fact that the bursting of the bubble turned off the tap is the biggest reason why salaries have been trimmed and jobs are hard to come by, not competition from India. But those salaries and those employment levels were unrealistic and they were not sustainable. There's no point in pining for them.

Finally, I've been listening to these complaints about offshoring for what seems like forever now, and I have yet to hear a reasonable explanation of how to stop offshoring. After all, this isn't really about free trade. This is IBM deciding that it would rather hire people in India than in the United States. How is it the American government's business whom IBM employs? And how do you propose to stop IBM from hiring Indians?

Posted by: Steve Carr on February 15, 2004 11:42 PM

____

We shouldn't stop IBM from hiring Indians. All the high-standard-of-living countries should get together and put pressure on low-standard-of-living countries to improve working conditions, allow organized labor unions, a minimum wage, and other social support and proper currency valuations. This could be done with sanctions or other methods - maybe tariffs, but equal tariffs in every high-standard-of-living country. (It wouldn't work for only one country to have a tariff -- that would be suicide.)

No one should be afraid of free trade when competing on skill, talent, or true competitive advantage. If someone can truly do a better job or a more efficient job, they should absolutely get the work. What we should all be afraid of is competing on who has the lowest/cheapest standard of living. We all lose if the lowest standard of living wins. (If it's the cheapest and yet a high standard of living, then that should win -- ie: efficient government should win, not absent government.) Right now, the world has a system that is rewarding bad government and low social services, and this is bad.

I saw a show on cspan, and I forget the economist's name, but he suggested maybe what the world needs is a world government to ensure equal standards for everyone. He compared this transition to that of the transition from the feudal system to capitalism. His argument was something like
(this is a crude interpretation): the feudal system ended because it became too complex to trade between castles, and now, to make truly fair trade would be horrendously complex. A world government would eliminate that complexity. I just thought that was interesting -- I'm not advocating this -- it just helps to begin to think about: what could we practically do that would accomplish the same thing as a world government?

Everything above applies to manufacturing as well. It's equally damaging and fearful for the lowest-standard-of-living country to be rewarded with manufacturing jobs. It would be wrong if manufacturing jobs were going to Mexico and China because of their lack of unions and social services and support. Some seem to think that is exactly what is happening.

We can hope that as the lower-cost-of-living country earns more money, their society will rise up and demand a higher level of social services and support from their government. Some of us are concerned that, without pressure, just the opposite will happen -- that the current system puts pressure on high-standard-of-living countries to lower their standards to lower their costs in order to compete: the downward spiral.

Personally, and I think for many of us, if outcountry outsourcing to the lowest bidder, as it exists now, really is in the best interest of everyone, then I will suck it up and find something else to do, or move to India.

Posted by: Johnny Keynes on February 16, 2004 01:00 AM

____

Remember the rise of the labor movement. It was a response to greed and callousness. We are facing the same enemies with outsourcing. Just follow the redistribution of wealth in this country and there is only one pluasible answer. Those who are obcene profiteers should be taxed to improve our infrastucture and educate our citizens. If they move to avoid the tax, close our markets to them. This has to be done soon; beore we have no market with which to bargain.

Posted by: Don Beal on February 16, 2004 03:42 AM

____

I work in IT, and have to agree with radek that quality counts. We do a lot of work for banks; they outsource the main work of programming to India, but they then get us to review the code for bugs, backdoors, etc. So there is plenty of value still to be added once the code reaches the West.

Of course, that employs a lot less programmers here - but that's productivity for you. It's a new and fast changing industry: it has no safe jobs. My job didn't exist 10 years ago, and may not exist 10 years hence. If you do not like it, you are in the wrong business.

Posted by: cph on February 16, 2004 04:30 AM

____

Let us not forget where Andy American's annual salary of 70,000 dollars comes from. This money doesn't just materialize out of the thin air, but is taken from the wallet of Corey Consumer.

If Aparna Jairam does the same work as Andy but for only 11,000 dollars a year, Corey gets the same products and services and saves an extra $59,000. This money can then be used to improve Corey's life even more. Perhaps some of this improvement can be done by Andy, who gets paid free market prices.

I think it's funny that anti-free traders always talk about Andy and Aparna, but never bother to mention Corey. The reason is obvious, of course: talking only about Andy and Aparna helps them to make it look like that $70,000 has somehow "disappeared" from the American economy. But this money hasn't disappeared anywhere: it is still snugly in Corey's pocket.

Posted by: Ilkka Kokkarinen on February 16, 2004 05:04 AM

____

"And I point out that neither of you guys have looked at the faculty list in your typical community college/second or third rate college or university.

The future is here already."
Posted by: Eli Rabett on February 15, 2004 10:03 PM

Incorrect - that's the past. The current argument is about the equivalent of having the faculty living in another country, where Ph.D.'s work really, really cheap.

That's why the word 'offsohring' was coined.

Posted by: Barry on February 16, 2004 05:26 AM

____

I can only speak to my personal situation and what I directly observe. 1) There is a vast difference between importing workers and "offshoring" jobs. Imported workers are likely to benefit from our pay scales and protections. This isn't true of offshored workers. 2) The rationalization that displaced workers will find new jobs in emerging industries is fallacious for several reasons: a) emerging industries such as biotech require education which is beyond what displaced workers are likely to be able to attain, b) there don't seem to be many emerging industries, c) some other countries, such as India, invest heavily in education, and so there's no reason to believe that jobs in emeging technologies won't be offshored as well. So as a 52 year old I don't expect to be retrained for a good job in a new technology when my current job is offshored.
3) Arguments that cost savings will be passed on to consumers beg several questions: a) that such savings are in fact passed on, b) that consumers actually have have any purchasing power...don't forget they've lost their jobs. So, for example, in the mid 1990's when IBM reduced it's staff by about 50%, there was a ripple effect of small business closings in White Plains NY.
As far as education...well I have 2 kids in college, 3 more to go after that. Even when my wife lost her job and was out of work for a year there was no financial accomodation by the kid's schools. BTW, she's since found a new job...at 60% of her prior pay scale and with greater demands on her...and with no insurance or other benefits.
Now I happen to work at one of the large commercial research organizations. I see increasing commoditization and greater and greater pressure to become a self standing profit center; in fact funding issues have been pushed down to the level of individual contributors and programmers. I believe this pressure interferes with innovation and creative thinking.

Posted by: bob on February 16, 2004 06:07 AM

____

Ilkka Kokkarinen wrote, "If Aparna Jairam does the same work as Andy but for only 11,000 dollars a year, Corey gets the same products and services and saves an extra $59,000. This money can then be used to improve Corey's life even more. Perhaps some of this improvement can be done by Andy, who gets paid free market prices."

*Possibly* true, but what makes you think the savings are pocketed by the consumer?

As someone in this or another thread already pointed out, much software (e.g. MicroSoft products) is priced so far above the actual cost of production (I mean average cost) that there's no reason to think that (in those cases) the savings would go to the consumer.

The problem is that there's no competitive equilibrium for software prices, because the price charged is so far from the marginal cost (which, for software, is about zero).

And there's no free market: software companies make their money using government-enforced intellectual property rights. I'm not saying that that's bad, but it's not a "free market," where prices should at least converge towards marginal costs.

Posted by: liberal on February 16, 2004 06:12 AM

____

Faith Witryol, "Griswold (CATO) wisely opines that American workers have to assume some responsiblity to create a middle class overseas in order to presume continued product exports to a global middle class:..."

Why is it the responsibilty of American workers and not Indian workers, the Indian government, the American government, American owners of capital, ...?

Jeez, you'd think American workers already have their hands full battling free-market nutcase outfits like CATO.

