Cash-strapped U.S. companies, devoid of management imagation, strive to cut costs by moving IT staff to India. They’ll do the same things with computers that they were doing in the 1980s and 1990s but do them cheaper.
Microsoft was the exception. Yahoo Finance shows that they’ve got a 30.6% profit margin and $46.2 billion in cash. These are what economists call “supranormal monopoly returns”. Yet what do we find in today’s Reuters: “Microsoft Shifting Development, Support to India”. Microsoft is firing American workers and hiring in India.
[The other half of the Wintel duopoly is doing the same thing. A friend of ours had his little company acquired by Intel. They’ve had a hiring freeze in the U.S. for more than a year but would be happy to give him 20 newly hired programmers for his product… in China. He’s now living in Shanghai and loving it, managing a medium-sized cubicle farm of eager under-25ers all recently graduated with Computer Science degrees.]
In a slightly related story, the New York Times today reports that the U.S. unemployment rate is up to 6.4 percent, its highest in 9 years. The stock market is basically okay, though. Investors realize that American corporations can make plenty of money without necessarily hiring Americans…
“Investors realize that American corporations can make plenty of money without necessarily hiring Americans…”
For now, they can make money. But what happens when there are no more Americans who can afford to buy the products?
I’m definatly no expert, but it seems that perhaps the companies will sell to the Chinese (who will have more money by then). Eventually, though, that the Chinese will be able to manufacture their own goods and then many American companies will be made irrelevant.
Does India imports anything from the US (or from other countries to which US exports)? If so, how is India supposed to earn foreign exchange without exporting to the US? And do those American export industries employ workers?
American corporations? Isn’t that concept a bit outdated?
Ilya and your point is…?
No doubt that the CEOs are using at least some of the tax cuts they bought from Dubya to build new factories and facilities in India, China, or anywhere else they can cut labor costs. You can’t criticize Dubya for that, though. While he continually insists that his tax cuts are intended to create jobs, he is never specific about where those jobs are.
As for the stock market, it has become a de facto parallel economy inhabited mainly by CEOs and institutional investors. Its value is determined largely by the ability of the CEOs to persuade institutional investors that their stock will produce spectacular growth. If successful, the persuasion becomes self-fulfilling as other institutional investors in search of this moment’s spectacular growth join the bandwagon to “create” that growth.
Any number of things, tangible or otherwise, ranging from fear of terrorism to the threat of lower unemployment figures emboldening workers to demand a share of CEOs’ wealth, can deflate the fragile buble built on hot air and salesmanship, and cause the market to drop.
The relationship of this parallel economy to the realm in which we ordinary people inhabit is often a tenuous one. An announcement by a company that it is “unlocking shareholder value” by laying off several thousand workers can, if promoted properly, excite enough institutional investors and CEOs to give the entire market a temporary celebratory lift. To the people who run and manipulate the markets, the continuing loss of American employment is not a cause of concern as long as it enriches them through the generation of increasing paper wealth. For those who make their wealth from the stock market, the “real” economy– the one we inhabit– is nothing more than filthy infrastructure like sewage treatment plants. Necessary, but not worth thinking about. To a CEO, his customers are institutional investors on Wall Street, not the people who buy the goods and services his company supposedly is in business to produce.
Yes, “downsizing into prosperity” may well generate a crisis when the CEOs have eliminated or outsourced so many jobs that there are no longer enough gainfully-employed people to purchase goods and services. But CEOs are rewarded for their myopic focus on daily stock prices and the quarterly earnings forecasts by which they live or die. The crisis is far beyond their event horizon; by then they will have taken their severence package and moved on anyway.
This is nothing new, it’s just the crying of a deflating industry. From here: “The reason you are hearing about this now and you weren’t hearing about this a couple of years ago is because the overall information technology market is hurting,”. My Europe-based employer outsources work to Indian companies, I don’t think this amounts the end of the world.
Capital Moves is a pretty good book that puts current IT trends into a hundred year perspective.
All CEO’s desire to become the head of Nike, a company that fancies itself as only a small marketing company that has never done it’s own manufacturing. All Nike manufacturing is performed by third party companies, mostly overseas. This allowed Nike to price shoes at $100 a pop that they paid $11 for, as well as to skirt US labor laws. And it allowed Nike to avoid paying for retirement, vacation, and similar obnoxious costs for thousands of low wage, low value (in their eyes) employees.
This is just the logical extension of free trade, where jobs flow to the cheapest semi-qualified employee.
Look for the union label.
Perhaps then, good ways to fight this migration of jobs are to support the organizations that try to raise and protect human rights, human labor (?), child labor, environmental concerns, etc.
While tariffs are now considered an ugly, inefficient, and pessimal mechanisms, perhaps tariffs organized like carbon taxes make a global sense. Tax foreign products (charge domestic products too) for the full costs of production and disposal. Tax products that somehow, legally, use child labor abroad that we would find illegal here. Tax products for the costs of environmental recovery. Tax products that do not live up to OUR human rights policies (bathroom breaks, cleanliness, factory safety, …) Place those revenues to work not just balancing the budget or buying V-22s, but to repair the damage, re-educate Americans, create new American Industries.
Support laws that recognize that the owners of a company are more than just the stockholders. Placing a company in a town must give some amount of ownership of that company to the local community. Or rather, any company that seeks tax breaks, environmental waivers, (what else?) must cede some ownership of that company to the local voter.
