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Copyright © 2004 Joseph Mack.
The basis of a talk presented at the July 2004 meeting of the North Carolina Systems Administrators (http://www.ncsysadmin.org/), at the Dreyfus Auditorium, Research Triangle Institute, RTP, North Carolina, USA. This document is retrievable from "http://www.austintek.com/outsourcing/outsourcing.html".
Outsourcing in all its forms - sending jobs to other countries, bringing foreigners into the country to replace local workers, and paying them lower wages than will be accepted by local workers, is a method to reduce costs to businesses. The businesses defend these practices as good for "the economy" (making "the economy" more "competitive"). The costs to "the economy" represented by the disruption of the lives of the displaced workers, who have spent years training for their careers, is externalised by the businesses and does not appear in the tables showing the "the benefits" of these practices. The employers fault the workers, saying they "need more training", while choosing replacements who have less skills.
Table of Contents
A dinner I attended early in 2004, gave me an abrupt insight into the nature of the outsourcing of IT jobs from the US economy. I'd talked with a lobbyist for an electronic trade organisation, who was deeply involved with the Democratic Party.
I mentioned that
The Democrat dismissed this list as "anecdote".
The definition of anecdote is
anecdote defn: A short tale about someone not present (usually because they are dead). Anecdotes are often humorous and are considered too trivial to be included in scholarly works.
I was definitely there (although not everyone in my list was there), my stories were true, rather than amusing, and it was not trivial. What would the Democrat accept as truth?
The Industry hasn't done any studies on the number of jobs being outsourced and until it does, everything that people are discussing is hearsay.
Hearsay is an important word when talking to these people. Defn:
hearsay defn: a statement by a person (the "declarant"), who is not available to be challenged (in court). The challenge can be to the credibility of the declarant or to the facts of the declaration.
If a cop comes up to you and points to the body on the ground and says to you "who did it?" and you point to the guy standing next to the body all covered in blood and say "he did", that's "hearsay". If you stand up in court and the prosecutor says "who did it?" and you point to the guy in nice clean suit standing next to an expensive lawyer and say "he did", and then answer questions from the defendant's lawyer, then you've made an admissable statement.
Even though I was prepared to be questioned about my statements and my credibility, everything I said was hearsay.
What was it about "The Industry", that made it the only credible source of information on outsourcing? As we talked I found her a good debater; any statement I made, she would deny without a supporting statement. When pushed for a supporting statement, she would instead quote standard pieces of economic theory, which were true enough, but which were irrelevent.
I saw that there was a difference between discussing a factual matter with a dispassionate technical person and a person with a large personal stake in the outcome of the discussion. As the conversation went on, I saw that the Industry had no intention of studying outsourcing or releasing numbers and that all facts were going to continue to be "hearsay" or "anecdote".
She said that programmers in India being paid by american companies were contributing to the american economy by using their salaries to buy from american companies.
This is an obvious fallacy. If the jobs were filled with an american resident, they would contribute a lot more to the US economy.
She offered the example of an Indian worker buying a cup of coffee from Starbucks. Taking her up, I started to compare the amount of money going to the US economy in the cases of a US worker and an Indian worker buying a cup of Starbucks coffee. She refused to discuss any numerical estimates, returning to standard pieces of economic theory.
I asked her if she'd heard of Norman Matloff, an academic at the Dept Computer Science at U.C.Davis, who'd testified to the US House Judiciary Committee Subcommittee on Immigration on Debunking the Myth of a Desperate Software Labor Shortage (http://heather.cs.ucdavis.edu/itaa.real.html) in the IT industry, and on the abuses of the H1-B program, a program to bring in foreign IT workers at lower salaries, to displace US workers. She said
Oh I've heard of him, he just bends the facts to come up with whatever he wants
having only heard of him, was enough for her to declare that he bends the facts.
Matloff has published a peer reviewed academic paper in the University of Michigan Journal of Law Reform On the Need for Reform of the H-1B Non-Immigrant Work Visa in Computer-Related Occupations (http://heather.cs.ucdavis.edu/MichJLawReform.pdf). Would a Law Journal publish a paper that only "bent the facts"? I showed her the 100page paper, she quickly scanned the first page.
It's the same old stuff, nothing new here.
She wants Bush beaten at the next election. Since Kerry's position on outsourcing is the same as Bush's I said he wouldn't be getting my vote. She said smuggly "You're not going to vote for Bush!?". I said that unemployment was the same whether my job had been sent overseas by Bush or Kerry.
Attempting to be helpful, she advised me that if I wanted to stay in computing I should move to India, I would have a good life, taking my american money with me; I could live in a big house (and presumably have lots of servants).
This person has no understanding of what it is like to pick up your life, move to another country, where you aren't part of the culture and where you will always be seen as an outsider and will be away from a lifetime of friends. This person doesn't know that the British spent several 100yrs in India, has never heard of Mathatma Ghandi, doesn't know that the Indians kicked out the British. in 1947 and doesn't know that the British Raj is over. The Indians didn't want the British and they won't want me with my money and big house either.
The Democrats want us to vote for them, after all, it's for the good of the country. After that, they want us to take our savings and leave; there'll be nothing left for us and they don't want us to be a part of the future of America.
Summary: in any discussion of outsourcing with the people who want it, no facts will be allowed, all truth will be denied, and you will not be acknowledged as part of the discussion.
Outsourcing has several faces. You can hire cheap labor in other countries to do it there (called "outsourcing") or you can import cheap labor (e.g. people with H1-B, J1 or L1 visas).
Because of the desperate shortage of IT workers that political contributors were finding in the early 1980's, the IT industry realised that it could get cheaper labor if it offered greencards as part pay to low wage Asian immigrants. Thus congress enacted the H1-B program, which allowed employers to import workers to fill IT positions.
Many firms, including Bank of American (the Carolinas biggest employer) admit that they require their american workers to train their foreign replacements. This at least shows that the american workers do have the qualifications for the job, while it's the replacements that need the training. The american workers were paid 70-90,000$, while their H1-B replacements were paid $39,184. (see How to Underpay an H1-B http://www.programmersguild.org/Guild/h1b/howtounderpay.htm).
The number of people entering the country on H1-B visas ( H1B Numbers, Kirburger and Associates http://www.immigration-lawyer.com/visa/H1B/hib_numbers.htm#2000-03) is 100-200,000/yr. About half come from India.
Conditions of employement are that the person receive the prevailing wage. Employers cite the lack of complaints as proof that the program is working. The problem with this is that there is no enforcement of the requirement to pay the prevailing wage. The worker, being dependant on the good graces of the employer for his continuing visa, cannot protest. These workers cannot change jobs.
In a classic case of the fox guarding the hens, the National Research Council's IT workforce committee, which investigated the effect of H1-B's on the labor market, included members from Intel and Microsoft. Microsoft supplied their chief lobbyist for the H1-B program. The labor representatives on this committee were outnumbered and outgunned, not having access to data or researchers to provide counter arguments.
The industry has not lobbied to expedite the granting of greencards to foreign workers on H1-Bs, continuing to leave these workers at the whim of their employers.
Information Technology Association of America (ITAA)'s Harris Miller, in an interview with the press said
"If they don't like it, they can go home."
As long as you keep up your skills, you're assured of a job (we're told). People who are bright, adaptable team members will always find work.
If you believe this remember
Why would you care? You wouldn't want to work in a steel or textile mill. Let those boring, dangerous, dull blue collar jobs go overseas.
Well they've worked their way upto the white collar people now. The jobs going overseas now are call centers and key entry, mortgage applications, credential checks, tax returns, read X-rays, right? Who wants those jobs. They're leaving all the creative jobs, remember, which Americans are good at, right? Americans are smart, we can do the innovation, which we've always done and ship the boring production overseas, right?
We didn't speak up when the blue collar workers lost their jobs. As the white collar jobs are going overseas, we're told they aren't after us. We've heard this before.
First they came for the Communists and I did not speak out because I was not a Communist. Then they came for the trade unionists and I did not speak out because I was not a trade unionist. Then they came for the Jews and I did not speak out because I was not a Jew. Then they came for me and there was no one left to speak out for me. Pastor Martin Niemoller
|This often is misquoted with the Jews coming first. The nazis took the jews last.|
The time to act is not when they're knocking at your door, or when they're knocking on your neighbors's door. The time to act is when they start knocking on anyone's door.
The problem still is that noone wants these jobs.
Here's the advertisement for a fruit picking job.
Well what American would want that? None of course. So people, wringing their hands, will say
Why not let the people who want these jobs have them?
Instead people should be saying
No-one should have to live and work like that anywhere in the world, and definitely not in America.
