Businessweek Archives

The fate of the US workforce


?? Latest outsourcing trends from Equaterra |

Main

| India software outsourcing: One unhappy customer ??

January 17, 2007

The fate of the US workforce

Steve Hamm

In response to my village BPO posting, commenter A Parent asked if I have a handy list of occupations for Americas who are put out of work by increasingly capable and low-paid Indians. I don't have such a list. (I certainly don't trust the bloated and highly optimistic reports the Labor Department churns out) And I worry a lot about the future of the US workforce.

We're in a strange time zone. Economic growth is fairly strong. Unemployment is low. Yet I have this uneasy sense that we're living off the productivity and wealth of our past. The children of the middleclass are expert and aggressive consumers (I think of it as America's core competence) and their lust for goods helps keep the economy perking along. But will they get jobs with decent incomes in a few years, or will they be selling $40 Abercrombie & Fitch T-shirts to people slightly younger than themselves--and for $8 an hour? This is a very realistic scenario, I fear.

Still, I don't see a wave of protectionism being the answer. For starters, if we're to have any chance of peace in this world, people in other countries need a shot at economic prosperity. Second, I don't think attempts to wall ourselves off would really work long term. You have to compete to be competitive.

So the partial answers are things like improved education, awareness and responses by government and individuals, government retraining programs, and incentives (or deregulation) that stimulate innovation and new business models. Also, we have to steer clear of the hate and fear mongering of the likes of CNN's Lou Dobbs. All that does is boost ratings. Nothing constructive comes of it.

A few days ago, a Bangalore Tigers commenter (an Indian) asked the question: Why shouldn't Americans face the same challenges and economic uncertainties that Indians have faced for generations? Why shouldn't Americans be forced to pick up and move to another country in search of opportunities, just as Indians have? Those are very good questions. The answers seem to be that they should. Yet I fear the consequences.

03:09 PM

Off-shoring

TrackBack URL for this entry:

http://blogs.businessweek.com/mt/mt-tb.cgi/

Mr. Hamm, I must respectfully disagree with your conclusion. Any economic theories, when carried out to an extreme, almost always lead to disasters. Extreme globalization, in which the government shuns all of its responsibilities to ensure the country's long term competitiveness, will be very harmful. Simply labelling all arguments against extreme globalization as protectionism is not constructive.

I am not a fan of Lou Dobbs either. However, there has to be a middle ground between the two extreme views. The concept of competitiveness does not simply apply only to individuals. The country as a whole, with its infrastructure and facilities determine how competitive a people is. In other words, one single American, no matter how talented, highly educated and knowledgable, cannot possibly be a lot more competitive than an Indian citizen of similar education level. What makes Americans competitive is the country's institutions, system, businesses, resources, and combined technological know-hows. On the other hand, these things mean nothing without the contribution of individual talents.

The US government and corporate America, along with many Flat-Worlders like Tom Friedman, are advocating a short-sighted policy of outsourcing a large share of opportunities with which American talents can otherwise contribute and compete in a global economy. When American knowledge workers lose their opportunities(jobs), they have no choice but to give up what they know best to take up low-skilled jobs which are not outsourcable. American youths will certain avoid knowledge based professions since they can be easily outsourced. Within a decade or two, American businesses will no longer have an American knowledge workforce to reply on. Foreign workers will not work for American companies for long. They will naturally choose to work for their native enterprises when wages become close.

We use the word protectionism very loosely these days. Protectionism means setting up trade barriers against import of foreign goods and services that could benefit domestic consumers. American consumers do not purchase services from Indian or Chinese IT workers, and certainly do not benefit from their services. Furthermore, there is no trading of services here either since Indian companies are not hiring American workers. Laws and policies that discourage American businesses from outsourcing knowledge based jobs is NOT protectionsim and will not disrupt free trade.

Posted by: Jordan at January 18, 2007 01:55 AM

Hi, I am indian working in US. I totally agree and belive that there should be rules and regulations to protect the interests of one's own country. With that being said, having a trade barrier to outsourcing or infact insourcing(foreign workforce working in US) is not a fair call after selling multitude of range of products worth trillions all over the world and having made probably trillions in profits as well. Today, world is a global village and he who can do more with less (kind of GE's policy) takes the show.

