Not-for-profit versus for-profit economy

Today’s Boston Globe carries two contrasting front-page stories.  “As economy gains, outsourcing surges” talks about how American workers at for-profit companies must compete with 84 million Filipinos, many of whom are well-educated, speak good English, and are delighted to work for $300/month.  Things are looking more cheerful for U.S. workers in the not-for-profit sector.  A front-page story on Boston University’s search for a new president revealed that the school decided to pay Dan Goldin $1.8 million in exchange for… not working at all.  Considering that Mr. Goldin had yet to start his job, that’s a pretty good hourly rate.  You could hire a staff of 45 Filipino engineers for ten years with that $1.8 mil!

[Update:  the Globe runs a three-article series on “the white collar job migration”.  Article 2 is “US workers see hard times” and includes a quote from a venture capitalist:   “Right when you think about Employee 11, you should think about India.  My view is you should not start a company from scratch in the United States ever again.”  Article 3 is “US business students find opportunity is global” and talks about how MBAs are adapting.  A more interesting article appears in the same issue, November 4, “As work shifts, internship in India the new rite of passage” and starts with “An increasing number of US students are going to India to intern at top information technology services firms or to participate in tours that allow them to network with the country’s corporate elite.”  The American interns, most of whom are MBAs or MBA students, get paid about $350/month (compared to their old internships of $7000/month in the U.S.).]

28 thoughts on “Not-for-profit versus for-profit economy

  1. There was an excellent article in Wired sometime last year called “One Nation, Overseas” about the overseas Filipino workers. It emphasizes their resourcefulness, but also describes some of the negative social costs. Perhaps they are able to do more work at home now.

  2. Phillip: since you are someone who makes their living educating software engineers, I would like to hear your take on the whole outsourcing binge. If you’re someone who has been programming for 10 years, should you be thinking about retraining? Or will this too pass?

  3. Well actually I’m more of a volunteer at MIT so it isn’t strictly true to say that I make my living teaching.

    Given that programming tools haven’t improved since the 1960s I’d say that the continued outlook for American coders is bleak. Maybe some inefficient organizations, e.g., Boston University, will continue to hire Americans in America to code. But on balance there is no reason for such a low-productivity activity to remain here.

    On the other hand the market for actual engineering might not be so bad. So someone who is capable of talking to the decision maker, interviewing potential users, writing specs for the to-be-built system, reviewing test results, and launching the final product should have a job. So if you’re at the project leader level you might well be safe. Your American underlings will eventually be replaced with underlings in some other country but you’ll still be there. If on the other hand you never talk to end-users or the people who write the checks but only write code to spec, I’d say that it would be best to have a backup career.

  4. In my opinion software coding will not limit the problem. If there are hundred millions of low-wage highly educated workers abroad, it could soon spread on almost every professional activity. It’s a globalization problem – our living standards will drop and there will rise until become equal. Our middle class may disappear in the process, but who cares. It’s a ‘diffusion’ process. Unfortunately the field will stay uneven for us for some time because of our price structure can’t support the fair competition. But when we could get medicine, healthcare, insurance, education, legal services, etc. from abroad ‘diffusion’ will accelerate moving us to the ‘global village’. I wonder what the Europeans do to control the same kind of issues?

    Alex Greysukh

  5. As a fresh graduate, I believe a programming job is a good starting step in building up fundamental knowledge.
    However, with the globalization phenomenum ahead, engineers in the well-developed society should keep in mind on the ‘trend’ and be well-ready for the shift of role.

  6. As a fresh graduate, I believe a programming job is a good starting step in building up fundamental knowledge.
    However, with the globalization phenomenum ahead, engineers in the well-developed society should keep in mind on the ‘trend’ and be well-ready for the shift of role.

  7. As a studying and hope-to-one-day-be graduate CS / Software Engineer, I gotta say… “GIMME MY JOB BACK!”

    I have a co-op job position with the government, doing some development work a few days a week (the pay is about tripple minimum wage so it beats flipping burgers to pay the tuition). Our organization had tried to use the services of an overseas company to handle porting hundreds of legacy Oracle Forms applications to J2EE. The company was located in the UK (actually the sales / management staff). Their development guys were somewhere else, India maybe. It was a nightmare trying to get everyone coordinated for meetings, promises were broken, the product was mostly vaporware, and what was their was very reliably broken…. After only a year the project fell through, we’ve moved on to rewriting our apps in house. So I guess my job is safe for now.


