George W. has been visiting India recently, and has addressed the obvious point of increasing outsourcing of American jobs to that country. He said that there are two ways of dealing with outsourcing (his usual logical fallacy of the false dichotomy: “you are either with us or against us”). The first if to throw up outmoded, anti-competition trade barriers, like tariffs. The second one is the “new” way of increasing workers' education.
Except, of course, that outsourcing to India (or China, or Mexico) doesn't have anything to do with the poor education of American workers. It has to do with the fact that Indian (and Chinese, and Mexican) workers are willing to do the same job for much less – with the difference being pocketed by the few people with large vested interests in the American companies who opt for outsourcing. Consider, just as one example among many, Travelocity, the Internet-based travel agency embedded in the Yahoo system. I use it often, and whenever I have to speak to a live operator (usually for a complaint), I am connected to somebody in India. I seriously doubt that the operators a couple of oceans away have a better education than comparable operators in the States (and, incidentally, I'm sorry to report that their English is frustratingly worse than the average US-based operator's), but I bet they simply can't demand the same salaries. Now, even from a pure consumer's viewpoint, why on earth should my money go outside of this country in order to get a lower-grade service? Because somebody at Travelocity is making a kill, and it ain't the Indian operators.
Also recently, Russian President Putin made the comment that he invited Hamas – the terrorist Palestinian organization that won the recent elections – for a visit to his country because he “respects the will of the Palestinian people” (though he did tell Hamas to be nice and behave). Really? And what about respecting the will of Russians, who are governed by a quasi-dictator who increasingly adopts old-Soviet style methods? Or, hmm, perhaps Putin could try to respect the people of Chechnya, who have been demanding similar that much from Russia for years, only to be continuously crashed by a combination of military force and institutionalized poverty -- just like Israel has been doing with the Palestinians?
The only astounding thing about all of this is that so many people – in Russia as in the US – apparently read these absurd declarations from their leaders and don't react by impeaching them. How many fools are out there, exactly?
Rationally Speaking: an archived blog about science & philosophy, by Massimo Pigliucci
Massimo, you refer to Russia's Putin as a quasi-dictator.With every day that passes it's starting to feel more and more like we have the same problem here in the good old USofA. Same game, different name.
ReplyDeleteI have a similar sentiment Dennis. The US talks about democracy in the Middle East and then withdraws funding from a democratically elected government in Palestine. Of course Russia will see the opportunity and score a few points off that by "supporting democracy." Talk is cheap in the battle for Arab hearts and minds.
ReplyDeletei'm from india, and I run my own business in one of those outsourced industries. It isn't that we're poor and are paid low wage salaries, but that in our country we in fact can live better lives on those wages than most people in the US. Our cost of living is lower, our taxes are lower, and the price of things are much much lower. We can buy laptops, plasma TVs, i pods, and the latest cell phones coz it's just plainly cheaper living here than in the West.
ReplyDeleteAsh,
ReplyDeleteCan you do me a favor. My company has outsourced its tech support to India as well. Can you tell your operators that I only call after I tried rebooting my computer (just kidding).
I agree our high cost of living in the states is hurting us. The trade off is that we are one of the few countries to have a mass upper middle class. Which is more valuable? Our huge middle class is what gives us this high cost of living. I am not sure I would trade it for the Indian economy (no offense meant). India is just starting to create its middle class. As it grows, so will your cost of living.
Massimo,
ReplyDeleteIs this post intended to refer to public figures, or to anyone who justifies an unjustifiable, irrational, impulsive, destructive, or selfish act with an explanation that appears reasonable, as long as you don't think about it too much? This kind of behavior is so dangerous, because "these people" usually don't think they're fooling anyone, since somewhere in the spin cycle they managed to convince themselves that their explanation is true.
"How many fools are out there, anyway?"
ReplyDeleteIndeed. I wonder that everytime I turn on the TV or pick up a paper.
As my father once said, "Those who can think for themselves are as grains of sand in the desert."
Which is one reason I enjoy your blog. It's nice to be reminded there is some intelligent life on this planet.
Massimo,
ReplyDeleteWhat do you suggest should be done against outsourcing? It seems perfectly legal to me. And at some point a quasi equilibrium will be reached where it doesn't pay to outsource anymore because salaries in India will be almost the same as in the US. That sounds like a "fair" equilibrium to me.
Interesting comments. Ash, thanks for your perspective. I didn't mean to imply that the people who get hired for outsourcing in India are poor. As you say, they can afford lower wages. Of course, from the point of view of an American worker, it doesn't make any difference.
