|How to bring offshored jobs back to the US
Friday March 12, 2004 News
News and Trends ,
By: Robin 'Roblimo' Miller
Complaints about offshoring IT jobs reverberate daily through
the halls of America's software development community. The complaints are not
markedly different from those once made by manufacturing workers, except that
manufacturing workers were urged to upgrade their skills and move into the IT
industry, and now that "skilled work" is leaving the US, there is no clear
career upgrade path left for most of us. But there is a way we can bring "lost"
jobs back to the U.S. without any direct legislation, and the Bush
administration has already taken the first steps to implement this program, even
though it may be doing it by accident.
Before we begin, let's lay down four basic postulates:
- Top-end Indian, Chinese, and Filipino knowledge workers are just as smart
as top-end American knowledge workers
- Average knowledge workers the world over are ... average
- The Internet gives everyone access to the same pool of knowledge
- Multinational companies have no geographic loyalty
In other words, we're all dogs no matter which pack we belong
to, and we are expected to eat each other willingly to maintain our positions
because that's the kind of world we live in.
Right now the Indian, Chinese, and Filipino dogs are eating the American dogs,
with Russian, Pakistani, and other packs sniffing around the edges, trying to
get a bite or two for themselves.
The big advantage Indian dogs have over American dogs right now is that they can
live on a lot less money, because living costs in India are far lower than in
the U.S. And Chinese dogs can live on less than Indian dogs, so in the long term
work may go there rather than India, which scares the Indians no end.
The problem is that all these dogs are trying to eat from the American trough,
and if foreign dogs eat from it but American dogs have no jobs and can't keep
replenishing that trough, soon it will be empty for everyone.
In formal economic terms, we're talking about the U.S. trade deficit, which
grows every year. It's nice for Americans to be able to buy $300 PCs and $39
cordless phones because the people who make those items in China and elsewhere
are paid below-starvation wages by US standards, but the flip side of this is
that the money U.S. residents currently use to buy those phones and PCs is going
out of the U.S. much faster than money is coming into the U.S., so the current
world trade system's dependence on a strong U.S. economy can't go on forever.
Putting inflation in the bank
The US government and most of its corporate and individual residents are
accumulating more debt every year. This puts short-term smiles on the faces of
all the workers around the world whose products and services are sold to U.S.
markets, because they are the ones getting the borrowed money. Many of
them don't seem to realize that most of the products and services they supply to
the U.S. are not essential; that sooner or later U.S. residents (and the U.S.
government) will need to pay back some of their debts, and that when they are
using their income to pay off loans they will be forced to keep their old
computers and cordless phones and stereos longer instead of buying new ones
whenever they want.
Average hourly wages for American workers are not going up. The only way we are
able to maintain our current standard of living is by working more hours per
family than people in most of the world. Two-income households have become our
norm, not an exception. Two-income households, with one of the producers often
working 60 to 80 hours per week, can afford houses with four bedrooms and two
bathrooms, can buy a new car every two years (on credit), and load shopping
carts at discount stores with clothes, toys, digital cameras, appliances, and
other goods every week or two (as long as their credit cards aren't maxed out).
Now take away one of those two jobs -- or replace it with a job that pays less
-- in 20% of American families. Suddenly sales of non-essential goods drop, not
only among the families that have lost some of their income, but among families
that know others whose incomes have dropped and are afraid to spend because
they're worried that one of their jobs may also disappear (or be replaced by a
new job that doesn't pay as much as the old one).
People will keep buying food, but may buy fewer "convenience" foods such as
microwavable meals, and will spend less in fast-food outlets and restaurants.
They'll tend to keep clothes until they wear out instead of buying new ones to
keep up with fashion trends. They'll be less likely to buy four-bedroom,
two-bath houses -- and may even try to sell the ones they already own and buy
more humble dwellings -- thereby slowing the housing market, which will cut
sales of building supplies and construction tools, and cause layoffs among
Just as the US economy is supposedly in "jobless recovery" mode at the moment,
it could easily slip back into "no-job-loss recession mode" and severely cut
The reason job losses in a new recession might not show up strongly in official
statistics is that officialdom only counts people actively looking for work as
"unemployed," and if half a couple decides to stay home with the kids instead of
looking for work, that person is not "unemployed" in any way our government
currently notices -- nor is the person who is laid off from a programming job
and takes a job as a bus driver for half his former salary.
Everything I've just described is starting to happen in the U.S., a little at a
time. And our government has decided to cut taxes without a corresponding cut in
spending, which means it's borrowing more than it ever has, just as U.S.
residents have been spending borrowed money.