If you have to pay twice as much for produce, so that a farm worker can live a decent life and have the same rights as you do, then you should be proud to do it.
When someone says that no American wants this job, this is an indication that the working conditions are intolerable and noone should be expected to take this job.
As we've seen, the IT industry doesn't release the number of jobs it ships overseas. However whether the job is contracted to a foreign company or to a US subsidiary overseas, an american job is lost. Companies that are used in outsourcing are TATA, WIPRO and CGI-AMS (3$G/yr, 25,000 employees).
Forrester Research estimates that by 2015 473,000 IT jobs will be moved overseas.
The Bank of America contracts with TATA, Dell has transferred call centers to India, Oracle has 2 research centers in China. The State of California hopes to save $600M/yr by contracting services to CGI-AMS.
Microsoft is doing all its J# (Microsoft's version of Java) developement in India and flies the whole team into Redmond when it needs to have a meeting. (from Owen Astrachan).
A justification is that such steps help american companies compete in a global economy, especially when times are tight. However BofA was making record profits when it started shipping its jobs overseas. BofA expects to do 20% of its development, testing and modernising overseas.
McKinsey is the big accounting/financial advisory firm in this country. All top financial people started in McKinsey and then moved on to other companies. You'd think that McKinsey might have a clue about generating wealth, but remember McKinsey was a big promoter of the new way of doing business developed at Enron. Now McKinsey is fully behind outsourcing.
A McKinsey report says
outsourcing helps US companies become more profitable and cut prices to consumers, as well as boost the export of equipment and software to the developing countries doing the outsourcing work. "Unless we pander to protectionism, there is no good reason to believe that our dynamic job-creating economy cannot absorb the level of change" posed by outsourcing.
Sure the workers can absorb the level of change, but should they be required to?
Outsourcing is being pushed by people quoting economic principles. IANAEconomist, but since outsourcing is cast as a problem of economics, by the people justifying it, I will discuss the economics of outsourcing. In case you're wondering, outsourcing has nothing to do with economics. The economics of outsourcing is all a big smoke screen. You do need to understand the economics to see why it's irrelevent and to see what the problem is. While you're listening to me, I want you to see what the real problem is.
Economics is used as irrefutable justification for other positions too. Economic text books show that global warming is a good thing or at least is acceptable. For a debunking of this one see Yoram Bauman: Global Warming. Possibly there's an economic justification for invading Iraq, but you'd have to be a conspiracy theorist to accept that position.
Lets review the economic principles used to justify outsourcing by the knowledgeable people in the economy. Let's look at how the same people are using these economic principles elsewhere.
Back in the days of gatherer/hunters, people worked together in small tribes to collect food, because it made survival easier; you found your food with less effort and you had a better chance of surviving adverse seasons. While the person with the best smile, the firmest handshake and who enjoyed sitting around a table and talking became the defacto leader, all people were expected to get a reasonable share of the food.
With the domestication (from "home" or "family") of plants and animals, people settled down in towns and started to specialise their jobs. People agreed to give up their plot of land and instead work with someone else, say to make plowshares. They did not give up their right to a reasonable life, and nor did they do it with the idea of disproportionately increasing the wealth of the other person.
When the industrial revolution arrived, new social contracts came into place, whereby a person moved from a town to a city to work in industrialised jobs, but still had the right to a reasonable life. In fact as we all well know, the industrialisation of the world was accompanied by ruthless attempts to invalidate the rights of workers and gave rise to the union movement.
The social contract we operate under when we agree to work with other people is that each of us will be at least as well off as we were previously. We expect that everyone will be in a better position than working by ourselves.
At some stage in this progression from gatherer/hunter to industrialised worker, giving up your plot of land became irreversible. You couldn't go back, it wasn't there anymore or someone else was using it. This put the worker at a negotiating disadvantage with the owners of the businesses. The business owner could now abuse the workers. However the social contract between the partners in working together still existed.
Here's a quote from Senator McCain's autobiography (p67) He is talking about the social contract required to maintain a working Navy. 
For the obedience he is owed by his subordinates, an officer accepts certain solemn obligations to them in return. ... we are responsible for our men, not the other way around. That's what forges trust and loyalty.
This is the same social contract that workers have with the owners of the businesses.
We live in a country, where the rights of the worker to fair return for their work, is poorly protected compared to other 1st world countries. The laws designed to prevent businesses from colluding in price setting have instead been used against the unions (Auto workers in Detroit in the 1930's), because unions under law are seen as associations which set prices for labor. From overseas, America is not noted for its learning, culture or technical capabilities; it's noted for how rich a person can become. While the rich people here are much richer than the same people, where I come from (Australia), the poor people here are much poorer than anything I've seen in Australia (except the Australian aborigines).
If you listen to Galbraith, the reason people work is so that you can give them money to buy the products your business manufactures. The reason then that a business makes money, is so that it can be given to people to allow them to buy your product. Otherwise you go out of business. The depression of the '30's was the result of a few people having all the money and the workers not having enough money to buy the products they produced. The result was that the economy collapsed. The emphasis for improving the productivity of the economy then then is on making sure that people have enough money to buy the output of the economy and not on paying people the lowest wages possible.
To some people, the following questions are a no-brainer:
is it a good thing to to be able to buy shoes and clothes from China at 1/2th the price of clothes made in USA and to stop employing Americans in businesses which make the same items at a higher price and which are clearly less efficient?
is it a good thing to contract your programming to India at 1/10th the price rather than support the poorly trained and more expensive programmers in USA who don't keep up their skills?
is it good to bring the programmers over here instead and pay them 50-70% of the wages of local workers, when there's a desperate shortage of programmers in USA?
Clearly if you have the choice of the same item at different prices, and there are no other factors involved, then you buy the item at the lowest price. I'm now going to show you that there are other factors involved in choosing between low priced clothes from overseas and higher priced clothes made locally.
Let's see how trade works. Economic theory says that two people/countries/separate economies can profit by trading as long as there is a differential cost in a pair of items that they produce. I'm going to be using apples/oranges here, but the same principles apply to any pair of items exchanged e.g. a worker's labor for the business owner's money.
|Historically countries have been separate economies. The barriers between them can be oceans, tariffs, differences in languages/cultures.|
The examples in this section of trade are standard Adam Smith economics. You read the details in any text book (e.g. Yoram Bauman's Quantum Macroeconomics (http://www.smallparty.org/yoram/). I'm just going to give the results. If you don't want to wade through a whole textbook, everything useful in economics is summarised in one page here Mankiw's Ten Principles of Economics Translated (http://www.improb.com/airchives/paperair/volume9/v9i2/mankiw.html).
Table 1. Productions costs of apples,oranges/bushell in two countries: I
|Duchy of Fenwick||$0.50||$2.00|
If you don't know anything about economics, you'd say that the Freedonians should forget about growing apples and buy them from the Fenwickians, while the reverse should happen for oranges. You're close to the right answer. The answer which maximises the total value produced in both economies will have the the Fenwickians producing most of the apples, but not all of them.
Once the two economies start trading, the optimum situation will take some time to achieve. Each country will need to find more land and money to plant the crop which they best at growing and to remove the crop that they are less competitive at growing. New workers will have to be found and trained. It will take a while for the trees to start producing. Trade and the new mix of goods produced will affect the price of the goods and eventually the two countries will achieve equilibrium, where both are better off than before they started to trade.
The value in trade in both direction is equal, i.e. there is no trade deficit.
Lets say the situation was a little different.
Table 2. Productions costs of apples,oranges/bushell in two countries: II
|Duchy of Fenwick||$0.50||$0.60|
This resembles the situation between Mexico/US and US/Inuit in the NW Territories of Canada, where the labor prices to produce apples, oranges increase as you go north. (In Mexico, labor is cheaper, in the NW territories, the cost of greenhouses is high). If you didn't know anything about economics, you'd say that money was going to flow from Freedonia to Fenwick, while produce flowed in the other direction, presumably till Freedonia went bankrupt under a crushing trade deficit.
In this situation, economic theory says that the cost differential in production of applies/oranges (here 20% between the two countries), will push Fenwick to produce more apples and less oranges compared to Freedonia, and that apples will be exported to Freedonia while Freedonia will export oranges to Fenwick. In this case the amount of money that both countries make increases (to the maximum possible) and the value of trade between the countries is equal (i.e. there is no trade deficit). Again the costs of production and the price point will move after trading starts.
The lesson of economics is that trade between economies will increase the wealth of both economies, as long as there is a differential in production costs between pairs of items. This is true even if one country can produce both items at a lower cost.