  8. So I take it, Phillip, that you don’t see the IT outsourcing thing as a trendy one? There haven’t been any major, public, headline-grabbing failures yet, but there are likely to be. I have managed or watched outsourced work quite a bit in the past two years and it has a place – maintaining mature code, adding QA testing bandwidth, “customer service”, etc. However all the product development efforts I have seen have been very late, or with poor quality, and painful, from the management perspective. US companies still value quality and time to market, I think, and so something has to give. Maybe India, Russia, etc, will get better, but maybe the trend will end and a more realistic view will take hold. Another thought of course is government protectionism – it wouldn’t be a terrible plank in a Republican platform, would it?

  9. Nick: thanks for the story from Canada. Maybe J2EE should be called “neo-COBOL” considering how it is typically used. 🙂

    David: If software development in the U.S. or in-house were a low-risk painless experience for decision-makers I guess that I would predict a swing of the pendulum away from the current outsourcing trend. But software development here in the U.S. has always been fraught with risk, delays, cost-overruns, etc. Techies promise various magic bullets, the latest of which are apparently J2EE and Microsoft .NET, but the end results are apparently pretty similar to what was happening in the 60s and 70s. So I think what you’ll see is management working to improve training and process among the foreign workers rather than bringing the jobs back home. If you set up a company from scratch with programming staff in India it might work better than undergoing a wrenching change mid-way through a company’s life. 10-20 years from now there will be quite a few companies that, right from the start, did their software development with a group in a foreign country.

  10. Trade, including outsourcing, is good for the US economy as a whole. It’s bad for those whose jobs are lost.

    I often wish a fundamental understanding of economics was required at schools.

  11. Trade, including outsourcing, is good for the US economy as a whole. It’s bad for those whose jobs are lost.

    I often wish a fundamental understanding of economics was required at schools.

    Good for who and measured by what criteria?

    For those at the top of the economic period, the assertion is indeed true. But standard of living for the average worker is lower today than it was in 1973.

    And I disagree with Philip about the future outlook for software engineering if outsourcing becomes a permanent phenomenon (which I think it is). The hypothesis stated is rooted in the flawed “construction” model of software development. Programmers who excel become architects who excel. Not all good programmers become good system designers but the success rate there eclipses, by far, those that who’ve never dirtied their fingers rummaging through code. The future outstanding system “architects” are going to be the cream of those outsourced offshore grunts. Just like the old “bodyshop” firms in the U.S. like the one I started my career with…

    And to cordon the issue off as relegated only to low level programmers is a myopic gleaning. Any office job can conceivably be shipped to foreign shores now and indeed it is happening, though not as rapidly as in some fields. All of this occurring in a time when automation and computing technology are simultaneously reducing the amount of work (and more essentially, workers) required to keep the gears of the economy grinding.

    The current trend points to a new feudalistic order…

  12. I agree with Naum; his point also in sync with my previous comment. Undergoing developments are complex and to my view do not contained only by software. Software, as a younger industry, is just more vulnerable now. Why in 10-20 years from now a group in a foreign country will need an American company to work with? Does Honda need GM to design and produce their cars?

    Would not it be cheaper to outsource drugs discovery and, say, expensive attorney services? Why we ever need to learn math if somebody will do the math for us? And at the extreme, why even try to compete if somewhere it could be done better or chipper? If outsourcing can drain a whole area of human activity here it is not good for the economy and for the country.

  13. BU got a deal! Run Dan Golden’s name by your NASA contacts. He was called Capt Chaos at TRW and NASA. His mantra was Faster, Better, Cheaper except he did not say “pick any two”.
    Hope BU has better luck with their next pick.
    Full disclousure: 30 years at NASA, the last years with Golden running the show

  14. There might end up being a multi-tiered system. Inefficient, but expensive middleware and applications–like a corporate fulfillment center, accounting system, CRM data mine–will mostly be programmed in other countries. Small-scale software installations and programming tasks will have to stay here in the USA; the overhead (finding, contracting, and managing) someone overseas is too high. Finally, there’s all of the military kludgeware for rockets, network control systems, and unmanned drones that will have to be done in America, in order to keep the technology away from Pakistan, Israel, China, France, &c. Another category will be consumer apps, which will all be owned by Microsoft, which will have seceded from the US for tax and monopoly reasons. “Welcome to my secret lair!”

