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  • Offshoring jobs part 2

    Posted by In-Cog-Nito on January 29th, 2004 (All posts by )

    Lex sent me an excellent article yesterday about the effects of offshoring U.S. IT jobs.

    It’s very readable and compelling. I like the analogy the author uses with movies and the portrayal of computers at the work place:

    “The growing détente was reflected in 40 years of Hollywood films. Desk Set, from 1957, was about a research department head who keeps her job only after a battle of wits with a computer (the machine blows up). By 1988, the computer had moved from threat to weapon: In Working Girl, Melanie Griffith has both a stock market terminal and a PC on her desk and uses her skills and knowledge to move from secretary to private office. By the time Mike Judge made Office Space in 1999, the PC had faded into just another bit of cubicle furniture.”

    I found another good article that makes a similar argument albeit slower to read and more numbers oriented.

    I like the analogy this article makes comparing the rise of IT India to the proliferation of the desktop computer. There’s no catchy line, so I’ll try to spell it out. When computers first started, the money was in making stuff like DRAM and chips. But chips were expensive to make, so computers were expensive to buy. With the offshoring of chip production, computers became a cheap commodity, and we have mass proliferation of the desktop PC. With a PC on every office desk, productivity soared.

    Like PC’s, the money now is in writing code and trying to make sense of all that computing power. By extension, the final product is prohibitively expensive, such as an integrated SAP or Oracle system. It’s expensive, so only the richest companies can use it to boost productivity. So if you can offshore and decrease the cost of technology by magnitudes, you make technology more accessible to more people. And as this previously expensive technology proliferates, you get another jump in productivity.

    Creative destruction has been the rule for centuries, and it’s still the rule now. I probably should have picked up on it earlier, but it’s the most compelling argument I’ve heard for offshoring service jobs to India. I’m liking this offshore idea more and more now.

     

    34 Responses to “Offshoring jobs part 2”

    1. Sandy P. Says:

      Someone commented in the WSJ last week, that Bangalore was becoming more attractive than India, $150/m v. $300/m for the work his company did.

    2. In-Cog-Nito Says:

      Race to the bottom eh?

      I can’t speak intelligently about the quality of work that comes out of Bangalore, but I’m guessing you get what you pay for.

      Thanks for pointing it out, I’ll keep an eye for it.

    3. Sandy P. Says:

      And last year, the WJS had an article about Africa and clothing manufacturers. Some women were striking because they weren’t being paid enough. Interestingly, China was looking to outsource there.

      And a friend who came back from Italy said, completely unsourced, I know, that some of their vaunted shoes were also being made in China but their labelling was not indicating that.

    4. Lex Says:

      Nito, here’s another article about outsourcing, via The Corner. Same basic points.

      This is the same old free trade argument we’ve heard a million times, except the people getting nailed are middle class and articulate enough to raise more hell than the guy who worked at a steel mill.

    5. In-Cog-Nito Says:

      Sandy,

      That’s pretty funny about China outsourcing to Africa.

      I can believe the Italian shoe story. Plenty of old world craftsmanship going by the wayside. It’s a shame, but a fact of life.

      Funny thing was a few years ago when buying a new car, I test drove a BMW 3 series assembled in South Africa. No offense to the South Africans (just worked with one in fact, nicest fellow) but you can tell the quality was definitely not up to par with one produced in BMW’s Munich plant. The knobs and paneling felt a little cheaper and flimsier, the material didn’t feel as plush, the door didn’t close as solid, and the stick shift didn’t shift as smooth. I don’t know if they have improved since then, but that’s what I remember.

    6. In-Cog-Nito Says:

      Thanks for the article Lex, I’ll read it over. Really mellow day at work today.

      Good point about the middle class having a bigger voice than the steel mill guys. Living in the Bay Area, I can picture the silitech yuppie going berzerk over someone having the gall to take away his starbucks money.

    7. Lex Says:

      Here’s another one, via Instapundit. This is a good quote: “Hewlett-Packard CEO Carly Fiorina was more blunt. ‘There is no job that is America’s God-given right,” Fiorina said. “We have to compete for jobs.’” Ms. Fiorina sounds like a realist.

      It also says this:

      The Chinese government has indicated it plans to favor purchasing China-made software products over others. Such protectionism would put a damper on U.S. technology growth. It would also hamstring the Chinese, as buying decisions would not be based solely on the best product for the job.

      I perversely like this. Let the Chinese do something really stupid like this. I still think China is our long-run enemy, most likely. This “stick in the eye” approach to the USA would hamper Chinese growth, and make China the villain for American protectionist, so we could direct our enmity at them. Meanwhile, the overseas business would go to India, the country of the future — or at least I hope so. Forward the Anglosphere.

    8. Sylvain Galineau Says:

      Nito, different quality for BMW 3 Series in South Africa does not necessarily reflect the lower manufacturing abilities of the locals. It could reflect choices by BMW, and for a variety of reasons. For instance, it might have decided that keeping its profit margins on each vehicle AND selling a certain number of them on that market required some shortcuts, which were acceptable to the consumers there.

      Granted, factory workers in South Africa are also cheaper. But in this day and age, wages are a much smaller component of the final price of a high-end vehicle. So in order to sell this many units of the vehicle, with such and such margins, cost-savings were made on some components.

      VW, Ford, Toyota and others have done the same thing in South America. Only very recently have both sides of the continent been supplied by the same Mexican plants.

      And if Mexico can make Jettas or Passats for Americans, I’m pretty sure South Africans will make excellent BMWs when and if management decides it makes sense. This is manufacturing we’re talking about. Extremely highly automated assembly work. Differences of quality do not reflect labor competence anywhere near as much as they reflect hard-nosed cost-and-benefit analysis.

      Finally, there are exceptions to every rule. My own 330xi needed its radio console replaced almost immediately (defective LCD display), the logo on the hood moves enough you could probably pop it off with a flimsy knife, and because it was not designed for the kind of weather we’ve had around here, the joint around the sunroof might need a premature change. And it came from Germany. There are other details, but I have to wonder if some of the little shortcuts and defects owners notice on their luxury German cars do not also reflect the high cost of labor over there. It cuts both ways. Paying people a lot is no guarantee of craftmanship if the price you can charge does not follow the expense. Never mind when margins contract, as they do now (imported BMW prices have not increased anywhere as fast as the Euro, as far as I can tell…).

