An Independent Study on Offshoring IT? 642
vsprintf writes "What are the real effects of offshoring on the U.S. technology sector? Pick your economist on the subject. The Bush administration's Gregory Mankiw says it's all good, and exporting jobs is just a new way to do trade. In Congressional testimony, Ralph Gomory says a little bit is okay, but too much is bad, while Herman Daly says it's just plain bad. The ITAA's paid mouthpiece, Harris Miller, says it must be good because IT workers in India wear Nike tennis shoes. At last, it appears the IEEE-USA has persuaded Congress to pay for an independent study to determine how offshoring really affects U.S. IT."
Nike shoes (Score:5, Interesting)
Re:Nike shoes (Score:4, Interesting)
Mankiw is such a hypocrite (Score:4, Interesting)
De-skilling (Score:4, Interesting)
I maintain the major problem is gradual de-skilling. If potential software engineers simply see that their future jobs are likely to go offshore, they will not go into the profession. Software is still a somewhat apprentice based profession in that you usually require some coding skills before becoming team leaders or designers and then development managers and CIOs or CTOs.
If you are pulling away base support in the profession, then de-skilling will gradually move up the ladder. More jobs,more high-powered jobs will move offshore until wage parity ensues. By then, it's too late, corporates will have followed the skill base. An industry responsible for (a rough guess) 15% of Western economies will have moved elsewhere.
And you can't compare the software industry to manufacturing. Software is not manufactured and, so far as I can see, will not be manufactured for at last 25-30 years. But guess which countries will reap the benefit of writing the code manufacturing software?
Re:Nike shoes (Score:2, Interesting)
Ah, the ironies' of globalisation!
But Nike is an American company, no?
The buyer in India spend money on the Nike shoes, Nike pays the labourers in Indonesia, and pockets the difference.
Some share traded on the American stock market incrases in value, and Americans are happy.
Easy answer (Score:5, Interesting)
a moderate outsourcing is good for everyone, it opens new markets because it helps to develop. Massively outsourcing, produces huge trade deficits and basically only shifts money.
What currently happens is following development, currently everybody thinks that companies can produce cheaply and sell expensive here. That only works as long as people have money. The long term trend goes towards crash of the monetary system in the west, or at least in the US, with trade deficits which are enourmous. The classical example of this was Argentina in the nineties, basically a classical example of a country which did not produce anything inshore but imported everything. The crash was imminent, and came around 2000-2001.
What currently happens is that some people thing a patent system which basically acts as a highway robbers tool might help. This might delay things but only for a certain period of time. Once the production is gone entirely, the research also will follow and with it the so called IP holders (which shift overtime, since patents run out), unless the current patent system crumbels under its own weight, because of the massive abuse which is currently happening before.
So what would be the solution. Simple, try to keep certain core industries and research in the country, and do moderate outsourcing which opens the doors for the wealth of everybody. But for heavens sake, keep some industries and research in the country or at least in the monetary zone.
I wonder if they are considering the worst part (Score:4, Interesting)
After all, how often does the federal government do anything to protect small businesses or individuals from being destroyed by large businesses?
They are more likely to protect the big businesses from being mistreated by small businesses.
For example, the whole patent system is nothing but protection of big business from small businesses and individuals.
When it comes time for important contracts, who gets the contracts, the big business or the small business? From what I see, it doesn't matter at all if the small business has much greater expertise in the matter.
So if the big business can make money by moving some activities overseas, everything is just fine with Congress.
As long as the big corporations and those corporations with friends in Congress make tons of money, nothing else matters.
Of course, there is a bigger issue that everyone ignores.
When we export jobs, we are exporting vital expertise. After those who used to do the work are no longer up to date, we lose the ability to do the work ourselves. We're not there with software development and it will take a while, but it is forseeable that at some point we won't have the expertise we need to handle emergencies.
So what happens when China declares war against us 40 or 50 years from now? What do we do after they cut off our access to the exepertise we will need to win the war?
Include all the manufacturing that we no longer have the capability of doing without a long lead-time, and we're going to be in serious trouble.
Our chances of prevailing against China will be about like Poland's chances against Germany in the early days of World War II.
It looks to me like we're well on our way to losing the next WOrld War.
Pay for an independent study...? (Score:4, Interesting)
Call me naive, but surely there's no such thing as an independent study? After all, someone's paying for it and usually the someone who's paying for it has already got an opinion. I've yet to see an "independent study" which didn't favour the organisation paying for it.