Posted by: vikram at January 19, 2007 04:11 AM

There is a difference between end products and production processing of goods and services. I am all for competition of end products. If a foreign country can produce the same goods and services at a lower cost, then it is more competitive than American businesses, and there should not be any barriers against such fair trade.

But with this twisted, "every man for himself" version of competition, the US government and corporations are forcing their citizens to compete as individuals on a production processing level. The vast infrastructure(including research facilities, law enforcement, financial support, etc), that is provided to the businesses by American taxpayers is now being shared equally by the whole world.

It is as if US military commanders, with all the missiles, aircrafts, warships, submarines and nuclear weapons in their disposal, are now telling their soldiers "Men, this is survival of the fittest. Take your rifle and go fight for yourself. We might provide you some ammunition and air support if you can pay more than your enemy. For your own sake, you might want to learn how to build your own F-22s and USS Regan cus you're gonna need them to compete."

I can't believe I have to point out something so obvious, but here it is: Human beings dominate this planet because we have the unique ability to highly cooperate and communicate. We are no more competitive than a savage animal if we have to fight for food individually.

So please use the word "competition" intelligently.

Posted by: Jordan at January 19, 2007 12:44 PM

I am not advocating an outright ban on outsourcing. It is not going to work. I think companies or products that use a lot of foreign labor should be considered a different class of business and treated differently in our tax code.

Posted by: Jordan at January 19, 2007 01:15 PM

In this trade the west and some advanced Asian nations are gaining lower prices for products and services, that is the trade for the western work (jobs) that have been transferred into central Asia and into India. These lower costs become market costs that are now giving greater profits to the retailers who sell or offer services into a broader market. Like American farmers, it is often not the foreign producer that gain the greatest return on many of the products and services sold in this country. A box of cereal has 18 cents of farm products the farmer gets, and the rest of the market cost is in the advertising and retail costs paid by consumers. It is our investors, retailers and shippers, that gain greater return on the foreign products produced with lower cost Asian labor. Now what the west is doing wrong is not expanding and supporting local services using these lower cost services.

Posted by: Mike Reardon at January 19, 2007 08:08 PM

Alternatively, we could just wait until our roughly 7% of GDP trade deficit ends up crashing the value of the dollar.

In the 70's, the Japanese were actually the dirt cheap labor competitor. At that time, a dollar would buy about 360 yen, now it goes for 110 or so yen. That was about a 70% crash in the value of the dollar. It will probably happen again, only this time with India and China. They won't be so cheap after that.

Posted by: Paul at January 19, 2007 08:25 PM

"Why shouldn't Americans face the same challenges and economic uncertainties that Indians have faced for generations? [...] The answers seem to be that they should."

Taken to its logical end point, this argument would have the typical American living like the typical Indian: no high school education, no electricity, no running water, no toilet. Those are among the "challenges and uncertainties" that most Indians face.

It would be one thing to say that the typical American needs to get used to the idea of living the material lifestyle of, e.g., the typical Spaniard or Irishman. I would probably agree with that.

But for our children to "face the same challenges" (i.e. abject misery) that the bulk of the Indian population faces? Well, that's exactly the idea that has us scared and up in rhetorical arms.

Posted by: A Parent at January 20, 2007 09:42 AM

Historical Correction??

During the industrial revolution in Western world most merchants, cloth weavers, farmers in India lost their lively hood to the factories in Europe.

To make matters worse the English forced some unfair trade practices - buying cotton from Indian farmer (many were forced to sell!) and selling the finished product back in India and this hurt the whole business!

It took a few generations for Indians to adapt and move on.

But now with so much opportunities one can adapt easily and if one is creative make a living easily or change careers.

US is truly a land of opportunities..one has to convert these current adversities into opportunities!

Go after the cheese!!

Posted by: Rana at January 20, 2007 09:21 PM

Education is the key to this country's issues. The "cost" of education should be coming down as well, given the resources on the internet.