      (Don’t get me wrong, though. I love the car. I’d buy another one again, and probably will.)

    9. In-Cog-Nito Says:

      Sylvain, thanks for the thoughtful comment.

      Yes, the lower quality final product reflects more inexperience than ability. I think BMW just started in S. Africa at that point, so it must take time to sort out all the kinks. Same thing with the Z3. They were built in the new plant in South Carolina, and from what I hear, there are plenty of glitches in the cars that came out of that plant. My thing was that if you’re going to buy a BMW, like Italian shoes, you’re expecting good tried and true quality. Shifting manufacturing around in general will be disruptive to that image. Plus I think you lose a bit of the cachet of the brand when you’re main selling point is “German engineering”. Call me a snob, but if it’s German, I want it made from start to finish in Germany = )

    10. in-cog-nito Says:

      Lex, good quote from Carly.

    11. Sylvain Galineau Says:

      Nito, I was actually saying the lower quality might reflect actual choices by BMW for this local market. VW Bugs made in Mexico were not as fancy as the ones made in Europe either. But that was a VW management choice given the local economic constraints and their own margin goals.

      Lex, regarding China and software. I don’t think they are going to hurt themselves since most software is not made nor designed for the Chinese markets or its particular needs. I don’t think it will damage its growth. But as IT spreads across the Chinese economy, it will accelerate the growth of the better-off urban middle-class most likely to oppose the regime.

      And I sure hope the current anti-China protectionist catcalls are only par for the election course. This is the last thing we need, and they would hurt us more than they’d hurt them in the longer run. Let’s not forget Japan and the rhetoric of the 80s.

      When it comes to India, there is a timing coincidence I find interesting. The media’s perception of offshoring started around the same time H-1B visa quotas expired and went back to a third of what they were. If you can’t hire Indian talent anymore – remove Indian programmers and 1/3 of the Valley is gone – and if they can’t come here, guess what…

      In this particular economic sector, tight immigration rules fuel and support outsourcing. And all in the name of protecting the American worker, of course.

    12. rsasko Says:

      Just gotta LOVE these comments! May your jobs get outsourced and hopefully tomorrow if not sooner. I would love to see what you have to say then.

      I have no problem competing with anyone, anywhere in the world. What I have a problem with is competing with anyone, anywhere in the world when I still have to pay for housing, education, and all of the other things from sectors of the economy that DO NOT have to compete with 25 cent an hour wages and living costs. I cannot import many things that I have to purchase at a cheaper price. If my wages are going to be cut in half or worse I had better be able to buy a house for $300 a month. Good luck! “Get more skills” they say. First off, just how are we supposed to pay for that Master’s or Doctorate on $10 an hour? Of course those wonderful new skills may of course be worthless and more and more people are finding that out. We are going to be the best educated unemployed/underemployed in the world.

      In the twelve years since I graduated college I have had to switch careers five times due to real life infringing upon economic and political theory.

      Here is what I have had to deal with:

      Affirmative action from AT&T/Lucent. “Sweetie, please don’t tell anyone, but I cannot hire you for that job. I cannot even hire you for the mail room with a college degree. You are the wrong color.” (And that is the SECOND time in my working life that I got blindsided by legalized racism and it wasn’t the last. I wasn’t racist before, but I doubt that I will never hire a black now. Chances are he or she is completely unqualified and/or incompetent if the instances of Affirmative Action that I have run into reflect African-Americans in the workforce as a whole. And so far they do…unfortunately. SIGH Sorry that it has come to this, I dislike making blanket racist statements but the burden of proof is on them at this point. Pretty sorry state of affairs when my best friend in high school was black. (Real life experiences trump touchy-feely sentiments.) I have a dream….and it turned out to be a quota.

      “Japanese Management Techniques”. In other words, wipe out entry and mid-level management jobs while those above who got their start in those same jobs keep theirs and their fat paychecks while trying to cut costs and improve the bottom-line of the company that their decisions have run into the ground. Prime example of “screw-up/move up”. Sayanara!

      Nepotism. Same upper-echelon that kept their jobs while they eliminated most entry and mid-level white collar positions manage to insert their spawn in few positions remaining. Future contenders of “screw-up/move up.” C’est La Vie!

      Corporate Bankruptcy. New companies move into market and offer no-frills with low prices. Not a problem. New companies move into market and offer no-frills with low prices while customers use YOUR skills, YOUR knowledge, YOUR experience, pay nothing for it and then buy at no-frills competitors at lower prices. Interesting business model is emerging in this day and age: have competitors pay for your payroll. And this was prior to the vaunted “New Economy” World Wide Web. It is even easier to do now. Watch as the entire middle is wiped out of retailing. “Mom and Pop” (and their middle-class wages) stores are history. Don’t believe me? Check out groceries, bookstores, computers and electronics in general, flooring, you name it. Anything where a customer can walk into a store that has to pay wages, electric bills, rent, heat, and of course SALES TAX, the customer can: use that “brick and mortar” store as a browsing public library. All they need do is copy down a title, or an author,or artist, or a manufacturer, or a model number, then go home and buy it on-line cheaper. Of course it is cheaper! Amazing how much money can be saved by transfering legitimate and required costs of doing business to one’s competitors. Of course many of those internet companies are wholesalers violating their agreements and the warranties on the products but don’t let a little thing like legal contracts get in the way. Screw thy neighbor! Internet, Wal-mart, and Neiman-Marcus! What a lovely thought! What a shopping experience that is going to be! Notice how the only retailers who did well this Christmas season were high end and low end?

      Illegal Immigration. I would just love it if 14,000,000 doctors, lawyers, college professors, CEOs, stockbrokers, etc. started pouring into the USA from the UK, Canada, Australia, and New Zealand (English speaking countries) and started doing YOUR PROTECTED JOBS for a fourth of what you make! So what if they live twenty people to a house? You should just have to adjust and move in with your parents to cut costs. And maybe your grandparents as well. And your cousins. Second cousins too. (Noticed how kids are living with their parents longer and longer? They can’t afford to move out. If they move into an apartment they may never be able to save the downstroke for a house due to rental costs and taxes. If they live at home they can save money, move directly into a house and get that fat tax break. Do an economic analysis of that!) The market has spoken and even if your replacements are only half as productive as you are, your customers/employers are still saving a boatload of dollars. Can’t wait to see you in your new jobs! “Would you like fries with that?”