When Larry Ellison buys PeopleSoft and closes its doors, that will cripple the East Bay/Pleasanton economy. How can this damage be quantified, captured and recovered?
Not just Nike, but GE & Jack Welch set the model too. In my experience with upper management of Fortune 100 companies, the desire was to “outtask” everything except for some core business units – accounting and marketing primarily, while everything else was contracted out. The “branding” scheme whereby others incur most of the risk while headquarters sits back a steady stream of toll booth like fees can accumulate in the corporate coffers. But these are an extension of the fast food restaurant industry model of distribution management.
As a consultant programmer, two of my last three contracts ended with me being replaced by offshore vendors. In one instance, my last task was to train my replacements (and they also displaced the regular employee staff too). I remember vividly asking a VP in a skip level meeting about career prospects for anyone with technical skills to which he responded, not going to be needed here (or at GE or to many large corporations) – only some business analysts and system architects. But that is a canard too because business analysts have been staffed with offshore personnel and the architect slots are temporal – in my view (though I refute the whole “architecture” model of software development as totally misguided and it has had tragic implications), future architects emerge after toiling with the rigors of building and supporting systems. So in 5-10 years, I can guarantee that these slots will be filled with candidates from offshore vendors or company overseas facility positions.
Philip, your Baja-Alaska article you linked to in the “W Encourages…” item, you touch on how our economy is transforming with the very wealthy profiting with the masses “stagnating”. I think we’re seeing the beginning of the destruction of the middle class in America. True, for the truly intellectually gifted, there will always be opportunity, but for folks who studied hard, got a college degree, now the crosshairs of a new job exporting movement are centered on them. It happened to blue collar workers in the 70’s and 80’s, when even in the 90’s, their share of the boom was still in the red (real wages for bottom 60% are still lower than they were in 1973). I firmly believe we’re on the path to a neo-feudalistic order of master and servants.
On the other hand, we’re to blame as much as the CEOs for this predicament. My friends and colleagues decry their employment state, yet think nothing of shopping at Wal-Mart and spending dollars with other firms that profit immensely from slave labor and/or exploited workers. Most Americans, outside of a few dedicated activists, close their eyes and muffle their ears to reports of sweatshop conditions in Asia. We may well have never truly dealt with slavery – we’ve simply moved our slavery issue offshore and via subsidiaries and third party contractors, plausible denial can be thrusted back at critics. And the argument that those poor workers wouldn’t have a job at all if it wasn’t for Nike that neglects that the same corporate forces have conspired to move them off the land and have crippled them with damaging global economic policy. Still, people laugh at me when I choose to support local Mom+Pop business over a chain or when I tell of my own personal boycott of Wal-Mart.
Sorry, I’m rambling now…
Naum, the corporate race to the bottom has been so successful and pervasive that it’s difficult if not impossible to buy goods that aren’t made in China. (whether at Wal-Mart or at the remaining mom and pop businesses). China isn’t the only low-wage “paradise,” bit it does seem to be the favored and most common one.
That said, I consciously make a point of looking at where things are made, and I particularly try to avoid China. But I recently had to replace my VCR, and every model I looked at was made in China. I haven’t seen clothes or shoes (aside from custom-tailored suits) that aren’t made in China, India, or Bangladesh (I once saw a shirt that was labeled Saudi Arabia– I threw that one back on the rack as fast as I could). Implementing a boycott would surely create a far greater hardship for you than for any of the CEOs; the best thing we can hope for is to encourage awareness of where things are made and how it will ultimately destroy our standard of living while the CEOs get fat and arrogant.
The awareness, I think, does exist. Why else would the leaders of “wealthy nations” feel compelled to hold their “economic summits” and World Trade meetings in increasingly isolated locations? That’s a tacit acknoweldgement that they do notice (and are afraid of) the protests against “globalization” and all it represents, even as they do their best to ignore and isolate themselves from it.
I realize it’s impossible to “implement a boycott” – but I can do what I can do. For instance, I bought a water cooler made in Canada, not China, My shoes are made in Italy, not China as just about all tennis shoes are now (does New Balance make shoes in America still?). And while the Mom+Pop shop stock shelves might be full of exploited labor goods, I can choose to direct more money into the local community by giving them business over a mega corporation that’s going to fund more tyranny via my purchases.
I ripped up all of my American Express cards after they they sent all application systems support & development overseas. I use Discover Card now – they’ve yet to migrate their systems offshore though it’s probably just a matter of time. I know I’m just one insignificant speck in the colossal economic engine but if everyone made social awareness one of their checklist items when they buy, it would have a dramatic effect. Boycotts do work – they worked in Alabama in the 1950s to turn back segregation, they could work now to at least draw attention and reforms to a disgraceful and shameful practice.
– – – Einstein’s observation
Innumerable voices have been asserting for some time now that human society is passing through a crisis, that its stability has been gravely shattered. It is characteristic of such a situation that individuals feel indifferent or even hostile toward the group, small or large, to which they belong. In order to illustrate my meaning, let me record here a personal experience. I recently discussed with an intelligent and well-disposed man the threat of another war, which in my opinion would seriously endanger the existence of mankind, and I remarked that only a supra-national organization would offer protection from that danger. Thereupon my visitor, very calmly and coolly, said to me: “Why are you so deeply opposed to the disappearance of the human race?”
the full monty