Well...now what?
September 20, 2003 9:51 PM   Subscribe

CIO Magazine reports estimates that by the end of 2004 one in 10 IT jobs at U.S. IT companies and one in 20 at non-IT companies will move offshore. And yet, as it turns out...the "savings" that these companies are touting are largely imaginary. (more inside)
posted by dejah420 (20 comments total)
One of the interesting points raised in the articles was the comparison to the offshoring of manufacturing jobs in the 70's and 80's. Various commentators mentioned that manufacturing workers were able to be absorbed by the service industry, but that the service industry option is a huge step down in wages for the college educated, often multi-degreed IT worker. They also mention that there isn't any other industry on the horizon that can absorb all of these white collar workers.

Um...so...now what?
posted by dejah420 at 9:52 PM on September 20, 2003

Apparently following the jobs to India isn't an option.
posted by homunculus at 10:08 PM on September 20, 2003

Perhaps the savings will come from the depressed salaries the remaining workers in the US are willing to accept rather than be unemployed. Send a few of the jobs to India and Russia, and free up those US workers to undercut their colleagues for the what's left.
posted by Space Coyote at 10:11 PM on September 20, 2003

So if the companies aren't saving much money at all from outsourcing shouldn't we just sit back and wait for the companies to realize this and ship the jobs back to the U.S. (assuming the companies actually think rationally)? There was also an interesting comment from the last article. With baby boomers nearing retirement with not nearly enough workers to replace them, will we really end up feel the effects of this outsourcing?
posted by gyc at 10:12 PM on September 20, 2003

When I hear stories about IT people out of work for endless months, I have to wonder if it's because they won't swallow their pride and take a lower-than-dot-com salary.

Homunculus's article tells the sad tale of woe of a guy who was laid off on the middle of a six-month $60k contract. That means he made more in three months than most people who break a sweat for a living make in a year.

I've smack in the middle of the IT industry, but while I've been laid off a few times over the past few years, I haven't had a bit of trouble finding more work. That's probably because I'm good at what I do, and I've come to terms with the fact that we're not in the dot com era anymore.
posted by oissubke at 10:27 PM on September 20, 2003

dejah420: don't forget that, for the skilled manufacturing workers, the service industry was a huge step down in pay and responsibility, too.

The crisis looms when you realize that a nation actually has to produce something in order for its economy to be worth anything. If the United States keeps shipping its producing industries offshore, those that have grown and supported our middle class since the days of tradesmen, we're going to wake up one morning and realize we're a nation of entertainers, salesmen, managers, lawyers, and fry cooks.

Entertainment is great, and judging by Bollywood's output we have less to worry about here in terms of mass-consumable competition, but our entertainment industry can't even fully support the economy of Los Angeles, so I wouldn't bet the farm on it. Management (and to a lesser extent, sales) are important, too, but a business-decision-centered economy only works as long as the people in the subsidiary producing nations don't realize everything would be much cheaper if they'd just manage themselves. Even our awfully large pile of lawyers wouldn't help us in that case, and they're not much use on their own, as they are neither exportable nor wealth-creating.

That leaves the pink-collar economy, savior of the welfare mom, web designer, mill worker, and suburban teenager alike. Too bad it only works as well as it does at absorbing surplus labor because we have a large middle class, supported by industrial production. If we don't make anything, it all falls down pretty quickly.

oissubke: Despite my diatribe of the death of production, I have to agree with you that, for now, IT is not as dead as conventional wisdom would have one believe. Given the rather sorry state of the economy in general, IT is about where it would have been as a sector without the boom. The only difference is now we have a lot of laid off IT workers (many of whom would have taken jobs in other sectors had the boom not occurred) giving an altogether gloomier illusion than reality.
posted by Vetinari at 10:54 PM on September 20, 2003

How long until management is moved overseas?

I'm serious here. While I understand that middle management has to be "on site," upper management already works largely by remote electronic means. And executive compensation is high in America compared to the rest of the world. How long until CEO jobs are moved overseas, to individuals who can use a cellphone for $200,000 dollars a year just as well as an American can use one for $4 million?