Table 3. Productions costs of apples,oranges/bushell in two countries: III
|Duchy of Fenwick||$0.50||$0.50|
In this case there is no cost differential. The ratio of production prices in both countries is 1:1. Economics says that these countries will not profit by trading apples and oranges. Let's say that the citizens of Freedonia, seeing the cheaper produce in Fenwick, start buying it, they will wind up with a trade deficit. This won't go on forever; assuming that trade does not affect the price of the good, as a result of the deficit, the value of the Freedonian freedollar will drop by a factor of two and there will be no point in trading anymore.
Trading when only one party benefits, is called a "race to the bottom". The Fenwickians now have a lot of money from Freedonia, now worth half of what it was when trading started. The Freedonians will have lots of whatever it is that Fenwick makes so efficiently. They might be wearing really cool sneakers, which impress the heck out of other Freedonians and none of them will notice the freedollar has only half its value, but who cares when you and all your buddies have really cool sneakers. Not everyone in Freedonia lost out: the guy who imported the sneakers made a packet and if he converted his freedollars into Fenwick dollars (or property) as he got them (i.e. before the freedollars dropped in value), he would be in even better shape.
The word "economy" derives from the root eco meaning "home". Thus ecology and economy are all about how you live ("home economics" is redundundant).
Having given up your little plot of land and having decided to work together in an industrialised economy, how do you measure the health of the economy? The economy is about the home remember. Here's what you look at
pool of skills available (even if not being used in a job).
Economies are always changing and this is a measure of the ability of the economy to handle change.
access to training, so people can establish or change careers.
In the era when I went to college in Australia, the govt hired large numbers of newly graduated engineers (into the Water board, Dept Roads, Electricity Commission), knowing that an engineer wouldn't be hired in industry, without work experience. All of these engineers were expected to get jobs in industry, within a few years, and did. It was just something the govt did to produce a trained cohort of engineers. It was a scheme that had worked for as long as anyone could remember. Of course in the modern era of the global economy, the govt doesn't do that anymore, letting the economy decide. The new engineer now has to find employement without experience.
In Australia, every 7 years, many (most? all?) state and federal govt workers have a year off at half pay or 6months at full pay. This is designed for people to get more training or to make a move into another career.
are people being vaccinated, exercising, overweight, engaging in self destructive behaviours (smoking). There is human capital here, you have to keep it in good condition in the same way as you value your stocks/savings or the land you grow your crops on.
I know people who smoke and are grossly overweight who go to their doctor with a list of complaints a mile long (coughing, shortness of breath) and the doctor can't figure out what the problem is. This shouldn't be allowed. The doctor has to say "let's get you onto a weight loss and ceasation of smoking program and then see about your coughing".
Vacation, recreation and working hours.
Productivity has increased by 1-3%/yr for the last 100yrs, with the result that we are now 3 times as productive as 50yrs ago.  . We only have to work 13hrs/week to live at the same standard as did people in the 1950's. The 1950s are remembered as being an OK enough era to live in. Would you be happy to live at the same standard as did people in the 1950s if you got 3.5 more days a week off?
Do we have to keep working at the same rate as we did 50yrs ago? Can't we take some of it off as vacation or reduced working hours? 6 weeks annual vacation is the norm in Australia. 35-37.5hrs is the normal working week in Europe since the 1970s. Here's some vacation numbers (NYT 7 Jul 2004, p A1, C2 and Public Holidays - encyclopedia article about Public holidays http://encyclopedia.thefreedictionary.com/Public%20holidays)
Table 4. Vacation and Holiday time, days/yr
Is it any wonder that Americans have to wait till they retire before they can travel. Everyone else gets the benefit, early in their adult life, of finding out how the rest of the world lives. Having a well travelled citizenry makes a big difference a country's attitude to the rest of the world.
The workers in Carnegie's steel mills worked 12hrs/day, 7days a week, until the day they died (only the owners could afford to retire). The workers made so much money for Carnegie and his partners, that 100yrs later they still haven't been able to give it all away. Carnegie is remembered by some as a philanthropist, rather than a human rights violator.
Will people look back in 100yrs and regard our working conditions as we now look at Carnegie's workers.
The "primitive" gatherer/hunter required about 20hrs/week to fulfill all their needs. These people had health and life span comparable to modern man, at least from looking at their skeletons. The agriculturalists, who displaced them, were a miserably lot. They were about 6-12" shorter, with a reduced life span and poor dentition, due to the inadequate nutrition. If you go to the Smithsonian Museums in Washington DC, you can walk around a series of dioramas, showing huts or villages with people at each stage of developement of our modern civilisation, starting at the gatherer/hunter. At the side of each diorama is a lifesized drawing of an adult male and female showing their height and a note about their life expectancy and dentition. The gatherer/hunter is about our height, and it's not till the late 1900's that man's lifestyle has returned people, at least in some countries, to the height and lifespan of the primitive gatherer/hunter. Have we gone through all the wars, famines and pestilences, in 20,000yrs to have only reduced our work week from 20 to 13hrs?
Time contributing to society
Do people put time back into society some way (George Bush I's "1000 points of light" program). Are people helping with their kids sports teams, scouts, belonging to organisations centered around an interest, e.g. birdwatching, amateur astronomy, coming to NCSA meetings :-), giving talks to groups, going to talks.
Work is an important part of the economy. As we've found, we need to work 13hrs a week, so we should look at this part of the economy closely.
Work - are people happy, satisfied, and feel appreciated and compensated for their work? Do they have pride in their work.
Work is a replacement for gathering/hunting or agriculture. Noone expects it to be intrinsically interesting, all the time, but everyone should be able to feel respected for their production and everyone should be proud of the contribution they're making to building a better society.
cooperation between workers and owners.
Do the workers and owners of businesses cooperate or are the interactions adversarial? Remember back when people started to work together, you laid down your plow and left your field to work with someone else because you both were going to be better off. Working together is a cooperative venture.
Are unions/workers represented on the board of directors? Chrysler has just appointed as their #2 manager, a 5th generation union member. Are the salaries of the owners only marginally higher than the workers? Imagine a world where everyone got the same salary, no matter what job they held (or if they held one). How would people get their rewards in this situation? I would expect many of the same people, who are in charge now, would still be in charge - some people just like being in charge. They wouldn't need retention bonuses to keep them there. Instead of being rewarded by money, people might be rewarded by public recognition. We have a working model of this in the GPL software world.
Do historians (and owners of large successful businesses), when they write the history of the company, do they write about all the workers who made the factory function smoothly, do they credit the workers for the innovations responsible for incrementally improving the work place. Or are they like Buck Rogers, the VP of Marketing at IBM, ( The IBM Way, http://www.austintek.com/book_reviews/the_ibm_way.html) who only mentions computers twice and whose accomplishments were his alone.
When you read the financial part of the paper, and you want to find the health of the economy, this is the sort of information you're looking for.
This is not what you find in the business section of the paper, of course, and we'll see why in a minute. Instead of work being to make your life better, your life is to make business better; the health of the economy is measured by the health of business, only a part of the economy, not of the economic health of the people served by business.
If you're reading an article about the health of economy and they're only talking about the business/manufacturing sector of the economy, you're only looking at one side of the trade. You're most likely reading about maximising profits.
Trade is good for both economies if trade is in equilibrium, i.e. if small changes in the cost of production or the volume of trade have no effect on the incremental cost of the item.
Proponents of trade, in this situation, will then declare that the economy is strong. (Note: they talk about "the economy" as if there is only one economy - but remember that you need two economies to trade.) There's nothing strong or weak about "the economy". The two economies are in equilibrium and that's all there is to it.
Trade is not good for both economies when trade is not in equilibrium, as can happen when two previously isolated economies start trading, or if prices are subject to rapid fluctuation e.g. as a result of weather on crops. Proponents of trade will tell you that "the economy" is weak. It's not - it's just out of equilibrium. The same economists would have told you that the economy was strong the day before trading between the two economies started.
Because of the time it takes to reallocate resources in an economy after trade starts, usually tarrifs are put in place and gradually dropped and as the economy retools. Such taffics were put in place when (Jul 2004) Australia and Thailand signed a trade agreement. Thailand has tarrifs for agricultural goods and these will be gradually lowered.
