Too good not to post.

[Critics] are right that offshore outsourcing deserves attention and that some measures to assist affected workers are called for. But if their exaggerated alarmism succeeds in provoking protectionist responses from lawmakers, it will do far more harm than good, to the U.S. economy and to American workers.

Should Americans be concerned about the economic effects of outsourcing? Not particularly. Most of the numbers thrown around are vague, overhyped estimates. What hard data exist suggest that gross job losses due to offshore outsourcing have been minimal when compared to the size of the entire U.S. economy....

...believing that offshore outsourcing causes unemployment is the economic equivalent of believing that the sun revolves around the earth: intuitively compelling but clearly wrong.

In January testimony before Congress, Hewlett-Packard chief Carly Fiorina warned that "there is no job that is America's God-given right anymore."

...The predictions of job losses in the millions are driving the current outsourcing hysteria. But it is crucial to note that these predictions are of gross, not net, losses.

Most jobs will remain unaffected altogether: close to 90 percent of jobs in the United States require geographic proximity.

The parts of production that are more complex, interactive, or innovative -- including, but not limited to, marketing, research, and development -- are much more difficult to shift abroad. As an International Data Corporation analysis on trends in IT services concluded, "the activities that will migrate offshore are predominantly those that can be viewed as requiring low skill since process and repeatability are key underpinnings of the work. Innovation and deep business expertise will continue to be delivered predominantly onshore." Not coincidentally, these are also the tasks that generate high wages and large profits and drive the U.S. economy.

Annually, outsourcing would affect less than .2 percent of employed Americans...it is debatable whether actual levels of outsourcing will ever match [even these] current predictions.

...Until robust job growth returns, the debate over outsourcing will not go away -- the political temptation to scapegoat foreigners is simply too great.

The refrain of "this time, it's different" is not new in the debate over free trade. In the 1980s, the Japanese variety of capitalism -- with its omniscient industrial policy and high nontariff barriers -- was supposed to supplant the U.S. system. Fifteen years later, that prediction sounds absurd. During the 1990s, the passage of NAFTA and the Uruguay Round of trade talks were supposed to create a "giant sucking sound" as jobs left the United States. Contrary to such fears, tens of millions of new jobs were created. Once the economy improves, the political hysteria over outsourcing will also disappear.

It is easy to praise economic globalization during boom times; the challenge, however, is to defend it during the lean years of a business cycle. Offshore outsourcing is not the bogeyman that critics say it is. Their arguments, however, must be persistently refuted. Otherwise, the results will be disastrous: less growth, lower incomes -- and fewer jobs for American workers.

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In this country, we don't need reasons to make things legal; we need reasons to make things illegal. - Startup

Dell has offshored most of their telephone tech support and is bringing large parts back to the US as many customers have complained about the service they received while on the phone with them and M. Dell did not want to be seen as unpartiotic for offshoring.

I believe offshoring is affecting two industries only: IT (phone support and assembly) and telemarketing / telephone service for large businesses.

Telemarketers can go to hell anyways and the rest will survive....

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@fatboy, what is the source for that article? Just curious.

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The best daily political cartoons can be found here:

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Oh geez! What an idiot. Sorry - here ya' go!

http://www.foreignaffairs.org/200405...tml?mode=print

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In this country, we don't need reasons to make things legal; we need reasons to make things illegal. - Startup

http://zdnet.com.com/2100-1104_2-5180589.html

Will India price itself out of offshore market?

The U.S. technology industry's demand for offshore services is apparently beginning to drive up pay rates in India, raising questions about the long-term benefits of outsourcing work to that country.

Information technology workers in India reported double-digit salary growth in 2003, according to recent research, while pay for similar work within U.S. borders has been relatively stagnant if not declining. Although India's salaries generally remain significantly lower than U.S. averages, the narrowing wage gap and other unforeseen factors are leading at least some American companies to reassess the cost savings to be had by sending work offshore.

"Expectations about the benefits of outsourcing are becoming more realistic," according to a report by DiamondCluster International, a Chicago-based consulting firm, which recently released a survey of more than 180 companies involved in offshore outsourcing. "Most buyers in the previous study expected gains in efficiency in the range of 50 percent. Today, those expectations have declined to 10 to 20 percent." (Yeah!) [Addition, mine]

India's wage inflation, which approached an estimated 14 percent last year, is a natural byproduct of a classic supply-and-demand scenario. Although projections for outsourcing remain highly speculative, Forrester Research has estimated that 3.3 million American jobs will be moved to other countries by 2015. But as far back as a year ago, India technology trade association Nasscom (National Association of Software and Services Companies) was already concerned that India would fall short of demand for workers by as many as 235,000 professionals.

India quickly became the outsourcing nation of choice for U.S. companies years ago because of its abundance of engineers, large English-speaking population and historical ties to Western countries, as well as its relatively low labor costs. So it is understandable that wages there would eventually rise as demand increased, especially as the expanding technology market has created new prosperity and begun to raise the cost of living in some parts of the country.

"If you had to come to Bangalore today, you would see very significant signs of development, a lot of new construction, a lot of young people, a lot of energy, a lot of shops and restaurants," said Nandan Nilekani, co-founder and CEO of Infosys Technologies, in a recent interview with CNET News.com. "I think you get a sense of economic vitality that can largely be traced to the IT explosion."

Choosing China (Boo!) [Addition, mine]

Though it is too early to predict any sort of bubble on the horizon, the rise in India's salaries could prompt more U.S. companies to consider other parts of the world, where wages are far lower. Indeed, even some Indian companies have begun offshoring their own work to China.

