The Wall Street Journal's Dan Bilefsky reports on the shifting international division of labor from Timosoara, in Transylvania. A very nice article. Companies seeking lower costs head east (while trying to stay on the right side of the moving socio-economic frontier where property rights are respected and productive efficiency is attainable) while people with skills seeking better lives head west (while trying not to become desperately lonely and alienated). Romanians--speaking a Latin language--may well have an easier time heading west than many Poles or Czechs or Hungarians:
WSJ.com - European City Wins Jobs -- and Looks Over Its Shoulder: Timisoara, Romania, Struggles To Keep Outsourcing Boom; Engineers Seek Higher Pay Joining EU Could Blunt Edge
by DAN BILEFSKY, Staff Reporter of THE WALL STREET JOURNAL, July 8, 2004; Page A1
TIMISOARA, Romania.... dozens of young software engineers sit hunched over computers in a neighborhood still pocked with bullet holes... beneficiaries of this city's decade-long drive to transform itself into a high-tech center. But Mircea Stoinescu, a 22-year-old software-engineering student... would trade in Timisoara's war-scarred offices for Silicon Valley in an instant. "Why would I want to wait around here 20 years for wages to rise when I can get what I want tomorrow?" he asks. "I want my Opel Astra and I want it now." Timisoara spent years successfully promoting its pool of talented engineers.... The giant pig-processing plant ... has been obscured... Alcatel SA, Siemens AG and Solectron.... Some 5,000 foreign companies have moved here.... But Romania's push to join the European Union in 2007 will likely force the country to abandon many of the incentives that draw companies to invest here -- including a zero-percent income-tax rate for software engineers. City fathers worry that a brain drain.... Already wages here are slowly rising, and some multinationals warn they will move farther east to Ukraine, Russia or China.... Romanian technology leaders say about a third of the nation's information-technology professionals left last year, lured by the chance to increase their pay as much as tenfold....
[J]obs are racing to the bottom of the wage scale, moving from places like Detroit to Mexico and on to China. Meanwhile, individuals, as they gain marketable skills, pursue the highest pay they can find elsewhere, potentially wreaking havoc on the local economies they leave behind.... Mr. Bedros... is the person most directly behind the city's transformation. A designer of Romania's first computer, he lured the French telecommunications firm Alcatel here in 1991.... Timisoara... first European city to install electric street lamps in 1881.... Romanians flocked here to buy black-market Levi's jeans and banned copies of George Orwell's "1984"....
While the average monthly Hungarian wage has jumped 20% in the past two years to about $725, the average in Romania is still only a quarter of that.... Ioan Jurca, Mr. Stoinescu's engineering professor at the university, bemoans the exodus of bright, young engineers.... his daughters... recently settled in Lausanne, Switzerland.... Mr. Bedros estimates that 2,000 of Romania's 6,000 information-technology professionals emigrated last year.... Demand for the Romanian engineers who remain behind has become so fierce that the chief executives at some of Timisoara's largest companies have made an informal gentlemen's agreement not to poach each other's star engineers.... "This arrangement may not sound very American, but we respect each other and so try and work in a nonaggressive way -- there's no reason in this town for companies to make a war against each other," Mr. Bedros says.... For the time being, wages remain competitive for employers, and investors have kept on coming. Siemens recently announced plans to double the number of software engineers it employs here to 1,000 from 500. Microsoft and Cisco Systems Inc. recently opened their own training centers....
At Timisoara's Continental hotel -- whose faded elegance once provided a backdrop for meetings of the city's communist generals -- Alcatel's Mr. Bedros recently assembled Timisoara's elder statesmen to debate how to keep luring foreign investment to town. Over a meal of stuffed cabbage, the six men who run the city -- including the head of the country council and the rector of the university -- said they feared a brain drain by 2010, when Romanians will likely be permitted to work and live in any EU country....
At Solectron's factory, the size of 12 football fields on Timisoara's outskirts, plant manager Walter Celglia says he has new concerns about competition from China....
My advice to the City Fathers of Timisoara? Lose the stuffed cabbage. Yuppie Mediterranean-based cuisines, coffee bars, and lots of consumer electronics and connectivity can do wonders.
And readers should remember that there is a distinction between the wealth of the City Fathers of Timisoara--or even the wealth of Timisoara--and the wealth of the residents and ex-residents of Timisoara and of their customers, and of the others who might compete for their business.
