Software vs. finance

I've worked in software for quite a few years now, and I know that there are few more complex things that humans have created. To describe to anyone who hasn't worked in the field just how complicated an order entry system, for example, can be is almost impossible. You not only have thousands of lines of code, written by people of varying skill levels and experience responding to different requirements, but you also have interactions with the operating system, third-party software, external data stores, and so forth. Any moderately interesting application is orders more complex than the majority of the non-computer world.

So my question for the day is this:

Why do we need finance people to stay in place to unwind the crisis, when we let completely inexperienced people take over our software?

We're seeing our bankers making the big bucks again, and they were all kept in place through government bailouts. No matter what they had done to destabilize the world financial system, they were needed because "only they could understand these complicated financial instruments."

Now I have a master's in finance from a prominent school (FWIW), so I have some understanding of financial products, the misdirection, the assignment of risk (that theoretically reduces that risk, ha, ha), and I can tell you that there is no financial product, no matter how layered in legal jargon, that compares to a useful computer program in difficulty.

So, and I ask this in sincerity, why do we need to prop up the kings of Wall Street, restore them to their place in the universe, while every day we move some piece of software to an offshored company full of folks with meager training and experience? Why are we so comfortable taking applications away from the people who built them, giving them over to people who don't understand the business, the industry, the requirements of users?

Several answers present themselves, and at least one of them is right, but I still find it incongruous and unfortunate.

Win-win vs. positive-sum

I really shouldn't have to go through this again, but a panel discussion on Charlie Rose last night makes it clear that we have a long way to go. The discussion concerned free trade; unfortunately the panel was severely skewed, offering a former U.S. trade representative, two economists, and the hapless Senator Sherrod Brown (D-OH), who was the only one trying to provide any dissent from pro-free trade orthodoxy. He offered very little that was coherent, especially in light of the relentlessly sunny views expressed by Susan Schwab, Jagdish Bhagwati, and Alan Blinder.

Let me take up one point that came up a lot in the testifying by former Bush trade representative Schwab. She tried several times to conflate "positive-sum game" with "win-win," and everyone just sat there and let her get away with it. I have no doubt that Bhagwati and Blinder get the distinction, but calling her out would have undercut an argument that they fully supported.

As I went through in some detail last month, the two concepts are not at all identical. Win-win does imply positive-sum, but the opposite is most definitely not true, particularly (but not absolutely) when there are more than two parties to a transaction. It is quite possible to posit that trade is a positive-sum game, yet still find that there are winners and losers, that large numbers of people will not net any benefit.

Let me try another example. Let's say I ask Charlie Rose to give me $10, and also ask him to get 99 of his friends to give me $10. I take this $1000 and, through a magical process (oh, let's call it free trade), I turn it into $1500. I then give Charlie back $800, tell him that returns weren't guaranteed, and walk away with $700. The system as a whole is wealthier by $500 (positive-sum, oh yeah!), but we have a win-lose-lose-(98 more lose's) proposition; Charlie and all of his friends are worse off than they were before.

It is popular to try to identify these two principles as equivalent. "Positive-sum" sounds kind of wonky, while "win-win" is clear and positive and cool. But all we can absolutely say about free trade is that it's positive-sum; we cannot, using classical economics, determine the distribution of those positive returns.

To be fair, there was a little discussion of the fact that some people do lose from free trade, and Sen. Brown tried to make the point that those people are almost invariably Americans. But the rest pooh-poohed the idea that the number of losers was significant, and Blinder in particular threw out the standard canard that all we need to fix the problem is enhanced benefits, retraining, trade adjustment assistance - you know, all those programs that aren't really working all that well now.

In general, I'm for free trade. It gives me access to goods I would not otherwise have, probably at somewhat lower prices than a purely domestic market would offer me. It makes me feel good to know that we're giving the rest of the world's people the opportunity to improve themselves through some means other than direct aid.

But that doesn't mean we should use specious arguments to get there. One of the more uncomfortable moments in the discussion was when Blinder contended that it was a failure of the economics profession that it hasn't "persuaded the general public of the virtues of comparative advantage and trade across nations," as if the problems presented by free trade could be washed away with the right marketing campaign. Americans may not be as well-informed on such matters as we would like, but they can see what's happening right in front of them.

I will point out, yet again, that our systems are human constructs, made for the benefit of actual people - if they don't work right, we need to fix them so they achieve the goals of our society.

Confusing "positive-sum" with "win-win" is misleading. Lumping free trade in labor together with free trade in goods is misleading; the markets are very different, and have differing objectives. Vague hand-waving as to how we might redistribute some of the gains from free trade doesn't accomplish anything. There's a tendency to inflate the gains from trade to make the orthodox view more acceptable. And the "fair trade" people have a point, should we really allow corporations to make huge returns off of environmental and labor law arbitrage?