Posted by: ss at January 23, 2007 06:29 AM

To A Parent et.all:

Face it! Indians are extremely intelligent and tech and science savvy. Just to give you some examples. We are the richest ethnic group in US, richer than Jew, Chinese and Japanese. Indians score highest SAT, higher than Jew. We started 40% of Silicon Valley startups. 35% NASA scientists are Indians. 40% of Microsoft is Indians. We are the driving force of US IT boom. Sometimes, you have to suck up and face it!

Posted by: Vijay at January 24, 2007 10:50 PM

Vijay, you figures are very far from the truth. What 40% Silicon Valley Startups? All nonsense. Bill Gates himself had to come out and dispel the lies about 40% of his employees are Indians. The fact is there is never any government statistics to back up these wild claims that the Indians are making.

The IT boom was created in the 80s and 90s. 25% of Silicon Valley tech companies set up between 1980 to 1998 were founded by immigrants, with Chinese immigrants leading the pack.

Check out

http://www.atimes.com/atimes/South_Asia/IA12Df01.html

Posted by: HC at January 25, 2007 10:05 AM

@Vijay:

Why this hangup with comparing Indians to Jews? All the apparent successes that you've listed have more to do with individual ability than ethnicity/religion.

Yes, there are a lot of intelligent people in India, but so too in other countries.

Posted by: Harsha at January 25, 2007 04:55 PM

@HC: Bite your tongue! Indian constitute the fastest-growing and most affluent ethnic group in the US, with a median annual household income of $66,000, almost 50% higher than the national average. Educational achievements of Indians in the US are highest of all ethnic groups, including whites. Indian immigrants founded more companies than Chinese, Taiwanese and British immigrants put together... List is long.

Check out

http://www.atimes.com/atimes/South_Asia/IA12Df01.html

Posted by: Chandra at January 26, 2007 11:05 PM

I am not anti-Indian. But I don't like anybody throwing unsubstantiated figures around to support their point. Please tell me where did there figures come from.

"We started 40% of Silicon Valley startups. 35% NASA scientists are Indians. 40% of Microsoft is Indians."

Posted by: HC at January 29, 2007 10:42 AM

Lately, we witnessed that some Indian commentators are exaggerating their successes in U.S and expressed excessively their prides on BW posts. It is simply getting out of control, e.g. 50% of NASA scientists, 40% Microsoft staff, 35% of doctors... No matter how funny or absurd it may sound, this is a free country and you can not stop them from doing that. On the other hand, it is very typical of Indian elites to constantly quote stats out of context to convince you that Indians are super smart and they deserve American jobs through H1. India news outlets are also generating all sorts of funny stats to convince the uneducated and poorly informed Indian mass that India is already a superpower. You can not really blame them for that. It is a part of their Hindu culture. They are brought up that way. It is also part of NASSCOM grant scheme to generate wild success stories to lobby for increase in H1 quotas. No doubts about it, there are some talented Indians in US. However, they are from top 0.1% of India?? 1.2 billion people and are selected and filtered by immigration process in US. When you compare them with average Joe in US, they of course look smart. However, the ways they claims their superiority is deceiving and frankly ridiculous. The truth is far from their claims. Here are some more balanced and realistic stats contradicting their stats:

1. India national average IQ 81 on a scale where US and UK IQ average are 100 (http://en.wikipedia.org/wiki/IQ_and_the_Wealth_of_Nations)

2. India per capita GDP $600 below sub-Sahara average (CIA fact book)

3. India literacy rate 55 % (CIA fact book)

4. 7+ million HIV affected people and counting (1st in the world)

These stats contrast sharply with their out of context stories. However, I do believe their claims of 40% of startups could be true. There are lots of scams in Indian?? startup to help Indian to emigrate to US in the name of H1 hi-tech workers. In early 2000, there were reports that Indians were stopped at US customs and deported. These folks came on H1 visa and claimed to be Oracle DBA or Java developers etc. They could not even spell Oracle and Java when asked by custom officials.

Bottom line: You can not deny some of their successes in US and give them credit; get used to Indian bragging (they will not stop) and do not make Indian bragging a factor in your decision making.

Posted by: steve at February 1, 2007 01:25 AM

Well Said Steve.