Posted by DeLong at July 7, 2004 10:06 PM | TrackBack | | Other weblogs commenting on this postSee article in this past week's NYer on Office Tiger (or Flying Tiger?) the corporation that's helped US corporations, law firms, et al to offshore jobs to India. The article not only talks about the jobs but how bad the infrastructure is, how little the two guys running the business care about that. Totally unaware of how an infrastructure they don't notice exists or ever think about made it possible for them to become what they are--and is a product of attitudes (i.e., community oriented) they think wrong. Why contribute to the development of a similar infrastructure in another nation? Who cares if there's potable water or even a steady supply of clean water when you can sell Sprite instead. The owners of the business received a lengthy tax holiday from the city) and how they're figuring they'll shift operations as soon as wages get "too high" to a more low paying region or nation.
I see how corporations can increase their profits by outsourcing. I can see how--even if briefly--workers in other nations can be benefited (temporarily) by jobs moving from the US. I fail to see how I benefit or most US workers benefit from the departure of well paying jobs. Cheaper consumer goods aren't such a bargain if an increasing number of people can buy them or pay for health care (without filing for bankruptcy after a serious illness or injury).
How will people in India, etc., feel when these corporations dump them after 4-5 years for cheaper pastures? And how much less "cheap" would these jobs be if the cities/regions involved weren't offering tax holidays? Isn't that just another corporate subsidy? And enabling corporations to (once again) not pay for use of infrastructure, etc., it uses? Free trade as it's "working" now is a failure as far as I can tell, if increasing the prosperity of the world's inhabitants is a goal. A very small number of people are garnering most of the "prosperity." And the rest of us get to pay for the pollution and whatever else is left behind.
Posted by: azurite on July 7, 2004 10:25 PMazurite:
Offshoring has very little to do with free trade - starting with completely ridiculous idea that the sovereign people in the democracy will allow themselves to be treated as "input" subject to optimization, like coal or pork bellies. Oh, wait...
Posted by: bubba on July 7, 2004 11:01 PMbubba: I'm not sure I'm getting yuor point. Certainly offshoring has quite a bit to do with free trade, and even more so with "free trade".
azurite: Good points that you make. As I hear, a lot of infrastructure is being created and social & governance change going on in India's high-tech enclaves. However, those are just enclaves, but industrialization in Europe started similarly -- not everywhere at once. Hopefully more is to come for the whole countries (India, China, etc.).
Regarding the "cheaper pastures", there are only so many pastures to go around. On the other hand, in Germany provocative remarks about lengthening the working week to 50 hours (to increase "prosperiy") have been made and are the talk of town.
Brad: losing the stuffed cabbage
Are you sure you know what you are talking about? I will take stuffed cabbage meals over your Starbucks (?) coffee bars any day! (Well, maybe not _every_ day. But I would eat well made "stuffed cabbage" in preference to the crap that they serve in our cafeteria almost every day!)
Whether it's bubba shrimp or tekkie chimps,
outsourcing is just dumping. Dumping shrimp
below cost of production in another country,
or dumping chimp-made software into the USA
at a wage that would cover a cardboard box
for a hovel, bus fare, and dumpster dinner.
Corporations are the anti-Christ, word up.
Whenever Carleton S. (Carly) Fiorina tells
me the global race to the bottom is just the
"inevitable evolution of business practices",
I'm reminded of that old saying about Israel
being "our only friend in the Middle East".
Before 1948, when Britain confabulated Israel,
*everyone* in the Middle East was our friend!
Now that we're Sharon's lackey, *everyone* is
our sworn blood-oath enemy unto death. Hmmm.
Before trans-national corporations and the
Fourth Reich of Corporate-State Fascism under
Reagan, I had a pretty good union job. Then
under Reagan's piss-on-my-back-and-tell-me-
it's-raining "trickle down" economics, I got
RIF'd by "downsizing" (load the donkey double).
Then after ten years of going it alone, SOHO,
my company got eaten alive by the Borg, MSFT,
which pays no taxes, in fact, gets a *refund*!
Now it's post-9/11, I'm a have-gun-will-travel, and they're telling me they're shopping my job out for $12/hr in India or points west.
Take it or leave it.
So when Carly, or Condi, or whatever her name
is, talks about global outsourcing, I tell her
the same thing the Gulf Coast shrimpers told
the International Trade Commission: tariffs!
Tariff the mutherf&*kers! Make them pay their
corporate taxes! Make them pay worker benefits!
Make them absorb their impact on local community!
When they threaten that those corporations under tariff will just move their operations offshore,
then let them! They'll still have to pay tariffs on their sales back into the country, and if the principals are loafing in a CONUS sales office, then no matter what country they're incorporated in, they are a US-held company. Tax their asses!