"Tata Consultancy Services, one of India's four largest exporters of software, has begun to offshore its staff," the American Electronics Association says in a new report. "By 2005, TCS plans to have 3,000 software engineers in China, or 15 percent of their global work force."

China's universities, like those in India, award more bachelor's degrees in engineering than their counterparts in the United States. Yet China's wage growth rate for technology jobs was about half as much as India's, according to the Hewitt study. U.S. pay rose 3.3 percent to 3.5 percent, the lowest increases ever recorded for American technology positions in the annual survey.

Eastern Europe may also become more attractive as an offshoring center. Last September, a research report estimated that a recent graduate of a specialist university in Romania could be hired for $6,500 a year in software development. An additional possibility is Russia, another country that produces more bachelor's degrees in engineering than the United States.

"There is great competition for cost, and there is a view that India is getting more expensive," said Pete Foster, a research director at Pierre Audoin Consultants, which released the report. "Europe represents a good opportunity and a new area to find resources--but it is virtually ignored by the U.K."

Even if companies turn to other countries for outsourcing work, however, India's technology industry would by no means be in dire straits. Executives and analysts on both sides of the Pacific agree that India's offshoring business is far more advanced than those of other countries and has unique benefits ranging from common language to Western-like entrepreneurialism. Most Indian technology companies offer stock options and other forms of compensation linked to performance.

"India's education system and culture foster risk-taking," said George Gilbert, managing partner of the Tech Strategy Group consultancy and former market analyst with Credit Suisse First Boston. "They also have financial backing and geographic intensity in Bangalore and New Delhi."

And India's technological future is not limited to offshore services. Many executives of Indian companies believe that political changes in the last decade will help their industry become more independent and develop technologies of its own, rather than simply service those made in the United States and elsewhere. As a result, business leaders say India will become a "knowledge center" for the global technology economy.

"India has undergone a series of reforms, opening itself to globalization and investment, leading to innovation, opportunities and jobs for its indigenous population that heretofore never existed," the American Electronics Association said in its report. "Before these reforms, India did not welcome foreign investment, had strong protection and trade policies and questionable intellectual-property protections."

At the same time, however, politics could also have a negative effect on India's international business and work against further wage increases. Potential customers may avoid the region altogether because of recent news about terrorist calls for attacks on the sitting government of neighboring Pakistan and conflicts along the border between that country and India.

"Eighty percent of offshoring work is done in India. It's raising the question of, 'How do I protect myself in the event of some negative catastrophe?'" said Dean Davison, lead analyst on outsourcing for the Meta Group consultancy. "Even though the risk of going offshore might not really be that much higher, there's going to be a lot of companies that go to domestic vendors just so that they have the perception of not having higher risk."

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Re: India - see? Now, what can we infer from this? To me, it shows a couple things: 1) a free-market finds its own balance. The Indians were free to realize that they had priced themselves far below the market. Now that their prices are coming more in-line, other considerations must be taken before a company turns to outsourcing. 2) higher wages in India is a good thing for America. It means their people will want the things that Americans have; their companies will want the services American companies provide; and both segments have the capacity to pay for these things.

Re: China - of course, this is not a free-market and steps should be taken by our government to level the playing field.

There is hope though. Recently, the Chinese government CHANGED ITS CONSTITUTION to be more favorable to PRIVATE PROPERTY. I mean, oh my God! If you think that the US has any hold on eminence in the world, you can't imagine what A BILLION free minds could do to change the face of world economics and politics. As she becomes more open to a market economy her citizens will demand more freedom, which will lead to more market reforms, which will lead to more freedom. This is a very exciting time for China.

We must continue to learn how to compete in a world economy while the learning is still relatively painless. If Communist China collapsed tomorrow, we would be in a world of hurt.

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In this country, we don't need reasons to make things legal; we need reasons to make things illegal. - Startup

Can you explain what you mean by "collaps[ing]" and "in a world of hurt?"

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Well, maybe I'm talking out of my posterior but here's my theory. Currently, the Chinese people are stifled. There may be some "toleration" of private enterprise and entrepreneurship, but certainly not enough to encourage full investment of resources and capital into innovation and entrepreneurship. Without that, the Chinese people will never realize their full potential.

Now, imagine if tomorrow China adopted a democratic government with guaranteed property rights (a collapse of Communism). All of those people would be free to pursue any business they wished and would be guaranteed the fruits of their labours. Businesses would spring up all over China and they would all be competing with the world. Their standard of living isn't like the west, so they would be able to compete brutally on labor costs. Their natural resources are plentiful and they have the technology to maximize their throughput. There would be no reason to demand concessions from the Chinese government (tariffs, quotas, etc.) because it would not be their government that allows them to compete unfairly. We would be forced to compete with them on an even playing field AND they would've adopted the greatest wealth generating concept the world has ever known: capitalism. They would only get better at the things we already do well: marketing, distribution, service, etc... That's the "world of hurt" part.

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In this country, we don't need reasons to make things legal; we need reasons to make things illegal. - Startup

Of corce no one will pay attention to 90% of the economists that EXPLANE how outsourcing will help the US economy

try http://moneycentral.msn.com/content/...tra/P79592.asp

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I never ask for tolerance because as soon as someone asks for it they’re not being tolerant

When asked about Kerry's invitation to debate on the issues, George Bush responded, "We'll talk about that when Senator Kerry is finished debating the issues with himself."

From article:

"A study released today by the Information Technology Association of America (ITAA) says that outsourcing white-collar jobs has thrown some Americans out of work, but predicts that the trend will ultimately lower inflation, create jobs and boost productivity in the United States."

Doesn't a lower inflation have to do with lower wages? If so, that does not sound like a good thing.

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The best daily political cartoons can be found here:

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