Posted by: SV at February 1, 2007 12:56 PM

US workforce will have jobs and US itself will be a major driving force behind growth and world economy for few more decades.

In US like today more and more managerial roles are created and appreciated than plain ones, it will not go away soon.

Posted by: vijay kurhade at February 10, 2007 04:17 PM

I am an Indian and I live in India. I have also briefly worked in the US, China and elsewehere. If we were really geniuses then why is our country still so backward? Statistics about Indians in US doing well may not be false, but then you have to also know that only the cream of the 1 billion Indian population (0.01% of 1 billion is also a very large number) comes to the US for higher studies or for work. As Steve says, certainly you cannot compare this cream of cream with any average Tom, Dick or Harry on the street.

Posted by: Mandar at February 15, 2007 01:45 AM

I worked as consultant in Bay Area. My ethnic background is Middle East and belongs to White ethnic group. Lately I have been noticing extremely disturbing patterns. If you go to Cisco or any large corporations you will noticed that some particular floor consists of Indians only. All high tech work these days goes to Indians. Indians will always hire Indian. Ethnic Nepotism is on rise and Indians has taken the lead after Chinese. If you belong to any other race then pack you stuff and move out from Bay Area. This is my final conclusion.

Posted by: Javed at February 27, 2007 08:50 PM

Spirituality is for India. Its karma bhumi; bhoga(sense enjoment) is in the west, coz there is going to be an animal life next. India is not for building big buildings, rather its for building, building blocks for the next, next life...

Posted by: Vikram at March 1, 2007 06:26 PM

Anyone who bashes Indian person's IQ, please take an IQ test to test urs, before commenting on others. I went to one of the best schools in US for graduate studies, and indeed I found that people from my country were simply topping the class. This is due to the fact that in India we give lot of importance to education (and not sex, as is done in the West). The reason for having lots of Indians in Cisco, etc. is not because "Indians only hire Indians", but because we do the job really well. India might be a poor country, as we were enslaved for 200+ years, but given the right opportunity (like education in the US), we show how good we are. It is only a matter of time for China and India to become great powers.

Posted by: Srini at March 11, 2007 10:26 PM

It seems that any ethnic group who comes to the USA after a few years starts bragging of superior intelligence and acheivements. Now if you go through the Iranian press you will note that the Iranians are a bigger braggards than the Indians. The Iranians boast of a two to three million population living in the States, legally and illegally, controlling or owning more than 500 billion us dollars in assets, having the highest educated amongst the immigrants and to make matters all the more commical are white and belong to the Aryan race. So please do not point a finger at the Indians only. And the Iranians are the most snobbish amongst all the ethnic immigrant groups anywhere in the world. Indians are looked down upon by the Iranians. Bragging is just a trait amongst some people but Iranians are in the top league.

Farhang

Posted by: Farhang at March 24, 2007 04:21 AM

All said and done may have positive and negative variations. One we should accept that you cant suppress some one for a long time. If you consider Indians are bragging now what about the western bragging for centuries were other not patent about it. It greatly hurts me that Steve is saying that is how Hindu culture is, i request him please if you know fully about hindu culture pls coment or pls keep quite. It has passion for healty and natural way of life. I dont want to extend more, let us praise the lord, respect fellow beings and nature.

Posted by: Sivakumar at March 28, 2007 04:54 AM

@Farhang:

I do not know about any Iranian bragging. Instead, I do see tons of self-aggrandizing from lowly Indians in spite of their below African average GDP and their living conditions as filthy as garbage dump and astonishing illiterates of five hundred millions plus untouchables. I do not condone looking down upon those Indians. However, Bombay Parsee, who happened to be Persian Zoroastrians, seem to be the few shining controlling majorities of India commerce like Tata. Without Persian Parsee, India is essentially a Sub-Sahara country.

Posted by: nima.ahmadi at March 29, 2007 01:17 AM

@steve

I think when you refer to "Hindu culture"

you really mean, Indian culture and I will agree that it is indeed cultural.I think its natural for people to feel a bit overzealous and patriotic and the need to prove themselves against the perceived notion that they are considered inferior by the West. I think people still have the implicit expectation that they are going to be discriminated, even though I've never encountered it. ( being an indian who lives in the US.)