      There is something much, much larger going on in the new information age economy. Years ago mechanization replaced farm workers and now we pay what few farmers that are left not to grow food. Those displaced farm workers went into manufacturing. Now if all of our or the world’s manufacturing plants went full out on production we would be hip deep in “stuff”. That is happening right now in computers and electronics. Prices are dropping so fast that in a couple of years the boxes the electronics come in will cost more than what is inside of them. Are we at the point where we are going to have to pay manufacturers not to produce? We could be. Another key aspect of what is occuring is the rapid rise of household debt. People are borrowing on credit cards and against their mortgages to keep their standard of living the same. (Not to mention working second and third jobs and longer hours.) Rapidly rising housing values that make this possible will only go on for so long. Official job creation is almost nil if you haven’t noticed. Economists are talking about all of the new self-employed who are starting their own businesses that are not being counted in the statistics. I agree. What economists are NOT talking about is just how many of these new self-employed people are working for CASH and not paying taxes. The only way many people are competing with illegal aliens and dirt-cheap foreign competition is by eliminating Uncle Sam out of the equation. 50 cents spends like a dollar when the IRS doesn’t know about it. That’s right, millions upon millions of Americans are competing with illegal aliens by becoming illegal Americans. Don’t believe me? Check out the rise in “No Documentation” home loans. Specifically tailored for the cash-rich and 1040 poor. Wonder how much of the budget deficit is due to taxes not being collected?

      My father told me when I was little that the sound financial rule of thumb was to buy a car that is one-third of what one makes and a house that is three times what one makes. The average price of a new car is $26,200. The average price of a three bedroom house (in a non-gang infested suburb) is roughly $240,000. I happen to know a heck of a lot of people who are wondering where all of those $80,000 a year jobs are located that make financial sense in this day and age. And no, two $40,000 a year jobs don’t cut it. It is quite amazing how much day care and all of the added costs of two working parents does to the bottom line. Not to mention the damage to the kids that we are just beginning to recognize.

      I have no problem with people talking about economic theory and promoting free trade and so forth. What you also need to do is talk about SPECIFIC things that those affected can do to cope with it and promote foreign competition in your OWN balliwick! And don’t you dare say “get more skills and/or education” to the rest of us. I assure you that if you guys keep on saying things like that, after the revolution we will be living in your houses and sitting behind your desks. With our feet up. Just like you are now.

    13. In-Cog-Nito Says:

      Rsasko,

      Slow down there tiger. Let me tackle your points one by one.

      “I have no problem competing with anyone, anywhere in the world. What I have a problem with is competing with anyone… …First off, just how are we supposed to pay for that Master’s or Doctorate on $10 an hour? Of course those wonderful new skills may of course be worthless and more and more people are finding that out. We are going to be the best educated unemployed/underemployed in the world.”

      It’s tough. I’m in the process of doing something along those lines. Life is a bee itch. Our parents did it, and I want to make it. So I make sacrifices. But I agree with you that a lot of these new skills training are useless.

      “Affirmative action from AT&T/Lucent. “Sweetie, please don’t tell anyone, but I cannot hire you for that job……I have a dream….and it turned out to be a quota.”

      No arguments from me here. I hate affirmative action. It’s unfair and counterproductive. If they truly want affirmative action, I should be playing in the NBA.

      “‘Japanese Management Techniques’. In other words, wipe out entry and mid-level management jobs while those above who got their start in those same jobs keep theirs and their fat paychecks while trying to cut costs and improve the bottom-line of the company that their decisions have run into the ground. Prime example of “screw-up/move up”. Sayanara!”

      If you’re talking about Japanese “total quality management”, it actually came from an American. But yes, middle management and entry level jobs are getting slim.

      “Nepotism. Same upper-echelon that kept their jobs while they eliminated most entry and mid-level white collar positions manage to insert their spawn in few positions remaining. Future contenders of “screw-up/move up.” C’est La Vie!”

      No argument from me there. I hate nepotism, which is in essence a form of affirmative action.

      “Corporate Bankruptcy. New companies move into market and offer no-frills with low prices. Not a problem. New companies move into market and offer no-frills with low prices while customers use YOUR skills, YOUR knowledge, YOUR experience, pay nothing for it and then buy at no-frills competitors at lower prices. Interesting business model is emerging in this day and age: have competitors pay for your payroll. And this was prior to the vaunted “New Economy” World Wide Web.”

      Yes. I know you hate pie in the sky theory, but it’s been like that for ages. Supply and demand is a hard taskmaster.

      “It is even easier to do now. Watch as the entire middle is wiped out of retailing. “Mom and Pop” (and their middle-class wages) stores are history. Don’t believe me? Check out groceries, bookstores, computers and electronics in general, flooring, you name it. Anything where a customer can walk into a store that has to pay wages, electric bills, rent, heat, and of course SALES TAX, the customer can: use that “brick and mortar” store as a browsing public library. All they need do is copy down a title, or an author,or artist, or a manufacturer, or a model number, then go home and buy it on-line cheaper. Of course it is cheaper! Amazing how much money can be saved by transfering legitimate and required costs of doing business to one’s competitors.”

      I love it. Isn’t the internet a wonderful thing? You forget the margins in the actual books they sell are in the ballpark of 3%. They want you in that store so they can sell you coffee for $3 and sandwiches for $7, which cost them less than $1 and less than $2 to make respectively.

      “Of course many of those internet companies are wholesalers violating their agreements and the warranties on the products but don’t let a little thing like legal contracts get in the way. Screw thy neighbor! Internet, Wal-mart, and Neiman-Marcus! What a lovely thought! What a shopping experience that is going to be! Notice how the only retailers who did well this Christmas season were high end and low end?”

      Yes. I agree with you that there is definitely a polarization of economic classes in the US. This presents a problem with no easy answers. If you read my earlier post, I said manufacturing jobs are disappearing, and it’s a shame because it has been an on ramp to the middle class for a lot of people. I don’t know much about agreements and warranty violations. The ones I’ve dealt with tend to be straight shooters.

