March 31, 2004
SPEAKING OF REPEALING THE LAWS OF ECONOMICS:
The Jobs of the Future Are a Thing of the Past: Outsourcing and the sad little movement to stop it (Rick Perlstein, March 30th, 2004, Village Voice)
The outsourcing of white-collar jobs overseas began in earnest during the personnel shortage caused by the run-up to Y2K. In a sense, it grew directly from a parallel phenomenon, generally ignored. Call it "in-sourcing." Averting the catastrophe of a nation of computers suddenly partying one New Year's morning like it was 1899 gave Congress a reasonable excuse to raise the cap on the number of H-1B visas, which are issued to allow companies to sponsor specialized foreign workers in cases of a demonstrable labor shortage.On the other side of the world, the Y2K panic catalyzed India, which was dismantling the protectionist components of its own quasi-socialist economy, to bid for all kinds of service work to be done there—thanks to its relatively large, educated, English-speaking middle class and a providential 10.5-hour time shift that lets Indian researchers crunch numbers on behalf of sleeping American financial analysts on the East Coast.
Importing labor, exporting jobs: These are the two sides of the coin. According to the regnant economic theories, the sides are inseparable: capital scouring the world to find labor at the cheapest price, supply meeting demand, each dollar being spent at its greatest point of efficiency. A fat lot of comfort that is if you're on the receiving end of the regnant economic theories. Capital does the scouring a lot more aggressively these days than it used to—even to the point of systematically abusing the law.
Some of the worst abuses are the "body shops," made possible by another kind of temporary work visa: the L-1. This permit is tailored even more narrowly; it was designed to allow companies to fill short-term vacancies with transfers only from their overseas branches. And since it was intended to be of such limited application, Congress didn't bother setting ceilings on their issuance. This proved a loophole big enough to fly a 747 through: Indian consulting companies set up U.S. branches, imported Indian computer programmers en masse, and rented them as cheap replacement parts to cost-conscious third-party companies in the U.S.
Such "intracompany transfers" made for one of the most dramatic stories of this fragile little movement. Siemens Information Communications Networks in Lake Mary, Florida, replaced its entire IT department with employees of the Indian consulting company Tata, who worked at about a third of the Americans' salary. For a severance bonus, the displaced workers received the privilege of training their replacements. The Dickensian maneuver turned one of them into a political animal. Mike Emmons, a 42-year-old father of two, awoke one morning with the sun and sent out thousands of e-mails to Siemens employees explaining the whole dirty deal—at 5:30 a.m., while possibly suspicious Siemens network administrators slept. Like a scene out of some post-industrial Erin Brockovich, some 1,000 workers settled down to their toil one January day in 2003, opened their inboxes, and, one by one, broke into a spontaneous cascade of applause in appreciation of the brave truth-teller no longer in their midst.
Now Emmons is running for Congress, as a Democrat. He makes some great points: "You know," he says, "I wouldn't mind if the relentless search for cheap, cheap, cheap included critical items Americans need. While I was training my Indian replacements, my HMO insurance was being increased 84 percent, to $18,000 a year—one-half the money Siemens pays my replacement!"
Mr. Emmons can be forgiven such obtuseness--it's practically a requirement for a Democratic congressman--but Mr. Perlstein is normally more sensible. The high cost of the health care Americans demand is one of the ways in which they've made their own labor more expensive that it's worth. Adopt HSA's and make these workers more affordable for corporations. Posted by Orrin Judd at March 31, 2004 9:18 AM
oj-
The last I looked, courts were government agencies and judges government employees handing out the nutty malpractice awards. Salary controls placed on private businesses during WWII skewed the market toward benefits vs. cash compensation in the marketplace. Any limitations on central power have been effectively eliminated over tha last 50 years or so and politicians have been acting pretty much as assumed when limitations were first placed on the federal government.
When the average schmuck hears day after day that he is entitled to this or that while someone else is gonna pay for it, should anyone be surprised that the value of his labor no longer supports the cost?
Everything touched by D.C., outside of it's obvious and necessary responsibilities, will inevitably be turned into an irreparable mess.
Posted by: Tom C., Stamford,Ct. at March 31, 2004 12:55 PMOJ, Tom: good analyses.