Posted by: liberal on February 16, 2004 06:17 AM

____

I have posted several times on this subject and while I have no problem with outsourcing per se, I do have a problem with the history of the capital flow that financed the outsourcing boom. The US taxpayer financed some of these companies in guise of minority set aside programs that were sold to the US taxpayer as a reparation for slavery and slaughter.

These programs have not help the plight of the American minority, they helped finance the ability for India to set up the infrastructure to outsource. If the American worker, that was replaced, invested his Social Security money in the Indian Stockmarket last year, he probably could retire and not bitch, but this has not been the case.

The outsourcing controversy will not be an easy problem to quell until the inequities foisted on the Taxpayer, by the American Government are explained and through some mechanism compensated.

However, due to America's nature, I suspect the American Military Industrial Complex will extract this money back from India/China through weapons sales. America will need a strong Indian Army as a buffer to China's desire to get oil.

So outsourcing/globalization tends to be an avenue to possibly discuss a rational future for the world, but I suspect that it will lead to bickering and destabilization.


I have included some other commentary to support the ideas presented above. This information appears relevant and I think should be addressed in the outsourcing discourse.

Greg Hunter

----------------------------------------------------------------------------------------


"In his last years, even while suffering intervals of chemotherapy, Graham completed his last policy study, one that complemented his work on civil rights. In Collision Course: The Strange Convergence of Affirmative Action and Immigration Policy in America (2002), he shows how early civil rights legislation, intended largely to correct injustices to African Americans, eventually offered protections, and favoritism, for a new flood of immigrants from Asia and Latin America. Many immigrants, who qualified as minorities under federal law, were among Americans with the highest incomes. This all developed without any clear congressional intent and with little public scrutiny. Few wanted to agitate the complex issues involved, or challenge the organized minority groups who enjoyed preferential treatment. This has contributed to present confusions, and new policy debates, involving both immigration and affirmative action. It reveals the often unforeseen, or unwanted, effects of social legislation."

----------------------------------------------------------

http://www.j-bradford-delong.net/movable_type/2003_archives/002953.html

The arguments are wonderful and I understand when I am not competitive I should have my job replaced by someone hungrier and more efficient than myself. THE PROBLEM I HAVE IS THAT THE LOSS OF MY JOB AND MY LACK OF COMPETIVENESS IS DIRECTLY RELATED TO GOVERNMENT POLICY PROGRAMS. I FINANCED (TAXES) MY DOWNFALL.

The military is a large purveyor of high technology equipment and during the 70’s and 80’s, it was required to do business with minorities; however, America had not invested in the educating it’s minorities, therefore they were uncompetitive in the process. In order to meet the quotas, the programs were opened to other minorities; mainly sub continent Asians (Indians) and Asians. These naturalized citizens had the skills and skin color to satisfy the minority check boxes and the programs achieved all they were designed to achieve. As the naturalized minority lost his preferences, he imported other friends and family, set them up in business and continued incubating small business. These naturalized citizens were not the “poor and tired” with no connection to the homeland. These people were connected and dedicated to the home country and began sending capital to their home country. These Indians and Asians now have a competitive advantage over their American counterparts, due to connections in their countries with capital from our country. They have connected companies that allow transfers through the HB-1b process thereby exacerbating the issue.

Solution – Send me to India, which should give me a minority contract. I will hire Indians cheaply to do programming for the American Military and then send the profits back to America. Now that’s my kind of globalization.

As a side comment, the minority set aside programs were obviously a good idea as many small businesses have flourished into large businesses through this process. It shows that if that US Taxpayer money had flowed to American Indian and African American communities, instead of overseas, we might not have such a large divide in our country.

The Japanese automakers did not beat us on cost, they beat us with quality. Their employees had a similar standard of living as compared to the Detroit counterpart. This cannot be said of the Indian software programmer, who is only beating us on price.

Posted by: Greg Hunter on February 16, 2004 06:58 AM

____

Dr. deLong, calling the Wired piece "truely excellent" is a lapse in taste. If I understand it correctly, it says

1)Offshored jobs benefit Indians, which is good.

2) Re some older Americans, who would have great difficulty switching fields:
The invisible hand is giving him the finger. A compassionate society must somehow help its John Baumans.
No mention of how.

3)Cost savings are good.

4)It's the future; have faith in it. The only mention of grounds for that faith is a mention of high touch, high creativity jobs; it seems to me that these are inherently few in number.

Points 1-3 are obviously true, although I'm not holding my breath waiting for action on number two. They are also so old I'm skeptical that they're worth repeating. Number four is drivel.

My gripe with the article is less what it said than the tedious length it took to say it. Chronically low information density is the reason I gave up reading Wired some time ago.

Full disclosure: I'm one of those 50 something unemployed programmers. I trust that dosen't interfere with my literary judgement, but perhaps I'm wrong.

As to the substance of the arguements above, all I have to say is that Pareto optimal trade would compensate the losers. It's been said that it takes ten years to get good at anything. This is why people are reluctant to switch fields; it's hard to see how someone my age could ever recoup the cost of any significant training. (FWIW, I read a piece in one of the mainstream Econ journals making the same point in elaborate mathematical terms back in the Seventies). In fact, I don't know of any example of compensation ever happening. In practice, the message is that of the two short pieces at the end: "You're screwed, I'm not, too bad."

Offshoring should indeed be a net gain; this could serve as a paradigmatic example of cold comfort. And I expect that people who can prevent it applying to themselves will do so.

Posted by: Jonathan Goldberg on February 16, 2004 06:59 AM

____

steve,

Thanks for the reasoned response; my root problem is this: it seems to be generally accepted that capital will pursue it's interests through all means available, but if labor pursues its self-interests through these same mechanisms, this is viewed as suspect.

Corporations have full time staffs and legal departments available to influence the government in order to maximize their profits; the right wing in particular sees little problem with this. But somehow individual laborers, with little day to day political representation, are expected to act against their own self-interest upon entering the voting booth.

It should be expected that all entities will make use of all available means at all levels of the economic/politicla strata to pursue their interests; the political process is just one of those means and both laborers and capital avail themselves of that avenue. To the degree that we get comments counseling that one group or another should abandon acting in their self-interest is both misplaced and unfair.

Radek chose to use morally burdened words like "respect" and "empathy" in his discussion of the labor situation, terms that really should be applied equally to all parties if they are to be used at all.


Posted by: djs on February 16, 2004 07:01 AM

____

one other thing:

Money represents a signalling mechanism and feedback loop in order to inform economic decision making; the voting booth is the equivalent signalling mechanism for the formation of social policy.

Anyone that goes into a voting booth that chooses to vote against their self interest is corrupting this signalling mechanism and the result will be inefficient or misguided social policy.

Posted by: djs on February 16, 2004 07:10 AM

____

As a former tech worker who does know something about economics and who did make far too much money in the late nineties, would you people STOP WHINING? Right at this moment, there's no group in American culture that inspires in me as much disgust as the people whining about outsourcing.

Posted by: Keith M Ellis on February 16, 2004 07:39 AM

____

Again we see that people are in favor of "competition for what I buy, monopoly for what I sell." Smith noted this two centuries ago, and it hasn't changed much since then.

But rather than complaining about a simple and unalterable fact: that there is tremendous incentive to outsource to India - let's look at some of the whys. Human life is cheap in India. The only way it will become more valuable is if it is paid for at a higher rate. Human life is cheap in the Middle East, again, the only way to long term economic and political stability is to change this.

Rather than people shrugging and saying "well, things will work out" - realize that a few hundred thousand upset programmers can make the internet grind to a halt - it isn't a protected entity. Telling people they have no political or economic recourse it telling them that they should engage in civil disobedience. This, is bad for business.

