How India is Saving Capitalism

alphakappa writes "Salon goes onsite to Chennai (Madras) in India to investigate the whole offshoring phenemenon (free daypass) and comes up with an interesting series of stories. Katharine Mieszkowski starts with a company CollabNet which creates collaboration software for teams to work together on projects from locations all over the globe, and has centers in Brisbane (CA,US) and Chennai (India) - a company that would not exist if they didn't have access to engineers from India. She makes the case that in most cases, it is the necessity to survive, rather than greed that has fed the offshoring process. As Behlendorf from CollabNet puts it - 'We saved the jobs of the people who are employed in San Francisco by hiring people here [in India],' he says. 'I don't know that we would be around as a company if we hadn't done that. What was the right thing to do, morally?'"

Friedman

[TrentL]

The NY Times Tom Friedman has written many articles [nytimes.com] arguing a similar point.

Re:Chennai's _Dune_ connection

[bheer]

>On a more positive note

You missed out: great work ethics. The city hasn't lost a day of business in the last four years (Bangalore and Hyderabad have both lost 1 in the same period, other Indian cities lose lots regularly to strikes/violence/riots). Given India's reputation in this area I find this amazing.

Also, it's been a while, but IIRC Madras has one of India's lowest crime rates?

Re:Rationalizations begin

[linderdm]

Actually, a lot of the companies that are outsourcing get huge tax breaks from the government, something John Kerry wants to eliminate. So they are outsourcing, AND we aren't getting their taxes!

Better link

[arvindn]

Why does the link for Chennai go to some stupid commercial site (which is already slashdotted)? A much better place learn about the city is the wikipedia entry for Chennai [wikipedia.org]

- A Chennai resident

Re:Morally?

[l-ascorbic]

The wages paid to Indian workers are actually considered very good. The difference is in puchasing power parity [everything2.com] dollars, and unadjusted rates. As more jobs are created in India, there is more competition for skilled workers and their wages increase. As the gap between US and Indian wages decreases, they will need to find other ways to compete than price. This is much like Japan did in the past 50 years: going from competition on price of good such as electronics and cars, to competing on innovation and quality. A good outcome for all concerned.

Re:Morally?

[Anonymous Coward]

Programmers in India live in nice houses and support their families on the "sweatshop wage" you are talking about. You are the one who chooses to live in a country where the cost of living is five times as high, so don't blame the company if they want to hire somebody who can live well on a lower salary.

the US success...

[zogger]

...came about from a variety of reasons. This is complex, but I'll hit a few points.

Originally, in the US, corporations had a duality they were forced into, they were granted charters to incorporate-it wasn't automatic, and part of the deal from government was that they had to be of the public benefit-inside the united states. Profitability was one thing and taken as a gimme, but the other applied as well. That's just historical fact. If the company failed to stick to that, their incorporation charter wasn't renewed or it was pulled. The united+states was a federation of (much more than today) independent states, so we had a "common market" that had a default language and used a common currency, and the tax structure was setup to insure that the economy as a whole *inside this federation of independent states* improved, and there wasn't as bad a currency drain to outside the borders. We still had trade with other nations, but the default was it had to improve THIS nation over-all, and not replace anything domestically. Excise taxes at the border were a part of this, and why we didn't have the onerous "income" tax. There WEREN'T income taxes. We had protectionism by default, for the nation as a whole, but states weren't allowed protectionism legislation, only the federation.

We then gradually realised that monopolies stifled trade, so controls were put into place. We also had the phenomenon of collective bargaining finally being allowed, so that gross exploitation didn't occur, and that general over-all standard of living increased as more and more people as a percentage of the gross population had disposable income, could save for retirement, could afford even beyond basic necessities, and etc. During this time, we also used a currency that was backed by tangible assets, and was productivity-based, not credit-based.

Once all those were in place, we had the fastest and most successful rise of a true middle class that the planet has ever seen. It worked, it was a combination that worked, and most of it was based on common sense, nationalism, and yes, morality.

That's all gone now. It's based on greed again, exploitation, no thoughts of being loyal to your nation or your neighbors.

I EXPECT an Indian or a Chinese to be loyal and patriotic to their respective nations, to be looking out for the best deal they can find, it is the natural order of things and I approve of that, it just makes sense. I EXPECT that of a USian as well. The argument now is, is that it doesn't matter, nothing matters other than short term profits. No long range view of what is happening to your (anyone your, speaking generally here of course) nation or your neighbor. It's also pretty short sighted. Put your neighbor out of work, you've lost a domestic customer for your widget or widget service, as they have no money now. In the US now they have to cook the books and outright lie to keep true unemployment figures out of the mainstream press. Put enough of them out of work you have a national balance of trade deficit, which is the largest in our history now. We had a domestic balance of trade surplus for our entire existence as a nation UNTIL corporations got given tax breaks to outsource, and it's recent in historical terms. Continue that for a number of years and your nation is forced as a stop gap matter to abandon asset and productivity based currency to a complete fraud lying debt-based inflationary currency. this has happened, and was inevitable when we abandoned asset based currency. That is for sure happened, it's undebateable here.

