Posted on 12/26/2002 9:38:29 AM PST by FlyingA
H-1B
Some facts:
1. The economy was tubing before George JR even was elected, and way before he was sworn in as President! It started tubing in the middle of July, during the election, and basically Clinton did nothing, but campaign for his wife, and count the silverware and select furniture (and young female aids) in the White House to take with him to his new "home" in NY.
2. The boom of the 90s was in fact 90% smoke and mirrors. It was built to flip (a principle that you can find numerous articles about). Buy low, make everything look good, and then sell high before it all implodes. A very select few made millions off the scam (and it went past the point of being a business model, to the point of being turned into a scam similar to pyramid scams).
3. The IT field was already dead and flooded with H1bs by this time. IT Companies had already pushed as much of their capabilities offshore as fast as they could by July of 2000. The stage was more than set for the fall of the IT industry. And in fact had already started the decline in 98, but had been made to appear to be OK by fancy accounting.
4. A Congressman best summed up what happened in the 90s during the Global Crossing hearings with the remarks to their former CEO: "You bought what you didn't need, with money you didn't have, and wrote checks for it knowing that they would eventually bounce. You played a shell game with the money, fixed the books to make things look OK, paid yourself huge salaries and bonuses, and made a huge personal fortune out of it, and then jumped ship before it all came crashing down, leaving everyone else to go down with the ship."
Face it, H1b, the 90s was an artificial boom (scam) created by a few top executives with some "get rich quick" schemes that netted them fortunes (and we will never know how much they really made because the majority of it went into offshore accounts that the Government can't get to, or if they can, they won't blow the sources over a fraud case) and left most of the people holding an empty bag. And, the worst part is that everyone seen it coming, knew it was coming, knew it couldn't be stopped, and still ignored it because they "wanted to believe" that the good times would never end. And they really didn't end until the Government stepped in and forced the CEOs, CFOs, and top execs to be personally, punitively, and criminally liable for the financial statements of their companies in July of 2002. What you will find, as very interesting reading, are all the revised financial statements listed on or about Aug 14 2002, on the SEC.GOV site. Most Corp's had filed by July 2002, showing great profits trying to boost their stock value (another important factor in "built to flip"...make things look good). Then, all of a sudden, they (CEOs, CFOs) could go to jail for, let's call it a lack of accuracy in their financial statements, and they quickly corrected the filings, showing the real situation (which by the way they knew all the time anyway, because they had been running two or three sets of books), which was none to bright needless to say. In a nutshell, during the 90s, illegal fraud had become so wide spread that it had become accepted as normal business practices. But, that ended also.
And now we are paying for the eight years of neglect. Paying with an economy that is in shreds, fear of foreign terrorist attack, companies that are still shoving infrastructure off shore as fast as they can, and definitely not enough jobs to go around. It took eight years to get in this mess, and will take a lot longer to get out because now the laws prohibit faking a recovery with fancy accounting. If there is going to be a recovery, it is going to have to be a real recovery, built on true growth, not "smoke and mirrors" and "fancy fraudulent" accounting. A real recovery built on tangible increase not fancy accounting. And, it takes a lot longer to build something good than it does to make something look good. I have a feeling it will take another 3 or 4 years before this mess is finally fixed.
Returning to the example in the previous post, suppose that instead of hiring a cheaper worker that creates more value, the company hired a more expensive one. Now each chair costs $60 to produce instead of $50. Where will this money come from? If the company makes 10% in profit, it will charge for each chair $11 more.
OK, let's see what happened when 10 chairs are produced in a week. The consumer pays for 10 chairs $110 more with the more expensive carpenter; of this am0unt, the company pockets $10 and pays the expensive carpenter extra $100. The consumer subsidized the carpenter.
This is true in general: when you protect an unproductive worker, the rest of the country pays that worker. Why should it?
When you protect "American jobs," no matter how unproductive in terms of value-creation they are, you are reaching into the pocket of your fellow Americans. Many people think that the losers are foreigners; they are not: the losers are American consumers.
When the American Consumer has lost his/her job, they are no longer "consumers" now are they? Here's the circular part of the argument.
You can only bring in so many H1B workers to do the expensive jobs cheaply, while maintaining a vibrant economy that produces JOBS that pay for Goods & Services "consumers" can afford.