What is apalling is that the people who are very well paid to think of ways out of problems just like this one seem to have developed a case of Hooveritis "I don't know what to do, its just the free market".

Moreover, I don't notice the very highly paid executives taking similar pay cuts, they, not the java programmer on the street made the decisions. It should also be pointed out that it is bad economics to reward those who are not taking the risk. Clearly the entrepreneurial risk is being taken by the employees, not the employers. A quick check of income curves tell me that it is the employers, not the employees, who are getting the rewards.

Was the labor bubble under programming temporary? Of course, it always is. So why isn't the labor bubble under CEOs under any threat?

Because we have free trade in low level labor and not in high level labor.

Capitalism for the poor, socialism for the rich. Liberalism, of the 19th century kind, for labor - Protectionism for management.

Posted by: Stirling Newberry on February 16, 2004 07:42 AM

____

"Sorry for being bitchy about this but I am
starting to get really annoyed with this white
collar whining over outsourcing that goes on
in the comments section of this page. I
understand that it sucks, but like I
said, if you were talking about uneducated, poor
workers loosing textile jobs I'd have a few
iotas more of sympathy."

No, you are just talking like a consumer of programming resources who is overjoyed at what he thinks will be a cost break. You are misguided, but that's part of the point. Corporate outsourcing of jobs will not lower price points - only increase profits. See Galbraith's New Industrial System.

In fact, costs for software are about to go up for most Americans. Why is this? Because much of the software you use (including this here blog software) was written as open source by people in their spare time, or donated to the public. No high paid programmers, much less "free" software. The people agitating for paying programmers for just the market component of their labor are neglecting to realize a basic fact: most of what you use is based on work which was paid for out of social, rather than corporate, procedes.

This means, by strangling the real competition in the market place - between what is free and what is commercial - you are in fact going to get - and will deserve - a monopoly that charges monopoly prices. When you start having to pay postage stamp rates for email - and get heavily spammed by Nigerian fraud merchants (who make enough money to pay for fraudulent emails, while normal people will start thinking before they send) - realize that by agitating against your economic interest, you brought it on yourself.

Posted by: Stirling Newberry on February 16, 2004 07:47 AM

____

"As a former tech worker who does know something about economics and who did make far too much money in the late nineties, would you people STOP WHINING? Right at this moment, there's no group in American culture that inspires in me as much disgust as the people whining about outsourcing."

I don't know, the fools who think they are going to get deflationary cost advantages out of the situation are pretty far up the scale too.

Posted by: Stirling Newberry on February 16, 2004 07:53 AM

____

"Finally, I've been listening to these complaints about offshoring for what seems like forever now, and I have yet to hear a reasonable explanation of how to stop offshoring."

How about stop under pricing the costs of moving jobs overseas?

Posted by: Stirling Newberry on February 16, 2004 07:56 AM

____

http://www.nytimes.com/2004/02/15/business/15JOBS.html

Last one on this thread, I promise.

Posted by: Stirling Newberry on February 16, 2004 08:19 AM

____

As a former tech worker who does know something about economics and who did make far too much money in the late nineties, would you people STOP WHINING? Right at this moment, there's no group in American culture that inspires in me as much disgust as the people whining about outsourcing.
Posted by: Keith M Ellis on February 16, 2004 07:39 AM

Not all tech workers enjoyed benefits from the tech boom. Some are saddled with significant student debt. Sure, we made decisions that were bad from a market perspective. We do not want handouts; we just need some way to survive with some amount of dignity (shuttling coffee at Starbucks ain't it, and doesn't cover minimal loan payments after living expenses).

Posted by: frowning clown on February 16, 2004 08:25 AM

____

http://www.nytimes.com/2004/02/15/business/15JOBS.html

Last one on this thread, I promise.
Posted by: Stirling Newberry on February 16, 2004 08:19 AM

Once more, with feeling: the article confuses temporary loses with permanent ones. Millions of retail jobs are "lost" every year, but a recreated seasonally. Many programming, engineering, sciences, and business/law/medical analysis jobs appear to be migrating permanently.

To follow up to my own previous post; there is nothing wrong with being a barrista. There is something strange about people with real 4 year degrees (no philosophers) holding those jobs.

Posted by: frowning clown on February 16, 2004 08:32 AM

____

One point among many not mentioned here is the possibility of labor migration from the US to India.

The average annual income in India as of 2000 was $350 according to the India Times. (No, I'm not an economist. If you want a better figure, go look for it.) So if the salary figure of $11,000 given above by WillieStyle and accepted by Radek is correct, an Indian programmer is earning more than 31 times the average annual income. With such excellent inequality of income, I would expect to be living like a king (or queen).

While I labor over my computer, hosts of servants will fan me with ostrich feathers, massage my shoulders (or other parts if they need it), bring my tea and take out the garbage.

Sounds better than anything I can get here for $70,000. Where do I sign up?

Posted by: Handy Fuse on February 16, 2004 09:31 AM

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"Bob" and "liberal" ask if it is certain that the savings created by the outsourcing are passed to the consumer. Very well, let us expand the picture once more to include Emil Executive and Sam Shareholder, who both earn a larger profit by outsourcing, and can use it to improve their lives and be better off. Adam American and Corey Consumer can get paid to do that, as much as the free market grants them.

I once read that the Mob in New York used to force restaurants to buy their highly marked-up parsley instead of buying it from the free market. If the mobsters had had to openly defend this practice, following the example of the American high-tech workers, I wonder if they had sounded something like this: "Are you sure that the lower cost of parsley will benefit the diners, or will the restaurant owner just pocket the money?" "What about all the people that us mobsters keep in employment with all our consumption?"

Another point of view. Suppose someone invented a machine that could create software as well as a single professional programmer, but for a capital cost of $15,000 a year. (We could call this machine "Spinning Billy".) Would inventing such a machine be a good thing or a bad thing for the economy as a whole?

The outsourcing, which the anti-free traders claim is a national disaster, in effect is precisely such a machine! So by following the logic of anti-free traders, inventing such a machine would be a similar national disaster. This is, of course, a rather absurd conclusion. Such a machine would be a disaster for the human programmers that it replaces, but a blessing for the other people who have to pay through their nose for the products that the programmers create. You know, just like all the other technological advances so far.

Posted by: Ilkka Kokkarinen on February 16, 2004 09:35 AM

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"Competition for what I buy, monopoly for what I sell."

Man, that's a great description for what is going on. I have myself previously called the same thing "my own personal socialism", but that one is much better.

Posted by: Ilkka Kokkarinen on February 16, 2004 09:38 AM

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Ladies and gentlemen; the common denominator I read in all the comments here is this:

"We want income stability."

I whish there were a polling mechanism here.

Posted by: Bulent Sayin on February 16, 2004 09:39 AM

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It is time for America to wake up from its long slumber. The jobs are being outsourced partly because we do not have enough qualified people to do the high-tech jobs. Our education system produces substandard to mediocre high school graduates who cannot compete with the Korean, Chinese, Japanese, Indian children in whose countries education is valued more by the whole family, which supports the youngsters (nay, forces them on toward high caliber education).

I am told that even now a high percentage of graduate students in our universities are from outside the country.

It is time that we stop whining about outsourcing of jobs, and spend our time and energy on emphasizing excellence in our schools, especially on science and math subjects. There is no other way to get those high-tech jobs back.

One more point to note: The demographic profile of India and such countries is skewed towards the younger generation: 35% of India's population is below 15 years, and 50 % or so below 30 years (These figures are approximate). It is those people belonging to the relatively younger generation who will take up the jobs of the future, not the 40-50 year-old have-beens. Hence it is essential that we PRODUCE more children who can be educated and trained to fill the high-tech jobs of the future.