To all unobjective India braggers:

When you compare the Indians in the US to the average white population , you compare the most ambitious and educated with the average population. Please show some critical thinking, since you claim to be so intelligent.

Posted by: m.naryan at April 3, 2007 04:32 PM

I find the nature of a few of the comments in response to this article quite disturbing, in that it seems that there is no room for empathy nor intelligent and objective discourse. Some of the comments have voiced extreme generalizations with thinly veiled undertones of racism and xenophobia. What's wrong with admitting that people who work hard and perform well (irrespective of race, color or creed) are deserving of recognition and compensation? Isn't that what the US prides itself on, that theirs is a country who admires and rewards people who pull themselves up by their boot strings?

[quote: Why shouldn't Americans face the same challenges and economic uncertainties that Indians have faced for generations? Why shouldn't Americans be forced to pick up and move to another country in search of opportunities, just as Indians have?]

To put it another way, why shouldn't the US, as the world's biggest economy and one of the world's biggest holders (and generators) of economic wealth be subject to the same conditions and measures which is applied to the rest of the world? Why shouldn't they be inconvenienced into making compromises on their gas-guzzling SUVs and daily shots of boutique lattes?

I think what this quote actually questions is whether Americans, and only Americans, have the right to material prosperity; whether it is a privilege which must be earned or a undisputed right which is perpetually theirs (dare I say, at the expense of others who may be aspiring to achieve the same thing?). The reason why so many people seek work in the US is because they are looking to make a better life for themselves. Please don't use racial prejudice to justify putting down other people's efforts to better themselves. To commentators from the US, the last time I checked, the Declaration of Independence still included the bit about "...all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.".

To those who have made sweeping statements on race: in case someone missed the memo, being a citizen of a particular country or just because you came from a certain ethnic background does not give you first and permanent dibs on happiness and material well-being. You can be born into material wealth but to keep it requires hard work and a certain amount of intelligence. Those who have worked their way up should be admired instead of put down.

Having said that, globalization is still a poor tool for wealth distribution even though it has opened doors for otherwise sidelined parties and economies to better themselves. We should also not rely on multinationals who thrive on globalization to look out for the wellbeing of their employees and customers. They are just there to make money for the benefit of the elite management and their shareholders. They deserve a certain portion of responsibility for the woes facing the American workforce. Americans shouldn't expect other people to give up what they have unless they (Americans) are willing to cut back on their own extravagances and waste. I believe there's enough pie to go around, but some multinationals and people need to be taught how to share.

Posted by: anonymous at April 4, 2007 03:16 AM

It's not racism to criticise globalism and comment on unfair events. It's not even about race, but about cultural differences. India has a different, older, education philosophy: that intelligence is shown by the ability to memorize large amounts of information and follow complex rules. The American philosophy relies more on teaching individual research and creativity skills. Hence, our best and brightest don't seem 'smart' to Indian hiring managers, and are suffering discrimination under globalism. Also, India has a culture that still has a lot of deference to authority figures. Hence, they have a reputation for being docile, submissive workers and also for being consumate 'yes men.' This is a big reason why our upper management loves to hire them. Also, the idea that Americans must submit to the judgement of Indians concerning our consumption patterns is as offensive as when Indians complain about us criticizing their society (caste system, overpopulation, corruption, etc.). That is a door that swings both ways. 'Extravagance' is a situational and relative term. Indians should not view themselves as agents of righteousness when they displace Americans from their careers, any more than they enjoyed being on the receiving end of colonialism. Yet I have encountered many who do hold this attitude. When interacting with such people, I find their attitude of entitlement to American jobs to be positively weird. If we showed that same attitude, we would be soundly denounced as 'ugly Americans.' The American workers that anonymous is attacking, their only crime was to play by the rules of their own society and aspire to earn a decent living in their own country. Somehow, in recent years, our country has become the world's job fair, mostly without reciprocity. Where can Americans go if America doesn't work out for them? Our backs are against the wall here.

