Career Watch: A professor challenges the conventional wisdom on offshoring

Description

As a serious researcher of the outsourcing phenomenon, you have taken to warning that outsourcing has grave implications for the well-being of the nation. Could you elaborate? Standard economic theory tells us that offshoring could be good or it could be bad for the American economy and standard of living. It is ambiguous at the macro level, but there's good reason to believe that it will be bad. When a country outsources what it is good at, building up the capabilities of the country it trades with, it can be worse off. I think that's precisely what's going on right now with software and engineering offshoring. And companies are even offshoring innovation and R&D, something that would have been unthinkable even a few years ago. By doing so, America is undercutting its technological and economic future.

Standard theory also tells us that many American workers will be much worse off from offshoring, as their jobs move overseas and they face major wage competition from workers in low-cost countries. This isn't going to hit just a small segment of workers. Princeton economist Alan Blinder estimates that as many as 40 million jobs are newly offshorable, including nearly all science and engineering jobs. While not all of those jobs will be lost overseas, those workers will face wage pressures. We're already seeing it -- Hewlett-Packard has asked many of its EDS employees to take 50% pay cuts.

There's no disputing this negative effect on American workers. Even the most pro-offshoring report, written by McKinsey Global Institute's Diana Farrell, which asserted that the U.S. will be better off with offshoring, concedes that American workers will experience major losses in wages and jobs.

Of course, the well-being of the nation is not something that business leaders are expected to take into account. They answer to their shareholders. What needs to change so that companies reject outsourcing options that make economic sense for them? This is a very important observation, one that is lost on most politicians. When John Kerry was running for president, he called the CEOs who outsource "Benedict Arnolds." This was silly, because there's no point in trying to appeal to their patriotism. These are global companies, and the CEOs are not compensated by how many American workers they employ or even how the U.S. economy performs. They can and do lobby for public policies that benefit their companies, even if it is bad for the economy and America. They act rationally in their self-interest, and there's nothing wrong with that. The problem, though, is that there is no interest group representing the American national interest or American workers to counterbalance the business lobbyists. Think about it. Who is representing your readers in Washington?

The solution is for the government to approach this with both carrots and sticks. But the first step is for the government to take this issue seriously. Unfortunately, President Obama named Farrell, who is the leading offshoring evangelist, to the No. 2 post in his National Economic Council. Farrell has done more than anyone else to spread the gospel of offshoring, so it's hard to believe that Obama takes his own rhetoric about Buffalo vs. Bangalore seriously.

Original URL

http://www.computerworld.com/s/article/345850/Career_Watch?source=CTWNLE_nlt_thisweek_2009-12-21

http://www.computerworld.com/s/article/345850/Career_Watch?source=CTWNLE_nlt_thisweek_2009-12-21