Posted by: Hariharan on February 16, 2004 10:22 AM

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liberal: The problem is that there's no competitive equilibrium for software prices, because the price charged is so far from the marginal cost (which, for software, is about zero).

That's true for the shrink-wrap side of the industry. I don't think that's where most programmers are employed. I think the more usual scenario is where there are relatively few or even just one customer. In many cases the cost is charged by the hour. Anyone who tries to charge U.S. rates while doing the work in India can be beaten by a competitor who underbids them.

Microsoft is somewhat unusual in being a convicted monopolist. Most companies don't have that pricing power. I don't suppose it's a coincidence that Microsoft is not the company mentioned most when it comes to U.S. workers training their foreign replacements. True, American jobs are protected, but I think the price to consumers is evident every time they want to buy office productivity software.

Posted by: Christian Murphy on February 16, 2004 11:13 AM

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Hariharan says:

“The jobs are being outsourced partly because we do not have enough qualified people to do the high-tech jobs. Our education system produces substandard to mediocre high school graduates who cannot compete with the Korean, Chinese, Japanese, Indian children in whose countries education is valued more by the whole family, which supports the youngsters (nay, forces them on toward high caliber education).”

You are repeating myths that are simply not true. First we have a surplus of qualified people to do high-tech jobs; why do you suppose there is so much unemployment in the tech industry? Matloff (see above cite) presents evidence that the surplus existed even in 1999.

Your second assertion is even worse as it slanders, the American people and its institutions. Let me quote from Matloff again (from an email) in the context of what Nicholas Kristof wrote in his NYT article http://www.nytimes.com/2004/02/11/opinion/11KRIS.html?th

“The reason India and China weren't
surveyed is that they REFUSED to be surveyed. And the reason for that
is that they are poor countries with abysmal educational systems. India
still has an illiteracy rate of near 50%. China is not as bad as that,
but it's still the case that most children consider themselves fortunate
if economics (theirs and the local schools') permit them to even finish
high school.”

BTW Matloff is literate in Chinese.

Posted by: A. Zarkov on February 16, 2004 11:35 AM

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Shorter Hariharan: "Americans are lazy and stupid, and old people should be left to starve on the streets."

Posted by: Firebug on February 16, 2004 12:22 PM

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>>First we have a surplus of qualified people to do high-tech jobs; why do you suppose there is so much unemployment in the tech industry? >>

Presumably software companies believe they get a better price/quality tradeoff by using Indian workers rather than US workers.

If US workers are unemployed, why won't they work for compensation sufficiently low to induce US companies to hire them?

Maybe the right wing kooks are correct - labor laws raise the costs of employment, hurting those they are meant to help. Or maybe the answer is in the relative costs of living in India and the US.

Posted by: richard on February 16, 2004 12:22 PM

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I have a real easy solution.
Let's play global dollar devaluation.
As we print more, they take more, but soon they get tired of having all of these bits in their computers. They buy more of what they want (aside from the soaked up and temporarily parked "exchange reserves"). Prices for real things begin to go up. Paychecks in the good ol' USA don't. Eventually, we make just a little bit more than those snarky Indian programmers. comparative advantage restored to the United States. Of course we should then be paying around $120 per barrel of oil and all riding rickety jitney busses to work. But those who have jobs will once again feel secure... till Upper Volta begins to suck their jobs away...and then the contractors that focussed on India will begin layoffs in Bangalore....

Posted by: Allen M on February 16, 2004 12:27 PM

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Richard: “If US workers are unemployed, why won't they work for compensation sufficiently low to induce US companies to hire them?”

A good question, and here’s the answer. The IT industry doesn’t simply buy labor on price. If you offer your services at a bargain price in many cases they will still refuse to hire because they believe you will be unhappy and jump ship as soon as you can get a better offer. This is why they like H1-Bs so much; they can’t jump ship because they could get deported. And jumping ship is a real cost to the company if you leave at a critical time in the evolution of a project. Then there is age discrimination. Many IT employers believe that older workers (meaning above 40) are less productive, less submissive and don’t know the latest technology. Even outside the IT industry you see this attitude. Many times I’ve heard managers say: “we need to get some new young scientists around here.” Of course what would happen you offered to work for free? I’ve actually heard of people doing this. Sometimes that works, but amazingly it often doesn’t for the same reasons as above.

Posted by: A. Zarkov on February 16, 2004 12:48 PM

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Somewhere far up the comments someone guessed that major software projects might fail as much as 25% of the time. It's actually usually cited as a bit over 50% failure rate typically (see 'The Mythical Man-Month' for the classic opus on why. Co-ordination/communication costs rising geometrically as complexity and number of programmers goes up is the short version).

Posted by: David Mercer on February 16, 2004 12:52 PM

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"If Aparna Jairam does the same work as Andy but for only 11,000 dollars a year, Corey gets the same products and services and saves an extra $59,000. This money can then be used to improve Corey's life even more. Perhaps some of this improvement can be done by Andy, who gets paid free market prices."

Maybe for some products, but in software I fear it more goes to Dorey, who owns the stock. Now of course there are lots of pension funds who own stocks. But rich people do as well, and do so disportionately. So perhaps the benefits are not going to the average consumer, but to those fortunate who own lots and lots of stocks.

Posted by: Andrew Boucher on February 16, 2004 12:56 PM

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I've been programming since the mid-seventies, and the job market for programmers is as bad or worse than I have ever seen. The bursting of the tech bubble is a part of the problem, but outsourcing is too. My company's policy is to create new postions in India wherever possible, and the only opportunity for promotion I have is to move to Bangalore and train new hires there. I'd be paid about 1/4 to 1/3 of my current salary, given the current exchange rate.

That said, I think the outsourcing boom will be self-limiting. For one, we are already finding it difficult to hire qualified people in India, which is why they want me to go train up some less-qualified people to US standards. For another, the current cheapness of Indian labor is to a large extent an artifact of exchange rates. The Indian government works to keep the rupee trading around 45/dollar, but their own economists estimate that if allowed to trade freely it would be worth more like 9/dollar. If that ever happens then Indian labor won't look so cheap.

Also, immigrant labor is *not* part of the problem. Probably more than half of my colleagues are immigrants, and their presence at companies like mine is part of what makes the US the world leader for innovative engineering, which I'm sure creates more work for everyone. But to some extent we are outsourcing jobs because it is too difficult to import them in the face of anti-terrorist and anti-immigrant paranoia. I hear that even some technical and scientific meetings are no longer held in the US because it too difficult to get visas for foreign attendees, and that is just too stupid for words.

So I'm not concerned about India doing the best that it can, but am concerned that US policy will make the worst of the situation for most of us.

Posted by: Doctor G on February 16, 2004 01:02 PM

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I know a number of Indians who are considering moving back to India because the job market is so much better there than it is here; same talent obviously, but they can be more competitive if they have access to a lower cost of living, especially cheap housing.

Yet if you asked a company in Silicon Valley to allow you to set up a satellite office an hour or two away so you could take advantage of cheaper housing and office space, they immediately declare that it's just not possible since they require daily "face time" with all of their employees. Company policy, you understand.

But then after a few months they'll turn around and ship these jobs 10,000 miles away.

As for people put off with all the "whining" from engineers; after a year of being unemployed in the Boston area (I was a consultant, so no unemployment benefits and I don't show up in unemployment figures), I shorted the Massachusetts housing bubble by selling and moving to New Mexico. I have an IQ of 140, 20 years of software experience, am proficient in c/c++, java, and c#, I have worked on all aspects of coding from device drivers to full-blown j2ee transactional/message oriented xml-based systems, work overtime consistently, and have spent the last 4 years working at the architect level.