    It may become more difficult for the boutique programming shops to gain experience in large systems. What this means for the next systemic bug–on the order of Y2K–I don’t know. Full employment in Manila and Hyderabad?

  15. I don’t understand why people are really intent on putting India and Philippines on the same platform.
    As far as technical prowess is concerned, the Indian workforce is far superior to the Philippines workforce.
    A developer in the philippines, after 2-3 years of experience wants to be a project manager and stop coding.
    A developer in Bangalore or Hyderabad, is better than his counterpart in Manila in terms of technical know-how,
    hard work as well as dedication. He can not only code, but will be an effective solutions architect.

    People probably push Philippines as an outsourcing option, due to the fringe benefits
    available to people visiting the country. A US type economy, active night life (which definitely has its attraction)
    and great climate may lure people who are more interested in these things. So if you wanna go on vacation, go ahead. But for
    heaven’s sake….don’t use ur company’s resources for it and push a place as an outsourcing option for your own luxury.

    Sure, Philippines is a cheap outsourcing option, but do you really want to compromise on Quality? Especially when India is
    equally cheap and has better technical resources.

    The Indian English accent as compared to the Philippines one is also more neutral in nature,
    enabling easier understanding of what he is saying as well as superior adaptation to the american or the Brit accent.
    Communication, guys is important.

    So outsource to India…we can provide you cost effective and technically excellent solutions, no matter what your
    functional area might be.

  16. Hey Abhik,

    I beg to differ. From my experience with interacting with people from a lot of different nations and backgrounds I think the most technically sound are the East Asians and East Europeans. Yeah, they might not have a “neutral” accent but dont think that the Indian accent is all that “neutral”. The typical South Indian’s accent is just as hard to decipher as any other person’s who has not been accustomed to the American accent for a long time. I think this all software development and back office (i.e. non-customer interfacing related) works will ultimately end up in countries other than India since all that the American CIOs care about is the profit. So I dont think the future is very stable for any nation’s lowly coder.


  17. So, let’s outsource Allan Greenspan while we’re at it. Then, we’ll learn nanotechnology and we’ll get outsourced again, so on and so on. So much for the great United States of America that was.

    With outsourcing, these companies who are doing very well get to avoid paying taxes to the U.S. and leave us worker chumps holding the bag with this huge deficit. What abslutely brilliant thinking in the short-term! Congratulations. Nobody’s worked harder to sink a nation than us. We’re a country, not a business, but what the heck?

    Rome fell, the Etruscans fell, the Greeks fell, etc, etc, I guess it’s our turn now.

  18. Only reason why medical profession is not outsourced to mexica or canada is that us doctors has a lobby in congress that prevents it. Try to allow foreign lawers practice american law – there will be immideatly a law – prhibiting that. Try to outsource accounting… IT as an industry is too young an vulnerable, unorganized. Can not defend itself.
    Only united US programmers will stand.
    We need a national IT strike.

  19. india over the the couple of years as an ideal outsource location has proved to their partners in the USA and europe that performance and quality at quantum low wage has enhanced their business activities and also helped them keep up with growth as the availablity of resources and manpower is of no dearth – cost control along with economic progress is what india has extended to their partners.

    apart from countries like the republic of china and the phillipines trying to garner a sizeable proportion of the outsourse market share is still a matter of contention, which would also allow me to make a mention of the east european countries that provide similar services. As per recent reviews in most of the major financial journals, they have put india as their most favourable destination for outsourcing back office and customer interface solutions. It is also beneficial to note that despite the criticism extended to the language and cultural handicap all the outsourced locations face, India is emerging as the most adaptive and allowing a growth pattern to almost climatise themselves to perfection in either Elizabethan english or American english. there are more serious aspects of outsourcing to be noted as India as a country sources almost 2,80,000 college graduates a year and 80 percent of them speak english fluently and 10 percent of the remaining understand and can converse to a compehensive degree. With the revolution in media and a social pattern which has made almost 99% of the developing nations ape the American social pattern and the western pattern leaves no areas untouched that a person of these nations would not be familiar with. What has gone in making India a destination for the economy of scale is the manpower and the elite command ove IT and IT-Solutions it practically provides the world over. The apprehension are always there, however it is then to organise what kind of business one is looking to outsource and the kind of resources required to function the particular project. The question would arise like whether the kind of resources is available or not and if it is to what extent, will there be a continuity or not of the availabilty and the quality of the same with performance at expectations or above expectations. It would be futile to judge an outsorce location on a general metric. for instance to outsource the manufacture of footwear – an ideal location would be china and similarly it would not hold reason for the outsource to come to india – all because India cannot provide the same. India is not a contest with china when it comes to manufacturing footwear.
    Per Cal Knerd • 12/28/03; 4:40:49 AM
    “Yeah, they might not have a “neutral” accent but dont think that the Indian accent is all that “neutral”. The typical South Indian’s accent is just as hard to decipher as any other person’s who has not been accustomed to the American accent for a long time” In this caseit would be a foolish proposition to outsource a customer interface business to this area, what could be better positioned here is a back office operation.
    India is a and is considered the most favourable location to outsource business, however its more important to consider the kind of business one would like to outsource and to which location as India is a diverse and multi cultural country giving way to some handicap.