ReplyDeleteMarie: "Is this post intended to refer to public figures, or to anyone who justifies an unjustifiable, irrational, impulsive, destructive, or selfish act with an explanation that appears reasonable, as long as you don't think about it too much?"
Well, the post was directly referring to Bush and Putin, but I would certainly not oppose the generalization you suggest.
Hans: "What do you suggest should be done against outsourcing? It seems perfectly legal to me."
Oh, it's legal all right, but I think it's unethical (there is a huge difference, since law is supposed to codify our ethical standards for enforcement -- so ethical considerations supersede legal ones). It seems to me that the whole point of a state is to protect its own citizens, not only from violence and physical harm, but also economically. Outsourcing could be regulated by the federal government, just as we regulate all sorts of other commercial activities.
For those of you who disparage outsourcing (outside of America), put your money where your mouth is. Do you own stock in companies who profit by outsourcing? Sell it! Invest in 'all American' companies instead. When you see a "Made in China" (or Tiawan, or Korea, or Indonesia, or Mexico,...) sticker, whatever it is, don't buy it. Look for an American made version instead. Be patriotic, Buy American. Stick it to Wal-Mart. What will they do with billions of dollars worth of inventory from overseas if we all stop buying it? They'll start stocking stuff from America that we will buy. Hurray, we just saved the American economy.
ReplyDeleteEat well, stay fit, Die Anyway
DH,
ReplyDeletethat seems a bit too simplistic. I was not arguing for cheasing trade with other nations or anything of that sort. But outsourcing is made possible, among other things, by the fact that multi-national companies are really entities with no national boundaries and subject to little regulation, and can therefore get away with murder (metaphorically speaking). For example, I bet the problem would be curbed if the US government imposed the respect of American labor laws to any American company who outsourced, no matter who they are and where.
The outsourcing problem is not always as simple as Lou Dobbs and company make it seem.
ReplyDeleteAs a software engineer, I myself have been affected by outsourcing in a negative way. But the reality for my company is that we were losing millions and competing with other foreign companies who were getting an advantage by outsourcing to lower cost centers such as India, China and Russia.
Of course part of the problem had nothing to do with labor costs, but other inefficiencies and poor decisions made my management.
However, assuming that we were optimally efficient other than labor costs, there is still a competitive disadvantage to other theoretically optimally efficient competitors who were outsourcing.
So, in my industry it is not a matter of a company wanting a to make a "killing", so much as staying in business. Sometimes outsourcing saves jobs, because otherwise the whole company or division would simply close its doors and everyone would be out of a job.
I like Massimo's idea of having foreign workers (or their contracting firms) have to meet U.S. labor law standards, but that would need to apply to all foreign corporations.
Finally, though outsourcing may work in some cases, it certainly does not in all cases. Where I work now, we outsourced work to a low cost center that involved specific industry domain knowledge that was not easily transferable. So it takes our foreign center 4 or 5 times longer to accomplish the same task with about three times as many defects. Overall, it is costing us way, way more - in real terms it is costing us the business because we are losing competency. Our managers did not consider real world costs such as the loss of synergy, ownership and passion for the product that can occur in a ill advised outsourcing move.
Lastly, though I have lost my job in the past due to outsourcing, I try to be open minded and I rationalized that my loss was minimal (thankfully) and possibly enabled some foreign family to enjoy new prosperity. I think in a few decades (or sooner) as other countries standards of living improve there will be equilibrium and outsourcing will no longer be as attractive.
Alan
Alan,
ReplyDeleteGreat prospective on outsourcing. It's good that you manage to keep such an open mind about it even though you were adversely affected by it. I am not sure people realize sometimes at just how global our economy has become.
I work for Gillette (now P&G) and we supply products globally. One of the biggest growth sectors for global companys right now is third world countries like India. Outsourcing is one of the factors that contibutes to this, since it is forming a middle class in these countries. So before everyone jumps on the outsourcing should be outlawed bandwagon. Make sure you consider all the factors, because many American companys are relying on these countries for growth right now.
One of the problems is we can directly relate outsourcing to job loss as Alan has experienced. What we don't see is the Direct link between outsourcing and new American jobs, because it is not one for one as job loss is. Lets not shoot ourselves in the foot by asking our politicians to limit outsourcing. There are no country barriers when it comes to economy. We need to stop thinking that way. If Alan can see the light (and no one will get affected worse than him. Then we should all be able to.