According to the pdf's posted here yesterday, there should be a glut of opportunities for people like me at the top end of the food chain. And yet my experience is so completely contrary to the speculations of the paper's authors.

I would really like it if one of the economists here on the board can explain to me what exactly I should have done differently; unfortunately all I hear is a bunch of ideologues whining about the lazy over-indulged engineers in this country and offering the obligatory "suck it up, pal".

Posted by: djs on February 16, 2004 01:45 PM

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Doctor G says: “Also, immigrant labor is *not* part of the problem.”

The key word here is “immigrant” as opposed to H1-B, which of course is a non-immigrant visa program. And as I said before, the H1-B program is most of the problem for American (including immigrants with green cards) IT professionals. Yes some work is outsourced to India, but this is about 5% of the industry work. But that’s 5% of a big number so it makes for dramatic articles and interesting personal reports. The H1-B program hurts (green card) immigrants as much as American citizens. Moreover, unlike pre-1990 visa programs, H1-B does not bring in the “best and the brightest” foreigners. All you need is any bachelor’s degree, and a corporation to hire you to come in under H1-B. The primary attraction is H1-B employees are not mobile, this is what industry wants and gets from our government.

Posted by: A. Zarkov on February 16, 2004 02:51 PM

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djs: It does not matter how smart or experienced you are, you are the victim of over supply. You also lack any kind of organization that will lobby the government for you. In my opinion, technical professionals lack political clout because they are too ego-dominated to act collectively. Thus management successfully divides and conquers. You get treated like an hourly worker, yet you are an “exempt” worker under the law. And “exempt” means not covered by the provisions of the Fair Labor Standards Act that mandate pay for overtime work. So they can work you 60 hours or more for straight salary. Now the chickens have really come home to roost because tech work is becoming a commodity. Change fields if you can, it’s over.

Posted by: A. Zarkov on February 16, 2004 03:07 PM

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Richard: “If US workers are unemployed, why won't they work for compensation sufficiently low to induce US companies to hire them?”

I will happily take a programming job at $28K/year. Then I could at least survive (where I live now in the midwest -- but, on the west coast, I would need more) and do work that I consider meaningful, useful and stimulating. Before, I was making more than 55K/year. To compete with India, how little would I have to make? At $11K, or even $15K, I can make more as a stock boy at a grocery store. I can't afford to pay for food and rent with that.

I think Zarkov is right, that companies don't believe I would be a loyal employee at $28K and so they don't even want to bother with me.

I have spent my 1.5 years of unemployed time developing a product that I am now selling and continue to develop. It's selling about $11K/year. Obviously, I wouldn't work for someone else for less than this.

So, why does any software engineer in India work for such low wages when they could work for themselves, develop their own products, and export their products and charge competitive prices? It's really easy to set up an online store and sell globally, especially if you can ship the software online too. It seems stupid to me that they would accept $11,000 or less per year. I must be missing something. Why are they so stupid?

Is it because they don't know how to design software? They don't even have to! All they have to do is take an existing product and duplicate it - make it do the exact same thing and look the exact same way as something that another company is selling. Then, sell it for much less.

Is it something about their culture that makes them not want to become entrepreneurs?

Posted by: Johnny Keynes on February 16, 2004 03:15 PM

____

H1-Bs can change employers. It's a bit harder for them than for Americans because they can't stay in the U.S. in between jobs but far from impossible.

It's true that the H1-B is not an immigrant visa but it does allow for so-called dual intent. Many H1-Bs are on track to become permanent residents, sponsored by their employers. I don't see a big distinction between them and the people who already have permanent residency.

I'm not sure why it's the job of economists to give career advice to software engineers. Speaking as one of the latter, I think we're in a highly cyclical industry. (It reminds me of what they used to say about civil engineers.) I think that's part of why salaries were so high during the boom: it was to compensate people for the risks they were taking by going into such an unpredictable industry.

Just as people got too optimistic during the boom years I think many are getting too pessimistic during this bust. I've seen several people thinking there will never be any more jobs in software again (or no jobs for anyone over fifty, or over forty, or something). I think it's too early to make that conclusion. The contrarian in me says that _now_ is the ideal time to be a software engineer. Why? Because all the doom-and-gloom crowd are scaring away the competition but companies have not yet discovered all the pitfalls of having their software work done in India.

Posted by: Christian Murphy on February 16, 2004 03:28 PM

____

Christian Murphy: Strictly speaking you are correct, H1-Bs can move jobs in theory, but the practical reality is quite different. In fact your next sentence provides the reason most H1-Bs are in a de facto state of indentured servitude to their employers. Dual intent. Most H1-Bs lust for the green card and want that their employers to sponsor them for permanent residency status. Unfortunately (for them) this is a multi-year process. Circa 1999 it took about six years to get a green card for Indian and Chinese applicants. If an H1-B changes employers, the clock gets reset. So the H1-B is stuck and highly exploitable. And the industry does exploit. The H1-Bs themselves hate it and feel like slaves, forced to work long hours and suffer long commutes. But they are willing to endure it for the promised land of the green card.

Posted by: A. Zarkov on February 16, 2004 04:06 PM

____

I'll admit, I didn't have much sympathy when labor jobs were being offshored ten years ago. Too bad, but that's the way it goes, there but for the grace of God, etc.

Now that it's my industry that's under fire, I've gained some appreciation and perspective.

So I've started looking at where things are made, and buy domestically or even locally if I can.

You know what I've noticed? I haven't noticed.

For most items, domestic manufacture adds a measurable but not really significant cost. Where the prices vary significantly, it's usually because the high-end product is made in the US, while the cheap knockoff is made elsewhere.

This has been brought up a few times in this discussion -- after management, profit and especially marketing are accounted for, how much difference do you think cheap programmers are going to make in the final price of the product? I doubt the consumer would ever notice.

Meanwhile, another worker loses their job. And while it's great that some Indian is now employed, this is my country. And while I'm not a big flag-waver, I consider myself patriotic enough that seeing someone else benefit from my countrymen getting the shaft is pretty cold comfort.

Posted by: Adam on February 16, 2004 04:06 PM

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djs -
Quite right. The argument about only losing the low level jobs is completely bogus. How does one get to be a "high-level professional" in the high-tech industry? By being a low-level coder for some number of years. There aren't two tracks. As the Indian programmers gain experience, they will be able to put the same pressure on the high-level professionals as they put on the low-level ones today. And vice versa, with no low-level jobs to "apprentice" on, there will be no new high-level pros being trained in the US.

Why are so many so willing to believe the free-trade fairy dust?

Someone above mentioned Dr. Matloff's writings but saying they'd lost the link. Here it is:

http://heather.cs.ucdavis.edu/Summary.pdf

I highly recommend it for anyone wanting to get beyond the spin of the high-tech industry.

Posted by: Steve Cohen on February 16, 2004 06:12 PM

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All I can say is: what goes around comes around. During the Internet boom -- or bubble -- everyone who picked up visual basic or HTML thought of himself as a great programming craftsman, and assumed that the high salaries that the bubble made possible were his or her due, acquired entirely by his merit. That was the time you couldn't throw a stone into a gathering of young programmers and not hit a libertarian. (Well, the upside was that at least you at least stoned one libertarian:-)) Letters to the editors of technical magazines were full of missives from young hotshots who were against any kind of Government intervention in the market (which momentarily treated them like kings), sneering, "What has the Government ever touched that it has not ruined?," entirely missing the irony that the boom that launched them was propelled by the Internet which was built by the government. They sneered at the lowly manufacturing workers who were then complaining about loss of manufacturing jobs as losers in the Darwinian game that they assumed that there were permanently going to be on the winning side of. I am sure many of you who are complaining today can recognize yourself in the picture I am giving.