      “Illegal Immigration. I would just love it if 14,000,000 doctors, lawyers, college professors, CEOs, stockbrokers, etc. started pouring into the USA from the UK, Canada, Australia, and New Zealand (English speaking countries) and started doing YOUR PROTECTED JOBS for a fourth of what you make!”

      Supply and demand again. The high barriers to entry among the “protected professions” are there for a reason. It takes certain skills and licensing requirements to do the job. We do in fact, have professionals come to the US in large numbers. But because those jobs are in high demand, and the supply of people capable of being licensed for certain professions are finite, the salary remains constant.

      “So what if they live twenty people to a house? You should just have to adjust and move in with your parents to cut costs … …Can’t wait to see you in your new jobs! “Would you like fries with that?”

      No thanks.

      “There is something much, much larger going on in the new information age economy. Years ago mechanization replaced farm workers and now we pay what few farmers that are left not to grow food. Those displaced farm workers went into manufacturing. Now if all of our or the world’s manufacturing plants went full out on production we would be hip deep in “stuff”. That is happening right now in computers and electronics. Prices are dropping so fast that in a couple of years the boxes the electronics come in will cost more than what is inside of them.”

      Actually, I doubt that. Ever hear of Moore’s Law?

      “Are we at the point where we are going to have to pay manufacturers not to produce? We could be. Another key aspect of what is occuring is the rapid rise of household debt. People are borrowing on credit cards and against their mortgages to keep their standard of living the same. (Not to mention working second and third jobs and longer hours.)”

      Yes, consumer debt is a problem in the US.

      “Rapidly rising housing values that make this possible will only go on for so long. Official job creation is almost nil if you haven’t noticed. Economists are talking about all of the new self-employed who are starting their own businesses that are not being counted in the statistics. I agree. What economists are NOT talking about is just how many of these new self-employed people are working for CASH and not paying taxes. The only way many people are competing with illegal aliens and dirt-cheap foreign competition is by eliminating Uncle Sam out of the equation. 50 cents spends like a dollar when the IRS doesn’t know about it. That’s right, millions upon millions of Americans are competing with illegal aliens by becoming illegal Americans. Don’t believe me? Check out the rise in “No Documentation” home loans. Specifically tailored for the cash-rich and 1040 poor. Wonder how much of the budget deficit is due to taxes not being collected?”

      Obviously, tax fraud is inadvisable. However, I can see where societal breakdown due to economic polarization can be very destructive. Look at Russia circa 1917.

      “My father told me when I was little that the sound financial rule of thumb was to buy a car that is one-third of what one makes and a house that is three times what one makes. The average price of a new car is $26,200. The average price of a three bedroom house (in a non-gang infested suburb) is roughly $240,000. I happen to know a heck of a lot of people who are wondering where all of those $80,000 a year jobs are located that make financial sense in this day and age. And no, two $40,000 a year jobs don’t cut it. It is quite amazing how much day care and all of the added costs of two working parents does to the bottom line. Not to mention the damage to the kids that we are just beginning to recognize.”

      I would love it to be 1950 all over again. But life is life, and you have to look to the future.

      “I have no problem with people talking about economic theory and promoting free trade and so forth. What you also need to do is talk about SPECIFIC things that those affected can do to cope with it and promote foreign competition in your OWN balliwick! And don’t you dare say “get more skills and/or education” to the rest of us. I assure you that if you guys keep on saying things like that, after the revolution we will be living in your houses and sitting behind your desks. With our feet up. Just like you are now.”

      Specific things… That’s a tough one without knowing specific situations. I have a good handle of what I need to do because I know where I want to be in 10 years. I would recommend you sit down, map out where you would like to be in 10 years, and find the most efficient means of getting where you want to be. If you care to offer some specifics of where you want to be, I would be happy to offer suggestions.

      Regarding theoretical discussion, that is in fact a part of what this site is about. If you look at science, there is theoretical science, and there is applied science. There is a place for both in society. In fact, intellectual curiosity is the foundation for most advances in civilization. You’re obviously here because what you read lit a spark in your intellect.

      Regarding revolutions, be careful what you wish for. The oppressed peasants of Russia circa 1917 were chomping at the bit for a revolution. They ended up with 74 years of Soviet rule. Leftists are gunning for a cultural revolution. I have a feeling that’s not exactly what you want either.

    14. Ken Says:

      “If my wages are going to be cut in half or worse I had better be able to buy a house for $300 a month. Good luck!”

      Take it up with your fearless leaders that are signing on to “smart growth”, restrictive building codes, zoning codes, regional planning, and so on. They’re the ones that are keeping the $300-per-month houses off the market.

      “Get more skills” they say. First off, just how are we supposed to pay for that Master’s or Doctorate on $10 an hour? Of course those wonderful new skills may of course be worthless and more and more people are finding that out.”

      You think the Indians will retrain faster than we do? It took them years to be a threat to IT. We can stay ahead of them. And there’s not an infinite number of them; there is, however, thousands of years worth of technological advancement yet to be made. We’ve got plenty to keep us busy, as long as our fearless leaders stand back and let us get on with it.

      “And don’t you dare say “get more skills and/or education” to the rest of us. I assure you that if you guys keep on saying things like that, after the revolution we will be living in your houses and sitting behind your desks. With our feet up. Just like you are now. ”

      So that’s your solution? Looting and pillaging? Don’t expect the “plutocrats” to be the only ones opposing you. Even people who aren’t plutocrats usually know evil when they see it. And don’t expect us to buy you off either. Millions for defense, not one penny for tribute!

      “Supply and demand again. The high barriers to entry among the “protected professions” are there for a reason.”

      The reason being that high barriers to entry mean higher income.

      “It takes certain skills and licensing requirements to do the job. ”

      A fact that isn’t going to be lost on the people paying to have the job done. Forbidding them to deal with professionals that the government hasn’t blessed isn’t really necessary; it merely jacks up costs.