The american economy is fairly stable (i.e. it doesn't change much from year to year) and Americans are not aware that this is not so in the rest of the world, even in well run countries. In the rest of the world, because of different weather patters, food production is a boom and bust business. The Mid-West averages about 20" of rain a year. This is about the same as the comparable agricultural areas of the Russia and Australia, but the Mid-West gets the same amount of rain each year and can count on harvesting their crops. The rainfall in Russia is not reliable. The rain in Australia is dominated by the El Nino Southern Oscillations, which mean that you get your rain all at once at irregular intervals of about 20yrs, which cause massive flooding, followed by a boom of plants greening up. For their agriculture, Australians are growing crops, like wheat and corn, that depend on regular northern hemisphere type rain patterns, but they're doing it in a country where the plants flower and the animals breed in response to rain and not to summer and winter. You don't have a spring and fall in Australia in the sense that Americans will understand - they plants flower when the rains come. Sometimes the rains come in spring and the plants flower just fine and sometimes the rains don't come in which case there are no flowers and the birds don't breed that year. Australians are always complaining about droughts and floods. Even after 200yrs they still haven't got it. Following the receeding floods, Australians stock the land to capacity, when the grass is green and then have to kill off the stock as the drought progresses. This may not be what the economists want, but it's what everything in Australia understands, except the descendants of Europeans currently occupying Australia. The nomadic Australian aborigines maintained their populations low, knowing they had to survive for 20yrs before the next big rain. They didn't want to have to kill off Grandma just because they'd had a child in the middle of the drought.
The economic theory I've described only finds the optimum trading situation if you include all the costs. Removing costs from the calculation is called "externalising" the costs. Externalising costs results in a less than optimal trade situation. The reason anyone does this, is that you can make more money if you can get other people to pay your costs. You can get away with this, if the people who are paying the costs, don't know they are working for you or are powerless to do anything about it. You need coercion or ignorance to be able to externalise costs.
Table 5. Wealth generated by trade, trade with externalised costs
externalised costs = 0
externalised costs = 2 [a]
|Benefit from externalising costs|
|Duchy of Fenwick||5||5-2-1=2||-3|
|total wealth created by trade||10||8||-2|
[a] assumed loss of production from suboptimal production coonditions=1
Here the Freedonians have arranged for the Fenwickians to bear extra costs of 2 units. The result is that the Freedonians make 20% more profit for no extra work. The trade is suboptimal and 2 units of wealth has been lost, and the Fenwickians have lost 60% of the value of the trade.
Let's look at some examples of externalised costs.
The cost of a plastic food/soda bottle
Once you've finished your coke, the bottle only cost a few cents. You just throw away the bottle. Right?
Well no, someone has to do something with it. The material in it is a non-renewable resource, you can't throw it away, they aren't making any more of it. At a minimum, everyone in the country has to pay to haul it away and bury it and your children will be inheriting the landfill. The cost of handling the recycling of the bottle is comparable to the original cost of making the bottle, but everytime you use one of these bottles, the cost of disposing of the bottle is externalised to the rest of society. Other people and other people's children for 100's of years shouldn't have to pay for your 5 minutes of consumption. The consumer or producer should pay the costs.
pollution remission or prevention
the job is done without regard to the cost of pollution remission, health of the workers or capital lost due to non-sustainable depletion of resources.
The cost to clean up the superfund sites is enormous Headwater's Perspective: 5-22-02 (http://www.headwatersnews.org/p.052902.printer.html), not just in terms of money, but in the number of people who've died from asbestos (200 so far in Libby Montana from the W.R. Grace mine) or the 16% of school children in Coeur d'Alene IO who have elevated Pb levels in their blood from the ASARCO/Hecla mines. The amount of money required for the cleanup is so large that it would have been cheaper just to pay the business not to come in the first place.
There are many places in Asia where pollution from mines has stopped fishing and required whole villages to move. A book from my youth was called "River of Tears" (which I can't find on the web now) about the tribes who had to leave their land after their river became filled with red goo from mining.
The costs in the misery of working conditions and pollution in other countries is much worse than in the USA and these numbers are externalised and not figured into the equation for the optimum trade.
People who loose jobs in careers or industries that no longer exist and who can't find work, families that have to move; these costs are bourne by the people. The costs of moving are large - you have to sell your house, find new schools for your kids, two new jobs, and it can take several years to find replacements for social connections, doctors, dentists etc that you already had in your previous town. An estimate of the costs of moving can be seen in the relocation packages given to top managers, which are in the six figure bracket. It costs everyone else the same amount to move too but these costs are externalised.
If you need to retrain because your field doesn't exist anymore, then you bear the costs.
The costs of non-renewable resources are accounted as having no value.
Coal and oil are given free to the companies which extract them. The companies only pay taxes on operating costs, if that. (60% of the companies in the US pay no taxes, even in the boom years of the late 1990s).
The oil we have is only going to last 3 generations, and we are the last generation to have it. If we decide to use uranium, we will only have 1 generation's worth of that, and our descendants will have to look after the radioactive waste for a million years.
Our forests are given away for free.
Habitat for our co-residents of earth (animals and plants) is free. You can remove that at no cost.
Species are free, you can remove them from the earth, without having to ask anyone or account the loss as a cost to humanity.
What the Freedonians have done is maximize profits. They've done better than if both partners traded at the optimum level. Maximizing profits is one of the cornerstones of our society. Companies that maximize profits are praised, their owners and CEOs are given large salaries (by the board they appoint). However maximising profits is not the cornerstone of Economic theory. The cornerstone of Economic theory is maximizing wealth for the whole of society.
Be careful if someone, spouting economics 101 theory, says they are maximising profits.
There is a trading situation, where optimal wealth is generated, without a trade deficit. However you can make more money by externalising costs. Here wealth creation is not maximal.
No matter what the situation, someone can always create a trade that is good for them, but not neccessarily for the other party. The proponents of trade will tell you that trade will "strengthen" the economy, which by implication, must be "weak". The cure for the "weakness" is to trade in the direction that will make the proponent rich. The costs of "strengthening" the economy will be externalised as much as possible.
If you only take away one lesson from this talk, it's
Do the owner and workers in a business trade (i.e. work for money) on a fully informed and freely choosing manner? If not, then the business is not generating the optimum wealth for the economy. It is likely that the owner has coerced or kept the workers in the dark, to optimise the amount of money the owner makes.
Who can forget the money poured into never again possible opportunities offered by the dot.com boom: The frenzy to aquire prime internet realestate.
1999 GMGI acquired AltaVista, the original big search engine, but then in decline and loosing only 0.25G$/yr, for a steal at $2.3B from Compaq ( AltaVista files for $300M IPO http://news.com.com/2100-1023-23426.html?legacy=cnet).
The US Federal Budget is measured for each year (i.e. it is not cumulative). For the 4yrs 1998-2001, the budget was in surplus, i.e. it was bringing in more money than it was spending. Since 2002, the budget has been in deficit. The deficit for 2004 was 0.5T$, which is 1/4 of the total receipts from US Federal income taxes (2T$ Does the US budget deficit matter), i.e. the US govt is spending 25% more money than it's receiving.
Figure 1. US Annual Federal Deficit/Surplus, 1960-2005.
The US National Debt is the accumulated balance of the yearly Federal budget. By 2005 it will be 8T$, up by 2.5T$ since the start of the current administration.
This means that in the 4yrs 2002-5, the US govt has required each of person in the US to take out a loan of $10,000 so that the Govt can do whatever they want, which has been to tell us that they're fighting terrorism. Each person in the US is responsible for a loan of $27,000. The yearly interest is $1500/yr.
What has happened is that you've had a knock on your door. You find a serious looking man in a suit who counts heads in your 4 person house and says
"hello Patriots. Here's your receipt for the 100k$ balloon loan you took out on the advice of the knowledgeable people, who run the economy. The interest is due on Apr 15. Have a good day."
Of course if you don't think this is a good idea, the IRS will be strip you of your possessions or throw you in jail.
Figure 2. Interest on US Annual Federal Deficit/Surplus, 1960-2005.
The Federal Budget Spending and the National Debt (http://www.federalbudget.com) shows that the interest on the National Dept is one of the big three items in the Federal budget (other two are Defense and Health and Human Services).
Figure 3. How Congress Spends Your Money.
|Social Security is not a part of the Federal Budget.|
What shape would your personal finances be in now if 1/3 of your income was interest on old loans?
One of the major pieces of legislation that our goverment passes each year is a law to allow it to raise the amount of debt it can carry.
Are we maximising wealth creation? Are we in equilibrium with our trading partners?
The US trade deficit is running at 4x145B$=580B$/yr=2000$/person-yr. The sensible thing would be for the US to spend less money in other countries, or to work out how to produce $2000 more goods/services for export each year. Neither of these options were chosen. The next choice is to take the money from the country's capital/savings. Well we don't have any savings to draw from - the country has a debt of $27k/person.
The people who are saying that outsourcing is a good idea economically speaking have decided that the way to handle the trade deficit is to borrow the money. They've also arranged for the next generation to pick up the tab for the interest.