    “Think outsource, Think India”

    Conrad. “business outsource analyst”

  20. This has been a great discussion. I have been leading software teams remotely in Shenzhen, China from the US as an Architect. If you all think that dealing with India or the Philipines is hard, try dealing with software engineers or artists in a country where english is far from being a commonly spoken language.

    Having said this, it all still works. Yes, there is more effort, but it does work. I have been impressed with the knolwedge base and skillset that we found there. I you were to compare a similar American worker at the same level (!), I don’t see much difference.

    From my experience, given enough effort, the whole outsourcing thing can be made to work. In all of this, we found that technology does not help that much, but it comes down to good old fashion coummunication skills. Forget logistics, forget technological barriers and tool gimicks. It is not about silver bullets. But good old fashioned communication skills! Getting the team to understand what has to be done, and for me to understand what problems they are having.

    Overall, I agree completely with two comments here. The first one(s) were Philip’s. The outlook for programmers in the US is bleak. I am proving that outsourcing can be done on a daily basis. I also agree that the opportunigy in the US will keep lying at the architect and analyst role. Understand what the client needs, model it, and build it somewhere else.

    But I also agree with Naum, who points out that to be come a good architect you have to go through the steps of being a good programmer. If I did not have my 15 years experience before now, I would not be able to tell if my team would just tell me a bunch of bull or if they had real problems. So, there is a real catch 22 here, for which I don’t have a good anwer. I’d be interesting to hear what other people think about how this can be solved.

    Ultimately, it will be interesting to see how all of this develops. I read a lot of philosophy, and what this brings to mind is Hegel’s famous Master/Slave relationship, which basically ended with the point that the master became reliant on the slaves and the slaves gain a sort of freedom through their work. This may apply metaphorically to the US and the other countries. Of course, we all know Hegel’s legacy, well at least one: One of students was a young man with the name Karl Marx. And we know where this led…

    But I don’t have a crystal ball, and so I am left to wonder, like the rest of you, where this one will lead us….

  21. The more I think about it, the more I do believe that innovation has to be the solution to this. However, it has to happen not just at the national level, but formost on the personal level. People have to realize that they have not just a set of particular technical skills, but also a set of process skills that have a wide range of applications: if they can apply those skills to other jobs, they will be OK.

    What we are seeing in offshoring is that the jobs that are hit are the job CLOSEST too the tool. Actually, one level of innovation in tool productivity would eliminate all those jobs.

  22. I think all these discussions tend to look at outsourcing from the narrow lanes of nationality.With time countries like india,china etc will also gain expertise in high end software development. So a technical architect or a system analyst job could be oursourced as well. What would be interesting to watch is how the american engineers look at it. There could be migration as living conditions improve in the outsourced countries.

  23. to mr. abhik chowdhury…
    i dont know where you get your idea that indian workforce is far superior than filipino workforce….you may be referring to number of workers…yeah indian workers
    may outnumber filipino workers by 10 to 1… but not in technical prowess as you were trying to imply…..

  24. When I refer to the technical prowess of a workforce, it is used in conjunction with the number that is there. Sure there might be some programmer in Manila who might be better that a programmer in Bangalore. But when you look at the overall picture, India scores over the Philippines. And it’s not just the cost thats pushing companies to India. Fact is that Indians are not even bothered about the low cost jobs being outsourced to Manila or Beijing.

    The stake has increased. In the next 5 years you’ll see more business getting generated out of India. you’ll see more product companies, there will be more consumerism happening. We are definitely ready to be the next to outsource to countries like Pilippines and China

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