Newsweek column on outsourcing

Aug. 7, 2003 / 5:32 PM ET Readers on outsourcing: I’ve been corresponding with readers this week about two Newsweek pieces, one on the “jobless recovery” phenomenon and the other on offshore outsourcing. It’s a major hot-button topic, particularly among IT workers, but the mail for the most part has been quite reasoned, if somewhat sorrowful and resigned. A few readers asked some pointed questions:

Name: Marc Hansen Hometown: Seattle When all the Microsoft, Oracle, and IBM software production has been outsourced offshore, and when all Intel factories are completely automated, and when all Home Depot stores have self-check-out lines. ... my question is: Who, in America, will be able to afford the food that the McDonald’s robots cook?

Name: EV Hometown: Annapolis, Md. Where do all of these upper level managers think they will be when everyone has been outsourced? Guess they better learn Hindi or one of the other 18 dialects. You are only a manager if there is someone left to manage.

Name: Daniel E. Platt Hometown: Putnam Valley, N.Y. Sixteenth century Spain was quite rich on gold from America. While they funded the industrial revolution in the rest of Europe, they were largely left behind in the end. Are we doomed to the same fate? Or should we purchase a future at the cost of lower profit margins now?

Rogers replies: All good questions. Here are some personal tales from the trenches:

Name: Toni Klinger Hometown: Massillon, Ohio I am so angry. My husband is 59 and lost his job to Canada four months ago. Yesterday, my sister-in-law was notified that her skip-tracing job was going to India. Hey, no problem, she’s only been with the company for 21 years! I have never been so frustrated in my life. People in their 50s just can’t start over. I hate life!

Name: G. Popsworth Hometown: Dallas, Texas I am struggling with what to suggest to my children for a course of study at college. It is becoming more and more difficult for college grads to find employment. Now with outsourcing rampant, they need something stable for their career opportunities. A small town dentist, doctor or lawyer might be appropriate.

Name: Thela Jinseet Hometown: Clinton, N.J. Here’s my story: I am a journalist for an online publication, and I’m bracing for impact. My employer’s entire technical staff is from India, making up nearly 50% of the employees here. The owners of the company are also Indian and they outsource to a team in India. Our Indian employees are a real bargain because they work ungodly hours: 10- to 12-hour days every day and on the weekends. They are also extremely bright. And it’s for low pay. But there’s more. My husband lost his electrical engineering job four days after 9-11 from a major Japanese company that closed its plant and moved its operations to France. Despite graduating with honors from a top university, it took more than a year for him to find work. And just in time: We had two weeks of unemployment benefits left, which was barely enough to pay for our mortgage. This time, he saw a substantial cut in pay. I am truly frightened after our experience. I am scared to buy another house. (We had to sell ours for his new job.) I am scared to have a baby. We can’t afford to save for retirement. Pensions are a thing of the past. My company doesn’t even have a 401(k) plan or even direct deposit for paychecks. I fear we will be poverty-stricken when we retire at 75. Why isn’t Congress listening?

Name: Bill Hometown: Roswell, Ga. Outsourcing customer service jobs overseas is a double-edged sword. One side slashes the number of jobs that are available to U.S. employees and the other side slashes the income taxes that the federal government can collect. Uncle Sam ends up funding unemployment benefits for U.S. citizens who are denied jobs that have been sent overseas. One solution may be to penalize these outsourcing companies in the form of a negative subsidy so that they can help pay benefits for the unemployed.

Name: Mike K. Hometown: Aurora, Ill. Outsourcing makes for some really profitable companies, but fewer consumers have the money to buy that company’s products. That profit won’t last for long. Remember the big “Buy American” kick back in the 80s? I think we’re on the way to the “Hire American” craze. Find out who outsources and who doesn’t and support those who support America by hiring Americans.

”Killing the corporate income tax, deregulation (I prefer to call it "common sense regulations" instead - better on TV) and tort reform will solve the problems that make outsourcing or offshoring an attractive option.”

I like and agree with the principle but don’t think that these things alone will offset the discrepancy in wages between the concerned nations. Will admit it would be a nice start though.

Apparently according to arbiter of propriety who accuses people of whining. Chinese tariffs are wonderful and entirely within their rights butr American tariffs on Chinese products are infair and outside the proper place of America. Based on this statement alone I would say questions of where his loyalties lie are at least reasonable perhaps one could use his statements to presume exactly what he is but I did wish to give him a chance to reconsider his statement.

Communism is dead. Unless somebody wants to open up trade with Cuba, we are being hypocrites. Cuba doesn't have the bodies we need, so we can still embargo them, but Vietnam and China on the other hand...