    15. Lex Says:

      Rrasko’s points merit detailed responses, or even several posts. But I’ll just note this insight:

      The only way many people are competing with illegal aliens and dirt-cheap foreign competition is by eliminating Uncle Sam out of the equation. 50 cents spends like a dollar when the IRS doesn’t know about it. That’s right, millions upon millions of Americans are competing with illegal aliens by becoming illegal Americans. Don’t believe me? Check out the rise in “No Documentation” home loans. Specifically tailored for the cash-rich and 1040 poor. Wonder how much of the budget deficit is due to taxes not being collecte

      This is certainly correct. We may find ourselves moving the way of Western Europe — the more over-regulated it gets, the more of its economy moves off the books. But it seems to me this is an argument for making it easier for people to move and work here legally. After all, people would rather work above the table if possible. I also agree that the efficiency of tax enforcement and collection is always an interesting question.

      The larger point is this. Every wave of technological change has led to job destruction as well as wealth creation. So far, the United States has endured the pain and moved forward, growing, overall, wealthier. But this is not an inevitable process. There is always a political dimension to all this, and one thing the victims of “progress” can do is vote. I use quotation marks because one man’s progress, is in this case as in most cases, another man’s disaster. Rrasko can tell us all about that.

    16. Sylvain Galineau Says:

      rsasko, sure, revolution has solved all those problems brilliantly before. Look at all the rich happy countries where “social revolution” have happened and the greedy bastards got what they deserved. And all the poor Americans risking everything they have, including their lives and the sharks to escape to the Cuban paradise….

      Oh wait. It’s the other way around.

      Never mind.

      I’m distracted these days.

    17. Lex Says:

      Sylvain, we should cut Rrasko some slack, both personally and as an articulate example of someone who is living personally with issues we are looking at as a Big Picture.

      While we will not have a Bolshevik revolution here, people whose livelihoods were destroyed in the past have frequently and often successfully sought the help of Uncle Sam in one way or another, often one form of protectionism or another. The idea that masses of college educated, sophisticated, internet-competent people will watch their jobs go away and NOT seek protection or assistance of some kind from the government is not realistic. Britain, the free trade country par excellance circa 1860 found by 1890 that the same manufacturing districts which had fought for free trade to keep food prices down were desperate to bring in protectionism to keep the cost of German and American manufactured goods up. Creative destruction often looks less appealing to those being destroyed than to those enjoying its benefits.

      The political dimension to all this is part of the whole program and cannot be disregarded. Finding a way to assuage those who are harmed by economic progress so that the golden goose is not slain has been in the main a POLITICAL balancing act in American history. You can tell a guy with a family and mortgage who suddenly finds his ass on the street, hey, tough sh*t, your misery is a price society is willing to pay for progress. But you cannot realistically expect him to accept that as the final word. Ask the Pennsylvania steel industry, or the auto-makers with their quotas.

      The question is always one of selling open markets of any kind where the benefits while huge are diffuse, but the costs are focused and keenly felt. It is a classic Mancur Olson-type problem.

    18. Ian McMahon Says:

      I can picture the silitech yuppie going berzerk over someone having the gall to take away his starbucks money.

      As someone who blew $100,000 on a computer science degree and was recently laid off, your tone is offensively flip. I am not sure all this outsourcing is a bad thing in the long run, but those who are affected do not deserve to be sneered at. People in the computer industry are just trying to make a living like everyone else; and when their livelihood is threatened they understandably do not react well. That is obvious, I would think. To you, however, all we stand to lose by outsourcing is our latte allowances. Well, grow up. Real people are affected here. People who have wives and children and mortages to pay. Americans losing their jobs to overseas workers may be unavoidable — but it is not funny.

    19. In-Cog-Nito Says:

      “your tone is offensively flip. I am not sure all this outsourcing is a bad thing in the long run, but those who are affected do not deserve to be sneered at.”

      Ok, you’re right. It was in poor taste. I take it back. I try to inject humor/exaggeration in things for effect, which in this case is unecessary.

    20. Lex Says:

      Ian is right.

      If some guy steps into the arena to run for office, he has opened himself to being lampooned. Or, if some manager is so dumb or corrupt that he has Roman orgies on the shareholder’s money, smack him around. Or, if some tenured academic is pontificating about something, he has asked for it if he is rebutted with some satire in the seasoning.

      But the people who are scrambling due to economic conditions beyond their control should get some respect and sympathy. There are three guys on my street who are IT guys, all married, all with kids, all with mortgages and all were unemployed for part of 2003 and one still is, and the new jobs are not as good as the old ones. They have not been whining about their fate, and they have hit the ground running. Still it has been tough for all of them.

    21. Sylvain Galineau Says:

      Lex, respect and slack work both ways. Precisely because we are looking at the big picture, he could also cut us some slack.

      For starters, I work for a corporation that is currently outsourcing thousands of positions like mine to India. We have meetings with Indian engineers to transfer or start new work there. So the finger-pointing class-warfare zero-sum rant implying that my current relative success comes at his expense, or someone else’s, is unwelcome. Never mind the fact that I am an immigrant worker – and a temp. one at that, one who would have to move back *at his own expense* if he was laid off, to a place with twice the unemployment and taxes, no less – and the stupid canard according to which we are only here because we work for less. Er, excuse me, we come all the way here to be paid like you, people, not to be paid like we were back home. Hello ? McFly ? Anybody home ?

      And while you and I are generally in agreement, I will also argue with rsasko and others that government-sponsored protectionism, or rather its more extreme knee-jerk, populist reactionism, and the taxes that fund it, have, just like trade unions, driven up the cost of his labor and this has a thing or two to do with his painful position. If you drive up the cost of labor, you eventually reduce the number of jobs.

      And since you mention the steel industry, we could look at who’s unionized, who’s not and compare notes. Like who’s in business and hiring, and who’s laying off people by the boatload and hanging by their fingernails.

      I was in France not too long ago and what happens with more government-mandated one-size-fits-all job protection is obvious everywhere. Go grocery shopping. Nobody to bag your groceries. Payroll taxes on such jobs are just too high to justify it. Nobody to collect carts on the parking lot either. The customer does that. You see, carts are all chain-linked to one another and the only way to get one is to stick a 2 euro coin in the little box on the handle to detach the chain. And to get your money back, you got to bring the cart back and re-attach it. Why create jobs, even cheap part-time ones for the kids, when you can make the customer do all the work ? And this is the European paradox; obsessive job “protection” has only driven up productivity and efficiency in the private sector, mostly by giving businesses a very strong incentive to reduce their labor bill.