But setting this poetic justice argument aside, there are a few points worth making. One is that only a miniscule percentage of IT jobs are actually moving or even movable. Two, there is no question that losing one's job, even the insecurity that comes about by its possibility, is painful, and the society as a whole should make the bumps easier to bear, but the solution is not to "ban" outsourcing, anymore than the problem for the loss of jobs by carriage makers was to ban auto manufacture. Three, by any reasonably moral calculus, decreasing poverty in India and China -- which has "stolen" many times more jobs from the US workers than India, but of course the posters here from the IT elite didn't raise their voices against that, since they were benefiting from $30 pair of shoes, $15 ethernet cards -- is an intrinsic value, even at the temporary cost of some US workers being affected, especially since the vast majority of the people in the US benefit from the low costs all this implies. It is also of benefit from a national security perspective, since you can either start buying from the poor of the rest of the world and give them hope, or make them hot beds of revolution and chaos,which will be exported in the form of terror or worse to the US. Four, don't hide behind "fair wages" by making it mean that an Indian programmer has to be paid $70,000, otherwise it is not fair. That is economic illiteracy -- the whole point of the game is that an Indian gives you his best value, and you give him your best value in return: don't forget Indians buy Microsoft and Sun software, Boeing air planes to transport their newly affluent from their home towns to Bombay, and give a chance to Qualcom to bid their cell phone technology to the Indians. That is how economics has always worked and will always work. Five, people here have argued that the big software companies simply pocket the savings from hiring Indian programmers, and consumers don't see lower prices. Nonsense. If IBM didn't lower its price -- of course they won't as long as they can get away with it -- a competing company can now offer lower prices to IBM's customers by sharing say half of the savings with the customer. That is exactly how competition works. There is no monopoly in a good deal of the IT services industry.

Finally, to the question, "OK, where do you go when knowledge industries go out of the country?" As if there is just one thing called knowledge. Knowledge comes in levels and depths. Yes, some while collar jobs will go, but there will always be more to do. In any case, by definition, if enough people lose their jobs in thsi country, the companies won't be able to sell products in this country, the value of the dollar will go down, and voila, the American worker's salary won't look so enormous anymore and jobs will come back.

People don't enjoy insecurity and I don't blame them. But there is no point in suddenly getting all socialist only when one's job is threatened, but otherwise being perfectly happy with the bounties of the capitalist system.

Posted by: jasmindad on February 16, 2004 06:25 PM

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jasmindad,

I wouldn't make too many assumptions about all techies sneering at manufacturing workers. A fair number of men in my immediate family have emphysema and black lung from working in coal mines.

If you think poverty only exists in India, I'd be happy to take you on a guided tour of Appalachia.

Posted by: djs on February 16, 2004 06:47 PM

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jasminidad -
You raise some very good points. And a few that I'll take issue with.

The Internet bubble certainly did inflate salaries beyond what was deserved. Some of that was bound to shake out, and as you say, if some libertarians got burned, maybe that's a good thing?

Nonetheless, it's gone way beyond that. People, many of them qualified way beyond the Internet boomers, are being thrown out of work beyond all reason, in a feeding frenzy where corporations are rushing to outsource amidst fears that their competitor will get there first.

I am that rare techie who saw the problems with free trade even when I was riding high. (In a previous career, my machinist's job was outsourced in the eighties, not the usual path). But morality aside, it usually takes personal experience to change someone's consciousness, so I'm not going to begrudge the johnny-come-latelies and "Republicans for Kerry."

Ultimately, American salaries are too high, and world salaries are too low. There may be some need of adjustment. But it should be planned for and implemented humanely and not imposed by a cabal of kleptocrats who accepted government largesse in the name of job creation and then turned around and screwed the people who helped them get where they are.

Posted by: Steve Cohen on February 16, 2004 07:00 PM

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At the root, here's my primary problem; it takes about 10 years of schooling and on the job experience to become a competent programmer. We had about 3 years of accelerating salaries in the bubble and then the government alowed a flood of competitors into our country; no advance warning, no policies to ameliorate the dislocation, no support system of any kind.

I'll repeat; I'm for free trade; Iunderstand the problems of the underclass in the developing world. Also, my sister-in-law is Bengali and I'm well aware that Hindus gotta feed their kids too.

I just have a problem with the speed of the transition and government policies that exacerbated the problem instead of smoothing out the bumps.

Posted by: djs on February 16, 2004 07:02 PM

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djs: "I wouldn't make too many assumptions about all techies sneering at manufacturing workers. A fair number of men in my immediate family have emphysema and black lung from working in coal mines."

I am not making assumptions -- I am painting a picture of a general attitude at that time. I am not foolish enough enough to claim that everyone of them, then and now, held this view. Regarding your point about your family members having black lung disease, the cruel irony that I am referring to is even worse than that. I know people who are one generation away from labor unions, but who are such ferocious economic right-wingers. In fact, one of the most right wing persons I know is the son of a coal miner -- the dad's union wages and state support for higher education made it possible for him to send the son to college.

djs: "If you think poverty only exists in India, I'd be happy to take you on a guided tour of Appalachia."

This is a non sequitor. Of course there are poor people everywhere, but statistically, Indian poverty is so grinding that an Appalachian kid who runs around without shoes is a virtual prince compared to the truly poor in India. (I know -- I have lived in India, and I now live not far from Appalachia.)

Posted by: jasmindad on February 16, 2004 07:06 PM

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steve,

Sounds like we're pretty much on the same page.

I grew up in an area of unemployed miners and steel workers, and I knew I had to find a more forward-looking career, so I put a lot of time and energy into cultivating and broadening my skill set.

But I'm beginning to feel like one of those unfortunates who fled to Nagasaki after the bombing of Hiroshima. ;-)

Posted by: djs on February 16, 2004 07:09 PM

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jasmindad,

Just out of curiousity, do you think Indian programmers would respond any differently if their jobs were threatened by Chinese programers? Do you think they'd happily greet the Chinese techies at the border with open arms, knowing they were sacrificing their jobs for some abstract economic ideal?

Because the Indians I've worked with sure don't seem to view the Chinese with any great degree of fealty. And from what my sister in law tells me, Bengal leans heavily in the socialist/protectionist direction.

I think you should give people like Steve and I some credit for being willing to support the ideals of free trade considering the impact its had on us directly.

We just think the transition could have been handled better.

Posted by: djs on February 16, 2004 07:22 PM

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In fact we could ban outsourcing at least by government entities. There would be nothing unprecedented about such a ban. For example anyone covered by GSA travel rules, which includes federal government workers, and contractors must “fly American.” Thus someone working in say the Department of Energy can’t fly on Air India even if it’s cheaper than the cheapest American carrier.

Then we could reform or even abolish the H1-B program.

Note: I have never worked in the IT industry. I am not a software engineer. Outsourcing or the H1-B program does not threaten me nor is it likely to threaten me. My interest is in promoting the welfare of the American technical professional who has contributed greatly to the prosperity of the US and the world. I am also concerned about the future national security implications of destroying American technical careers for an illusionary short-term gain.

Posted by: A. Zarkov on February 16, 2004 07:27 PM

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AZ,

I would rather have a policy that requires shareholders to vote for the CEO among a field of candidates with published pay packages as well as set the dividend; this would allow the owners to decide whether to give the money to the CEO or keep it for themselves.

And what I'd *love* to see is the employees getting to vote (minority status only; maybe 30% of the total?) for the CEO's of all Fortune 100 companies since they have so much impact on their futures.