We cannot be a nation of simply "consumers" having others do all the work, can we? NO. Your argument: . The consumer pays for 10 chairs $110 more with the more expensive carpenter; of this am0unt, the company pockets $10 and pays the expensive carpenter extra $100. The consumer subsidized the carpenter. really doesn't hold any water, since the CONSUMER is the one who subsidizes EVERYTHING in the manufacturing process, including the costs & taxes of all materials and labor that went into producing the chair in your example. The consumer "subsidizes" the payroll, SS taxes, health insurance benefits, etc.. of the expensive carpenter.
With reduced labor rates of the H1B worker, the cost of the product is supposed to go down, but in fact DOES NOT. If it takes 2 H1B workers to complete the job of 1 American at roughly the same cost, where are the savings? What damage is being done to the economy? There's a much larger picture here which I don't see you addressing. That includes the damage being done to the economy by displacing higher paid workers with more BUYING POWER than two lesser-paid non-citizen workers who simply send the money home. That money LEAVES the economy.
I think I follow now. The almighty dollar!
If I need to manufacture a widget, and the US is too expensive, I just move my factory to Tijuana, where I can get cheaper labor and less hassles about environmental pollution that my widget factory produces. Not to worry about cancer or child labor injuries, the consumer wins when he or she gets my cheapo widget! 10 years later, when the pollution wafts into San Diego, or when kids are born with birth defects-- that is someone else's problem. Doesn't show in corporate balance sheets.
Hey, got another hot idea, why not simply abolish all borders while we are at it! That way, goods can flow without needless and unprofitable regulation. Making H1Bs and a lot of other bureaucratic red tape unnecessary.
After all, intangibles such as cherishing or preserving the quality of life, or the environment, or holding onto Constitutional freedoms-- these are trifles and hardly worth protecting. They have no market value, after all. They interfere with multinational corporate profits.
The almighty dollar! Now that's something we can and should sell just about anything for. Right TQ? :-)
[Channeling TQ now]
Silly usconservative! You do not have the vision. In the future, we will all work for the corporation, live in the corporation housing, and buy from the corporation store.
We won't even need money, we'll just get "corporation credit" and use it in the corporation store directly. Think of the savings! Think of the efficiency!
Life will be good, because the corporation will attend to our every need! Religion, charities, government-- all outmoded! All the proof is in research funded by the corporations and published in peer-reviewed economics publications!
[/Channelling]
Tenure is given to faculty for the same reason as legal protection is given to whistleblowers. You can think of it as a witness-protection program of sorts.
The essential part of the job of an academic is pursuit of truth and teaching and assisting the students in these endeavors. New truth usually comes to the mind of one person before it is generally accepted. Between these to points in time --- the discovery and acceptance --- the discovery and its inventor are often unpopular. More often then not, the holders of previous views are entrenched and powerful. You probably are well aware of how long it took for the Church to accept that the Earth was round, while it burned at the stake quite a few people for that heresy: in one of the more famous cases, Giordano Bruno was burned at the stake in 1600, it took the Church almost 300 years to admit that it was a mistake.
In order to encourage the search for truth and protect the discoverer of the unpopular facts, faculty members are given tenure. This protects the faculty member from the administration --- the deans, provosts, presidents --- and allows the instructor to speak his or her mind in class.
From economic standpoint, it is a form of insurance without which the inherently risky endeavors will not be undertaken.
Don't think too hard, old ideas work: go to school at night, continue to improve throughout your productive life.
Unlike you, most of Americans cannot read or write well, let alone having basic knowledge of economics, finance, and engineering. While SAT scores are going down, the salaries go up --- that is the problem. America has become wealthy because its workers justified the salaries they received by producing sufficient wealth. When these two get out of synch, the problems arise. No need to be sarcastic and rant about socialism and regulations: being worth one's pay is all that is necessary.
Ah, but it's so much easier to point finger at "corporations" (whatever that means to you) and government; surly beats sitting in class at night.
Technical people have no inherent disagreements with managers. To the contrary: doing what managers tell them to do is a part of their contract.
This is not the case with university faculty: they are not hired to be in agreement with the deans. They teach and perform adminisrtative functions for the university, but in their research function they serve community at large, people in general, including those that are not yet born.
This, I've been told is a requirement for a profession, be it doctors, lawyers, engineers or academics.
Wouldn't they then all deserve the same protection?
If you start spending company time devising instead some new computer software, you will be fired. That is the difference with faculty: they themselves set the agendum; it is not a part of the contract, whereas in industry it is.