You can't keep borrowing for decades without anyone noticing. The value of the US$ has been dropping 6%/yr since 2002. By Jun 2003 had dropped 1/3 against the Euro (Global Economy -- Iraq, the Dollar and the Euro, by Hazel Henderson). The US$ is expected to drop another 20%. This is despite efforts of the Asian governments to hold up the value of the US$ by buying it, so that they can continue to export to the US.
Even Warren Buffet expects the US$ to decrease in value. He's selling his US$ for other currencies.
The consequences of the devalutions of the US$ are
Economic recovery of 2004.
The main factor fueling the economic recovery of 2004 is that the goods and services Americans are producing are cheaper overseas and hence exports are up. The workers are being paid with money that is similarly devalued. There hasn't been a recovery, just a devaluation of the US$.
Because the US$ is dropping in value, oil is now more expensive. The drop of the US$ was anticipated - since 1999 Iraq has priced its oil in Euros. This was also a bit of a dig against the Americans, who would have to buy large quanitities of Euros, thus depressing the value of the US$. The Americans, who buy oil, also realised that the US$ was dropping and after the invasion of Iraq, the US required Iraq to price its oil in US$.
Thus trade as practiced by the US, is only serving to devalue the US$. When you buy the low price clothes from China, do you know if your children will still be paying them off after you've gone?
The economic theory behind the benefits of trade is used to support sending jobs offshore. Economic theory only describes the trade situation at equilibrium (and for small departures from equilibrium). There is no economic theory to describe large departures from equilibrium, such as when two previously separate economies start to trade, or when there are large fluctuations in costs of delived goods (e.g. due to droughts, floods, diseases). However we all can see what happens in a non-equilibrium situation.
Iraq over the last 13yrs, due to UN sanctions, has been trade isolated from the rest of the world. The prices of goods then has assumed a position of equilibrium, determined by the costs of resources within Iraq. The costs of replacing/fixing/servicing plant/infrastructure that is manufactured outside Iraq is infinite, so much of the infrastructure of Iraq no longer works.
Within days of the invasion of Iraq, import/export controls were unenforceable, looting destroyed many businesses and any Iraqi business making products, which now could come from outside Iraq, were put out of work. I remember reading an article in the NYT about a candy factory in Iraq, with equipment that hadn't been able to be serviced for 10yrs, that had closed when the bazaars and market places were flooded with candy from outside the country.
Paul Bremmer Naomi Klein on Plans to Privatize Iraqi Industry (http://www.scoop.co.nz/mason/stories/HL0307/S00116.htm) rushed to privatise all Iraqi industry, doing in 2 months, a process that took 5yrs in Russia and in Argentina in a non-war situation. Paul Bremmer, even before he'd got the lights turned back on in Iraq, declared the country "open for business" and that his actions would strengthen the economy.
Does the US believe that businesses within USA should be strengthened by the same economic principles that they are applying in Iraq.
Of course not.
NASA is a stifling bureaucracy with a space vehicle that is too dangerous for anyone outside NASA to use, and where innovation is squashed.
The two prime contractors for NASA, LM and Boeing, are not competitive in the business of commercial launches. They only launch US govt satellites, where cost is not a consideration.
|See Bob Zimmerman's book "Leaving Earth" (http://www.austintek.com/book_reviews/zimmerman.html) for an explanation of how the Russians adopted a business model for their space program, while NASA and the American space contractors slipped into corporate socialism, modelled after the worst in Communism.|
Commercial launches are done by the Russians, who have reliable launch vehicles, whose launches are done as a business using the best principles of capitalism and where innovation is rewarded (e.g. Russia's Satan soars for peaceful profit (http://www.upi.com/view.cfm?StoryID=20040629-09339-5598r).
dumping: agricultural products, steel
The US has been found guilty by International Courts of erecting illegal trade barriers to protect their own industries. In 2004 it was protecting steel. In 2001 the US subsidy levels for grains were ( Dumping on Farmers http://www.southcentre.org/southbulletin/bulletin58/bulletin58-10.htm)
The WTO has recently (27 Apr 2004, WTO rejects farmer subsidies (http://www.washtimes.com/business/20040426-111351-2383r.htm) agreed with Brazil in its complaint against the 3B$/yr cotton subsidy given to US farmers. The US in 2003 gave 18.7B$ in agricultural subsidies in 2003. Agribusiness gladly gives some of this money back to politicians to support their re-election. The European Union is even more generous spending 50B$, half its budget on agricultural "developement" (whatever that is). While these amounts of money are small in the US economy ($60 worth of taxes for each man, woman and child is handed to agribusiness), they are a crushing burden on the poorer countries like Benin, Burkina Faso, Mali and Chad where many traditional farmers are pushed off their land and have no other jobs to go to. And some Americans wonder where terrorists come from.
I attempted to find out how many people in USA were recipients of the $18.7G$. I expect the owners of large amount of land get most of it, while the illegal mexican laborer gets none. I couldn't find anything for the number of farmers through google. It turns out Wanted - A New definition of Farmers (http://www.dsharma.org/trade/definition.htm) that if you are educated, wear a shirt and trousers and cultivate crops with the help of a tractor, you aren't a farmer in the food exporting countries of US, Canada, Australia, Japan and South Korea. Only people who perform subsistence farming with a bullock-drawn wooden plough qualify. In the next census, the US is not going to count the number of farmers.
So I used some numbers from my days at the USDA, when I found out that the fraction of people involved in agriculture had dropped from about 50% of the population to 1% over the last 100yrs. This would mean that each person "involved" with agriculture is getting a subsidy of 6,000$. Not a large amount, but still it would help with the bills.
It's hard to imagine that "disappearing" farmers is for their benefit. It appears to be a push from agribusiness and the manufacturers of genetically modified crops, who don't want to return benefits to the countries that contributed the genetic diversity.
The face of agriculture in the US has changed dramatically since WWII. This is the result of two pushes from the USDA
Large swings in agricultural commodity prices associated with weather. This means that the small farmer has two types of years.
The large (multinational) farmer has enough land that they can hedge risk.
Previously China did not trade much with the rest of the world. Recently it has become a large trading partner with the US and US$ are flowing into China at record levels (trade deficit in 2003 was 489B$ or $2000/person).
The people who have lost jobs are told that it will make the economy stronger and all that people need to do is retrain themselves. Clearly any patriotic Freedonian apple and orange grower on finding that these goods can be bought cheaper from Fenwick would plough under their orchard and sell it to developers. After retraining themselves they could get a job at the WallMart that would be built on the site that once had been his orchard.
There isn't. But let's say there is: economic theory covers the problem of supply and demand.
If there aren't enough laborers, then you raise the wages.
What you're hearing is a symptom of the wages being too low.
There is a similar situation for fruit pickers and nurses.
Let's look at nurses. Hospitals in the US can't find enough of them. There are two solutions being offered by the people who understand economics:
Exhort the public to do something about the perilous situation (it's not a problem the hospitals or economists should handle). People in society have to behave responsibly here or there will be no-one to look after sick people (e.g. schools should step in and encourage students into nursing careers).
Nab nurses from countries that already have the right number of nurses e.g. Malaya or Thailand, but where the pay is lower than the US. Presumably these nurses will accept the same low pay in the US, at least till they find out that it will cost them the same to live in the US as it does the nurses who are already here.
Of course the economists will tell you, with crocodile tears  streaming down their faces, that this will only remove nurses from the equilibrium labor pool of the well planned and provident Asian country, leaving them with their own desperate labor shortage. We wouldn't want people in Malaya to suffer a nurse shortage because not enough American's are going into nursing now, would we? So it's up to one of us (not the economist) to go into nursing to save Malaya.
As we all know, if there's a shortage of CEOs, doctors or plumbers, their salaries go up. The same principles apply to the supply of nurses and computer programmers.
The public, facing a shortage of health care, grows concerned. The people who get sick most, the older people, vote, while poor people don't vote. The problem moves to the arena of politics. The economist explains the desperate shortage of nurses, that Americans don't want the lifestyle of being treated like dirt, the irregular and long hours, the poor pay, and that the hospitals have enacted all the cost saving measures possible (e.g. salaries of the doctors, administrators and financial advisors have been cut to the bone) and the hospitals can do nothing more. The politician is horrified. The electorate will throw him out next time unless he does something about it. It's up to him to act.
Politician: "Isn't there something that can be done?"
The economist has been waiting for this.
Economist: "Well actually, there's thousands of nurses in Asia, who are desperate to get into this country and who will work for half the salary of the local nurses. All you have to do is put through legislation to allow them into the country, they'll even pay their own way, and the whole problem is solved.
