Newsweek column on outsourcing

Newsweek ^ | 8-07-2003 | Michael Rogers

[samuel_adams_us]

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?

Rogers replies: There were also some suggestions about what to do:

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.

[harpseal]

Please keep an open mind and examine the historical evidence for yourself. Look at both sides. the Cato institute is a good source for tariffs harm teh nation that imposes them. There are amany other sides actually read Freidman's ebtrire thesis about Smoot Hawley and research the tariff policies over history.

When you made the assertions it seemed you had made up your mind. Now if one looks at Smoot Hawley in isolation without considering other factors in teh World the effects of European tariffs on American exports prior to Smoot Hawley's enactment one may gain a different perspective.

I really do look forward to a discussion with LS on this subject.Perhaps he can teach me something but perhaps I can teach him something. I much prefer discussion of facts than thought experiments and parables and blind asserttion of supposed facts that are merely asserytions nothing factual about it.

[Poohbah]

Smoot Hawley did no such thing the great deoression was well iunderway at the time and the effects f the Federal reserves tightening of credit more tah acoiunt for account for the evaporation of the GDP and while we are at it do not forget the income tax policy.

There was a $160,000,000 income tax cut put in place at the same time Smoot-Hawley was passed.

Smoot-Hawley was passed in June 1930 the Depression was started on Black Tuesday in October 1929.

October 1929 was a much-needed market correction.

Smoot-Hawley merely began the process of making that market correction into a global depression.

If Smoot Hawley was harmful then teh Fordney McCumber should have been just as harmful.

Any tax hike--be it tariff or income tax--at the start of an economic downturn is an extraordinarily stupid idea.

It however was combined with a cut of the income taxes and led to the boom years of the "Roaring Twenties"

You can get away with tax increases when the economy's up. The harmful effects are more difficult to spot then.

Now would you care to prove your assertion that Smoot Hawley caused that 4% drop in GNP.

Before Smoot-Hawley: trade accounted for 6% of GDP.

After Smoot-Hawley and retaliatory tariffs: trade accounted for 2% of a much smaller GDP.

So, I'm actually understating the effect of Smoot-Hawley: the actual loss was 4.62% of the base GDP. That works out to 77% of overseas trade evaporating against a 31% reduction in overall GDP. If Smoot-Hawley did NOT have a negative effect on trade, then trade should have lost something close to 31% and not more than double that figure.

[Poohbah]

Actually you are describing American educators, particularly K-12.

And they communicate that idea to their students.

[Poohbah]

You earlier in this thread were defending OPIC as a god program.

I merely made a remark that, after being raped by the vultures of DC, the corporations should get SOMETHING for their trouble. That's called "sarcasm."

[harpseal]

By the way why do you mischaracterize my position as suppotrng excessive regulation when I have for years opposed that as you well know from Free Republic.

If OPIC is so unnecessary why do so many companies that are sending departments offshore continue doing it. By the way otsourcing does not imply dsendingjobs offshore it merely implies purchasing service for one;s comapny without performing it oneself. A company that hires a janitorial service is outsourcing. If said janitorial service employs illegal aliens it may or may not subject the company to potential legal liability if the laws against illegal immigration were sctually enforced. it would depend on what they knew or should have known.

[Poohbah]

If OPIC is so unnecessary why do so many companies that are sending departments offshore continue doing it.

harpseal, if someone walked up to you and offered you $10,000 for walking across the street, and you were planning on walking across the street, would you say, "Nah, keep the money, I was going to do it anyway?"

[harpseal]

I merely made a remark that, after being raped by the vultures of DC, the corporations should get SOMETHING for their trouble. That's called "sarcasm",P> So you will appreciate my comment that your statements regarding Free trade are like saying Lie back and enjoy it b*tch to a rape victim.

care to try again on finding a case of tariffs hurting teh US economy. You blew it with Smoot Hawley as ius clear from tyour failure tyo note teh econometric analysis that associated a 4% drop with the tariff when the Federal reserve policy on tightening Credit alone should have accounted for about a 6% drop. you also did not address the income tax policy implications of late spring 1930.

Please note I may not respond until morning.

[UnBlinkingEye]

if someone walked up to you and offered you $10,000 for walking across the street, and you were planning on walking across the street, would you say, "Nah, keep the money, I was going to do it anyway?"

I would say why would anyone offer me $10,000 to walk across a street?