Economists look at half the picture (Score:2, Interesting)
However, economics, and particularly the classicial sort of economics, is not very good at sorting out what happens to the distribution of income within each economy. And, as several posters have pointed out, the people who have seemed to do most well out of free trade in the past have been the owners of capital (shareholders).
In practice, it's an empirical question. To use a baking analogy, you have to weigh up the bigger pie that free trade produces against the fact that a sizeable section of society is getting slighly less *proportionately*. If the pie grows enough, it doesn't matter, but that's not guaranteed to happen.
hmm.. (Score:5, Interesting)
More to the issue, I'm not sure what decides the level of outsourcing - "some", "moderate" or "massive". Even when offshoring wasn't happening, a lot of companies prefered "outsourcing" - subcontracting their IT needs and business to specialist companies who had the skills and knowledge to fulfill them, leaving the parent organization free from the usual worries of delivery, quality, acceptance etc. So if the same happens now, it's bad? Because there is growing fear of losing jobs? Surely, the involved professionals would be smart enough to know that economics drives a business, not preferences!
Further, if the products of US-based companies are used/consumed by people elsewhere, from the (less) money earned from US companies, surely the profits are going back to USA. So the article gave an example of Nike. I'm sure more parallels can be drawn without stretching the imagination too far!
Finally, if the cost of building a product, be it software, is relatively less (and so is the cost of maintaining it), then the cost of direct users/consumers would be much lesser. Say, if the Air-traffic control systems cost less to build and operate, it would lead to less fees towards airlines, which means they can cut costs further and offer cheaper tickets.
And contrary to what another poster mentioned, yes, the corporates may follow the skills, but why would they distance themselves from consumers? They have nothing to gain there, if there is a growing resentment against their products/services. And if they decide to not pursue offshoring, they stand to lose considerable market share simply due to the cost-benefits offered by the competitors. So, from their perspective, its a downward spiral.
Outsourcing is happening. Live with it. Some jobs are going elsewhere. Sure. Are those the best jobs? Surely, it gives the professionals in the developed world better jobs (creative as compared to monotonous, boring, trivial).
Maybe this brouhaha is there because IT professionals have a bigger mouthpiece, and a cheaper and far easier means of voicing their concerns.
It is good, but for none of the reasons stated (Score:4, Interesting)
Think about it, on balance the really enormous social result of the various industrial revolutions that took place in and around the nineteenth century was the end of slavery. Slavery ended because it could, not because it should. This is true with so many things that are attributed to good will and heroic characters. That's all mythology.
This struck me the other day when someone was talking in a wide-eyed manner about all the things that would have to be done manually without industrial and agriculural machinery. The person kept using the pronoun "you" saying "you would have to do this by hand and you would have to do that by hand." I spoke up and said, no actually a slave would most likely have done most of the things you're referring to before the age of machinery.
So, if machinery and centralized power ended slavery, then IT probably will end work as we know it and this offshoring issue is really symptomatic of a huge evolution in society that is just beginning. And, of course, in the beginning the resistance will be enormous and it will still be here hundreds of years from now. In evidence I would introduce, among others, the confederate flag issue in the American South.
A basic fallacy... (Score:3, Interesting)
An action or transaction that results in monetary gain for the US cannot be construed as 'good'. Hardly anything innovative happens in the US that is of importance for the rest of the world. In fact the US has lagged behind in things like cellphones and bandwidth. And within the US, the patents system seems so messed up, true innovators can hardly be expected to stay motivated.
Money, like blood, needs to circulate. If it accumulates in just one place, it can lead to a heart attack.
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Globalization only works... (Score:5, Interesting)
1. Free trade of goods. Almost done. Shipping goods from country A to country B is cheap (even if some tariffs are applied).
2. Free movement of workforce. Countries all over the world have a limitation on this. You just can't go to work in an other country. Even in the EU it is not easy (lot of paperwork) to do so. Also, language and cultural differences make a person reluctant to move.
3. Free trade of knowledge. Patents and copyrights restrict the sharing of knowlegde. They should be eliminated entirely.
Big businesses want point 1 to be realized, but do not want point 2 and 3. Until point 2 and 3 become true, outsourcing is most probably bad for everyone.
Re:The race for the bottom (Score:1, Interesting)
Inifinite resources and profit/exploitattion opportunites!
Get over your Corporate America brainwashing!
Re:Globalization only works... (Score:4, Interesting)
As a regular guy I don't have the same choices. I can't decide to send my dry cleaning to Indonesia because it's cheaper. I only have local choices to buy things like milk and gas and those prices are all similiar and regionally based. And, as you mentioned, I don't have global choice as to where I can live and work... I am limited by laws that protect the jobs of citizens (present in all countries but no longer enforced in the USA... face it). Then you have the corps that DO have all these choices... especially when it comes to labor and raw materials.