Posted by: Babs at April 5, 2007 09:11 AM

STEVE - You make some good points in your comment.

FYI, your derived concept of Hindu Culture is skewed and pitiful.

Check your sources next time, will help a lot in not mitigating the impact of an otherwise sound argument.

Posted by: Nirmal at April 8, 2007 02:21 AM

This is my response to Babs.

Your comments about difference in culture is well-made and I strongly agree that how one sees any situation will depend on where they come from. However, I would like to clarify my earlier statements which I think you may have misunderstood.

[quote: The American workers that anonymous is attacking, their only crime was to play by the rules of their own society and aspire to earn a decent living in their own country.]

In no way did I mean that anyone, whether Indian or American, has permanent entitlement to anything. (am not picking on Indians or Americans, but using them as an example since they are the most cited examples referred to in this discussion). I stand by what I said earlier, that no one has permanent dibs on anything, except the right to pursue life, liberty and happiness. The point I was trying to make is that as Americans have the right to pursue a decent living, so do people from other countries. But even within this context, as Babs has pointed out, there are gray areas e.g. outsourcing American jobs lower cost-locations; Americans lose out, but otherwise lowly paid workers get a chance to work themselves out of the vicious cycle of poverty. We live in a connected world, where what happens in one area, can have effects on others. But, you also have to understand that people are not going to feel much sympathy for US workers when you look at the standard of living they enjoy versus what the average Indian worker has to bear with. For anyone to say that "Americans deserve a higher standard of living that anyone else nevermind the inequality" sounds a lot like Marie Antoinette saying "let them eat cake" to the starving French peasants outside her palace gate.

Again, I know that this is a generalization and there is a large swath of American workers who cannot afford to drive gas-guzzlers or drink overprices beverages everyday. But that's exactly my point. Poverty and lack is a disease which is not limited by race or country. And it's also the ugly side of the free-market ideology and economic globalization. Corporate practices like outsourcing are mainly concerned with creating efficiency (and subsequently, profits) to be enjoyed by a relative minority (i.e. shareholders). Its failure is that it does not consider the socio-economic impact. I'm not against globalization or the free-market, but they, like any other model, are not perfect. Until better ones comes along, we just have to live with them and adjust to them the best way we can.

[quote: Somehow, in recent years, our country has become the world's job fair, mostly without reciprocity. Where can Americans go if America doesn't work out for them? Our backs are against the wall here.]

Babs, you should not underestimate the responsibility of corporations in taking away American jobs overseas. To say that they have little choice in order to stay profitable is only partly true. They do have a relative amount of influence in deciding whether to stay or go. It just depends on how highly they value making profits for shareholders versus the common interests of their employees. And American citizens should hold their companies responsible for the welfare of their employees. But I rarely see this happening. Every time there's a big layoff in the news, Wall Street rewards the company for cutting costs by driving share prices up. These are mixed messages from American investors, many of whom are also employees. If the producer of your favorite consumable is laying off workers, would you be willing to forgo it so that a fellow American can keep his/her job? If a company in which you own shares is taking jobs overseas but offering to pay you good returns as a result of those cuts, would you be willing to divest your shares for the sake of making a moral stand?

Another point to consider is this: companies outsource overseas to maximize profits but sometimes workers in the countries they outsource to are also exploited. We've all heard about Asian sweatshops where workers are exploited for 12 hours a day for less than USD1 a day. Are companies ignorant that their suppliers practice this? My guess is that they won't publicly endorse this, but more often than not, they will close one eye to these abuses, with the other eye firmly on creating profits. And these are just labor abuses, not counting environmental exploitation which some foreign companies indulge in. There are many companies who move overseas so that they don't have to comply with strict environmental and health and safety legislation in their home economies.

These are just some of my thoughts. As someone who is in an industry where outsourcing is the norm and whose job can be outsourced at anytime depending on the whims of the market, I sympathize with those who have lost their livelihoods because of it. I wish all of them the best of luck.

Posted by: annonymous at April 11, 2007 11:42 PM


Later, Baby
LIMITED-TIME OFFER SUBSCRIBE NOW

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

 
blog comments powered by Disqus