[Poohbah]

You blew it with Smoot Hawley as ius clear from tyour failure tyo note teh econometric analysis that associated a 4% drop with the tariff when the Federal reserve policy on tightening Credit alone should have accounted for about a 6% drop.

A 100% drop in an economic sector (trade) from the Fed?

Wrong.

Sorry, you REALLY blew it.

Overall GNP decline during period in question: 31%

Trade sector decline: 77%

Trade took a disproportionate hit.

[LibertyAndJusticeForAll]

The middle-class is not shrinking because they are moving into the upper-class, they are increasingly becoming unemployed. White collar jobs are being outsourced. There have been a great many articles and threads to support this. Not one suggests otherwise.

Even a wealthy person can find undeserved multi-million dollar bonuses obscene. Perhaps it would be better for business to route some that bonus to shareholders, or toward developing the business. Afterall, there are plenty of capable MBAs who could do the same job for a reasonable salary and bonus.

Since you seem determined to persist in being insulting I will bid you good evening.

[hedgetrimmer]

So a farmer is allowed to protect his property, his crop, with protectionism.

How about the fisherman? Can he protect his property,his boat, by protectionism? Can he protect the fish stocks in American waters, by not allowing foreign vessels in to fish our stocks? Can he make sure his boat is not made worthless by flooding American markets with foreign fish? Does he have the right to do that? For surely the fishing industry can be threatened just as other food supplies by pernicious foreign producers.

[hedgetrimmer]

If foreign fisherman flood the market with cheap foreign fish, they do direct damage to the American fisherman. Because the falling prices will force the Americans to lose their property(their boats). And doesn't the Constitution protect life, liberty and property? The founding fathers explicitly state that government should protect individual property rights. You are saying that a farmer's property is worth protecting, but a fishermans property isn't?

Just as an insect infestation can decimate an entire agricultural industry, an infestation of foreign fish in the marketplace can kill another American industry. Once these fishermen go, they cannot come back.There are punitive buyout policies by our own government that forces the vessels to be retired, never to be used to fish again, even under a foreign flag. Fishermen have no choice but to sell to the government at the price the government wants to pay because the government has effectively destroyed the value of the fishermans property. There is also a cultural loss, because sons will not learn the trade of their fathers, and the unique techniques used to fish American waters. There is also a loss of security, because fish becomes something that cannot be produced by Americans, it must come from somewhere else. Who makes sure that the foreign fish are caught in clean water and not fished out of polluted areas? How do you know what you are getting when you purchase foreign produced food?

Another threat to America, due to free trade, is honey of all things. Did you know nearly all of the honey you find in manufactured foods and otherwise in this country comes from China? Well,you say, they produce it more cheaply than Americans so that is economic competition. Economic competition that can devastate our agricultural economy in this way-- when we no longer produce honey, we no longer keep bees. When we don't keep bees, we do not have beekeepers who lease their hives to the stone fruit farmers, who need the bees to pollinate their orchards. So their prices go up because they produce less fruit, because of fewer bees. The native bee population has been declining for years because of a hive disease, so it is not possible for wild bees to make up the difference. When the price of stone fruit, almonds or whatever goes up because of this ecological problem, foreign markets again put pressure on American farmers and they again are devastated. Do you think its ok to protect honey producers, given the vital link they provide to agriculture?

[superloser]

Amazingly enough, exports make up only around 2% of GDP for the United States.

Gotta love that free trade. Those foreigners are sure buying a lot of stuff from us. </sarcasm>

[DugwayDuke]

"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?"

Actually, the truth probably lies somewhere between increased profits and lower costs in most cases depending upon the degree of competition in that industry. If H&R Block fails to lower their prices, then others will see the opportunity.

But, even if they don't, I don't really have a problem with profits. We're really only talking about who gets the benefits of reduced costs, the consumer or the share holder, and the net result is the same some have more to spend.

Another issue is this. You are dangerously close to arguing that profits should be regulated or that that a company is "unfairly" profiting. For example, is McDonalds "unfairly" profiting because they don't pay a "living wage"? If it is proper for government intervene to ensure a "living wage" for IT specialists should it not also intervene in all segments of the economy? Do conservatives support such arguments?
You can argue the merits of protective tarriffs on other grounds, national defense, etc., but I would be very careful when tempted to use arguments like "fairness" which are more aligned with the left.

[DugwayDuke]

I sympathize with you. I've had my own business too. I've also been downsized and forced to take a big cut in pay. Now I'm making 50% more than when I was d/s and in a much better job.