My basic point is that this issue is far more complicated than drawing a two-country, two-good graph and pointing to the gains (which is about as far as most economists seem to want to take it). There are real costs to real people when we allow their careers to be offshored; they are, in effect, subsidizing the people who are taking advantage of that opportunity. Maybe that's OK, but I'd sure like to see economists and politicians and businessmen have to express it in just that way, rather than shouting down the people who point it out.

The tragic comedy of visas

I've written before that I'm not categorically opposed to the H-1B visa program, that offering short-term employment to people from other countries in certain fields is not necessarily a bad thing. But I do insist that the various people who buy wholeheartedly into maintenance or expansion of the program be honest in presenting their reasons, and that just isn't happening. When Bill Gates testifies to Congress that the program needs to be expanded, he isn't speaking as a statesman or expert in immigration policy, he's doing so as a major stockholder in a company that will profit from that immigration.

We hear a lot about a study that claims that every H-1B application generates five to eight jobs. I've read the study, and it's rather poorly done. (You can tell that from the conclusion, which is preposterous; if it were true, we could hire interns to fill out applications that would never be approved, and, voila!, instant jobs.) It's a regression study, plain and simple, with no causative factors explored. I would guess that, were it to be redone today, we would see continued H-1Bs and a drop in technical employment. That result would be just as spurious ("H-1Bs Cost American Jobs, Study Says"), and just as dismissible.

I don't know what the "right" number of H-1Bs is, and neither does anyone else. Right now, it's 65,000 a year, plus 20,000 for applicants who have earned masters' degrees or higher. I see nothing wrong with attracting the best and the brightest (the term that is invariably used by supporters of the program), I just don't see the mechanism by which we ensure that we're actually getting them.

I also don't like the marginalization of those who question or oppose the program. There are a lot of concerns that H-1B fans don't want to address, and those peope tend to be powerful enough to demonize the questioners. If you want to discuss whether the program has the right limits, or whether it's being used as intended (the companies that use the largest number of these visas are Indian inshoring companies), or whether the workers are paid the "prevailing wage," or whether this amounts to a kind of indentured servitude that enriches corporate executives, you're either told that you don't understand the wonders of free trade, or that you're an immigrant-hating racist.

It's something I've written before, but it bears repeating. I, unlike many of the people who feel free to weigh in on this issue, have worked with quite a few H-1B holders. Some of them are very good; you'd want them on your team, in your company, in your country. Some of them are just terrible, and should be sent home and drummed out of the field. The vast majority of them are, well, OK, competent, but nothing special. And the percentages of the people who fall into these categories are not so very different from that of US citizens.

It's really hard to justify, in our current climate, the importation of the mediocre and the terrible when there are good, experienced workers out of a job. That doesn't mean that we should exclude everybody, just that we should find some way of distinguishing those who are truly outstanding from those who are not. It's not as easy as handing every college graduate a visa, as not every mope who drags him- or herself to four years of classes is necessarily best or brightest (this goes for Americans as well).

Rob Sanchez's Job Destruction Newsletter chronicles the issues surrounding this topic in thorough fashion. He is, probably, more anti-H1Bs than I am, but that's fine. What is scandalous is that the issues Sanchez writes about are rarely taken seriously by the CEOs and pundits whose single-minded focus is "American workers bad, H-1Bs good."

April 1 is the day that US Citizenship and Immigration Services begins accepting H-1B petitions, and Sanchez is staying on top of this. There is a deadline of five days for accepting these petitions, and you may be wondering what happens if the cap is reached in that time - how does our government determine these best and brightest?

I'll let Sanchez answer this:

In case you are wondering what happens after the cap is reached, the USCIS will hold a random drawing to determine which ones get visas to work in the USA, and which ones have to go back to India. So, in order to select the "best and brightest" whiz kids in the world who will be invited to take jobs that Americans either can't do or don't want, we will pull names out of a big hat.

Again, I'm not absolutely opposed to some kind of program like this, but random selection completely undercuts the contention of its supporters. We're not looking for the elite, we're just looking to bring in people to do our work. That is most certainly not the stated intention.

Note: I'm not ignoring one possibility. It is conceivable that proponents of the H-1B program have no problem with the random draw because they believe that any immigrant is superior to any American. If so, they should just say that, and clarify their thinking for us.

I have failed

I know that you, Gentle Reader, look to me for my opinions on issues of globalization. As such, I imagine that you are all anticipating my take on yesterday's Charlie Rose show, not the part on female desire, but the interview with Nandan Nilekani, co-chair of big Indian offshorer Infosys, who has a new book, and Thomas Friedman of the New York Times, who has the same old books to plug.