      And so the unemployment rate is twice what it is here and the only true growth industry is “social services”. Given my own experience on both sides of the Atlantic, I believe the political mishandling of this issue is one of the bigger problems. It is hard or painful enough as it is without being magnified and amplified with counter-productive protectionism and populist regulations that drive the cost of *our* labor, making everybody else’s even more attractive.

      I won’t argue that rsasko’s reaction does not come naturally. But I come from a place where the government, with the consent of the populace, has very much been acting on these impulses for the past few decades. And the results have NOTHING to do with the stated intentions.

    22. Lex Says:

      I see that Virginia Postrel is all over this issue, in the New York Times, and on her blog here , and here and here. Ms. Postrel links to this essay by Catherine L. Mann, which looks interesting.

      I agree with all of the economic arguments, strongly.

      The main point though is that all the economic arguments in the world won’t work if you lose the political arguments. And Sylvain is right, the political solutions will be counter-productive. But people who have lost their jobs and are angry vote and want relief and want to feel vindicated.

      And free trade and immigration have always been tough sells to Jacksonian Americans.

      Jacksonian opinion is instinctively protectionist, seeking trade privileges for U.S. goods abroad and hoping to withhold those privileges from foreign exports. Jacksonians were once farmers; today they tend to be service and industrial workers. They see the preservation of American jobs, even at the cost of some unspecified degree of “economic efficiency”, as the natural and obvious task of the federal government’s trade policy. Jacksonians can be convinced that a particular trade agreement operates to the benefit of American workers, but they need to be convinced over and over again. They are also skeptical, on both cultural and economic grounds, of the benefits of immigration, which is seen as endangering the cohesion of the folk community and introducing new, low-wage competition for jobs. Neither result strikes Jacksonian opinion as a suitable outcome for a desirable government policy.

      That is the basic view of Joe and Jane American. They have to be convinced “over and over again”. They just refuse to learn their econ. And they vote.

    23. Ken Says:

      “The main point though is that all the economic arguments in the world won’t work if you lose the political arguments. And Sylvain is right, the political solutions will be counter-productive. But people who have lost their jobs and are angry vote and want relief and want to feel vindicated. ”

      Well, if the political solutions will be counter-productive, then we’ll have to argue against them, won’t we? Conceding that arguments against stupid policies won’t carry the day even before we start is hardly a winning strategy.

      First, an appeal to long-term self-interest. Basically, unless you want your kids and yourself to be buying the same old crap 30 years from now, you can’t expect workers to be doing the same old thing for the next 30 years. New products and new technology means new tasks to make the new stuff. The old tasks will make the old stuff, and unless you want nothing but more old stuff forever, continuing with nothing but the old tasks won’t cut it.

      Second, an appeal to pride. Do we really want to spend our lives in a protected industry? Do we really want to owe our livelihoods to the willingness of the government to deter our bosses and customers from going to our competitors. I for one would be ashamed to be a programmer if my livelihood depended on protectionism.

      Third, alternative solutions. The government can stop doing things that jack up our cost of living, especially in the area of housing and medicine. It can lower barriers to new employment in new fields, and lower barriers to the creation of new products and new industries.

    24. Sylvain Galineau Says:

      Ken,

      Or we can appeal to their memory. It’s not like we haven’t been there before. Recall the Japanese threat in the 80s ? Go back in the archives, search-replace “Japan” with “China” and see if you spot something familiar. It might make you feel like Bill Murray in a Groundhog Day. Japan did not steal Americans’ jobs and drive us all into unemployment anymore than China or India will.

      Unless we make it so. And yes, that Jacksonian impulse, and politicians, could conspire to turn the fear into a self-fulfilling prophecy. Europe is already a few miles ahead down that slippery slope.

    25. Lex Says:

      “Well, if the political solutions will be counter-productive, then we’ll have to argue against them, won’t we?”

      Ken, I agree with you. However, merely pointing out that free trade, or creative destruction, or offshoring or outsourcing or whatever improve aggregate economic performance is often logically sufficient but politically insufficient. Also, this time, the people who are getting hurt are unusually sophisticated and articulate. They leave comments on blogs and write letters to newspapers. Your suggestions are good ones and are the kind of creative thinking that proponents of capitalism are going to need to put on the table as we go forward.

    26. rsasko Says:

      I am glad I have been able to open up the discussion a bit so at least the consequences of what some of you so loudly proclaim are at least acknkowledged. It will probably surprise all of you but I am in no way a card carrying Communist. As a matter of fact, I am a card carrying Conservative Republican who has never, ever even voted for a Democrat. The Dims are even more screwed up on trade than the Republicans are. There must be middle ground somewhere between outright Socialism and “to Hell with you”. When I refer to “after the revolution”, I am not proposing the workers take up the means of production and the state runs the show. What I am refering to is those of us who have been beat over the head by people such as you while sitting in your cushy office chairs, spouting your slogans, and in a rather snarky manner to boot. Its your turn to man the trenches for a while and live in the real world. We’ll sit back and watch you sink or swim. Most likely sink I’ll wager.

      Millions and millions of Americans have changed, learned, adapted, readjusted, changed again, relearned, readapted, readjusted, ad infinitum. There is little point to figuring out where one wants to be in ten years time, setting goals, working towards and then achieving said goals. There is little point to that behavior because the facts on the ground are changing faster than those goals can be accomplished. Nor is the money available to constantly change direction in attempting to achieve those goals. Either technology/competition and/or government intervention is changing the rules of the game faster than even Americans can adapt at this point.

      I am for REALISTIC free trade. Comparing Japan to China in reference to the 1980′s is akin to comparing Japan to Bangledesh. There is quite a difference to saying that the Japanese produced a better car at a cheaper price than China producing cheap crap today and importing nothing from the U.S. in return. Japan was/is a highly advanced and a high standard of living, free democracy. China is not Japan by any stretch of the imagination. Nor is the Chinese government even remotely friendly. If there is one thing that the Bush team is doing that is right on is letting the dollar sink relative to the Euro. Now lets make it sink relative to the Asian currencies. It is about time we have to pay for our consuming habits.

      In a perfect world, everyone is better off when the lowest cost producer supplies the product/service and people the world over are free to produce and consume from anywhere. It may be a perfect world sitting behind your desk, but it sure ain’t where many of the rest of us sit. In your perfect world, the Chinese produce hundreds of billions worth of manufactured goods for the U.S. consumer at a savings to us, and use the dollars they earn to buy goods and services from the U.S. that they need and cannot produce for themselves. They could start by importing indoor plumbing I suppose?! Maybe bailing out their insolvent banking system? They of course are buying squat from us.