Your argument that business is seen as a milk cow is valid in many cases. One of my points has been that invoking protective tarriffs to protect wages against "unfair competition" is essentially a democrat argument very similar to "living wages" and "comparative worth". Conservatives should be vary wary of arguing on liberal grounds.

Good luck on those tax payments. I've got to go do some despoiling of the environment with my chainsaw.

[DugwayDuke]

"Quite a difference between that case and jobs actually leaving the country in large numbers."

Not really. Back then it was the auto industry and there were all sorts of horror stories about how auto jobs were going overseas complete with pictures of very large freighters unloading thousands of imported cars.

[DugwayDuke]

"If you have nothing against IT people then why did you say they are spoiled? Seems you might be hiding something here."

No, not at all. It's been my experience that these threads usually get around to IT in general and outsourcing to India in particular. That's my experience and, as they say, "your mileage may vary". I refer you to the article at the top of thread. Mostly IT folks quoted.

[DugwayDuke]

"There you go, the screw my neighbor and protect thyself attitude! Until it affects me I will just keep my head in my bu... Wow, people like you make this country great!"

You do realize that this argument can be completely reversed? Let's talk textiles. Suppose a shirt can be produced overseas and sold in America for $15. Suppose an equivalent shirt can be produced in America and sold here for $30 bucks.

Now, you are saying that if I oppose protective tarriffs on shirts I'm being selfinterested and out to screw my neighbor who makes shirts. I can turn that around and say that it is the neigborly textile worker who is out to screw his neighbor by forcing his neighbor to buy his $30 product when a cheaper product is available. That neighbor could use the $15 difference to support his family by buying additional shirts, invest in his retirement, send his daughter to college, or any number of other lifestyle issues.

No, the issue of self interest and who is trying to screw someone is really a wash isn't it? The issue then becomes who is trying to use the government for his own selfish ends? I believe it is the guy who wants to use the power of government to force his neighbor into buying a more expensive product.

Then there is the issue of what is the correct level to set the protective tarriff. That power would go to the government. Implicit within that power is the power to set wage levels and to determine the number of workers in a particular industry. (that's just another manifestation of the living wage) Of course, if the government is going to do that for textile workers, how about auto workers? If you're going to influence wages and employment levels, then you're into the relative levels between industry. And, that is the old argument about "compartive worth". Should a textile worker make more or less than an autoworker? Do we really want to go down this path?

[harpseal]

A 100% drop in an economic sector (trade) from the Fed?

Would you at least specify what economic sector dropped 100% and when. Remember this is the historical record we are discussing. If you amke an assertion at least have it specific enough to be associated with dates and events.

Overall GNP decline during period in question: 31%

At least state the period in question.

Trade sector decline: 77% When where and what other factors were invoilved. If the USA lost 77% of its trade secrtor at the time what are the specifics you are alleging. You are once again making assertions that are neither specific enough to accept or refute. One line answers and insults from you will only get the respone that you are obviously engagingh in typical Marxist propagnada that the PRC and North Korea are known for. Particpate in the debate with specifics or concede defeat.

Now at least make your assertions clear as to what you are stating. Dates are a start. Note continuation of trends before Smoot Hawley is noty necessarily going to be accepted as proof of Smoot Hawley's influence. Further, one must discount any effect from overall I ask for reasoned discussion and all you do is make wild unsupported unclear assertions.

Your giving your conclusions does not cut it. particularly when you have been caught weaseling out of stements before. Your support for OPIC was just sarcasm when called on that support. maybe you should leave this to teh people who have studied the issue and quit trying to do something that is beyond you. I want historical facts in enough detail taht someone can verify them not your bombast and rhetoric. that may work in Marxist corcles but I am trying to have a reasoneed discussion of issues. You are citing Smoot Hawley as having harmed teh American Economy. Well now smoot Hawley like all tax inceases that overall increase government revenues does take money out of the economy and give it to the government. But as has been stated elsewhere there needs to be an offseting decrease in Federal taxation on other parts of the economy to provide themaximum benefit from teh tariff but overall the decrease in imports is a net benefit to our economy. Now if you wish to argue that Smoot Hawley kicked off retaliatory tariffs I wuill state that Smoot Hawley was itself a retaliatory tariff. Further you still have not shown overall harm from this tariff by merely asserting this. Trade took a disproportionate hit.