Outsourcing debate in New York

An offshore outsourcing conference in New York raised some debate in the US media. The New York Times’ Bob Herbert sounded alarmist and called for action now. I suppose he supports the type of bills that were passed by the US Senate, or the type of junk John Kerry is talking about. But here are some extracts from the Washington Post that give a more balanced view.

Let’s stone KFC! (US version) “The consulting firm I work for is sending jobs to India,” said Ward, who came to the protest with a former co-worker who was laid off last year. Ward, holding a sign — “Will Code For Food” — dismissed the notion that everyone benefits from the corporate savings generated by offshore outsourcing. “Companies are predatory institutions, and they have to be controlled,” he said.

Its good business “In the short term you have pain, but in the medium term you get more jobs. We are an innovative society. We are going to create jobs, and investments are going to come back into the community,” said Atul Vashistha, chief executive NeoIT, an outsourcing consulting firm in San Ramon, Calif., that was a sponsor of the conference.

Its a plus sum game However, economists and outsourcing proponents warn that more harm than good is done by protectionist policies such as President Bush’s recently lifted tariffs on foreign steel, failed initiatives in eight states to ban the use of taxpayer money on contracts with foreign workers, and certain proposals by Democratic presidential candidate John Kerry.
They contend that the flow of work to the lowest-cost supplier is a healthy market process that eventually pays off for the country losing jobs by giving companies the financial might to develop new products and technologies. At the same time, they say, higher employment in developing nations puts more money in the hands of foreign consumers, spurring demand for U.S. products
[Source:Washington Post Emphasis mine]

The attendance at the conference says it all – outsourcing has profound bottomline implications and cannot be stopped by government fiat (without causing companies to lose their competitive edge). Moreover, at this stage most of the fears are just overblown anyway (via Daniel W Drezner)

From WEF Davos

But the rising number of skilled, white-collar jobs migrating from rich nations to developing countries is raising fears that, in fact, well-paid workers in developed countries will have trouble finding equally well-paid computer, design and medical jobs at home. Many of the true believers in globalization at the Davos forum, which ended yesterday, worry that outsourcing also could erode political support for free trade internationally.

…Others noted that there are substantial differences between how trade affects workers in manufacturing and services. In developed countries, lofty tariff barriers to imported goods had to be whittled away before many manufacturing jobs were at risk, a process that took decades. Governments could limit the losses by reimposing tariffs. High import tariffs eliminate some of the economic argument for using lower-cost labor abroad to make goods that will be more costly as U.S. imports under those tariffs.

But service trade isn’t affected much by tariffs, and can move as rapidly as the improvements in computers and communications allow. Therefore, the job loss can be more sudden.

…For the past few decades, U.S. presidents have sold free trade and global integration as an economic-development strategy. Although the U.S. would lose some manufacturing jobs to developing nations where labor costs are lower, the argument went, the U.S. would gain higher-paying, higher-skilled jobs that poor nations were unable to master. Outsourcing makes that argument less compelling.

…Software programming has been outsourced for years to India. Low-paying jobs in call centers also have been shifted to English-speaking countries around the globe. Now high-end computer-systems integration is leaving the U.S., too, as is architectural and design work.

As reported last week, International Business Machines Corp., Armonk, N.Y., plans to shift about 3,000 high-paying programming jobs to China, India and Brazil from the U.S.

An official at Davos from an Indian company boasted that the company could develop drugs for far less than the U.S. and Europe could — because of lower-priced research talent and bargain rates to run large-scale drug tests.

“We cannot protect the American people from reality,” said Hewlett-Packard Co. Chief Executive Carly Fiorina, speaking at Davos. “There are many, many qualified engineers around the world who want to participate” in advanced research. [Source: Wall Street Journal]

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