Posted by: djs on February 16, 2004 07:48 PM

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djs: I second all your proposals, add them to mine.

Posted by: A. Zarkov on February 16, 2004 07:55 PM

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jasmindad,

One other factor that has to be entered into the outsourcing equation; ever since US companies have started investing in India, they have made it clear to the administration that they would really like to see a nice stable political environment in order to reduce the risk to their investments. And of course the adminstration wants to cultivate ties with Pakistan as an ally in the WOT.

It's obvious that the new negotiations between India and Pakistan is a direct result of the closer relationship between the US and these countries. It's really hard to overestimate the benefits of improved regional stability.

Posted by: djs on February 16, 2004 08:39 PM

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Strictly speaking the law requires H1-B workers to get “prevailing wages.” Here is a case history of how industry circumvents the law by exploiting loopholes.

http://www.programmersguild.org/Guild/h1b/howtounderpay.htm.

There is another myth that reporters constantly repeat in their articles. A company must first try to hire an American before it can hire an H1-B. Not true. Just read the enabling legislation or look at hiring practices. A now expired requirement to that effect only applied to about 1/10 of one percent (1 part in 1,000) of H1-B employers.

Here is a bread-and-butter issue that the Democrats could exploit against Bush whose positions on the H1-B program are both ignorant and unabashedly pro industry. But no, they can’t. All of them (except possibly Kucinich) are essentially as bad as Bush on this issue. If he gets a 10 for badness, then that other mob of mediocrity has an average score of 9.5. However both Buchanan and Nader get a 1.0.

Posted by: A. Zarkov on February 16, 2004 11:18 PM

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djs,

The same thing happening to the US viz China is happening in similar fashion to Japan. Investment and jobs fleeing to the mainland, a flood of low priced Chinese imports. This trend is opening a lot of old wounds and, to some, may be a major destabilizing force in Asia in the near future.

A counterexample to your "other factor" and "obvious" leap to an unsupported conclusion above, perhaps?

Posted by: bobbyp on February 16, 2004 11:32 PM

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When all is said and done there are indications that outsourcing will not fix the labor cost disadvantage for American companies. Outsourcing does not do anything to a huge labor costs of American executives. Cisco, to give one example, paid 100$ of its total profits during its existance to execs via stock options (don't nitpick, I know some of the options went to peons). eBay paid out more than 100% of profits in option compensation.

Martin Hutchinson
UPI Business Editor writes:
"The real advantage that overseas competitors may have against their U.S. counterparts in the tech sector, however, is the cost of top management. In the United States, this can run into the billions, even the billions per person. John Chambers, for example, not the founder of Cisco but a professional manager brought into the company in the early 1990s, cashed in $38 million worth of stock options Friday, but this still left him with options worth $363 million at today's prices, all of which he has received since 2001. In total Cisco's stock option plan has issued 321 million shares, with a total value of $7 billion -- considerably more money than the total earnings of the company since its formation. Except for social security tax, of course, none of this money has been reflected in Cisco's income statement, only in its balance sheet, where the company is buying back shares at a frantic rate -- more than $7.8 billion of scarce cash has been spent on share buybacks since 2001, in years of a tech downturn.

Cisco, paying out 100 percent of its profits to executives through share options, is exceptional (though there are companies such as eBay that pay more.) However, many tech companies pay out 30-50 percent of their profits, when the math is done properly. At this level, top management remuneration is not just significant, it may be the largest single element in the company's costs, an element that is almost wholly out of control while that management remains in the U.S., with remuneration standards as they have been since 1995."

Read the whole thing:
http://www.upi.com/view.cfm?StoryID=20031114-052912-7678r

Posted by: Mik on February 17, 2004 12:57 AM

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"If US workers are unemployed, why won't they work for compensation sufficiently low to induce US companies to hire them? "

Spoken like someone whose job is not going overseas.

Posted by: Stirling Newberry on February 17, 2004 03:35 AM

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Not only are you right, Stirling, but there's also this: many American employers still won't hire anyone for whom the hire would be a pay cut, figuring the employee would be unhappy. So even if you're willing to take a pay cut, you may not get hired. Ever hear the "overqualified" excuse?

It used to be you didn't talk money until the final interview, when it was clear there was mutual attraction. Now I hear often at the beginning of the process, "what was your salary?" or "what are your salary expectations?" I would like to try the line "Why don't you try offering me what you think I'm worth and see if I accept it?" but that would get me booted out the door. On the other hand, since they're really looking for an excuse not to hire greying hair, what would I have to lose?

Posted by: Steve Cohen on February 17, 2004 04:24 AM

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djs: "Just out of curiousity, do you think Indian programmers would respond any differently if their jobs were threatened by Chinese programers?"

No, they won't respond any differently, very likely they would respond worse.

djs: "Bengal leans heavily in the socialist/protectionist direction."

Indeed, explaining why Bengal's growth rate has been relatively poor, compared to those of some other regions of India. They seem to have missed the bus even in the IT opportunities -- nobody hears of Calcultta in the same breath as Bombay, Madras, Bangalore or Hyderabad.

Posted by: jasmindad on February 17, 2004 04:56 AM

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jasmindad,

Thanks for not taking the easy way out and casting US engineers as evil and immoral; not everyone would be so generous.

bobbyp,

I don't see China as a counterexample at all; the Bush administration came into office doing a bit of sabre rattling vis a vis the Chinese; they quickly backed off that stance once we became dependent on China for mediating with the Koreans. And the Bushies apparently welcome Chinese consumption in the US debt market, so the administration has decided to play nice for a while. So it follows that the Japanese would be more willing to expand trade with China now that the US has softened its aggressive stance.

Posted by: djs on February 17, 2004 06:45 AM

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Just out on the NYT; Siemens moving 15000 software jobs from US/EU to India.

After reading those published papers assuring us that only low-level jobs will be outsourced, I guess the Siemens payroll must have been composed solely of junior talent.

Posted by: djs on February 17, 2004 07:10 AM

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Mik
thanks for the link to that very disturbing article. So Dick Grasso's salary WAS reasonable. Those that were whining that ~$147M was "outrageous" were just not with it. The insider sell/buy ratio on these people has been over 40:1 for several quarters now.

Posted by: calmo on February 17, 2004 09:01 AM

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A new website is organizing against offshoring,
here's the mercury news link:
http://www.mercurynews.com/mld/mercurynews/business/7971154.htm

here's the website:
http://www.saveusjobs.biz/

Apparently it is run by an ex-Marine conservative software exec (still employed).

Another website of interest (with the backing of big unions) is:
http://www.techsunite.org/

I don't think we can stop offshore outsourcing (duh!) but I think it is in the national interest as well as in the interest of IT professionals to maintain a set of core competencies in the U.S.


Posted by: camille roy on February 17, 2004 09:31 AM

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What I am looking for is:

1. The paper in a journal one is likely to find in a university library which first showed quantitatively that outcountry outsourcing is either neutral or positive with respect to the economy. Hopefully this would include other factors besides GDP (e.g. additional jobs in the country doing the outsourcing)

2. A recent paper describing a state of the art quantitative model showing the same, considering other (more) factors, also published in an accessible journal.

Posted by: Eli Rabett on February 17, 2004 09:31 AM

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Really great slashdot article on engineering in India; responses from Indian engineers working in India.

http://interviews.slashdot.org/interviews/04/02/17/1654255.shtml?tid=106&tid=185&tid=99

(slashdot is a techie site)

They explicitly make the point that cost of living is the major factor in maintaining competitive salaries.