      Wal-mart may be your ideal of a company, but I for one have no wish to try and raise a family on $7 an hour. If their stock price doesn’t continue to rise as it has done in the past (which it will not), you are going to find that Wal-mart is going to have a serious problem on its hands. Many, many of its employees stay there because a major part of what they consider their wages and benefits are based upon the stock constantly rising and their investments in it also rising. People will put up with a lot of hardship if they see a rainbow at the end of the journey. God help Wal-mart if all the employees get is the rain.

      Due to the revolution in electronics, computers, telecommunications, shipping, etc., it is now white collar workers who are beginning to get hurt and in a big way. And you better believe they are running to Washington. Take the RIAA and the music industry for example. Of course they are fighting a losing battle against cheap downloads and will have to seriously cut out the fat. Welcome to the club as they say. Illegal immigration may not affect them but illegal copyright theft is. I’d go to bat for them but gee, how can I possibly afford an $18 CD on $7 an hour?

      What gets the goat of so many of us out in the real world is that we already cut the fat! Fewer personnel, lower wages, fewer benefits, no retirement, more hours, higher productivity, more work. And then we do it again. And again. We turn on a dime but there is NO WAY we can compete against foreign nickel wages. We are constantly looking for ways to cut costs and put more towards the bottom line. In my own personal situation, I am at the point where I either hire on a bunch of illegal aliens at slave wages or fold up shop. Maybe not tomorrow, but the handwriting is on the wall. And I am not alone.

      You might try getting out of your offices and talking to some real people once and awhile. A couple of customers of mine recently just happen to teach at a community college. It seems that in a few years time, the U.S. is going to be awash in chefs. You read that right, chefs! They figure that will offer them some job security, unless Chinese take-out starts being delivered by UPS overseas. A few years back people were going back and taking classes in preparing tax returns, web design, network administration, etc., trying to acquire new skills to either supplement or replace their income stream. Of course off the shelf computer programs, outsourcing, and the bubble collapse have eviscerated those fields. Good luck. Amazing the numbers of people going into Law. As if we need another lawyer.

      If you step back and look at the entire picture, what is happening is indeed a polarity in the economy. I strongly suggest you walk into an unemployement office and take a gander at the job-posting boards. You will find board after board advertising jobs paying somewhere south of $14 an hour. Except for one board. There you will find jobs paying north of $40 an hour. And absolutely nothing in between. The middle is being wiped out of the equation.

      Yes, certain sectors of the economy have insulated themselves due to high barriers of entry, either governmental (doctors, etc.), or SELF-IMPOSED ones. Whether it be unionized teachers that have trouble making change for a dollar without a calculator (or college professors for that matter), or union electricians, I predict that one possible outcome of the white-collar workforce being hit hard today is going to be incredible political pressure to open up those protected fields. If you think that a poor schmuck that has spent $100,000+ and four, five, or six+ years getting a higher education that has been blindsided by technology or outsourcing is going to sit back dispensing coffee at Starbuck’s for $7 an hour while (not) paying the student loans on his Doctorate while a high school drop-out makes $45 an hour at age 22 in the trades you are quite mistaken. You would be amazed at the number of people with higher education that have become butchers today. Or carpenters. I happen to know an awful lot of underemployed people. I even had a guy with a doctorate work for me in the past making $5.15 an hour.

      Illegal immigration has to be stopped and fast.
      Ridiculous lopsided trade with China has to be stopped and fast. Free traders ignore the middle class at their peril. The 1980′s restructuring of the economy either forced fundamental change upon or wiped out wasteful and/or poor production quality businesses. That is not the case today. Lean and mean are being hit. Massive illegal immigration and job-outsourcing hurts the poor the most, favors the wealthy and some middle class but for many of the middle class it is a disaster unfolding. Over the next few years, there are a lot of younger people who are going to be asking themselves if they are better off than their parents. They are going to answer “no”. Then they are going to ask themselves if they are at least as well off as their parents, and they are going to answer “no”. And then there will be Hell to pay.

      I run my own business and I make a good buck. I have had to change my business plan on the fly so many times it isn’t even funny any more. I know a lot of people who run small businesses and our stories are similar. Owning one’s own business and being the boss used to be (one of) the American Dreams and quite often the key to prosperity. Now being self-employed or a small business owner is an act of desperation. To a man (or woman), there isn’t one of us at this point that I have talked to who wouldn’t chuck it all to be a drone somewhere making a bit less but with job security.

      On the plus side, anti-depressants will continue to be a growth industry.

    27. In-Cog-Nito Says:

      Rsasko, thanks for the thoughtful post. It’s a tough situation we’re in without an easy solution.

      Ken, good comment – “unless you want your kids and yourself to be buying the same old crap 30 years from now, you can’t expect workers to be doing the same old thing for the next 30 years.”

    28. Anonymous Says:

      Geazus. In no particular order.

      “I am glad I have been able to open up the discussion a bit so at least the consequences of what some of you so loudly proclaim are at least acknkowledged.”
      Thank you, Obi-Wan. Without your infinite wisdom, where would we be ? Who loudly proclaimed what ? And who said it didn’t have consequences ? Nobody. But yes, these consequences are a lot better than the alternatives that have be tried elsewhere. They always have been.

      “Millions and millions of Americans have changed, learned, adapted, readjusted, changed again, relearned, readapted, readjusted, ad infinitum.” Welcome to my world. You see, the greedy latte-drinking bastards that we are are essentially obsolete every 3 or 4 years. The skills I needed to get a job five years ago would not land me a job today, except maybe in Senegal. Those from 10 years ago I can’t even show on a resume unless I’m applying for a museum curator position. You want the job with the high pay ? Well, you’re going to have to learn *and* keep up on your own time (think the employer is going to pay to educate you ? LOL. So cute…). And then, you’ll rise through the ranks and, if you’re really good, earn the privilege to compete with the Indians and the Chinese.

      “I am for REALISTIC free trade. ”
      Wow. That’s deep. Where have I heard that one before ? Please elaborate on what that *really* means.