Governments usually pay back excessive debt through either repudiation or
inflation. Repudiation usually takes a coup first, so the new leaders can say, "We
didn't run up the debts. They aren't our problem. If you want to collect, go
after the old leaders, who probably stole most of the money anyway." A coup or
other violent change of regime is unlikely in the U.S., so we'll almost
certainly end up taking the inflation route. At some point, when government debt
gets high enough, it's politically irresistible to cut the value of a country's
currency so that old debts can be paid off at a substantial discount. This route
is especially attractive to the U.S., because most of our foreign debt is in
dollars, not in another currency, so we can get away with discounting our
currency more easily than most countries.
The funny thing is, the U.S. is seeing its currency lose value against other
major currencies already, and this trend is likely to increase without any
government action. When a government borrows massive quantities of money to keep
inflation in check, it doesn't really stop inflation but just puts it off. It
puts inflation in the bank, so to speak. And sooner or later that inflation will
be withdrawn from the bank -- with interest -- by overseas creditors. Indeed,
this has already started. Look at the multi-year downward trend in
these charts that track
the dollar as a commodity, and the trend is obvious.
A weaker dollar means more U.S. jobs
At the moment this was written, the "mid-market"
was about 45:1. Let's imagine the dollar dropping to the point where that ratio
is 30:1. Suddenly an Indian programmer who is paid $12,000 in US dollars gets a
50% "raise" to $18,000 -- without improving his skills or working harder. His
standard of living won't go up 50% because the whole population of India has
gotten the same "raise," including the programmer's $35/month live-in maid, who
now gets $52.50/week. But both programmer and maid will be able to buy more
goods from the U.S., and from countries whose currencies are "tied" to the
dollar in some way, so their standard of living will still go up at least a
The only problem with this rosy scenario (for the Indians) is that the Indian
programmer is suddenly less competitive with an American one. If he's working
for a typical offshore contractor, his services are being marked up by a
considerable amount, and the actual user of his services is probably now paying
at least $24,000 per year for his time -- plus benefits. Suddenly he's not much
of a bargain to an American company. In much of the U.S., $24,000 is a living
wage. It won't buy a new car every two years and a four-bedroom, two-bath home,
but it will buy a used car every three years and a three-bedroom, one-bath house
trailer, and generally support a family of four that cooks from scratch instead
of living on prepared meals and fast-food junk, doesn't need a fancy wardrobe,
and is otherwise thrifty. Add a second income to that household -- even a
part-time Wal-Mart one worth $6,000 per year -- and this theoretical
programmer's family is getting by okay, possibly even putting a few dollars away
Meanwhile, the Indian programmer is out of work. So is his maid.
This scenario is somewhat melodramatic. Large countries' currency shifts aren't
usually that abrupt. But over a 10 year span a 30% or even 50% less valuable
dollar is entirely plausible, even likely. This will give U.S. auto
manufacturers an almost unbeatable price advantage over foreign competitors.
Suddenly it might not pay to assemble computers in Korea instead of Kansas or to
make microprocessors in Taiwan instead of Texas, and it will make some of our
big exporters' products more palatable than their foreign competitors' in world
markets. (Boeing vs. Airbus is a prime example.)
The downside is that the made-in-China blender that now costs $15 at the
discount store will cost $30, the low-end laptop will cost $1,499, not $799, the
"$9.95 Shoe Store" will need to change its sign to read "$19.95," and a Hyundai
will cost as much as a Cadillac.
A cheaper dollar, in a general sense, means we trade low-cost imports for a more
competitive stance for our home-grown products and services both here and
abroad. Vacationing in Europe will cost us more than going to New York, so we'll
be more likely to spend money there than to spend it in Paris, which will make
New York hotel and restaurant employees cheer while Parisian tourist industry
workers sulk -- and deepen their sulks when they find that Europeans who
otherwise might have vacationed in Paris have decided instead to take advantage
of a discounted America by going to Florida instead.
But oil prices will shoot up. With a cheaper dollar we will not be able to keep
driving our Hummers and 200-horsepower sportfishing boats. Right now oil is
internationally priced in dollars, but if the dollar becomes "unstable" either
by conscious choice of the U.S. government or because of international currency
fluctuations, oil pricing could shift to euros instead. This could mark the end
of the dollar as the world's dominant currency, the one to which most others are
pegged, and that could lead to higher interest rates for U.S. government bonds,
and higher interest rates in general, which means plenty of inflation.