Management compensation is an instance of contracts, the normative aspects of which are very difficult and only currently being developed. (Papers in finance and case studies a la Harvard --- including the one you cited earlier --- tend to be empirical, telling us, with variable success, what's out there and not what should be there.) That is the essential point you miss entirely: people did not ignore the issue of CEO compensation, this is where the state of the art is; the boards are doing the best they can with limited knowledge and resources, just like the rest. You could not have known that: observing the CEOs while growing up does not help to advance, and probably distorts, one's knowledge of management. You can watch cars on a highway all your life and not get a clue about engineering. If you want to read on compensation, read up on contracts (the work of Lazear is probably more along the lines of your interest, but he too is rather soft). By that I mean normative aspects: the structure of the opitmal contract under which efficiency and risk-sharing are best, under conditions of asymmetric information that lead to moral hazard and adverse selection (you cannot understand options as a conpensation device without the latter, for instance).
Given that this is an academic question, as you yourself have construed, perhaps you should address it to true academics: having been uncovered by you as a mere cheerleader for the CEOs, I do not feel qualified to be useful any further.
It is in the design of these contracts that boards have often failed to hire responsible talent, and in oversight of the talent once hired.
The doctor repairs a body of a particular person, the lawyer works (whether or not pro bono) for a particular client, and the engineer designs, test or maintains a particular device.
... and the professor educates his students.
None of them creates new fundamental knowledge.
The list of new fundamental knowledge coming from outside the university system is long and distinguished. This is by no means to say that the university does not play an important and significant role, but much science, resulting in much literature and new patents, originates outside of the faculty research arena.
And to clarify, I have not accused you directly of being a cheerleader of CEOs. I am guilty of the implication indirectly, and owe you an apology for that.
It is in the design of these contracts that boards have often failed to hire responsible talent, and in oversight of the talent once hired.
There is no question that boards fail. It is not surprising that their failures are more frequent and sizable at times such as we live in; that is, after and during fast-paced changes of the 1990s.
What I tried to suggest is that it is not necessarily malice or greed that leads to failure: we really do not know what optimal contract looks like even in very simple circumstances. Moreover, we do not fully know what constitutes performance --- in fact, I am not sure whether the measure of performance exists.
This is not a new question at all. The literature on strategic management struggled with just that, how to measure performance, at least since mid-1980; that is, from the very beginning of that discipline. How can you induce proper performance if you do not even know what it is?
Suppose you do know that performance is: you hire me as a walk around your shop at night. You are not there to see me do that, and out interests diverge: you value security of the shop, and I value leisure. This situation, as you probably know, is referred to as moral hazard. How do you design a contract to make it in my interest to do what you want? Clearly, your inducements will be costly. But how much specifically should you pay. Except for a few toy cases, we do not know.
Suppose instead that you are unable to observe, or deduce, one of my intrinsic qualities rather than my actions --- creativity, for instance. Why should I exert myself? How will you know when I failed due to my laziness if you do not know exactly how capable I am? This situation is referred to as adverse selection (inheritance from the insurance industry where it was first encountered). It is even harder to deal with than moral hazard. But in real life, you deal with both simultaneously, and practically no work has been undertaken in that direction. Nobody knows how much is enough to pay for this or that inducement.
As if this was not enough, in creative fields most contracts are incomplete: they do not even specify all possible contingencies. Further, CEOs vary also by asset-specificity --- how transferable their skills are to another industry. Furthermore, start thinking about relative merits within the management team, without which individual compensation cannot be determined either. It's a mess: I have not even named all relevant issues, let alone how to deal with them.
The boards are just a resource, much like the CEOs, coal, electricity, and everything else an organization consumes. The owners hire this limited resource just as they hire programmers and night watchmen: to do their best within the scope specified by the contract, for a specified remuneration. Just like programmers and engineers, they try and do many things right, and they also fail sometimes. In the latter cases, the failures negatively affect a great number of people. But so do doctors: they try but cannot always save a life. In the case of doctors, because there is hard science under what they do, we can even detect and judge a mistake. We cannot do that with management: if there was a message I was trying to convey to you, it is that most failures are not mistakes (and certainly not malice or egotism): we do not know what is right to say that someone was wrong.
As I mentioned earlier, it is in the research function that the new knowledge is created and it is in this capacity that an academic served the larger community.
Most of the research done in industry --- and that includes fields such as biomedics --- is applied. In particular, patents are issued for just such developments. Had the caulculus been invented today, nobody would even think of applyig for, or issuing, a patent. The same is true for quantum mechanics or relativity theory. Or contract theory, for that matter.
In times past, much of the funfamental research was done outside of the universities. Scientists and philosophers often had benebolent protectors with means to support them. I am afraid, these times have past (sigh).
I too have to sign off for the night. Have a good one.
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