February 27, 2006

The recently released survey on "Globalization and Offshoring of B2B Software" hints that globalization will create more jobs for Americans because "offshoring between developed and developing countries could benefit both." However, who will really benefit from such massive offshoring?

According to the Association for Computing Machinery (ACM), both the developed and developing country will benefit. But who exactly in these countries? Imagine a 100-employee U.S. IT services firm that has outsourced 75 of its jobs to India. The Indian company and Indian economy benefit from an infusion of work and money that wasn't there before.

Now how does the United Sates benefit? If the U.S. company becomes more profitable after the offshoring, its managerial class and/or its owners will benefit. The fired workers certainly won't benefit.

If you are in the habit of identifying your own position with that of your country, then certainly the country benefits. Louis XIV of France said, "L'etat, c'est moi," or, "I am the state." If you identify with, or belong to, the managerial/owner class of the U.S. IT services company, than you think the entire country benefits. If you are one of the fired workers, you do not see the benefit.

It's really a question of division. If there are five Americans getting paid $50,000 each per year, and an arbitrage situation in which two of those Americans survive and get paid $125,000 each per year, there is no technical difference. The amount of money that employees are making in sum may not change post-arbitrage, but the number of people among whom that money is divided shrinks.

Now, if you have the Louis XIV mentality, you can look at the situation and say that the whole country benefits, because from your vantage-point the company is more profitable than ever, and no money has actually been lost. It just occupies fewer pockets. Theoretically, the country (and its constituent companies) are as rich as ever, but some of its citizens are definitely poorer.

Emphasizing the necessity of pursuing total wealth regardless of its distribution is a very difficult bill of goods to push on American workers who are unemployed as the result of offshore arbitrage. They cannot be expected to calmly swallow the fact that, to their bosses and politicians, they are not important as fellow Americans, only as units of labor -- that have now become cost-inferior to foreigners.

These Americans then have to be mollified by reports such as those issued by ACM, which employ the classic "broken pot" strategy of obfuscation, in which you deny something in mutually exclusive ways. You might remember the apocryphal story about the men who lends his neighbor a pot. The neighbor returns the pot broken and says, "The pot isn't broken, it was broken when I got it, and it wasn't my fault that I broke it."

Let's start with the first claim. Daniel T. Ling, corporate VP for Microsoft Research, says of the report that "The perception that employment opportunities in software and related technologies are vanishing has led to a significant drop in enrollment in IT educational programs."

The perception, mind you. "The pot isn't broken." You just imagine that is. American are staying away from engineering and computing because they have a false perception that jobs won't await them.

This is an openly contemptuous attitude. At bottom, it suggests that Americans are too stupid to understand that their country is overflowing with IT jobs, and are therefore shying away from the job market.

In reality, as soon as there is opportunity in any sector, Americans sense it and leap to exploit it. Look at Law Schools, which together function like a classic marketplace. As soon as demand for lawyers goes up, so do enrollments. As soon as the demand for lawyers go down, so do enrollments. Americans have proven that they respond to actual supply and demand in how they train themselves and in how they apply for jobs. Why would IT be an exception?

Let's move on. "We changed the world," stated Moshe Y. Vardi, co-chair of the ACM study group and director of the Computer and Information Technology Institute at Rice University, "and now it is changing us."

Or, in other words, "it was broken when I got it." If that sounds uncharitable, take a backwards step and unpack the statement. "We changed the world," in reference to IT, could only be to America.

Americans changed the IT world and now it is "changing us," primarily by locking some of us out of the very jobs we made possible while enriching a small managerial class through arbitrage profits.

Does that mean we, as a country, broke the pot? Perhaps we shouldn't have played such an important role in the rise of computers if the benefits of mass employment were to go abroad? In any case, we as a country, not we as a small group of executives who are making far from inevitable decisions, are somehow to blame.

"We changed the world" in such a way that is, in essence, our responsibility (fault?) for what comes next, which is the extinction of the American IT middle class.

Finally, "it wasn't my fault." ACM is speaking as a group composed largely of professors and executives, at least from what I can determine from their website.

The professors are from computer science, engineering, and other domains funded in significant part by the companies from which the executives also come.

If your university just got $50 million from GlobaSoft (a purely theoretical IT company), what are the odds that the people, including professors, who benefit from this cash infusion will want to alienate GlobaSoft?

If GlobaSoft wants to hire 10,000 Indians and fire 5,000 Americans, well, you'd better find a way to justify it. So, "it wasn't my fault."

Don't blame the companies for choosing the almighty dollar over any sense of commitment to the countries from which they come and don't blame yourself for going along.

Blame the workers. Blame the schools. Blame the students. You see, they're simply not prepared for the global economy. And so, recommends ACM, "Evolve computing curriculum at a pace and in a way that better embraces the changing nature of IT; Ensure computing curriculum prepares students for the global economy; Teach students to be innovative and creative.

Invest to ensure the educational system has good technology, good curriculum, and good teachers."

So what? I live in Ithaca, New York, home to Cornell University. Some of the smartest people in the country live here. I could wander down into the city center and round up an entire posse of brilliant but unemployed science PhDs in thirty minutes.

The problem is not that they are not trained in the right things, or that the educational system of the United States has failed them, but that they are recipients of the hammer-end of global capitalism, which demands that they not be paid what they are worth. This goes for the whole country.

Is this dynamic true in India? I doubt that there are many PhDs in computer science wandering the streets of Bangalore without, by the standard of their country, excellent jobs and prospects.

I have mixed feelings about the whole situation. I don't feel what is happening to America today is particularly unfair, unless of course the entire system of capitalism is unfair.

If we buy into the logic of the system, as I do, we have to, however uneasily, buy into the consequences. Once upon a time capitalism demanded that Indians be prevented (often by amputation) from competing from British textile manufacturers.

Today capitalism demands that the descendants of the same Indians be given jobs at the expense of Britons and other Westerners. Someone always has to suffer under this system; we choose it because, on the whole, the balance of suffering is preferable to the suffering caused by monolithic systems like communism or monarchy.

What I am lamenting in this article is not the logic of capitalism but the hypocrisy of it, of the economics that demand misdirection.

Americans have always been a reasonable people. If we are simply told that, to transnational corporations, most of us are simply less valuable than cheap foreign labor, perhaps we could abandon our current illusions and pursue remedies of our own.

But the ACM report and others of its kind just delay that day of understanding by pretending that IT is a wonderland of opportunities and that there is something wrong with us (workers, students, teachers, the unemployed) that prevents us from taking advantage.

Finally, it is worth noting that the ACM claims that "despite a significant increase in offshoring over the past five years.

U.S. IT employment in 2004 was 17% higher than in 1999."

This may well be a mistake on my part, but I have just examined the U.S. Bureau of Labor Statistics' webpage and found that employment Information (the category that, according to the U.S. government, includes information services, data processing, web search portals, ISPs, telecommunications, and software) went from 3,419,000 employees in 1999 to 3,066,000 (projected) for 2005.

This means a loss of 353,000 jobs while the U.S. population has grown by some 25 million people. I'd like to apologize in advance if I'm looking at different data than ACM.

Source: Line 56