On preview: kinda what Vetinari said, after a fashion. I'm thinking more about the shareholders making the choice, not the workers...
posted by Ptrin at 11:09 PM on September 20, 2003

oissubke: dig what you're saying...and as a personal anecdote, both/either of us is willing to work for significantly less than what we made as dot com start up people....but, for example...hotels.com asked me to take on an 80 hour a week project manager job for $10.00...no overtime for the extra 40 hours...well, then...no....I can't sacrifice my son's well being to put him in substandard daycare so I can take what equates to a less than minimum hour a wage job. (And they wanted me to be in business suits no less...so...they want a wardrobe that costs more than they pay annually...just absurd.)

When I mentioned that getting someone with my degrees and experience for that price was unlikely...the response I got was...and I quote..."We didn't really expect an American to take the job...Tata has workers that will do it for that price." In other words, they wasted all my time, 2 days of daycare for interviews just so they could say "Oh, but look...we can't hire an American...they're too expensive."

So I ask...if the middle class isn't working and thus has no disposable income...who buys the product being produced offshore?

Vetinari: Have I mentioned how cool the name is...you pratchett loving fool you. ;) But seriously folks....granted the step down the manufacturing folks was significant...and I didn't mean to downplay it. But since I was already service industry at that point...I guess the money looked pretty good to me back then. :) Ya know...before mortgage, car payments and baby....and the other accoutrements that made me think I had a right to be part of the middle class.

In Dallas right now, I can make more money as a bartender in a titty bar than I can make as a project manager with graduate degrees, certification and 15 years of experience. There's something wrong with that picture...and a lot if has to do with student loans.

Ptrin: There is a movement afoot...the link of which I cannot find after 4 cognacs...that suggests that stockholders put on proxy votes the idea that CEOs and board members be compensated no more than 1 million a year in total bonuses and options. I am a stockholder in many fortune 100 companies and I have every intention of putting this action to stockholder vote. I don't expect it to pass this year...or even in the next few years...but eventually I expect that stockholders will realize that their profits, which should be paid in dividends, are being eaten by greedy little bastards who do nothing that justifies their 400 million dollar a year salaries.
posted by dejah420 at 11:18 PM on September 20, 2003

When I first read the FPP, I thought it was referring to "1 in 20" of ALL jobs "at non-IT companies", which would have added a sudden 5% to the unemployment rate; since all the estimes involve IT jobs, (with the "more tech-savvy" companies shedding jobs at twice the rate as "less tech-savvy" companies) it won't be nearly that bad... but..

Even Conservatives like U.S.News' Mortimer Zuckerman are admitting "This is not just a jobless recovery; it is a job-loss recovery!". And it will only get worse while we wait for baby-boomers to retire, while worsening economic forcasts and declining and/or stagnant investment returns prompt many of them to delay retiring...

It still seems like the "job disaster" that has been predicted by some economists after EVERY major societal change ("automation", "immigration", "computerization" "women in the workplace" "service economy") is looking more like a Real Wolf than a "Cry Wolf" this time.

If the economic dark clouds turn into an economic hurricane larger than Isabel soon enough, it would most definately dash Bush's re-election hopes on the rocks. BUT would any of the "fiscally onservative liberals" who'd be electable in '04 propose the level of governmental economic activism (some call it Socialism) that FDR implimented during his era's crisis, the Great Depression?
Not likely, but as history scholars will remember, FDR was a "fiscal conservative" in 1932 until he got elected and saw just how bad it was (Yes, there are more devious explanations for his economic flip-flop, but I don't want to get into THAT).
posted by wendell at 11:36 PM on September 20, 2003

Okay, it's official: Doonesbury's on it.
posted by wendell at 12:24 AM on September 21, 2003

at times like these, it's also nice to remember what happened to executive compensation in the last 20 years
posted by matteo at 1:33 AM on September 21, 2003

This article is outlines some of the very same reasons that I got out of the recruiting and IT contacting business after several years, and went back to my engineering roots. Having first hand experiences with some of the issues discussed in these articles, I like to think that I am fairly aware of the effects and issues at the ground level.

Root Causes

1) Greed.
Far to many companies are not about people or products anymore, they are simply looking at the bottom line. Make no mistake, I like a fat wallet.... but there's a point where it's not about the pure profits anymore, it's about doing the right thing and fostering a culture of corporate integrity and citizenship. A few months ago, I watched IBM post record profits in their IBM Global Services division, and then watched them cut the salaries of all IT workers by a 5% across the board fiat - for the third time in less than two years.