Either that, or start selling homes for $20,000,
because that's all you can afford on a globally
competitive computer software programmer wage.
$12/hr with a college degree. Capiche?
American workers are Prometheus, bringing the fire of truth and technology to the world. In return, the Corporate Zeus sends their eagles to eat our livers every night, chained to the rock.
Prometheus Unbound! Throw off your shackles,
fight the good fight, or eat dumpster dust.
It's really that simple. Now. Today.
Azurite, why don't you go back and read the New Yorker article again? It isn't the two Americans who started Office Tiger who think being community-oriented is wrong. In fact, both of them plan to go back into politics in the States -- which is hardly a rich person does if he doesn't care about community. Instead, it's the Indian entrepreneurs and computer workers who are indifferent to politics. As Boo writes, "It baffled Tigers [this is Boo's name for the workers] to learn that Joe and Randy hoped eventually to enter Republican politics . . . Government would do best, Tigers liked to say, by getting out of the way."
The Indians Boo writes about are undoubtedly wrong to downplay the importance of infrastructure. But blaming this attitude on the bad offshorers is just demagogy. At least read what an article actually says before levying your attacks.
Posted by: Steve Carr on July 8, 2004 04:57 AMTurnips, now stuffed cabbage -- Brad has to be reeducated about his food prejudices. When the health Nazis take over, he'll be forced to eat democratically and healthfully even if it kills him.
Beetroot, too. 3 meals a day until he's "better".
Posted by: zizka / John Emerson on July 8, 2004 06:32 AMAdd me to the WTF reaction about the stuffed cabbages.
Anyway, I don't know what Brad's getting at with the Yuppie bars thing? Shouldn't capitalism provide that? Why isn't it?
As far as consumer electronics -- hey, I make 5x as much as an Eastern Europe engineer. Do you think the Japanese are going to ship stuff to the Romania that they could ship to me in the USA? Mebbie they'll reduce the cost of a HD TV by a factor of 5 for that particular market, but I wouldn't hold my breath.
Posted by: a different chris on July 8, 2004 07:16 AMandrew norton gripes:
"American workers are Prometheus, bringing the fire of truth and technology to the world. In return, the Corporate Zeus sends their eagles to eat our livers every night, chained to the rock."
At a minimum, American workers produce enough proclamations of unique suffering to supply the world several times over. From these comments, one would almost think that if a union shop could attain wages of $1,000/hour by excluding all labor willing to work for less, we'd all be better off. Then, verily, the American Worker could take his rightful Place atop Olympus!
Posted by: Jason Ligon on July 8, 2004 07:58 AMOatmeal, too. Lots of healthful oatmeal. And plain tofu.
Posted by: zizka / John Emerson on July 8, 2004 08:03 AMI remember "Engine Charlie's" comment back, I think, in the Eisenhower admin and the great blowback that engendered. Wonder why Carley's comment didn't generate as much negative media comment.
I about blew a gasket hearing her. The image that came to mind was Carley standing on top of a great high peak built by the labors of Americans past and present and saying to those laborers, Thanks, now get lost.
andrew norton: I don't agree with the Prometheus thing, but you have a good point about offshoring of corporate profits. (But this is different from offshoring of labor.)
To my knowledge, US companies that offshore labor (i.e. create offices abroad, hire & get work other than sales & local support done there) don't get specific tax breaks for that, only cost-of-business deductions and foreign tax credits for taxes they have to pay abroad, and they may potentially get favorable treatment under double-taxation agreements by getting lower-rate taxes abroad and none in the US for their _foreign_ earnings. Is anybody aware of tax breaks when re-patriating foreign profits?
On the other hand, companies get all kinds of domestic tax breaks, for example R&D credits to "stimulate" "innovation". That is a big thing in software companies, which are typically very heavy in R&D (or what passes for it). What I don't know is whether the tax breaks are only for domestic R&D expenses, or worldwide. Anyway, if a company offshores labor, it becomes difficuly to attribute R&D expenses properly -- who does how much R&D and how much grunt (non-R&D like maintenance) work? Even if one is honest, the line is hard to draw. However, the amount of fudging is probably limited, as a company with large offshore offices probably has a difficult case arguing to the IRS that all the R&D work is done in the US, or all US work is R&D. Can anybody offer qualified insight on this?
And getting back to andrew's point, if tariffs are applied to foreign companies, taht should of course include foreign subsidiaries of US companies in the targeted category.
dibert dogbert: In my language we have a saying for this, which goes "the moor has done his duty, the moor is dismissed".