So the economy is split. You essentially have a lower and an upper class.
Re:hmm.. (Score:3, Interesting)
Japan does not manufacture for the US, Japan manufactures for Japan and sells to the US. That is a major difference.
What's the point of the study? (Score:2, Interesting)
Of course, outsourcing has "adverse effects" on US high-tech workers; we don't need a $2m study to determine that. But if people in India can provide IT services more efficiently than us, they should provide IT services. And that's not something India forced upon us, it's something we have pressed the rest of the world to accept for several decades now.
And it's not like it's anything new: textile workers, steel workers, many parts of the service sector, manufacturing, assembly jobs, etc. have all moved overseas. Why is IT supposed to be special? Slapping together a VisualBasic app or debugging a network requires no more skill than assembling a car or making a suit.
Re:De-skilling (Score:3, Interesting)
Re:The race for the bottom (Score:1, Interesting)
It may be that the wealth is spread around more evenly across countries. This is not necessarily a bad thing, however it may have the effect of reducing the average remuneration for IT jobs in the USA. Again, if this goes hand-in-hand with a lowering of costs in the USA in dollar terms if wages, as a whole are reduced, it isn't necessarily a problem as your dollar will buy you more or less the same amount of USA goods and services.
However there would be two negative effects:
1. If wages are reduced then servicing your existing debts will be more difficult as the ratio of the dollar debt to your new, lower income will be larger. On the other hand if you have large savings rather than debts these (assuming the dollar remains stable) these will buy many more services in the USA. If you are rich now, you will become relatively richer.
2. Goods imported from other countries will become relatively more expensive as a proportion of your imcome, so initially your DVD player will be relatively more expensive. On the other hand this will mean the relative difference between USA-made goods and goods made in Indonesia, etc., will be reduced, which means more scope for jobs coming back to the USA. Eventually some new balance will presumably be found, but there will be growing pains.
US does not get the money... (Score:2, Interesting)
The US does not get the money.
Current tax laws allow US corporations with foreign operations (multinationals) to allow their overseas branches to retain profits. Even worse, many "US" corporations have moved thier headquarters off-shore to avoid paying Federal income taxes on their aggregate operations. Case in point - Accenture, the progeny of Arthur Andersen, has moved its headquarters to the Carribean, is active in outsourcing work abroad, and has many federal contracts.
I suppose your arguing the theoretical point that increased profits for US corporations == growth in the US economy. Certainly, those who own shares in the outsourcing companies will see a rise in their wealth. But how much of the share value is eventually translated into increased domestic consumption, as opposed to being effectively banked, and then spent overseas, or spent for the good of the corporation? Are we better off when those who actually, really own the corporations - the top 1% of those people in the American economy - earn more money through increased corporate profits or when the average worker earns more money?
The world financial system is also unlikely to allow the US to continue with a grossly inflated dollar. US companies will be in a much poorer financial position is we face a currency crisis similar to what happened to the British pound a decade ago. Ironically, our current desire to import all of our manufactured goods, thus creating a gigantic trade deficit, combined with the Bush administration's penchant for enormous deficits, will inevitably weaken the dollar, making outsourcing less atrractive.
But the damage will be done. The wealthiest Americans will get the money. The middle class will continue its long fall into poverty, and investment will be directed from abroad. This is a disasterous situation, all caused by short term greed. We should care more about who gets the money, rather than which country. If we destroy the US middle class, other countries middle classes will follow the same path. We're looking at the beginnings of dystopia.
Re:Coming full circle or selling tomorrow ?. (Score:3, Interesting)
Actually, we are losing our senior ppl as well. But what you are saying about IT here is essentially correct.
I find it funny that when I went to school (Colorado State University), I was #1 in all my classes. But my competition were the Indians and Chinese, not Americans. As a nation, we have gotten lazy and and are paying the price.
Re:Globalization only works... (Score:1, Interesting)
1) Region Coding - Cannot use a US disk in the UK
2) Grey Imports - Levi took Tesco to court and got an injuction against them using Grey Imports which were cheaper than the wholesale price from Levi
3) Licensing - Software is only licensed in some cases for a specific region.
Have you called for support lately? (Score:2, Interesting)
Re:There is an entire world out there (Score:3, Interesting)
Off the top of my head? Ireland. Greece. Spain. Portugal. Italy. All largely peasant, subsistence economies at the start of the 20th century. These countries that have suffered dictatorship, revolution, and/or civil war during the last hundred years but are now stable, prosperous democracies.