2) Speed. Well, no matter what the true productivity rate is, it sure looks good on paper to be able to say that "We have 100 developers working on it right now, Mr. CEO." Most companies simply aren't geared up to be responsive to projects that have implementation dates 6 months out in the future. It's too easy to hand this responsibility off to an Indian/Chinese/Russian/Etc. company that can throw gobs of people at these problems.

3) Lack of oversight in the Legislative arena. Conservative vs. liberal is not the issue I'm talking about here. The fact is, the IT industry as a whole - and considering the explosive growth in the 1990's - is still maturing. This sector employs several million more people today in the USA than just 15-20 years ago. Legislative regulation and overall action has not caught up. Honestly, how many Senators, Congressmen, and general government staff in Washington DC (or the states for that matter) really understand the issues, impact, and nuances of the IT industry and the resulting technological ramifications?

4) Retaliation. The Dot.com boom and Y2K were unprecedented in the history of the employment scene in the USA. If you had IT skills and didn't leverage your ability to make money during the 1995-2001 time period... well, you get the point. IT workers during this time experienced a tremendous explosion in pay rates. Heck, in 1998, if you could fog a mirror and just spell the word COBOL, you could get a job at a decent rate. In all seriousness, I know several IT managers and CIO/CFO/CEO types that are taking the following stance: "Those (@$%@(*%*! programmers stuck it to me on rates for several years. Now I am setting the rates and we will get the labor rate for IT back to reasonable levels."

5) Visa mismanagement. I'm not going to rehash the H-1 and L-1 visa programs here, that's been done before. All I'm going to say that they were needed programs at the time and a good idea... up to a point. The quantity levels were ultimately too high and the overall programs were mismanaged. And of course, oversight as written from the beginning was an afterthught and penalties too weak. Despite what the program was designed for, many of the H-1 and L-1 visa holders have never left this country. Estimate range that somewhere between 500,000 and 1 million workers are now in the USA that were never intended to be here long term. Many of the people who came here are no longer in IT, but continuing to impact the low end labor market as well (think 7-11 clerks). It's not just IT that's affected.

All in all, a well written series of articles.
posted by insulglass at 5:00 AM on September 21, 2003

If you had IT skills and didn't leverage your ability to make money during the 1995-2001 time period... Heck, in 1998, if you could fog a mirror and just spell the word COBOL, you could get a job at a decent rate.

Alright, one more reason to feel really crappy about my life...
posted by wendell at 6:46 AM on September 21, 2003

Perhaps the savings will come from the depressed salaries the remaining workers in the US are willing to accept rather than be unemployed.

It's a race to the bottom, boys, and the first one there gets to play "Gangs of New York"!
posted by Cerebus at 7:57 AM on September 21, 2003

dejah420 - thanks for the post.
Wendell - You're not the only one. ( i B LOCO )

[ Cerebus just covered my following points more succinctly, but still I'll pull out my sawed-off shotgun and blast away at this dead horse from twenty feet (and for a few hundred words.) Watch out for flying flesh chunks. ]

: Regardless of whether or not corporate IT outsourcing incurs a financial loss during the first several years of implementation, it's difficult to see how the process can be halted. Slowed, perhaps. But the process has the inevitability of the mixing process along a diffusion gradient.

Think of the US job market as a container of water stained with black ink. An adjacent container of clear water (the developing world) is connected to the US ink-stained container by a tube with a little sluice gate preventing the two container's contents from mixing. The experiment begins. We pull up the sluice gate and the diffusion process starts. How long before both containers of water are a even shade of semi opaque inky-black? - That's a simple function of the size of the connecting tube.

Even if the net gains in profit only amount to 5%, US IT jobs, phone service jobs, financial analyst jobs, manufacturing jobs....any jobs, really, which are not chained in place will eventually migrate along that diffusion gradient.....sooner or later, all will leave.

Now, some jobs can't be exported directly. But all jobs - even the ones tied to localities by way of linguistic and cultural idioms and the need for face-to-face transactions - all jobs will gradually suffer from cuts in pay and benefits as their client population declines in affluence.

This process can be reversed, yes, by political decisions. But such a reversal would demand a public dialogue in the US, a dialogue about national priorities - do Americans want to prioritize the economic wellbeing of the majority of Americans, or do they want to prioritize the abstract value of maximizing market efficiency?

Or - to put it differently - are Americans willing to suffer declines in affluence to share some of their wealth with the developing world?