The politician knows that foundation of America was the cheap labor of people extracted from their home country. He doesn't know anything about economics and doesn't care about the foreign policy implications of american financial hegemony. The next thing you know, special legislation has been moved through both houses, ahead of all the other unimportant bills on money for HeadStart and Education. The politician runs out to tell the electorate that he has solved the shortage of nurses - soon thousands of nurses will be arriving to tend to their every need.
Many of these nurses come from countries that can ill afford to loose them (NYT 12 Jul 2004, front page "An Exodus of African Nurses Puts Infants and the Ill in Peril"). The cost to a poor country to train nurses is proportionately larger than for a developed country. The departing nurses leave a country ravaged by diseases like AIDS (in some areas 50% of the adults) and who can't afford the medicines to treat their diseases.
On the other hand, Australia, at least since the 1950's, has had an active program to export its educated people, and willingly provides scholarships to promising students, to better identify those who should be encouraged to leave. This effort was stopped for a short few years, by the Whitlam govt of the 1970s, resulting in the transient blooming of the Australian film industry. Australias immigration program encouraged the arrival of cheap labor. So many people took advantage of the program that by the 1970s, 1/3 the people living in Australia had not been born there. Australians weren't interested in working in the hot sun and gladly let the migrants do it for them. Now two generations later, the children of the early migrants own many of the businesses in Australia, while the rest of Australia went off to watch the cricket match. In Europe after WWII, the joke amongst refugees contemplating their next move, was that America wanted the brains, while Australia wanted the muscle.
Remember that to externalise costs, you need at least one of ignorance or coercion of the worker. Here we've created a 2nd class resident, a person who doesn't have the vote, who is living below the level that Americans will accept and who is on a visa that will require compliance to the employers work conditions or be kicked out. The employement situation is not governed by the same laws that the rest of us work under. The health system has externalised its costs to the foreign nurses.
Table 6. Cost/Benefit of importing nurses to work at wages that Americans won't accept.
We've maintained the ignorance of the population about the real problem. We've created new problems at home; an underclass of workers; and we've created a foreign policy problem. The situation is more complicated and it will need a Solomon to fix this new situation. Applying these types of fixes will result in a society tied in knots with now unsolvable problems.
It would be better if Americans kept their problems inside their economy and solved them at home.
Economists tell us that labor is mobile and labor will move to the best place to work. In fact the US has one of the most mobile work forces in the world. People in the US move all over the place for a job. In Sydney if a business said they were going to relocate to Boondockville, because they'd got great tax breaks, and be ready to start in 6 weeks, the worker would say "it that so? Here's my resignation." America has used the divide and conquer principle, of putting only a small number of employers in each town, rather than having large agglomerations of jobs in big towns. You only have one job in any town and the employer knows it.
In fact labor is not mobile. It costs a lot to move, an externalised cost that not accounted for in the wealth creation equation.
What is true is that jobs are mobile. Electronic communication is cheap and information can move easily. Transporation is cheap and manufacturers can site their plants with little regard to the cost of getting goods to their market.
But labor is not mobile.
Well you might say, these people do want to come and if Americans don't want these jobs, lets offer them to people who do want them. Surely that's reasonable?
I agree completely. Letting fully informed people into the country of their own free will and granting them the same rights as other residents, is quite acceptable to me.
But if you look closer, you find that what the economists are spouting is not what they mean. They don't want free migration of people in and out of the country.
The imported people will be working for the people promoting importation of workers.
i.e. the importers directly benefit financially from the trade in human flesh.
People in the US protect their own jobs.
About 5yrs ago the American Medical Association (AMA) got legislation passed to protect the health of the US populace. The way this was done was by not allowing substandard medical doctors to practice in this country.
It turns out, the people who are substandard are all trained outside this country. There's not a doctor trained anywhere else in the world, who's good enough to treat an American. To keep the standard of medical treatment high in this country, only locally trained doctors are good enough. To make sure, the legislation allowed doctors to get financial credit for ongoing training.
Computer programmers need a lot of retraining, if you believe employers, but we don't get financial help from the Federal Govt to do so.
I'm sure that similar legislation would help the standard of nursing in this country and cure the shortage of nurses almost overnight.
I arrived in this country on a J-1 visa with a freshly minted PhD. This visa is the scientific/academic equivalent of the IT workers H1-B visa. I worked at the University of California as a post-doc at 66% time when I was paid the mandated NIH grant salary, the other 33% of the time I was a consultant at no salary. When we protested, the person in charge of the program said "which ones of you are prepared to leave (so that the others can have your salary)?"
The IT Industry has, since the early 1990s, always claimed that the H1-B program was temporary and that the number of H1-Bs would drop as soon as schools started supplying enough programmers, but on the down slope of the dot.com bubble in 2000, when industry was laying off left and right, the industry asked for and got a doubling of the H1-B quota, because they were in a tight financial situation and needed to lower their labor costs.
Employers only hire about 2% of applicants. Most are rejected without an interview.
This is not what you'd expect for a shortage.
Wage increases for programmers has been mild, 7-8%.
government and private data show that average wage increases for programmers have been mild, 7 or 8%, just above inflation The industry's own study estimated that the claimed "shortage" is only driving up salaries by 3%. If employers were desperate to hire, as they claim, they would certainly be willing to pay a premium of more than 7%. Wages in almost all professions have been going up at least this much. Surveyors and dieticians saw their salaries increase far more than programmers in 1997, beating inflation by 20% and 17%, respectively.
Programmers are well aware of the enormous range of productivity between different workers. Philip Greenspun has said that the ratio of productivity amongst employed programmers is higher than any other field of employement (10:1?).
However economic models of "perfect competition" don't apply to IT: programmers who are twice as productive are paid on average only 10% more.
If the trend is allowed to continue, any job that can be done by someone in another place, will be moved to where the salaries are lowest. In this case, what jobs will be left in America? (a not particularly complete list is in NYT, 13 May 2004, p A27.) The jobs will mostly be the ones requiring face-to-face time, high emotional IQ or to be on-site. Hair stylist and beauticians is a big one. I'm sure telephone sanitizers will still be here too. Govt bureaucrats will still be here. Presumably the CEOs of companies, whose workers reside in India, will be here until the Indians figure out these jobs too.
|I'm not sure why the number of computer scientists is so high in this diagram.|
Figure 4. Fastest Growing Occupations 1992-2005 (US Census)
All the growth is expected to be in jobs requiring face-to-face contact. None of these jobs produce exports. Unless America is producing something for export, we will have a race to the bottom.
The number of technically educated people will be small. It's hard for me to see that much wealth will be created in this version of America. We'll become a poor country, while all the other countries will be doing the manufacturing and have the skilled people.
In this country, Education seems to be the cure for everything. Where I come from, people who advocate sitting on your butt and listening to someone talking for 4yrs, are received with a jaundiced eye. People who go into business (e.g. the financial world) are expected to work from the day they leave High School and go to night school for training, all of which is paid for by the employer. This is quite a difficult row to hoe, and takes about 10yrs to get your credentials. I'm glad I didn't have to do it. I had my summers off, while my peers were working. However they all paid for their houses, while they were still their 30's, while I was still undergoing "more training" and being paid the same as a typist.
The education system declares that it prepares people for adult life, including being employed. The education system has willingly stepped in to help solve employment problems. If there's any perceived deficiency in the skills of american workers, there are calls for more education, and colleges willingly take in the sacks of cash that are driven up to their door as result of the clamor to fix the broken education system. There never has been a lack of skills problem that the education system hasn't been willing to solve.
Universities are places where faculty are promoted on the number of PhDs they produce and the amount of grant money they bring into the university. This is a ruthless system, where academics will crush the careers of students who make their own discoveries and who expect to use them when they go to establish their own careers.
A PhD is a way of a university getting 5yrs of free labor. The labor is used to help with tenure of the supervising professor and the research and publications help get grants. At the end of the 5yrs, you get a piece of paper saying
This guy works for pieces of paper (as long as you tell him that what he's doing will give him skills for his career).
The people who are susceptable to these sorts of inducements, will not only work for free, they'll incur the debts of a large loan to do so. The salaries when you get out are only marginally better than for a batchelor's degree. Depending who you talk to, it takes 50yrs to catch up with the salary lost in doing a PhD. Some estimates are that you'll never recover financially from doing a PhD. After doing a PhD, you're not finished, you now have to do "more training" called a post-doc. In the meantime, lawyers 10yrs out of high school are earning 6 figure salaries and on the way to making partner, while medical doctors are also earning good money. Who wouldn't want to employ a PhD.
Universities in USA have a lot of foreign students (all degrees, not just PhDs). There are two reasons for this
Clearly this is the best system around which to build a system of teaching undergraduates. Since there is perfect competition between universities, students are able to pick the best unversities for their purpose. No-one has thought to investigate this system to check if it's working or to look for any Pintos here.