Posted by: cm on July 8, 2004 08:56 AMThe cabbages are a whole lot more interesting than the usual complaining about trade. If you don't like trade just shut yourself in and grow some vegetables in your garden. Don't come crying to me when you want coffee or a dentist.
What strikes me as odd is that Timosoara is so close to Hungary with its profusion of tasty food and excellent coffee. In fact it was part of Hungary until WWI, calling itself Temesvar. What gives? Did the past eighty-five years eradicate all traces of good taste in Transylvania?
Heck, even Serbian coffee can't be all that bad.
Posted by: Chris R on July 8, 2004 09:27 AMI understand that the local elites are worried that their labor is going to cost too much to be treated like a developing country (i.e. tons of cheap labor, undercut production costs, huge profits for elites/transnationals). It even sounds like they had the good sense to form a cartel. But Brad, what are you drinking? Why would importing western consumer good help this situation?
The reality is that when labor has the freedom to move, it's going to move to better markets. That's rational. When the high paying wage earners leave, all you have left is the low paying wage earners. That might lead to lower wages on average per laborer. Wouldn't that HELP the local elites maintain their ties with the transnationals? Isn't it to their advantage that the highest paid workers leave so they can have the less paid workers continue to produce? I note that nobody talked about producitivity and what profit looks like in this little town.
However, if you bring in western consumer goods, then you're trying to change the lifestyle of the people there without changing their payrolls. Why would enlarging a service economy with goods that can't be sustained by non-service economy income increase their well-being? How does shifting the employed populations from goods to service sector help the town? How does it help those people improve their lives? It doesn't - take a look at any underclass neighborhood in America to see what a McD's does for them - zilch.
Shouldn't the town fathers do the proper capitalist thing and provide some public goods that might allow people to (a) increase the number of employeed, (b) increase standard of living (wellbeing, not income), and (c) increase the likelihood that local entreprenuers will be able to build local markets? Wouldn't that be more sustainable then opening another starbucks?
as always,
devgirl
is confused
"How does it help those people improve their lives? It doesn't - take a look at any underclass neighborhood in America to see what a McD's does for them - zilch."
Hmm. This is a pretty bold statement that I don't think can be proven. That a Harlem McD's doesn't bring Wall Street wages isn't to say that it does zilch. Wall Street IS part of the much maligned service economy, by the way.
Where do these proposed public goods come from?
Couple of points here.
1) Timisoara is not in Transylvania. It's in the Banat, which is just to the south and west of Transylvania. Transylvania is all wild mountains and dark forests; Banat is flat as a tabletop, the Balkan Iowa.
Transylvanians look down on the rest of Romania, but the Banat folks look down on Transylvania.
2) Timisoara has always been the most socially and intellectually advanced city in Romania. Older readers may recall that the 1989 revolution that overthrew Ceaucescu started in Timisoara, not in Bucharest. It's sort of the Seattle of the Balkans.
3) Putting aside the specific issue of stuffed cabbage, it is a plain fact that Romanian food is awful. A British acquaintance once told me that it was "Like traditional English food, but without the fancy spices."
We're talking grilled, fried, and boiled meats, served with minimal seasoning and lots of starches. Wonderful if you're going to be digging cabbages in the rain for the next twelve hours, but not the best stuff to code on.
4) They already have the coffee shops. Not Starbucks, but little cafes with outdoor tables and slow, slow service. They're also gradually getting fern bars and Irish pubs -- there are half a dozen in Bucharest, and at least two in Timi.
5) Serbian coffee rocks. It's basically Turkish coffee but made with better beans. The tragedy of the former Yugoslavia was that it was the only country with Turkish coffee and Austrian pastries...
6) Brad, key point: Romania is /just/ on the good side of that moving socio-economic line marking respect for property rights and the rule of law. A good metric: can you win a major legal action against the government? In Romania, yes you can, though it will take a long time and won't be easy. In, say, Russia... no.
Note that this is a relatively recent development; it wasn't true ten years ago. A strong desire to join the EU has been a major factor here.
7) Aside from an alarming current account deficit, Romania's macro indicators are strong. Very strong. Steady sustained growth, disinflation, currency stable, interest rates falling, productivity up, wages up, taxes cautiously being cut, unemployment down.
All growth from a very low base, to be sure. Romania was a complete basket case just four or five years ago. But still, things here are going in a good direction rather briskly.
So, the bond thing doesn't surprise me either. Romania is suddenly being discovered.
The curious are invited to click on my name; my wife and I live in Bucharest, and we have a blog that occasionally comments on exactly some of these points.
cheers,
Doug M.
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