Jim, no offense to either you or Alan, but it's possible that rather than "seeing the light" Alan bought into the propaganda being sold by multi-national companies (and Bush), that this is all to our ultimate benefit, despite all evidence to the contrary...
ReplyDeleteWell I try not buy into anyone's propaganda being a registered independent and a freethinker. :) But, of course, that doesn't mean I can't be mistaken.
ReplyDeleteAnyway, I didn't say that outsourcing was good or that it was bad. I said it was a complicated problem. (Actually what we are talking about is "offshoring")
I know for a fact my company and many others do not outsource offshore to "make a killing", but to stay competitive (my company's division lost 10's of millions of dollars - hardly making a killing, not even a profit).
But as I said, the outsourcing made it worse, because they chose to outsource our competency - a foolish and short sighted move.
Because of foreign competition, some outsourcing will need to occur to keep certain businesses competitive. This can (not always) have benefits for the whole economy. We outsourced manufacturing in the 1980's resulting in affordable goods for the lower and middle classes and an upswing in the economy. (With the Japanese "dumping" cheaply made memory chips, U.S. companies had no way to compete and many jobs were doomed to be lost either way.) This is just a guess, but we did not outsource in the 1970's and the U.S. lost the entire consumer electronics industry (television, radio/stereo, CD players). All of it. How many jobs did that cost (or never produce)?.
BUT.... if companies outsource their intellectual and creative competencies it will do harm to our economy in the future. Manufacturing jobs which were mainly blue collar were largely replaced. But this new wave of outsourcing threatens our highest paid and educated workers.
For instance, I hear software execs saying that coding/development is a commodity and can be outsourced -- that the important skills of architecting and designing will stay in the U.S. Unfortunately, in the next generation there will be no architects because no one will have had any experience coding.
A popular book called "Outsourcing America" by brothers Ron and Anil Hira note that outsourcing is "neither entirely good or bad" but does criticize corporations for oversimplifying the benefits of outsourcing. It also criticized the government for not responding by making outsourcing less attractive so that it is not abused. From the book: "Our ace in the hole is supposed to be innovation,” he says. “The reality is that research and development is being outsourced. That undercuts assumptions being made that outsourcing is all good.”
Lastly, as I said twice before, I'm not sure how much it even works. There are many hidden costs and inefficiencies and already in some circles there is a backlash against it. Outlawing outsourcing I think would be a mistake, but perhaps reducing incentives to outsourcing will bring it back into balance. Time will tell.
You are right Allen, we are all using the incorrect term by saying outsourcing. Outsourcing is really what the big companys did in the 80's. At that time people working for big coorperations that outsourced were very upset saying that this is loosing American jobs, when in tern it made for a much stronger economy since it developed many smaller, independantly owned companys rather than one large company. Allthough comparing outsourcing to offshoring is apples to oranges since outsourcing lost jobs to other Americans. There can still be potential benfits (and problems) to offshoring as Allen pointed out. We must keep in mind that if government prevents offshoring, some companys may just up and move to stay competitive in their market. You can tell American companys that they can't offshore but you can't tell them that they can't move alltogether. The idea is to make America look attractive for companys to come here and give them the freedom to operate globally. Lets just keep making it more difficult by raising taxes and retrictions on companys and see if Toyota still wants to open a new plant. No offence to you Massimo, but you dont rely on the free market for your livelyhood to the same extent as the manufacturing sector does.
ReplyDeleteIt is easy to forget the great memories and the rainbow of emotions that go along with the true human experience. To blame might be the current state of our society. The society who at a very early age instills in us the dull and suffocating aphorism of consumerism. It is dictated to us by its many mediators that the meaning of life is only available thru the acquiring of material possessions. From an early age we have the innocent yearn of acquiring our first bike, our first game console and the list goes on. The problem is not our ability to attain possessions but the crime occurs when our innocent yearn is exploited by the all structures of power known as the establishment. Some can see clearly past the propaganda, but we are few. Others go thru life suppressing their own internal voice of reason, a voice that screams in a whisper for them to stand up against the oppression of materialism. Call me a dreamer but I do so wish that today’s world would have our value system on something much more intrinsic. Living in the age of globalism regardless of your definition we have all fallen victims to consumerism. I do not oppose the great comfort of living that comes along with open market development, what I do oppose is how we have become slaves to all that which is matter (materialism). As a whole and as people of the world we should find a way to continue forward with technological ingenuity and eco-friendly development of the world; minus so many primitive impulses including greed that hold us back from the next step in human evolution.
ReplyDelete