Outsourcing: Developing Disaster. (Caution: this is a long discussion, so if you are not interested in the topic, even if it might affect your own personal future, don't bother to read on.) Last nite, Bill Moyers' PBS documentary series Wide Angle examined offshore outsourcing, focusing on India. Tho the bulk of the program dealt with the impact upon India of the transfer of wealth from the U.S. (and Australia, and perhaps other Western countries) to India thru BPO ("business process outsourcing": call centers for computer tech support and credit-card billing; computer animation; software design; and many other types of work), at the end of the show Moyers raised other issues, as to the impact on the U.S., in an interview with Clyde Prestowitz, described as "founder and president of the Economic Strategies Institute in Washington [whose] most recent book is Three Billion New Capitalists: The Great Shift of Wealth and Power to the East".
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Prestowitz was blasé about the loss of millions of American jobs to India, China, and other countries, and the "downward pressure" on American wages and benefits he admitted such (unfair) competition produces. He was equally blasé about Americans being displaced from their own best universities by students from India and China. I was furious and thought to myself, "Let's slit his throat and outsource his organs to decent people."
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It then occurred to me that the comparison between outsourcing jobs and harvesting organs is closer than one might initially think. We can take skin grafts from people without killing them. We can even take one cornea without totally blinding an involuntary donor, and one kidney without killing the donor. We can even take one or even two lobes of the liver. But we can't take both kidneys, all lobes of the liver, or the heart without killing the donor. (Communist China has been accused of stepping up executions of criminals and opponents of the state in order to harvest their organs for foreign buyers without worrying about the survivability of donors.)
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How much evisceration of our economy can we survive? It's a serious question.
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Prestowitz concedes, in a version of the interview that appears on the PBS website that there may be as many as 14 million jobs already exported from the U.S. to places like India and China, "but these estimates are all over the lot." He goes on, "I think the most important thing is not really how many jobs are outsourced. This operates at the margin and the real question here is what is the impact on overall income levels." Okay, what is that impact?

the way this works is that some jobs are outsourced. That creates the threat of outsourcing, which means that the next time you come around for a salary review and a salary increase, you know that it's possible that your job could be outsourced, and therefore your demand for a raise might be mooted.

So, this operates at the margin in such a way that whether the number of actual, concrete number of jobs outsourced is high or low, the potential of outsourcing puts a downward pressure on income levels and disciplines you the worker and disciplines, you know, the entire workforce.

Moyers challenges him as to "the entire workforce" being adversely impacted, since CEO's and other high managers are getting ever richer while workers farther down in the hierarchy are hurting:

the government's new figures about income said that people at the top are still doing very well and in fact, income is slightly up across the country. But for the 80 million people who live paycheck to paycheck, [income] is down almost 9 percent since 1999. Do you think outsourcing is a factor in that?

CLYDE PRESTOWITZ: Globalization is definitely becoming a factor in, kind of, stagnation of wages and salary levels. And what we've been seeing in the last several years is rising returns to capital, but kind of constant or stagnating returns to labor. One effect of these 3 billion people coming into the global labor force is that it creates a surplus of labor and it creates deflationary pressures in labor markets.

But again he is blasé.

So, the real absolutely essential thing here is that if we're going to maintain high and rising standards of living in the United States, we have got to be doing things that others can't do. We've got to be doing things much better, much more productively than other people do them. We've got to be training, educating. But we also have to be clever about how we structure our trade policies, structure our international investment policies, so that in the things that we're good at doing we maintain our competitive edge.

