Hi:

Given the articles sent to this list decrying the offshoring of tech jobs,
I thought that a different take would be useful.

Peter

Bruce Bartlett on Outsourcing Jobs on NRO Financial

February 04, 2004, 9:20 a.m.

The Outsource of Confusion

When jobs go, we grow.

Outsourcing of information-technology services continues to be a hot topic
- and a sore point for many IT professionals. As they stand in unemployment
lines, they see their former jobs being shipped off to India, where they
are now done by people making one-fifth as much. It has aroused much
bitterness and led to legislative efforts to restrict outsourcing in the
name of saving jobs for Americans.



I can't really offer any comfort to unemployed programmers, but the process
of outsourcing is good for both the U.S. and world economies. Any jobs
saved in the short-run by restrictions on outsourcing will come at the
expense of better jobs in the future that will not be created.

The problem really arises because India, rather than, say, Canada or
Germany, is the perceived threat. We don't generally worry about American
jobs going to wealthy industrialized countries like Canada and Germany,
because their workers are highly paid and cannot undercut us based on low
labor costs. Because Indian workers are paid only a fraction of what a
comparable American (or Canadian or German) makes, the competition is
viewed as unfair.

But how did the U.S. and other wealthy countries get that way? It was by
being the low-cost producer in some area. No doubt, the European farmers of
the 18th century were bitter about being undercut by American farmers,
whose cost of land was a fraction of that in Europe. They must have felt
that this was as unfair as unemployed IT workers feel about India. But as
time went by, costs equalized as capital and labor migrated to other
countries and other industries. This is all part of the process of economic
growth.

An article in the February issue of Wired makes this point well. It points
out that Indians now doing jobs outsourced from America are seeing a rapid
rise in their wages and standard of living. In the process, they are
becoming more like Americans, which is translating into demand for American
goods and lifestyles. The Indians also know that they can't compete only on
price; the quality also has to be there, and they believe that they are
delivering it.

Daniel Pink, the author of the article, goes on to make this important
point: "Isn't the emergence of a vibrant middle class in an otherwise poor
country a spectacular achievement, the very confirmation of the wonders of
globalization - not to mention a new market for American goods and
services? And if this transition pinches a little, aren't Americans being a
tad hypocritical by whining about it? After all, where is it written that
IT jobs somehow belong to Americans - and that any non-American who does
such work is stealing a job from its rightful owner?"  Perhaps more
starkly, Carly Fiorina, CEO of Hewlett Packard, recently said, "There is no
job that is America's God-given right anymore."

It's worth noting that the U.S. is not the only country where outsourcing
is happening. British and Australian companies are also outsourcing to
India, while European companies are outsourcing to the Czech Republic and
other formerly communist countries, where wages are low but education
levels are high.

It's also important to know that when countries outsource work to India or
China, they are only doing so for very low-end operations that require
little skill or training. The high-end work and wages stay here - work that
might not be retained if it could not be augmented by outsourced functions
in low-cost countries like China and India.

A Jan. 30 report in the Wall Street Journal illustrates how this works,
using the case of a computer mouse manufacturer called Logitech. It sells a
wireless mouse called Wanda for about $40 that is assembled in China. Of
the $40, China gets only $3. The rest goes to suppliers, many based in
America, which make components for the mouse, and to domestic retailers.

The biggest component of Logitech's cost is its marketing department based
in Fremont, California, where the staff of 450 Americans makes far more
than the 4,000 Chinese who actually manufacture the product.

Those 450 Americans, making good wages in California, might not have jobs
at all if Logitech wasn't able to stay competitive by outsourcing some of
its costs. Studies have also shown that workers displaced by outsourcing
are often retrained for better jobs within the companies doing the
outsourcing. Cisco, for example, is a leader in outsourcing, but has not
reduced the number of its domestic employees because they have been
redeployed into other areas, doing higher value-added work. These jobs
often pay better than those that were outsourced.

I know that this is no solace to those who have lost jobs due to
outsourcing. But the nation as a whole will be worse off if outsourcing is
restricted.


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