>>
Thats because cost of living is far cheaper here. Food - about $50 a month, Rent about $175 a month, Entertainment, Eating out etc.. about $100 a month. So in all about $350 a month is more than enough. Whatever remaining usually goes into buying a car or a house.
<<

Posted by: djs on February 17, 2004 11:44 AM

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Let me point out, in passing, that one of the unnoticed factors in this discussion is the consolidation of the software industry and the simplification of the work due to technical changes and standardization. Time was, we had many more firms, many of them in Sili Valley, doing software engineering work aimed at the development and maintenance of major software systems. As the number of operating systems and hardware vendors has shrunk, and technical problems have been resolved, this work has been much reduced. There's only so many times anyone is willing to fund the development of an operating system or a major application like Word. In addition, improvements in hardware performance have made it possible to widely use interpretive languages like Python, Java, and C#, which vastly simplify and accelerate simpler programming tasks. Though there is both a need for internet technology development and many possible applications remaining, private industry is unwilling to fund the work; the old government-funded academic co-op was much more effective. Fact of the matter is, there's a lot less advanced software work than there used to be, and a lot of the remaining work is done by small local firms; it's become a common business service like accounting and bookkeeping.

So it's a different world. I am not sure, really, how much outsourcing has affected the available work. I am sure it is overrated--by the time problems of communications are accounted for ("You ordered this--we gave you that. Pay us to fix it or sue us in Dehli.") I suspect the savings is much reduced, and quality of work suffers as well.

Posted by: Randolph Fritz on February 17, 2004 12:00 PM

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bob: "Now I happen to work at one of the large commercial research organizations. I see increasing commoditization and greater and greater pressure to become a self standing profit center; in fact funding issues have been pushed down to the level of individual contributors and programmers. I believe this pressure interferes with innovation and creative thinking."

Presumably JR Watson, or some other IBM, Research Center, by your email? The same (dangerous) trend -- making research outfits into profit centers -- has been observed throughout the industry, and grad schools/universities. Not only in the US, also in Europe. The (German) universities where I studied/worked were used as/aspriring to be (software) R&D outsourcing organizations for the industry. I related some stories elsewhere that I don't want to repeat. To some extent win-win (students/researchers working on real-life problems and building contacts into the industry), but also introducing corporate bias into research agendas.

In the US, among other things, there has been the sad dismantling of the once proud AT&T Bell Labs (in my perception, anyway). This fits "well" with the general decline and underfunding of the education system.

Posted by: cm on February 18, 2004 08:14 PM

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"Let me point out, in passing, that one of the unnoticed factors in this discussion is the consolidation of the software industry and the simplification of the work due to technical changes and standardization."

Huh?

I think the bane of the software industry is and has been ever-escalating complexity. By making some tasks simpler to implement and extend, you enable complexity at the level of combining tasks. Standardization pushes complexity into the level of business logic. The resulting apps are vastly more complex than was possible ten, 15 years ago. Yes there are fewer operating systems. There are also huge systems built on those the surviving operating systems that couldn't have been spec'd ten years ago.

Posted by: camille roy on February 18, 2004 08:21 PM

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Bulent: "We want income stability."

Actually I disagree. While some people may view it predominantly this way, I think for the most part there are ulterior motives -- people do realize that aside from corporate cost-cutting, the competitiveness of the US-American software industry is at stake. As Camille Roy put it so well somewhere early into the comments, it amounts to removing the base ("training bed") of the software industry. You may quibble with that judgement, but given my background, there is something to it (although I happen to fail to articulate it in a better way).

In line with your much-touted education thing, with which I agree for the most part, it's not just protection of people's incomes, but the US (and "EU" Europe BTW) may be squandering their advanced position in technology, taking past successes for granted, and disregarding the critical impact of generally-accessible higher education.

Posted by: cm on February 18, 2004 08:25 PM

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hariharan: "Our education system produces substandard to mediocre high school graduates who cannot compete with the Korean, Chinese, Japanese, Indian children in whose countries education is valued more by the whole family, which supports the youngsters (nay, forces them on toward high caliber education)."

That's to a large extent because of the private financing of higher education in these parts. Getting a college degree costs tuition, there is a need to pay for the living during those years, and there is an opportunity cost -- you don't earn serious money while going to school. In a business magazine I recently saw a breakdown of the cost, coming down to saying a Master/PhD does not "yield" enough over a Bachelor to cover the cost (including the ensuing debt) for NCGs, and a PhD starts making a difference mostly after age 40, which is probably too long a time horizon for most people's wallets.

Posted by: cm on February 18, 2004 08:36 PM

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Christian Murphy: "The problem is that there's no competitive equilibrium for software prices, because the price charged is so far from the marginal cost (which, for software, is about zero)."

I beg to differ on that one. What you say may be true for software that is once written (and works to specifications), then is replicated/copied as often as needed. You mention the term "shrink-wrapped" yourself.

Most software, though, is made to _changing_ customer specs, receives custom-tailored maintenance, and thus does not have zero marginal cost.

Posted by: cm on February 18, 2004 08:42 PM

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A. Zarkov: "Many IT employers believe that older workers (meaning above 40) are less productive, less submissive and don't know the latest technology."

I strongly believe it is mostly the "less submissive" (harder to bullshit) part. Typically those people are already through several jobs, and 15 years more life experience than a 25-year old.

Finally, which newly-promoted 25-30 year old manager wants a person to report to them who can teach them something about life, corporate culture, or technically?

Posted by: cm on February 18, 2004 08:48 PM

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jasmindad: "... anymore than the problem for the loss of jobs by carriage makers was to ban auto manufacture."

Let's not mix the wrong metaphors here. This is not about banning auto manufacture, but about the outsourcing of carriage making. (Without replacing it by auto manufacture.) And not to imply that anything should be banned here.

Posted by: cm on February 18, 2004 09:16 PM

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cm says:
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jasmindad: "... anymore than the problem for the loss of jobs by carriage makers was to ban auto manufacture."

Let's not mix the wrong metaphors here. This is not about banning auto manufacture, but about the outsourcing of carriage making. (Without replacing it by auto manufacture.) And not to imply that anything should be banned here.
----

Well, yes and no, depends on what is being analogized. You are right that in carriage making to auto manufacture, jobs were not being outsourced, but presumably kept in the country, though as I argue below, not necessarily all of them. But that was not the point of my analogy. In the case of outsourcing, the Indians, with the money made by selling software services, buy Boeing planes, Microsoft products, and US weapons systems, which add to jobs in the US. Conversely, when the US went from carriage making to autos, a certain perceptage of autos were in fact imported from Germany and England, and I suspect that precious few carriages were imported from the same countries. So, when the technologies change, there is no guarantee that the new jobs will all be in the same country. My analogy still holds: in both cases, the job profile changes, both within the country and across nations.

Posted by: jasmindad on February 19, 2004 09:42 AM

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Daniel Pink has the same two tired old arguments in this piece:
1. Indian programmers are decent people, why should we deny them jobs ?
2. Outsourcing is unstoppable, and the invisible hand of the market will generate new good jobs for the displaced. A quote from the article, "20 percent of the budget is freed up to come up with the next breakthrough app".

1. I have no doubt they are decent people, I've worked with many of them. I just can't see any reason why my children should be deprived in order that the Indian/Vietnamese/Chinese be privileged. Check out the Bureau of Labor Statistic's latest figures on the high-growth job sectors for the next ten years - notice 8 out of 10 are low-wage unskilled jobs. Nice.
http://stats.bls.gov/emp/emptab4.htm

2. Outsourcing is not unstoppable. It is subject to political controls: the 'free market' is an artifact of the legal system, which is (or used to be) subject to the political will.
What happens if that twenty percent is freed up to increase CEO salaries and shareholder profits instead of a new app ?

Posted by: Douglas on February 19, 2004 04:25 PM

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