I wanted to watch and listen and give my impressions, to offer up some insights as to what I saw as flaws in the logic, on how these high priests of globalization would discuss changes to the model in light of the world financial crisis. Of course, I didn't expect them to take up basic questions of how American politicians justify visa policy or offshoring, but I could hope.

And then they launched into the interview, and the first thing they talked about was how Nandan gave Tom the idea for his Einsteinian revelation that, THE WORLD IS FLAT. It's a story that sums up the work of Friedman so well that I recreate it here (from the transcript on Rose's web site):

CHARLIE ROSE: The least. Just quickly, let’s review that. What happened? You were in India.

THOMAS FRIEDMAN: And Nandan was actually out of the country when I came over. And we had shot about 60 hours of film over 11 days. And over those 11 days, I was getting this sinking feeling that something really big had happened with globalization, and I had missed it. But I couldn’t quite put my finger on it.

And the last interview was with Nandan. He just came back. And the film crew was setting up in his office. I was sitting on the couch outside. Nandan came out, we sat down, I took out my laptop, as is my habit, and started interviewing him.

And at one point, Nandan said, “Tom, I’ve got to tell you, the global economic playing field is being leveled.” And it all just sort of -- I said global economic -- leveled -- and I wrote down in my notebook -- and we did the interview. But that just stuck in my head. And in the Jeep on the way back to the hotel, I just kept going over the global economic playing field is being leveled. I said the global -- but Nandan said global economic playing field is kind of being flattened. And then it just sort of popped into my head that what Nandan Nilekani, India’s premiere engineer-entrepreneur was telling me was that the world was flat, and that was a book.

And then we actually went over to his house that day. It was your birthday, I think, right?

You know, historians of the future are going to be so lucky. We have little idea how Tolstoy came up with the concept of War and Peace, but we have in laborious detail the story of how Tom Friedman came up with the flat world idea. And we will also know that Friedman was a very important man, because he dealt only with very important people, and was even invited to their homes on his birthday.

I don't want to belabor the infelicities that define the "thought entity" that was Tom Friedman (but I can't resist one; as David Smick showed in his book, the financial world is curved, even crooked; Friedman's flat world is a vinyl sheet laid on a non-smooth underfloor, and we're seeing the results of that now - it's a lousy analogy, and I'm royally tired of it), but, as he launched into this story for the umpteenth time, I couldn't take it any more. I grabbed the remote and turned to something, anything else.

You see, I could just tell how this interview was going to go. Friedman, there for no appreciable reason other than to give his NYT bestseller cred to his buddy's new book, was going to butt into the conversation whenever he could with yet another faux insight, and Rose would let him get away with it. Nilekani would likely get very little time to talk about his book, even though Charlie would hold it up a couple of times. The viewers would gain no insight into, well, anything. Then Charlie, Tom, and Nandan would head out to one of New York's finest steakhouses for a big piece of beef and a couple of bottles of wine, while Charlie and Nandan would wait around for another Friedman gem ("It's interesting that beef and wine are both red, and businesspeople love both of them, but they hate it when their numbers are in the red - there's a book there, and I'll call it "The Redding of Business.")

In the interest of serving my public, I went back today and checked out the transcript of the interview (mercifully, there isn't one of the steak dinner). And it went just as I said. Nilekani made some banal observations about the challenges facing India today - his book may be better than that, I don't know. Any attempt to dig deeper was interrupted by Friedman's usual drivel (six-lane superhighway, market and Mother Nature hitting a wall, sustainable living, we're not too big to fail - all the usual stuff that real people have been seeing for years, but comes as revelation to this Pulitzer winner).

What's sad is what's always sad. There is a real opportunity to ask Nilekani some tough probing questions. They don't have to be adversarial, they just have to be firm, recognizing the challenges that confront these two nations. Maybe he's dealt with them in his book, maybe he hasn't, but they are questions that won't be asked on any broadcast outlet in this country other than, possibly, PBS.

And Charlie Rose missed this chance, so busy was he offering hospitality just short of cigars and brandy. But it isn't polite to let Friedman ramble on in the same vein as he always does, it's a disservice to the viewers. Rose needs to emerge from what I like to call his Friedman fog; if Tom's presence isn't a help, get him off the show.

How we can make globalization work for us

It's no secret to regular readers of this blog that I have concerns about the hidden costs of globalization. I do not, cannot, deny the positive effects of all the policies that fall within this term, but I think the standard economic model, the place where a great deal of the discussion begins and ends, is too limited to capture reality. We can draw all the graphs we want that demonstrate that two countries that engage in free trade both end up better off; the flaws come when we ignore all the constituent groups that make up a nation, and when we accept GDP as a proxy for the health of that nation.