Shipping off your carefully built up manufacturing base means that some other nation or group of nations can hold you hostage at some point for critical infrastructure. that's happened. Shipping off your agriculture means the same. This is also true now and accelerating. Allowing the rise of the monopolies, the same, it's happening.

*True* wealth is a bona-fide tangible, despite the bankers and casino traders assertions otherwise.. True wealth is refl

Re:Great...

[Brian Stretch]

Two-thirds of the people in the top tax bracket (500,000 of 750,000) are small business owners. In America, most small businesses are pass-through entities (sole proprietors, partnerships, most LLCs) where the owners pay their business taxes on their personal tax returns. Cutting the top bracket tax rate gave an immediate boost to half a million small businesses which they can then use for hiring and general expansion.

Figuring out how to comply with the federal tax code is a big enough mess without adding the complication of a corporate tax return, thus why the pass-through forms are preferred. If we really gave a damn about helping small business we'd pass the Flat Tax, making tax compliance very easy and ending a hell of a lot of corruption that comes from Big Business buying favorable tax code rules from Congress (which the Democrats are more than happy to sell them; why do you think Big Business gives 50-50 to each party but small business owners are overwhelmingly Republican?).

Most new jobs come from small businesses (80%?).

Re:Morally?

[GileadGreene]

"bzzzzz.. wrong answer."

The only reason that the US dollar has any value overseas is that it can eventually be redeemed in the US. Someone has to eventually spend it here (although not necessarily the someone that you initially gave the dollars to). Otherwise it's just a piece of paper. The situation is the same with international banks - sure they convert currencies, but they do it in accordance with an exchange rate that is rooted in what a given currency will buy in its country of origin.

The real answer to outsourcing

[tuxathon]

Outsourcing is nothing more than a natural market reaction to overpriced labor in certain areas of the economy. It is clearly in the interest of corporations to find the cheapest labor skilled enough to do a job. Outsourcing is a market-driven hint to some in the labor pool to expand their skills, find new opportunities, invent, completely change career paths, or otherwise find a way to make themselves valuable.

According to the Bureau of Economic Analysis [doc.gov], the US enjoys a trade surplus in services, to the tune of $60 billion. A large portion of that surplus is computer services. This bears repeating: we import more programming/analysis/consulting than we export. The the overall service balance is shrinking, from $64B in 2002 to $60B last year, but is still a large surplus. The shrinking is easy to explain: as more nations/laborpools develop the skills to do certain jobs, companies are given greater selection. Salaries in the computer services secotr in the US will trend downward, while they will be pulled up overseas. They will meet in the middle somewhere

Not all jobs will be outsourced. There will still be many jobs, especially in emerging markets, that cannot be outsourced because laborers overseas do not yet have the skills needed to do the jobs. This is a great opportunity for those left without a job to improve their skills and enter these 'safe' markets.

There is no sence in complaining about outsourcing. "Evil" corporations are going to do it whether you like it or not. Government protection is not the answer, mainly because it isn't the government's responsibility to ensure you have a job. That onus lies on you. If you are unemployed, stop reading Slashdot and find a way to be valuable to the economy. Self-reliance, innovation and hard work are what made this country what it is and will continue to keep it great.

As the US labor pool is forced to become more skilled, the standard of living in countries like India will rise, creating a larger market for US produced goods, thus creating more jobs is the US.

I repeat: THE ANSWER IS NOT GOVERNMENT HANDOUT, SUBSIDY OR PROTECTION!!!! IT'S AMERICAN INDUSTRY AND HARD WORK!!!

Re:The Cure for Outsourcing

[qzulla]

Close but no cigar. Where I work we have one foreign national with a clearance because he is the only one that can do the job. It is rare but not inmpossible.

Q

US Tax Code Subsidizing Foreign Investment

[meehawl]

What's often overlooked in the current debate is how US corporations are gaming the US tax system using by offshoring [washingtonpost.com]. They get tax credits for spending money to invest overseas, then avoid paying taxes on the profits fromthose overseas investments by keeping these investments offshored, out of reach of the IRS, and within low-or-zero tax envirnonments of other countries so desperate for employment that they give the corporations a free ride.

By the end of its 2003 fiscal year, Hewlett-Packard Co. had "indefinitely" deferred taxation on $14.4 billion of foreign earnings, according to SEC filings, a move that helped lower its effective tax rate from the statutory corporate income tax rate of 35 percent to 12 percent. Domestic employment at Intel Corp. slipped by more than 3,300 people last year, but it grew by more than 4,300 abroad. By the end of 2003, the company had $7 billion in cumulative foreign earnings, $700 million more than it had sheltered in 2002, according to SEC filings. The semiconductor powerhouse stated that it "intends to reinvest these earnings indefinitely in operations outside the U.S." [washingtonpost.com]