These shortsighted fools are going to free trade us into oblivion. With truly open markets, there is only a downward bounce in wages and standard of living. If there is one person who can do your job who lives in a hut, and it is feasable to hire him, you either move into your own hut, or you send out resumes.

It is why opaque labor markets, not closed, but not fully open are a better option to sort out the excesses of capitalism. This is for capitalism's own good in the long term.

If your laborers can't buy your products, the gig is up. If just one company goes for cheap labor for quick profits, the system can handle that. If everybody bumrushes tribe men who wipe themselves with leaves, and trains them to operate machinery, the whole system will collapse. I believe people look too much at the micro and not the macro of the situation.

There are several billion underemployed third world people right now. Some in India have education, some in Vietnam don't, but all are willing to live on a salary that nobody in the US would be able to support a family on.

I will get really pissed off if american companies abandon their people, and just make profits in japan, europe, singapore, where they do protect their industries, and leave us all to wallow in the muck.

The more common scenario is that prices remain the same but corporate profits increase in relation to companies that are not outsourcing. If you paid $59.99 to have your taxes done by H&R Block last year do you really think they are going to charge you $29.99 this year because they have reduced operating expenses by having someone in India prepare your return?

I had a similar experience in actual fact. Just the other day I was out shopping with the missus for back-to-school clothes for our son. Just for the heck of it I was comparing prices for polo shirts. I saw one that had the "Made in USA" label. Kind of unusual, I thought, I didn't know we had much of a textile industry. Very nice product, good material, priced at $19.99. There was another rack with similar items, labeled Made in China, priced $17.99. Not bad stuff, not as comfortable-feeling as the domestic product. We ended up buying the American product not because of patriotism or price or because I love the "Union Label" (Lord knows I don't), but because we thought it would be more comfortable to wear.

Now, a $2 price difference. How much do you think that shirt cost to make in China and bring over here? I sure don't have exact figures, but what's a reasonable guess, maybe a couple of dollars, given what we know about what Chinese workers make? So where is the big savings for the consumer? Where do you think the extra margin is going in the cost between the two? I don't know, but from a consumers-eye viewpoint, it sure wasn't at the retail level.

Bottom line is I don't think its a given that going with low-cost foreign-made products will translate into big savings for the consumer. The companies are going to charge the consumer whatever price they think the consumer is willing to pay. If their production costs are much lower for the foreign goods, they pocket the difference. That helps the companies and maybe their stockholders, but sure doesn't help the consumer and may in fact hurt the consumer class of many members if said class are put out of work by foreign outsourcing.

Oh, really? You are that sure where my loyalties lie?

Come on out and say it, if you have the guts. No wait, I think I know - you're going to call me a "free traitor" becuase I am not willing to go along with the Paul Craig Roberts application of Jesse Jackson's shakedown techniques, becuase I will not comply with the demand so the select group YOU favor to pay more out of MY wallet just because the hand is out and they are saying, "Gimme gimme, I'm entitled." It's the easy way out.

Go ahead and call me whatever name you wish if it improves your self-esteem. Becuase I have as much contempt for you and YOUR handout demands as I have for those the likes of Jesse Jackson and Al Sharpton.

Actually I wasw going to call you a simple traitor becuase of yoru statement that the Chinese restrictions on access to their markets are okay but restricting Chinese acsess to American markets is not okay. Now since you are aligned with Vhina and jesse Jackson clearly by your own words I have nothing more to say on the subject except I hhope you get your just deserts after a fair trial when the economic portion of the asymetrical warfare China is engaging in against the US (by their own admnission) translates into miltary engagement. I remind you treason consist of giving aid and comfort to the enemies of the the Unite dStates of America it may be motivated by either idealogical or monetary concerns it makes no difference.

You were the one who made the statement about what makes us think we have any right to force China to remove her restrictions on our exports there.

Clearly you are not for Free Trade just for China. If you were for free trade then you would be appalled at these restrrictions of up to 50% tariffs at present. Now amount of allegation on your part makes up for your own statement a free admission of treason. The only thing Free in your traitor status is you have not been incarcerated as you clearly should be.

By the way the select group I favor happens to be the citizens and permanent residents of the United states of America. just because you favor a Coommunist state does nothing to take away teh loyaltry that every citizen in teh USA owed this nation. I will willingly retract any traitor allegation if you assertyou are not an Amrcan national. As a foreign national you have no duty to support the United States of america. Since it is implied ytou are living in the USA by some of your statements I would then suggest you do not have an inherent right to be heard on what US policy should be.

Tariff research for you:

The effect of lowering tariffs in another suffering industry, the fishing industry.