He doesn't admit that all this is impossible with free trade. He uses aircraft manufacturing as an example of U.S. domination, completely ignoring the fact that Europe's Airbus is now the world's largest aircraft manufacturer and has made heavy predations upon our largest manufacturer, Boeing. He even concedes that Boeing is shifting production abroad, to Japan, because the Japanese government is ardently pursuing creation of a major aerospace industry. Europeans and Japanese are well paid, but are still powerful competitors. Prestowitz concedes that Indians and Chinese can do things as well as, or (he says) "even better" than we can, and they'll work for almost nothing. There is, then, nothing to stop India or China from competing in any and every field, starting with licensing arrangements from U.S. manufacturers who want to improve the return to shareholders and the salaries of management by shifting operations to Asia.
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No industry is safe. Indians are soon, Wide Angle tells us, even going to be writing legal briefs for U.S. cases, displacing American lawyers, one of the highest-educated groups in the Nation. So education is no guarantee of job security.
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Called by Moyers on arguing for lower wages for Americans, Prestowitz denies it, but the conclusion is utterly inescapable that he's all for it. He and everyone else who advocates free trade with the starving of the Third World yet deny that they are of necessity arguing for reduction of American wages are liars, pure and simple.
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Prestowitz claims we can simply "buy out" all displaced workers in industries shipped abroad: "all present [fill in name of displaced industry's workers] would be paid their normal wage until retirement and would have their pensions and so forth taken care of." He does not say who is going to do that. The businesses moving abroad? If they had to do that, the move wouldn't pay, would it? Moyers calls him on it:

These call centers, I mean, there're a lot of people who work at jobs at call centers.

CLYDE PRESTOWITZ: Sure, sure, but there are a lot of people ...

BILL MOYERS: We can't pay them for the rest of their lives or a pension, can we?

CLYDE PRESTOWITZ: No.

Prestowitz then confesses he was just talking about cotton farmers, who now receive a subsidy so could instead be "bought out". But what about all the American workers who will lose their jobs if offshoring continues? He concedes we could not possibly buy them all out. So what happens to them? That's apparently not his problem.
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There are a couple of major issues last nite's Wide Angle program did not adequately address. What about economic security? If large swaths of the U.S. economy become absolutely dependent upon foreign sources of labor, foreign pressures and disruptions could destroy our economy.
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Outsourcing means that services flow in from abroad, when all things are normal. But things are not always normal. Compare dialysis. Prestowitz and his ilk are in effect saying we don't need our own kidneys; we can simply use dialysis machines. But what if the tubes from the dialysis machine are severed, or we wander too far from the nearest machine? We die.
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Compare dependence upon workers in India or, especially, China, and remember the Arab oil embargo of the 1970s, when indignation over Western support for Israel in the "Yom Kippur War" led to a stark reduction in oil shipments and a stark increase in price for oil-related energy.
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India has aspirations to superpowerdom, as has China. India has a permanent animosity toward Pakistan, and war could break out at any time. If the U.S. did not seem supportive enuf of India, the Indian government could sever U.S. corporations from the Indian labor that keeps major operations functioning. Communist China would like to "reunite" Taiwan with the Mainland, and may run out of patience. What happens if China invades Taiwan, and the U.S. responds with aid to Taiwan? Wouldn't all trade in goods and services between the two countries be abruptly shut down for the duration of the crisis?
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What would willful acts of hostile governments do to the U.S. economy in a world in which the U.S. economy depends on workers abroad? Bill Moyers didn't ask Prestowitz about that.
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For all the harm outsourcing is doing and will, unstopped, do to us in the future, what countervailing benefits are there to, for instance, India? The description of that Wide Angle episode in TV listings said that some Indians in BPO operations work an 80-hour week! I missed the first part of the show, so didn't see that mentioned. It would seem, however, that American corporations are essentially co-conspiring in inflicting slave-labor standards on India. That's immoral.
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Moreover, the "trickle-down" benefits (one Indian manager actually used that expression) are not widely spread. The case is given of a call center in Gurgaon, a part of the (New) Delhi metropolitan area. The typical wage there is shown on an interactive map as US$600 a year; the wage of someone in an outsourcing IT industry is $11,700. Is that for an 80-hour week? Put that aside.
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The program says that there is essentially no public transportation in Gurgaon and that the call-center's management has had to create a fleet of its own vehicles to transport its workers as far away as a two-hour drive. But that hasn't benefited the people of Gurgaon generally. They still have no transit. Caterers serving the IT industry are doing well, albeit with very long hours for workers, as are people in malls that the newly prosperous BPO employees patronize, as are also construction workers building new housing for the new middle class. But that leaves the bulk of Indians untouched in their wretchedness.
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Moyers asks, in so many words, if outsourcing threatens to produce a leveling of wages at the lowest point: "are these people racing us to the bottom, as so many others say -- so many critics say -- or are they racing us to the top?" That refers to the outsourcing of jobs in the most advanced areas of biotechnology, nanotechnology, etc. Prestowitz concedes that both are happening: wages are dropping, high-tech industries abroad are rising. But that doesn't worry him. Why not?
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He pretends that merely adopting some strategic economic vision and devaluing the dollar will magically save our economy because we will be able to replace any lost jobs with entire new categories of jobs — even if every single new technology we come up with is instantly learned by Indians and Chinese studying at our universities!
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So, what about all that "educating" that Prestowitz says we need to do? Aside from the question of whether it will do a damned bit of good at protecting jobs, there is the question of access even to our own best universities. Prestowitz says plainly:

We talk about ourselves as having the best universities in the world. And that may be true. Our elite universities probably are the best in the world, but . . . if you look at the students in those elite universities, more than half of the students at MIT or Caltech who are studying engineering or science are foreign students. They're Indians and Chinese. They're not Americans.

So Americans can't even get into their own universities but are shut out by foreigners. How on Earth can we compete if our best education is given to foreigners who return to their own country to use our technology in their industries? He doesn't explain that.
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Instead, he blames our educational system via false comparisons:

if you test progressively, you find that American students in primary school are scoring better than American students in middle school who are scoring better than American students in high school. So the longer they stay in school, the worse the American students do in international testing.

What he does not say is that in most of the rest of the world, there is no devotion to universal education thru high school. Primary education is seen as important, but not everyone is seen as college material, or even high-school material, and so, many are dumped from the educational system, either altogether or by being shunted off to vocational programs. Our vocational programs are, for the most part, integral parts of public schools, and the people who in other countries long ago left school altogether or went into vocational programs whose students aren't given standardized tests on academic subjects, do get tested on academic subjects here. So in comparing a universal student population here to an elite, whittled-down student body abroad, you're really comparing apples and oranges.
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Even where you have little attrition in overseas student bodies, few foreign countries have the masses of immigrant children that we have, and such immigrants as they do permit tend to come from the middle and upper classes, not the least-educated classes in their own countries. Places like Finland, South Korea, and Japan, to which we are invidiously compared, have essentially no immigrants and no language problems for their students to cope with that might be reflected in test scores. But Americans don't have the good sense to discount false comparisons to countries nothing like us. No, we keep insisting that our kids are being badly educated, even tho year after year after decade we keep turning out brilliantly inventive young people who have created and sustain the world's most creative culture.
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But how can we compete with hordes of foreigners displacing us from our own universities? Run the numbers. Between them, India and China have 2.3 billion people, and their populations are increasing astrononomically:

According to the most recent (medium variant) UN population projection India's population will increase by an additional 401 million between 1995 and 2025 - China will grow by "only" 260 million[.]

In short, there are presently over 7 times as many kids in India and China as in the U.S. Not all of India and China's kids receive secondary education, but let's talk, for this purpose, as if they did, since we can't easily establish how many do. If only the top 1% of students were considered for admission to elite American universities, the U.S. could put forward only 1/8 of the applications to those elite schools. Is it any wonder that the American universities have a student body that is mostly foreign? What does that foretell for Americans trying to compete in the highest areas of technology? And what can we do about it?
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Plainly Americans must, at the least, tell the administrators of their own universities that they have got to stop slitting out national throat by giving foreigners better access to our schools than we get. If government will not cut them off if they admit more than x% foreigners, then other sources of funding, from corporations to alumni to charitable foundations must cut them off until they give Americans better access.
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If you are a graduate of an elite American university that is now educating too many foreigners in preference to Americans, tell the university's president and alumni association that that has got to stop, and until it does stop, you are cutting off all contributions you might otherwise have made.
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If the future of the American worker, even the highest-tech worker, depends on education, the very first thing for us to do is to empower our own people to compete intellectually by preserving access, or indeed improving access, to our own best schools.
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Free trade is a noose slowly but perceptibly tightening around our national neck. Education is a hardened-steel collar we can place between our neck and that noose, so that even if we can't completely undo the malice of the free traders, we might at least preserve our lives, for a time, by retaining the possibility of competing.
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(The current U.S. military death toll in Iraq, according to the website "Iraq Coalition Casualties", is 1,897.)
- posted by L. Craig Schoonmaker @ 2:42 PM