      “You might try getting out of your offices and talking to some real people once and awhile.”
      Please, please, please. I can’t find the way out of the mansion and Jeeves has hidden the Rolls. Tell me, what is it like outside ? Is it true what they say ? Common people have the right to vote ?

      Seriously, I know what you mean. I’ve met quite a few characters like the ones you mention. They’re always out trying to learn a new job and never seem to get one. Except in most cases, it makes perfect sense. Because they follow the sheep. Or rather they follow the herd of sheep about three years after it’s passed. Let’s see, it’s 2000 and everybody I know has become a web designer…mmmm…maybe I should look into it. So they get some two-bit course – all they can afford anyway – that can only land them something decent in a super-heated bubble economy. When that goes six months later, they can’t compete with those with experience and are the first to go. Then, when they become accountants, and you know there is a surplus of accountants in the country and they’re the first ones to go. Ten years later, they’ve learned 10 trades and have no marketable experience in any one of them. And with a resume like that, and in a labor market with plenty of qualified applicants, who wants to hire them unless there is no one else ? I wouldn’t.

      Now what alternative do you suggest ? The government will tell you what to do and guarantee you a job when you’re done learning the trade ? Sure. That’s called China. Or rather, that’s the way it was before even them realized it didn’t work worth shit.

      ” The middle is being wiped out of the equation.”
      Well, maybe you should go out and talk to real employers outside of where you live once in a while. If you came here, they’d tell you they don’t advertise those jobs in unemployment offices because too many of the applicants from those places are lazy losers (or used to be and the perception has stuck). They get enough applicants by advertising in the paper and they’re better qualified. And it just so happens those applicants don’t like going to the unemployment office either.

      Just because you don’t see it at the unemployment office doesn’t mean it doesn’t exist. I never saw ads in the paper for $4m/year senior VP positions either. Can we conclude senior corporate management is being wiped out of the equation ? No; thousands such jobs exist and hundreds change hands every year.

      Every time I’ve been in a casino, I’ve seen people spending their welfare and unemployment checks in slot machines. Lines of them. Does it mean all the unemployed and the poor are mathematically-challenged idiots ? Are they there because the Chinese took their job ? Is it the only thing they can do ? Are they victims of the casino ? Should they sue ? Give me a break.

      “You would be amazed at the number of people with higher education that have become butchers today. Or carpenters. ” Yawn. And you would be amazed by the number of high school dropouts with six-figure high-tech jobs. Because they happen to be good at what they do. In most cases better that those with a so-called higher education who just take their job and status for granted, do the minimum they can get away with and behave as if a high income is an entitlement that comes with their diploma. They have a higher education, you see. Well, it doesn’t work quite that way.

      “They of course are buying squat from us.”
      Care to prove that ? Good luck.

      “Then they are going to ask themselves if they are at least as well off as their parents, and they are going to answer “no”. And then there will be Hell to pay.” Oh yeah. It’s all going to hell in handbasket. We’re DOOMED I tell you !

      “Massive illegal immigration and job-outsourcing hurts the poor the most, favors the wealthy and some middle class but for many of the middle class it is a disaster unfolding.”
      mmmmmmmm….unfolding disaster…I think we have a movie here. There is your change to make a few bucks.

      Dude, this rambling class-warfare whining is ridiculous. Anti-depressants ? Looks like you’re gone beyond the dose. Or maybe you need to take a leave and go to some backwater African country and see how people who really have something to bitch about survive. That could be useful perspective for you and all those poor wretched American victims of free trade for whom the most common health problem is obesity.

      As for your extrapolating the local reality of wherever you live to a nation the size of this one, knock yourself out, if that helps you.

      Now, if you could deliver the same spiel and make it sound funny, I think you could beat the pants out of Michael Moore. Honest.

    29. Sylvain Galineau Says:

      Oopsy. Comment above is mine.

    30. Rahul Says:

      Rsasko, Ian: I don’t understand why you guys are bitching. Honestly – I don’t.

      I also recently spent $100,000 on not one, but TWO degrees – computer science (BS) and economics (BA). Graduated to find wages depressed – and guaranteed to remain that way for the kind of (formerly) high-end jobs I was aiming at.

      With suppressed wage rates, its hard to be an employee. So you know what I did? I became an EMPLOYER. I worked a not-so-well paying job in the US to raise some basic capital, and used the convenient 0% interest for one year credit card deals that are so easy to find these days. Using this capital and credit, I have started a software company, that relies on OUTSOURCED labor (Russian, actually, not Indian, though that will probably change) for the grunt work, while the high level design, marketing and sales is done in the US.

      I feel great. I am in control of my life, and I am helping smart guys in Russia (and soon India) make a lot of money for top-notch work. I am selling products at cheap prices to lucky American consumers. Everybody wins.

      Whining is not an option. Winning is the only option. Open your eyes and see.

    31. Rahul Says:

      Oh and in case anybody thinks life is easy, I came to the US as an immigrant with nothing but lint and buttons in my pockets, from a third world country (India, in case you’re wondering).

      rsasko, ian: If you’ve been part of the luckiest few % of the world to be born and brought up in this most amazing, most free country, you REALLY have no excuse.

    32. Sylvain Galineau Says:

      Rahul, thank you. And congratulations.

    33. Rahul Says:

      Thanks Sylvain – and not to make this a mutual admiration society, but congrats to you guys at the blog for staying the trenches, opposing the silly protectionism that seems to be everywhere.

    34. Hi Says:

      Let them eat cake.

      Why don’t they go to the workhouses, etc.

      You guys sound like 19th century Social Darwinists. Social Darwinists gave us Mr. Marx and Mr. Engels. In fact, I believe reform saved Britian from becoming a Marxist society. I also believe that I learned in American’s failing schools that a strong middle class is the backbone of a free society, so governments should protect the middle class. Hey, but what do I know? I’m just one of the peasants down here on the ground.

      Our government and intelluctuals are out of control and out of touch with the people. They aspire to global governments and saving people halfway around the world, when, if you love this country as much as you say you do, charity begins at home. Our founding fathers specifically warned us against what I would call today global governance. Everyone is so intelluctual and intelligent today that they disregard history. What in human nature has led you to believe that we can be a global producing happy camper society? Degrees and arrogance can’t save you from being naive.