The orthodox line is that my premise is flawed, for I'm assuming that the process of economic globalization is a zero sum equation. Maybe it isn't. But - unless labor can migrate as easily as jobs currently can - wages globally will be undercut by the race for the lowest cost outsourced producers. This, by the way, is the process which commentators such as the mighty (or the reviled, as it were) Paul Krugman suggest might result in a world deflationary spiral - if wages among the first world consumer classes decline sufficiently to reduce consumer spending and the resultant world production glut drives prices into a feedback-loop spiral.

Also, traditional economic analysis ignores costs externalized in this process of economic globalization, costs incurred by the natural world. How much of the Amazon Rainforest can humans cut down (to turn briefly into ranch land before desertification sets in) , and how barren of fish must the world's ocean become, how scarce fresh water, and on and on - How much net environmental degradation must we witness before the overall zero sum equation, degradation of natural capital - living systems = a decline in affluence catches up with us?

That's all conveniently ignored (at the moment). Meanwhile:

In the background of the process (job outsourcing, that is) is the growing chasm between the sagging economic fortunes of the US middle class (and the plummeting fortunes of the underclass) and the rising affluence of the top one or two percent of Americans.

Also in the background is a country (the USA) armed to the teeth; and a US military culture increasingly alienated by US consumer culture, by a nation the warrior class sees as awash on a wave of hedonism, a nation which has lost the mooring of self discipline and loyalty to family and community, to the collective good.

So what happens - amidst this backdrop - as the US middle class starts to realize that it is caught up in a historic economic decline? What politicians will undulate out from their cesspools to prey on the emergent anger, and what sorts of policies or foreign adventures will they propose? Who - and surely not themselves and their own past complicity in the process - will they blame?

Oh yeah. I forgot - ballooning deficits, ballooning US debt in general. Ballooning US indebtedness to the rest of the world -especially to those producers such as China and japan who buy our debt so that Americans can afford to buy their products.

Stick that in yr. pipe too, and smoke it.

Then, hang on. Ayahuasca or Ibogaine it's not.
posted by troutfishing at 8:09 AM on September 21, 2003

This type of job migration is an easily predictable consequence of the strong dollar policy pursued by the Clinton administration. The current account deficit (the total amount we borrow from overseas) is running at about 5% of GDP. At the rate we're going, our net foreign debt will exceed the value of the stock market in 10 years. This is obviously not sustainable, and the only plausible way for it to go down is for the dollar to fall against other currencies. The Bush administration is doing the exact right thing in this case, which is letting the dollar fall while paying lip service to the strong dollar, which gives investors the impression that they'll step in if there's a crash.

I'm not that concerned about IT outsourcing, since, even if a lot of the grunt work is sent to the third world, there's still a lot of work over here meeting with customers, doing requirements analysis, and integrating with existing systems. Compare this with the losses in manufacturing, where we've lost entire industries (like consumer electronics) to overseas competitors. When the dollar bubble deflates, those IT jobs (which, as one of the articles above points out, will probably not be as cheap as people think) will come right back. Can you even buy an American TV or VCR anymore? Open up your PC. Aside from the CPU (and maybe not even that!), do you see any American made parts?

Of course, the real problem is not that the job market is changing, but that the Bush administration refuses to provide any meaningful stimulus to the economy. And why would they? Bush, Cheney, and much of the executive branch get considerable income from investments. This is the perfect economy for people like that: production is expanding, but not fast enough that productivity increases have to be paid to the employees. But just because they won't stimulate the economy doesn't mean they can't. If we took a small fraction of what we spent to destroy the infrastructure of Iraq and used it to rebuild our own decaying infrastructure, we could stimulate the job market and we'd have the benefits of that construction for years to come.
posted by electro at 12:14 PM on September 21, 2003

"....This type of job migration is an easily predictable consequence of the strong dollar policy pursued by the Clinton administration."

Electro - Blaming the loss of millions of US jobs on Bill Clinton now seems a little disingenuous, almost 3 years into the GW Bush Presidency. If you take a look, I think you'll find that the trends in question have been going on at least since 1970 or so. You could blame specific Republican or Democratic Presidential Administrations, but this would miss the main point: the equalization of the wage/price equation by way of a diffusion gradient (assuming that labor and capital have an equal ability to migrate across borders).

Adam Smith acknowledged this hundreds of years ago.

Meanwhile, the US national debt (NOT the yearly federal debt, but the ongoing Federal debt which is never paid off) is actually about 70% of GDP (see: The Debt Clock.