Remember that the down side of trade liberalization is that cheap foreign fish imports into the U.S. market, including farmed salmon, clearly hurt our domestic fisheries. At risk from a flood of imports could be our ability to provide fishing men and women prices adequate to make a decent living, the economic viability of the shoreside processors who depend on domesticallyharvested products, and the health of our fishing communities. Keep in mind, the cost of living in the U.S. is much higher than in many of those nations importing fish into our markets. U.S. fishermen are also subject to generally much higher conservation, health and safety standards. Cheap fish imports, therefore, could impoverish our fishermen -- driving many out of business -- and could create pressure to lower our existing (necessary, and sometimes not even adequate) conservation, health and safety standards.

http://www.pcffa.org/fn-nov99.htm

I don't favor the PRC.

I just don't think they have what it takes to topple us. Not by a long shot.

Japan and MITI were the big boogeymen in the lcose tin the late 70s and all through the 1980s. Never did amount to much, did they?

Same with China - and they have it worse, since they have this little problem with Enron-style accounting. They cannot cook the books forever, and sooner or later, it all comes crashing down on them.

You, sir, are using the same damn tactics as Jesse Jackson, and I will treat you with the same courtesy that I would treat Mr. Jackson with if he called me a racist. I'd tell him to go to hell. I'm telling you to go to hell.

Go ahead and call me whatever name you wish if it improves your self-esteem. Becuase I have as much contempt for you and YOUR handout demands as I have for those the likes of Jesse Jackson and Al Sharpton

The only one demanding a handout is you with your insitence on subsidies of China to the detriment of the USA. All I am seeking is a return to teh reaonable protective tariff policy we had before William Jefferson Clinton gave everything he could to the People's Republic of China.

Good post! Is Communism really dead though? China is still communist with the caveat that they allow enterprise where it benefits them as a nation. The resulting income to the CP and those who are politically connected is enormous but am not so sure about most of the PROC’s populous reaping the benefits of all this trade.

Some other thoughts:

”Unless somebody wants to open up trade with Cuba, we are being hypocrites”

We are. Most of the major hotel chains have contingency plans in place for Castro’s death. There is plenty of corporate interest.

”Cuba doesn't have the bodies we need, so we can still embargo them, but Vietnam and China on the other hand.

The same might be said of Haiti but numerous corporations do business there. While Cuba does not have anywhere near as many people as China or India, it is one heck of a lot closer to the US and transportation costs are significantly lower.

”It is why opaque labor markets, not closed, but not fully open are a better option to sort out the excesses of capitalism. This is for capitalism's own good in the long term.

I wish more people shared this opinion.

”If just one company goes for cheap labor for quick profits, the system can handle that. If everybody bumrushes tribe men who wipe themselves with leaves, and trains them to operate machinery, the whole system will collapse.

Here’s where I see a problem. If one company does this, every other publicly traded company has to follow suit or they will be outperformed in their investment category by there competitors who do. This is why we need federal intervention across the board rather than hoping that CEO’s will decide to do what we feel is in the best interests of the US economy. JMHO

Well if you do not favor the PRC why did you defend their tariffs while attacking American tariffs? Right now the PRC does not have enough to topple us but if enough of our economy is destroyed and they get enough manufacturing and engineering capacity from American investment that situation will not last long.

all I asked you was what would you use to force the PRC to remove their tariffs on US goods? I even gave you an opportunity to recant instead you launched into a personal attack. You can answer the question reaosnably and continued reasoned discussion or be branded with your own words.

Now I do find it interesting you keep going back to jesse Jackson and Al Sharpton when you are the one who is seeking a handout via duty free entry of Chinese products to the US. Do you think you have a right to have any product imported from any nation? I note I enjoyed Cuban ciagrs that soem people no longer had any uiuse for when I was in the US military buit I clearly understand I have no right to have them imported. IU understand the Constitution provides for duties and imposts. I further undertand a Free Trade envirornment implies both nations remove any protective tariffs in place except those that clearly have a nation defense implication. You are the one who argued for chinese tariffs.

Yea, and I will tell you something else. Our kids are spoiled. They want it all now, and don't want to put any extra thought time into their jobs then is necessary.

They have also lost a lot of creativity, in my opinion because they joy stick and get spoon fed by TV. I have a few foreign born employes who when a problem arises come up with creative solutions, one when we had a critical part break that was "no longer available" made one up on a little hobby lathe. I think when as a kid when you play in the mud with a couple of sticks you learn to develop some imagination, and creativity.

Several years ago at my daughter's birthday party I decided to have a little treasure hunt. I made up directions that would require the use of a compass. Only one kid out of 25 17 year olds knew how to use it.

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