But the article falls prey to the "Lump of Labor" fallacy.
Posted by: Jeff Guinn at March 31, 2004 2:53 PMCouple of thoughts. First of all, on repealing the laws of economics. This is a fallacy. "Demand" does not inevitably lead to supply; sometimes laws and institutions intrude (lots of people would buy babies if they couldd). Second, a better way to relieve employers of the cost of subsidzing their workers' healthcare, thus raising the cost of employing them--which I think is very unfair to employers, and counterproductive, policy-wise--is not HSA's but creating a national risk pool: ie, single-payer healthcare. Yes, there are trade-offs, and I am not saying the system in the UK and Canada is perfect. An argument for another time. Just that left and right can agree that employers should not bear this extra cost. As for the comment by Jeff, if everything touched by DC turns into a mess, why are the administration costs for medicare and medicaid radically, radically lower than that for private insurance? Finally, related to the first point: there are often good reasons for limiting the free market, even if you're a libertarian (which I know Orrin very much isn't). The first and formost is security (for example, laws logically limit the right of American citizens to be mercenaries for countries we are at war with). And the best CONSERVATIVE case against unlimited outsourcing is security, as evinced on this fascinating thread on Free Republic:
http://www.freerepublic.com/focus/f-news/1077527/posts
Regards, Rick Perlstein
rperlstein@villagevoice.com
PS: What's the "lump of labor" fallacy? If it is what I think it is, it's what I was arguing against.
Posted by: Rick Perlstein at April 1, 2004 1:28 PMRick:
Medicare and medicaid simply declare what things will cost them. (There was, for instance, an excellent story on NHPR last night about local pharmacists who may have to close because 40% of their business comes from the programs but they lose money on every prescription.) The point is to make health care cost recipients what it costs providers so that they start behaving like consumers and we reap the benefit of market forces. Universal HSA's, which would restore peoples' vested interest in what they spend on health care is an easy way to achieve that. Employers who'd contribute their employees annual share to the HSA would be more attractive than those who don't, but I'd not be averse to mandating that they do so.
Posted by: oj at April 1, 2004 2:09 PMRick:
It must not be.
The lump of labor fallacy takes the existing amount of work done at some time, then presumes that amount of work will remain unchanged into the future.
Therefore, by the LoL fallacy, jobs going overseas inevitably means fewer jobs here.
But those new jobs mean more money to spend, and it is going to get spent somewhere.
Long story short--the result of jobs going offshore is a bigger pie, not the same size pie distributed among more people.
Luddites, in particular, fell prey to the LoL fallacy. After all, there couldn't possibly be a way to employ all those pin makers displaced by machines.
Posted by: Jeff Guinn at April 1, 2004 5:04 PMJeff:
>Long story short--the result of jobs going offshore is a bigger pie, not the same size pie distributed among more people.
If the pie, say, doubles in size, but the number of people feeding off the pie triples, then that's not a net gain, is it?
Orrin:
Yes, the ideal healthcare system would avoid such moral hazards. But as we know, Big Pharma entails moral hazards of its own: they get to patent publicly subsidized NIH research whether they pass their savings on to the public or not--they socialize the risk, privatize the profit. The libertarian solution would be to get rid of the NIH. What's yours? Do pharmaceutical companies play no role in the healthcare crisis?
Posted by: Rick Perlstein at April 2, 2004 2:09 AMOh, and by the way, I almost let "the high cost of healthcare Americans demand" pass in silence. I DEMAND more than 4 minutes with my doctor when I go for a physical. I'm even willing to pay higher insurance premiums for it! I wonder when Say's Law will kick in on that one.
Posted by: Rick Perlstein at April 2, 2004 2:11 AMRick:
I'm fine with getting rid of NIH or with patents for anything that results from government funding. Either solution would stifle innovation, which would be a good thing.
Posted by: oj at April 2, 2004 8:39 AMRick:
That's great--so let's hear no more about healthcare costs. It costs what we demand it cost.
Posted by: oj at April 2, 2004 8:40 AMRick:
If that were true, you would be right.
However, historically it hasn't been. The pie gets bigger than the number of recipients.
That is why, despite all the labor saving automation around us, we are far richer than ever.
Posted by: Jeff Guinn at April 2, 2004 4:43 PM