To quote the "Daily Kos“, " "By the end of Clinton’s watch, there was a 10-year projected $5+ trillion surplus [according to the CBO as testified by Peterson]. On this guy’s watch, that projected surplus is gone and in its place is a $6+ trillion deficit that’s getting almost $1 billion deeper every day. This problem didn’t happen on Clinton’s watch; it’s happening on Bush’s watch. It is, therefore, Bush’s responsibility.”"

According to Peter G. Peterson, chairman and co-founder of the Blackstone Group and chairman of the Federal Reserve Bank of New York who served as secretary of commerce under President Nixon, "the G.O.P. leadership has by degrees come to embrace the very different notion that deficit spending is a sort of fiscal wonder drug.... The recent $10 trillion deficit swing is the largest in American history other than during years of total war.....I know several brilliant and partisan Republicans who admit to me, in private, that much of what they say about taxes is of course not really true. But, they say, it's the only way to reduce government spending: chop revenue and trust that the Democrats, like Solomon, will agree to cut spending rather than punish our children by smothering them with debt. This clever apologia would be more believable if Republicans -- in all matters other than cutting the aggregate tax burden -- were to speak loudly and act decisively in favor of deficit reductions.....The starve-government-at-the-source strategy is not only hypocritical, it is likely to fail -- with great injury to the young -- once the other party decides to raise the ante rather than play the sucker and do the right thing. When the Democratic presidential contender Dick Gephardt proposed in April a vast new national health insurance plan, he justified its cost, which critics put at more than $2 trillion over 10 years, by suggesting that we ''pay' for it by rescinding most of the administration's tax legislation. Oddly, it never occurred to these Republican strategists that two can play the spend-the-deficit game. Not surprisingly, many Democrats have thrown a spotlight on the Republicans' irresponsible obsession with tax cutting in order to improve their party's image with voters, even to the extent of billing themselves as born-again champions of fiscal responsibility.....I doubt that the Democratic Party as a whole is any less dysfunctional than the Republican Party. It's just dysfunctional in a different way. Yes, the Republican Party line often boils down to cutting taxes and damning the torpedoes. And yes, by whipping up one-sided popular support for lower taxes, the Republicans preempt responsible discussion of tax fairness and force many Democrats to echo weakly, ''Me, too.'' But it's equally true that the Democratic Party line often boils down to boosting outlays and damning the torpedoes."

I'm assuming, of course, that there's a connection between jobs and debt. I think that's a fair guess.
posted by troutfishing at 8:08 PM on September 21, 2003

electro - I agree strongly with the second part of your argument though ( from "Of course, the real problem is not that the job market is changing...." on ).
posted by troutfishing at 8:10 PM on September 21, 2003

in the meantime... Ex-WorldCom exec trims cost of living
(Palm Beach Post)
They say a man's home is his castle.
But former WorldCom exec Scott Sullivan never got the chance to live in his castle. So he's trying to make the best of his home.
Sullivan plans to connect two homes he owns in the modest Woodbury neighborhood in suburban Boca Raton, according to his lawyer, Lawrence Schantz. Sullivan claims both homes as his homestead.
At a total of 5,571 square feet, the homes aren't exactly tiny by most people's standards.
Ah, but they don't compare with the palatial 20,000-square-foot Le Lac estate that Sullivan was building.
Sullivan is the former WorldCom exec facing federal charges of fraud and making false statements in the company's mammoth accounting scandal. Sullivan, who denies the charges, faces trial next year. He also faces civil lawsuits, Schantz said. On Wednesday, Sullivan was named in criminal charges filed by the state of Oklahoma.
Sullivan and wife, Carla , bought their 2,919-square foot Woodbury home in 1990 for $170,000, according to Palm Beach County property records.
Last summer, the Sullivans paid $260,000 for their second Woodbury house, a 2,652-square-foot home next door. In March, they legally merged the plots into one homestead, records show.
The Woodbury homes will be combined because Sullivan "needs more room. These two little houses are much more modest than that big house," Schantz said, referring to the Le Lac mansion.
Bankruptcy lawyers say connecting the homes is a smart move. Florida's bankruptcy laws allow debtors to exempt their homestead from creditors.

posted by matteo at 4:46 PM on September 22, 2003

matteo - that's appalling. I feel the need to clench.

* clench clench *
posted by troutfishing at 8:27 PM on September 22, 2003

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