Next question?
Re:How's that? (Score:3, Interesting)
I saw this show on PBS that describes how corporations use tax shelters using the tax law loopholes. If they really paid actual taxes, every citizen in USA would be paying about 15% less tax. You can watch the full show online here:
http://www.pbs.org/wgbh/pages/frontline/shows/tax
You are very confused about that. (Score:3, Interesting)
"How many jobs were outsourced? Now, looking back on history shouldn't we consider the 70s the age of outsourcing automobile workers? The 80s textile workers?"
YES! But this has been discussed before. Talk to people in the "rust belt" now.
"As for the job creation. The capital gains tax cuts and similar equalizing of the percentage of income tax benefit the small business greatly."
How? Most small businesses do NOT see much benefit from capital gains cuts. That is mostly on UNEARNED income.
You see, there are, basically, TWO types of income:
Earned - via labour
Unearned - via investments
The small businesses focus almost exclusively on the EARNED income. They make things and sell them. They provide a service for a fee.
Big businesses and rich individuals benefit from the UNEARNED portion. Stock dividends, income from selling stock, etc.
"Now what will stop this? Simple, raising the taxes on the "evil rich"."
Hardly. All that needs to be done is to focus the tax structure a bit more fairly (by "fairly", I mean "for the greatest number"). Since the majority of US citizens do NOT see much benefit from reducing taxes on UNEARNED income, then we do NOT reduce taxes on unearned income.
Since the majority of US citizens WOULD see a benefit from reducing taxes on EARNED income, then we reduce taxes on EARNED income.
"The ones with the millions and billions have relatively no income and have the means to dodge nearly most forms of taxes."
So you've fallen for the old right-wing trick, eh?
The key is to identify and remove the tax loop-holes. Then the taxes are re-structured to provide the greatest incentive for the greatest number.
The stuff you've been reading is biased. The "small businesses" you hear about include Bush and Cheney because they receive income from properties. And the "small business" rules have been setup to include that.
Re:No, it is not enough (Score:3, Interesting)
Isn't that communism? No offense, but I have seen communism with my own eyes and I will take the hellishly evil capitalism you are talking about over communism as implemented in the historical Soviet sense
Perhaps the problem isn't that the government isn't taking enough money - it is that the money that the government takes isn't being spent in an economically responsible manner.
See also : The Big Dig, a $17B (that's 17 followed by 9 zeros) civil engineering project to put in a three mile tunnel to route traffic to Logan Airport. Seventeen billion dollars. How much would it cost to have built an entirely new airport out in the 'burbs of Boston, eliminating the traffic problem entirely? For reference Austin's Bergstrom International Airport was built for about $600M. Even if the new Logan was to have been 10x as large as Austin
s International Airport, that't stll less than HALF of what Ted Kennedy spent putting in a three mile tunnel so they could keep on using the same old airport.
How about simply force the rich to build the new housing, education facilities, healthcare facilities, airports from their own money, let them run them as for-profit institutions and cap their profits at roughly what the S&P500 return rate is averaging (8% a year sounds very enticing) and let them fund it with all the money they save by not having to pay for government clusterfucks like The Big Dig. People are a LOT more responsible with money when they are spending their own money.
Re:Nike shoes (Score:3, Interesting)
Look how Bush talks about fighting the war on terrorism, while out of the other side of him mouth he and his party are talking open borders. They want the cheap labor of the immigrants coming in.
Bush has put a for sale sign in front of the White House. Selling off America as long as his CEO buddies are making a profit doing it.
Want to get the economy truly going, stopped the outsourcing, close the holes in the border, get the middle class working at decent wages. That will increase the tax base to pay for the deficits, it will increase sales of products within our country. When the middle class is doing well the whole country is doing well.
Re:Coming full circle or selling tomorrow ?. (Score:3, Interesting)
What I'm personally seeing is that the US/EU companies are firing the junior programmers and keeping the senior architects due to outsourcing to India. The effect of this is to essentially cut out the entire next generation of software architects because they do not get enough experience (and often quit IT totally).
I don't know that that's what will happen. Maybe what it will lead to is a realignment of software engineering as a discipline, along the lines of other engineering disciplines. When US companies hire electrical engineers, they're not expected to have experience as electricians. When companies hire mechanical engineers, they're not expected to have experience as pipe-fitters, are they? Maybe what we'll see is a real shift in US universities toward teaching software engineering - rather than teaching programming, and then expecting these poor bastards to learn how to be engineers on the fly, on the job, after being hired as programmers.