When I grew up, in the '50's, the Russians had beaten the Americans into space. The problem was diagnosed as being a lack of engineers, mathematicians... you name it, if it was technical, we needed more of it. From 10,000miles away, in Australia I was swept up into this and looked forward to an adulthood where my interests in scientific research would be well received. When I arrived in America, the land of scientific research, I found to my surprise, that most of my peers weren't Americans: they were foreigners. American's didn't want any part of what seemed to me to be the most valuable part of America, doing scientific research, going into space, curing diseases. American's wanted to make money, they wanted to be medical doctors and lawyers. No American was going to take the pay or lifestyle of a PhD.
45rs after Sputnik, I'm now in America and my boss is in Washington DC, talking to politicians about funding for govt computer infrastructure. The politician says
Politician: "What we really need are more mathematicians."
Boss: "I know the best mathematicians in the country. Most are unemployed"
Politician: "No, no. We want people to be able to make change."
That's when I understood what the politicians really meant back in the 1950s.
The availability of a well funded system in US to take PhDs as cheap labor has consequences in the country where the PhD came from. That country can push lots of students through their universities, getting promotions for all and when the student graduates, the professor says
You should go overseas, for more training. They really like Australians in USA, we work so hard.
That way you're out of the country when you realise you've been had and there's no chance of you getting a job back home. You should have done a degree in a subject that would have got you a job back home.
CS departments seek equipment/software from manufacturers and software vendors and then are in a position of conflict when it comes to advising students on the prospects of a career in CS. One of the prominent supporters of the H1-B program is Prof Ed Lazowska of U. Washington. He is a member of the advisory board of Microsoft and 4 other companies and on the board of directors of two. His department receives 2.5M$ from Ford and Intel and 3 endowed chairs (1 from Boeing, and 2 from the Bill and Melinda Gates foundation).
Do you think that Lazowska is in a position to give good advice to potential students about a career in CS? Is he going to tell them that the people who are giving him all this money are never going to employ the student, and instead they will employ cheap labor overseas?
I asked to Owen Astrachan, CS Dept Duke U., who has a large interest in teaching and the welfare of his students, what he tells his students about the employment world after graduating for CS majors. He said (paraphrased)
We tell students that most CS jobs will not be coding, just like an English major will not get a job reading Shakespeare. No-one has quite figured out what CS majors will be doing anymore, but things have changed a lot, now that a desktop computer has more power than was in any machine room of not so long ago. We have to decide if we should teach people basics, e.g. how to build a stack, or do we look at interesting and harder problems which use a stack. Noone enroles in CS classes for basic programming anymore (e.g. how to write a loop). Everyone can do that already. Enrolements have plummeted, not only in our CS majors classes, but in CS classes for students in other faculties. All pre-med students want calculus, but none want CS anymore.
In the event that US ships all its coding jobs overseas, Owen doesn't know what will be in the future for CS for Americans.
The other choice is to take a govt job. These won't be outsourced.
The IEEE is in a conflicted situation. Many people in IEEE are in industry. Initially IEEE-USA was against H1-B and offshoring, but pressure from the parent organisation and IEEE-CS resulted in IEEE dropping its lobbying against offshoring.
I contacted SAGE. They took sometime and repeated enquiries through Rob Kolstad before I got a reply.
SAGEs position (e-mail) is that as an international organisation, it cannot favor jobs in one country over another. All SAs are equal in SAGE's eyes even if the country the SA is living in is breaking its social contract with the workers.
The IEEE used similar justifications for its "high moral position" when they decided to wash their hands of the fate of programmers in the US.
The /. crowd are a technically educated bunch of people who support GNU, free (as in beer and speech) software and the rights of programmers. You'd expect them to be against outsourcing. (Well I did.)
/. posted a story Netcraft interviews Brian Behlendorf (http://www.slashdot.org/comments.pl?sid=106466&threshold=0&mode=thread&commentsort=0&op=Change). Brian Behlendorf is one of the founders of the Apache project. The interview ranged over many topics, including the court cases being threatened by SCO and that he had been looking for more programmers on a minimal budget and had found them by merging with Enlite, an outsourcing company with most of the programmers in Chennai, India.
In their postings, the Slashdotters waxed lyrical about Apache, and jumped all over SCO for being the scumbags that we all know they are. They didn't say a word about a founding father of one of the big GPL projects, outsourcing his work to India to save money.
I posted a comment
it looks like opensource is a great opportunity to send jobs overseas too.
You won't see this posting if you go to the /. webpage, as it was mod'ed down to a level of -1="Offtopic". You'll have to reset your preferences to include all postings. I tried again (here the emphasis I added to the posting).
the moderator thinks that outsourcing is off topic but the article talks about outsourcingWhile looking at this we met with a company named Enlite Technologies, who had a collaborative project management tool for the electronics-design market, and who had the majority of their engineers in Chennai, India. We were considering outsourcing some work to them, but I really liked the founder (Gopinath Ganapathy) and the team he'd formed, and I wanted something much closer and more, er, collaborative - so we decided to merge.
merging with an outsourcer looks like outsourcing to me.
This posting was mod'ed to 0. You won't see this one either unless you lower your settings.
Outsourcing is "Offtopic" in the world of the educated GPL freedom fighters.
You'd expect the Unions to step in here. But other than to help a few individuals, they've mostly stayed out of it.
The Senate passed an H-1B bill on October 3, 2000, increasing the caps on H1-Bs. The AFL-CIO did not campaign against the bill (it considered supporting the H-1B increase).
Most politicians are for outsourcing. They get lots of contributions from the industry.
After the Oct 3, 2003 Senate bill (see The Unions) was passed, the San Francisco Chronicle reported
"Once it's clear (the visa bill) is going to get through, everybody signs up so nobody can be in the position of being accused of being against high tech," said Sen. Robert Bennett, R-Utah, after the vote. "There were, in fact, a whole lot of folks against it, but because they are tapping the high-tech community for campaign contributions, they don't want to admit that in public".
The Republicans are actively hostile to change anything about outsourcing or the H1-B program.
The only difference between the Democrats and the Republicans is that the Democrats pretend to be sympathetic, while the Republicans are openly hostile.
Senator Lieberman has a White Paper (http://www.lieberman.senate.gov/newsroom/whitepapers/Offshoring.pdf) on offshoring, where he says that the H1-B program only needs "tweaking".
This is the unofficial Democratic Party line as espoused by Kerry, Clark, Dean and Clinton, which sounds sympathetic to workers but in reality is only what they say it is: "tweaking". Kerry's campaign officials state that his "reforms" would have very little impact on the problem.
The usual palliatives are given: we should invest more money in education and research. He says that the offshoring is going to countries that are making such investments, as if that is the reason the jobs are going offshore. The real reason U.S. firms offshore is that these firms seek cheap labor. (The amount of research done in places with the most offshoring, India and China is minuscule.) Yet the places where research is being done, e.g Taiwan which Lieberman cites, are not doing the offshoring.
The U.S. can "invest" until the cows come home and still not change a thing. As Lieberman himself points out in his white paper, unemployment among college graduates is growing at double the rate for high school graduates. So much for the value of investment in education!
Lieberman says that China is graduating more engineers than we are. In fact, the U.S. has the second-highest per-capita number of engineers in the world, after Israel (Michael Hiltzik, Israel's High Tech Shifts Into High Gear, Los Angeles Times, August 13, 2000).
Lieberman concludes that China has more potential for innovation. but says that graduating more engineers in the U.S. will lead to more innovation. But U.S. firms won't give Americans jobs in which they can innovate. Large numbers of U.S. programmers and engineers are seeing their education going to waste, as they can't get tech jobs. Lieberman thinks we should produce even more programmers and engineers, so that even more of them can have their education go to waste.
Lieberman says that not enough U.S. students pursue graduate degrees. But already there are more than can be employed (or adequately employed i.e. working in non-tech jobs such as driving a school bus).
For some webpages on the propaganda about and the value of a good technical education see Pushing the Education Button (http://heather.cs.ucdavis.edu/Archive/GradDegrees.txt) and Career Guide for Engineers and Computer Scientists (http://philip.greenspun.com/careers/). For those who wish to pursue higher learning in the form of a PhD, and also find a mate, you could try a turn at The Game (http://philip.greenspun.com/careers/).
Lieberman says that Indian programmers are better, but doesn't see any need to find the cause. (For an analysis of the measures of "better" see Capabilities Maturity Model (http://heather.cs.ucdavis.edu/Archive/CMMHype.txt).