Inflation means higher interest rates
Imagine 10% inflation. To net 5% banks and other lends need to charge 15%, and
to net the 20% some of the less honorable credit card lenders like to see,
they'd charge 30% -- or even more. Home values would plunge as the average
monthly payment per thousand dollars of mortgage rose, which would nearly kill
new construction. Maybe slowing our current trend toward ever-larger,
more-expensive dwelling units would be good, and there is no question that
plenty of existing four-bedroom, two-bath suburban houses would make perfectly
serviceable duplex apartments. But then you need to deal with all the
construction workers who suddenly have no jobs, and if McDonald's and other
traditional employers of unskilled workers aren't hiring, they are going to be
unemployed until or unless our manufacturing sector cranks up to take advantage
of the dollar devaluation that will make it less expensive to produce physical
goods in America than elsewhere. You can be assured, though, that a combination
of a lower dollar and higher interest rates will lead to plenty of "painful
readjustment" for workers in some industries.
Inflation benefits those who own houses or other real estates and have
fixed-rate mortgages (or no mortgages); their housing costs only go up a little
as property taxes rise, while renters and owners with adjustable-rate mortgages
see annual increases that mirror the inflation rate. Salaries will go up with
inflation, no doubt, but they never quite seem to catch up, and people on fixed
incomes -- think Social Security -- will be in rough shape unless their payments
are "indexed" to the rate of inflation, which is going to be very hard to pull
off as the "baby boom" crowd starts retiring and the ratio of social security
recipients to workers grows.
Inflation also leads to social instability. People who save get antsy as they
watch the value of their savings drop. People who invest get angry as they pay
taxes on their investment income even if that "income" is barely keeping pace
with inflation. Politicians get blamed, and a "throw the bums out" mentality
becomes common. Some countries react with riots, some with military coups -- and
for the first time in U.S. history, we have an all-volunteer military that is
large and well-armed enough to do a government takeover if it wanted to. (Before
the Cold War, our "peacetime" military was generally small and underfunded. Back
then we were an essentially isolationist nation that tried to stay out of
foreign entanglements as much as possible, aside from the odd Marine invasion of
a wayward Latin American country whose leaders irritated us, and when we "went
to war" we relied on draftees -- and demobilized most of our servicemen and
women after the war was over.)
Are you sure you'd rather "protect American programmers' jobs," considering
Most protectionist economic scenarios will lead to some or all of the dollar
devaluation and inflation problems I've outlined. Whether they are "problems"
may be open to debate. Perhaps a well-managed "soft landing" for the dollar on
international currency markets would help make the U.S. economy more vital and
more self-sufficient, and turn our country into a net exporter again.
Workers in easily-moved service industries, like programmers and other IT
personnel, would be some of a dollar devaluation's first and most obvious
But the phrases "well-managed" and "soft landing" are what make this concept
dubious. Our government does not have a very good track record when it comes to
economic manipulation or even economic prediction. Indeed, no one does!
Economics is one of the fields where, for every world-renowned expert you can
find who will state a position absolutely and positively, you can find another,
equally-renowned practitioner who will call the first economist a liar. (Or, in
the current jargon, accuse him or her of "choosing ideology over facts.")
The big news on the IT offshoring front, though, is that the U.S. government has
already set in motion the currency devaluation and inflation that are the most
potent ways to to reverse this trend without meaning to -- by increasing its
borrowing to unprecedented levels at the same time it is cutting the percentage
of taxes it takes in from the only people in America whose incomes are steadily
rising -- the rich -- and placing a higher percentage of its tax burden (and
therefore its ability to pay back debt) on the backs of working Americans whose
incomes are either staying level or falling.
Currency traders and investment professionals are responding to this tactic by
showing less faith in the US dollar than at any time in the last decade.
Super-investor Warren Buffett is "loading
up on foreign currency" because he doubts that current US government tax
policies are healthy in the long run.
Me? I just stand on the sidelines and observe. I expect that as U.S. currency
drops in value, I'll watch some of my programmer friends find their value
increasing, at least a little bit, and we'll see at least a few more
manufacturing jobs. This is good. But I am worried about some of the other,
longer-term effects our current government's economic policies may have on
American workers -- and just as worried about what might happen if, come
November, we find ourselves with a "pro-worker" administration that makes moves
that would be just as bad for us in the long run.
Meanwhile, on a personal level, I suppose all the traditional career advice
still holds: Stay flexible, look for opportunities in emerging fields, and make
sure your skills are always up to date. These basics are the long-term keys to
success in the IT field whether you're in New Haven or New Delhi; in Athens,
Greece or Athens, Georgia; and whether you're a CIO at the peak of your career
or a new grad working at a help desk, hoping to get your first "real"
programming job before long.
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