Software Outsourcing

Issues related to offshore outsourcing, jobs and economy

Sunday, May 01, 2005

Are Too Many Jobs Going Abroad?

RiOSEN SHARMA IS SURE ABOUT ONE THING. HIS NINE-month-old company, Solidocore, a start-up that makes backup security systems for computers, could not survive without software outsourcing . By lowering his development costs, the 18 engineers who work for him in India for as little as one-fourth the salary of their American counterparts allow him to spend money on 13 senior managers, engineers and marketing people in Silicon Valley. If he doesn’t outsource, in fact, the venture capitalists who fund stat-ups like his won’t give him a nickel. Sharma’s Indian-American team, tethered by a broadband connection, gets his product in front of customers faster and cheaper. “As a business, you have to stay competitive,” he says. “If we don’t do it, our competitors will, and they’re going to blow us away.”

But Sharma’s sharp analysis loses its edge when he thinks about what decisions like his will mean someday for his children, a 2-year-old daughter and another on the way. “As a father, my reaction is different than my reaction as a CE,” he says. He believes that companies like his will always need senior people in the U.S. like the systems architect who designs new products and the experienced salespeople who close deals. “But if you’re graduating from college today, where are the entry-level jobs?" Sharma asks quietly. How do you get to that secure, skilled job when the path that path you there has disappeared?

That’s an issue that economists, politicians and workers are struggling with as the U.S. finds itself in the middle of a structural shift in the economy that no one quite expected. There must be a mix-up here. We ordered a recovery, heavy on the jobs, please. What we’re getting is a new kind of homeland insecurity powered by the rise of outsourcing, a bland yet ominous piece of business jargon that seems to imply that every call center, insurance-claims processor, programming department and Wall Street back office is being moved to India, Ireland or some other place thousands of miles away.

To be sure, public anxiety and election-year finger pointing have blurred some important distinctions. To set them straight: most of the jobs that have shifted to places like Mexico and China in the past several decades have been in manufacturing, which is being done with ever increasing sophistication in low-wage countries. Some have also blamed trade-liberalization deals like the North American Free Trade Agreement (NAFTA), which the Labor Department estimates was responsible for the loss of more than 500,000 U.S. jobs between 1994 and 2002. That’s significant number but modest in comparison with the millions of jobs that are created and lost annually in the constant churn of the U.S. economy. Indeed, much of the job loss during the recent U.S. recession was cyclical in nature. But in recent years, one noteworthy segment of the economy began suffering from the permanent change of outsourcing (or off-shoring), particularly the movement of service-industry, technology-oriented jobs to overseas locations with lower salaries. What puts teeth into the buzz words is the sense that getting outsourced could happen to almost anyone.

Outsourcing, primarily to India, accounts for less than 10% of the 2.3 million jobs lost in the U.S. over the past three years. But the trend is speeding up, and it is quickly becoming the defining economic issue of the election campaign. The Administration learned that the hard way a few weeks ago, when President Bush’s chief economic adviser suddenly found himself on the wrong side of the issue. In a casually imperious tone worthy of Martha Stewart, Gregory Mankiw declared, “Outsourcing is just a new way of doing international trade…More things are tradable than were tradable in the past, and that’s a good thing.”

Many economists agree with him. Anything that makes an economy more efficient tends to help in the long run. But in reducing job losses to macroeconomix landfill, Mankiw handed Democrats an issue. His words, accompanied by an ominous drumbeat, are now immortalized on the AFL-CIO’s website, just before an image of a beaming John Kerry, who won the union’s endorsement last week.

Kerry is taking the opportunity to paint Bush as insensitive to middle-class job anxieties. “I don’t think the Bush Administration has over felt this or had a sense of it,” Kerry told TIME. “And I think the No.1 major issue facing the country right now is, How do you really create the jobs that we want?” With a touch of demagoguery, John Edwards has sought to get an edge on Kerry by reviving the unresolved battle over NAFTA, which Kerry voted to approve a decade ago. “When it comes to bad trade agreements, I know what they do to people,” Edwards said last week. “ I have seen it with my own eyes what happens when the mill shuts down.” Kerry points out that at the time Edwards was in no position to put anything on the line over NAFTA: “I don’t know where he registered his vote, but it wasn’t in the Senate.”

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