A lot of Lieberman's proposals are just cushioning the blow of offshoring e.g. requiring that employers give U.S. workers advance notice. These are palliatives, not cures and do not change the stand of the Democrats to let the jobs go overseas.
Lieberman praises the H-1B program, claiming that it, rather than the US education system, played a key role in bringing the U.S. to a position of technological leadership. However the overriding consideration in almost all hires of tech H-1Bs, has been cheap labor, not technical skills.
Here is part of a letter Lieberman wrote to the U.S. India Political Action Committee earlier this year
I also oppose any efforts to eliminate or diminish the H1-B visa program. Why do we want to limit or otherwise handicap a community that has made such significant and important contributions to this country? It is counter-intuitive and counter-productive.
Senator Hollings (D-SC) doesn't think free trade is a good idea and has been saying so loudly for at least 10yrs. He has been a lone voice in the wilderness. He says we need a national trade policy that protects the nation, its jobs and standard of living, just like the trade policies that we accept from China, Japan and Europe (NYT, 1 Jun 2004, p A12).
Hillary Clinton, brags about her close relation with the Indian software firm Tata and actively promotes outsourcing in NY. (see Hillary.txt http://heather.cs.ucdavis.edu/Archive/Hillary.txt).
Kerry's policies are no different from the Republicans. Despite posturing about "Benedict Arnold CEOs", he has said that he's not going to tell anyone how to run their business.
Kerry, has introduced a bill that would require companies to inform people, who phone offshore call centers, about where the workers are located.
What are people who don't like offshoring going to do? Protest by not calling up to have their problems fixed?
In India, Kerry is seen as an ally in offshoring Kerry, Our Ally Against BPO Backlash: He knows manufacturing unemployment's the issue (http://www.financialexpress.com/fe_full_story.php?content_id=53248).
The other Democratic contenders, Dean and Clark, were equally as unwilling to propose anything useful here (except to increase money for enforcement of the conditions of the H1-B visas; the only problem with this being that the employers are already operating within the law).
Senator Dodd has introduced a bill banning offshoring for work done by the Federal Govt. The work must be done in America but can be done by H1-Bs and L-1s. The ban can only be implemented if the Sec. of Commerce can prove that it won't hurt the economy, something which is impossible to prove.
Price has been the rep for the high tech RTP district since it was cut out of the map. When I moved here, someone (I think the state) was promoting RTP as the 3rd largest concentration of computer development in the country (after Silicon Valley and Rt 128 in Boston).
About half of Congressman Price's webpage is about Homeland security, Iraq, honoring Veterans, disabled veterans, and the conflict in the Middle East. In one article I read, he beats his chest about how he'd voted for the invasion of Iraq after trusting the President on WMD. He'd been mislead and it was terrible for anyone to mislead the leaders of the country.
I expected to see something about his efforts to address the loss of IT jobs in RTP and what he was doing to promote RTP throughout the country. With the state heavily loosing jobs in manufacturing, I expected that he would, in cooperation with other Reps in the state, be working on bringing jobs into the area to make up for the jobs being sent overseas.
Figure 5. Three Decade decline in Manufacturing in NC (Employment in NC)
Figure 6. Layoffs in NC, 1990-2003 (from "Employment in NC")
Although rural areas have been hard hit employment wise, the overall umemployment in RTP isn't too bad. We don't have numbers on IT workers in the RTP area. There doesn't seem to be any interest in this ;-\
Figure 7. Unemployment Rate in NC, 2003 (from "Employment in NC")
I contacted Congressman Price's office in Washington DC, talking to Marian Currinder. I asked her about Price's stand on outsourcing. She said it was a complicated topic and she would e-mail me a position paper on the matter. I asked if she could send any information on what Congressman Price was doing to promote jobs in the RTP area and she said she'd do that too.
Congressman Price is a co-sponsor of the Johnson HR 2849 bill, designed to stop "unintended" job loss resulting from bringing in workers from overseas ("intended" job losses are OK). Its main provisions are
The only change will be that employers have to plan ahead 6 months, before importing cheap labor. The bill went to committee as of 23 Jul 2003 and hasn't been heard of again.
As for jobs leaving the country, he says
He doesn't mention that he's attempting to do anything.
Not seeing the expected reply about job promotion in RTP, I contacted Marian Currinder again.
I do not have anything specific on promoting computing jobs in the district.. I am not quite sure what exactly you mean?? (email.0)
After explaining what "promoting computing jobs in the district meant" (email.1) I got a reply which included such phrases as
Figuring out what, if anything, he'd done required some effort.
"..he has delivered funding for .. wastewater management, infrastructure,"
The amount of funding delivered wasn't worth talking about, but clearly Congressman Price thinks that the money spent on sewerage and roads will help the unemployed high tech workers find new jobs.
As part of this talk, this petition was passed around the audience and sent to Congressman Price.
Sea travel and transportation, historically Australia's connection with the rest of the world, is much more a part of people's life, than it is in the US. Most of Australia's trade is export of primary goods (wheat, wool, beef) and import of manufactured goods. In Sydney, where I grew up, from any place in the harbor you could see several cargo ships moving in and out at one time, and many docked for loading and unloading.
In the 60's, foreign shipping started replacing the australian crews with Malayan crews, who were paid a pittance. The Australian Unions said "no problem" and arranged for a tarrif of the difference in crew pay to be levied on each ship. The tarrif was returned through the unions to the crew members.
A friend from Switzerland visited me last year. He couldn't believe the cheap price of clothing here (neither can I). I told him that it was because of the selflessness of american workers, who fell on their swords, by letting their jobs go overseas, to save the local apparel businesses, which were in deep financial distress.
The Europeans haven't had the drop in clothing prices like we have. They've decided instead that European businesses are already making a decent amount of money and the jobs should stay in Europe, thank you very much. They also aren't letting the IT jobs be outsourced. The Europeans want those jobs too.
If you think outsourcing is all about economics, you've missed the whole point. It's a moral and political problem.
Table 7. Participants in deciding how economy is run
|influence on system|
Who gets to decide how society is run? The workers or businesses? i.e. is this your country and you decide how it will be run, or is the country being run for the benefit of businesses and they decide how it will be run.
Quoting from Federal Budget Spending (http://www.federalbudget.com)
Kneeland: "all dollars come from the people. Where do you think Coca-Cola gets the money to pay its taxes, Exxon gets the money to pay the Exxon Valdez fines, Denny's gets the money to pay its Justice Department fines, or Microsoft gets the money to defend itself? It all ultimately comes from only one place, and that's from individuals."
We've all heard business say that they generate the wealth. Economic theory says that both workers and businesses generate the wealth together.
The thing about our system, is that the voters decide. If tomorrow 10,000 people wrote to their congressman saying that outsourcing was not a good idea and they didn't want it, you wouldn't hear another thing about outsourcing. It would be gone, just like the threat of letting medical doctors, who've been trained overseas, to practice in USA.
(ladder of jobs)
Let's compare the amount of money going to the US from an Indian IT worker and an US IT worker drinking a cup of Starbucks coffee. I made up the numbers, so I don't know if they're accurate, but the point is illustrated.
Table 8. Comparison of contribution to US economy by US or Indian IT worker buying a cup of Starbucks coffee
|item||cost for US worker||enters US economy||cost for Indian worker||enters US economy|
|cost of coffee||$1.00||$0.50|
|local taxes [a]||$0.00||yes||$0.10||no|
|total to US economy (if all profits remitted)||$0.99||$0.09|
|retention of US $ in US economy||99%||18%|
[a] The GAO reports that Over 60% of US corporations Didn't Pay Taxes (http://www.nomoa.com/modules.php?op=modload&name=New&file=article&sid=281) and 70% of foreign coorporations did not pay taxes in the boom years of 1996-2000 when corporate profits soared. A study by the Center on Budget and Policy Priorities shows that Corporate Tax Revenues at Historic Lows Even Before Proposed Costly New Tax Breaks (http://www.cbpp.org/10-20-03tax-fact.htm). Corporate Taxes were 6% of GDP in the early '50s and have dropped to 1-2% since the '80's.
Here's the same comparison done for the hardware and bulk licensed software used by the outsourced worker.
Table 9. Contribution of Outsourced worker to US economy
|Bulk Licensed Windows/Apps||$400|
|Jolt(R) cola,5days x48weeks @ 50c ea=$120, canned locally||$12|
|balance to US economy||$2412|
 The GDP (in 2000 $) percapita has increased 8-fold from 4300$ to $34,800 between 1900 and 2000 (Economic History Resources - What was the GDP Then? http://www.eh.net/hmit/gdp/"). I'd rather not live at the level of people 100yrs ago, but it seems like productivity increases by a factor of 3 every 50yrs.
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