For the average American, the picture of the "benefits" is a lot blurrier; in many cases, they've seen careers (not just "jobs") disappear, and, with them, large sections of whole cities and towns. The offshorers are doing a lot better than the offshored, as they've taken huge percentages of the gains out of the stream. Neither customers nor shareholders seem to have realized the huge benefits that have been promised; saving a buck on a sweater doesn't seem like much next to a loss of livelihood.

We have not done a good job at all of assessing these costs, as the discussions generally devolve into tiresome rants about "America First" vs. economic orthodoxy. In reality, we have no idea the extent to which American students are shying away from technology because they don't expect to find jobs in those fields. Instead, we urge them to enter those fields anyway because "that's the future."

In economics terms, we focus on expanding the supply on the questionable proposition that an increase will somehow create its own demand; we pay no attention to the reality that demand for Americans has been dropping, and we never touch on the certainty that differing wage scales may have something to do with that. Furthermore, to forestall the possibility that someone may raise such an argument, our leading offshorers and their apologists have decided to adopt the strategy of calling out American workers as stupid and incompetent, and the press has happily gone along with that.

But why should an American youngster, looking at the job market of the future, take on the challenge of a curriculum in science or technology? Your education is substandard, your work habits are terrible, you're more concerned with updating your Facebook page than doing any hard work. And the genetically-endowed, 100 hours a week young people from China and India are going to eat your lunch anyway.

Even if you are good, and hard-working, you run into another obstacle: college tuition rates seem impervious to economic reality. The Indian who attends one of the Indian Institutes of Technology (IIT) pays about $750 a year. You will pay $45,000 for a year at MIT. If the IIT Indian gets a job at $10,000, he can pay his whole tuition in under four months. The MIT grad will need a job at $600,000 to do the same. Obviously, that's unlikely, so the American will tend to start with a huge burden of debt, in fields that have uncertain prospects.

But there is an answer, and the only question I have is why it hasn't happened yet. What we need is for IIT to create a degree-granting distance learning program. Offer a B.Tech. over the Internet, and I guarantee Americans will flock to it, especially when it only costs, say, $2000 a year. (It can't be too hard for those brilliant students to set up, not if you listen to Tom Friedman or Bill Gates; it's probably no more than a weekend project for these bright-eyed geniuses.)

I'm not being sarcastic here; I honestly want to see this happen. You see, it's pretty obvious that higher education in the U.S. has turned into a scam. The economics makes no sense, with high tuition rates propped up by every expert who tells us that the key to our future is to get those degrees, and go back for more and more training, and that will make us globally competitive (despite the massive wage disparities). Let's run some numbers.

Visualize an Intro to Econ course in one of our larger universities. We see a giant amphitheater with students filling every one of the 1000 seats. At the front is an ABD (all but dissertation) lecturer who is, for all intents and purposes, a university contractor. Let's say each student pays $1000 per course they take (that's conservative). So we have a million dollars in revenue. The lecturer gets $5000 for teaching the course (that's generous), and let's multiply that by four to capture overhead, foregone tuition for the TA, and other expenses. Thus, the course costs about $20,000 to present. $1,000,000 vs. $20,000: that's pretty good profit for the school. Each student in that class is subsidizing something else (landscaping for the president's residence, the lacrosse team, and so forth).

The apologists for our university system will argue that I'm being simplistic here, that the value of a degree from the University of Podunk is far greater than simple dollars and cents. The experience, the exposure to alternative points of view, the friends that will last a lifetime.

If that's true, then existing on-line courses should be cheaper than on-campus instruction. One example: the University of Illinois Graduate School of Library and Information Science charges in-state students $5363 per semester. Their on-line students pay $1952 for 4 graduate hours. A typical load is 12 hours per semester. So on-line students actually pay about $500 more (maybe the U of I servers eat a lot).

I have to admit I'm at a loss as to why IIT hasn't set something up in the U.S. This is a huge arbitrage opportunity; they could charge three (four, five) times their normal tuition, American students would save 90-95%, and American companies would get more of these highly-coveted graduates, young people who, because they would be free of crippling student loan debt, could work for less than they possibly can now. Seems like a win-win to me.

Oh, there would be one big loser in this: the current American higher education system. One wonders how supportive our economics departments would be of free trade when their doors close because, say, Cambridge is offering degrees over the Internet ("Get your degree at the place that taught Keynes everything he knew"). They'd fight back, of course; we'd see and hear learned PhDs arguing why Internet learning is inferior, how it leads to a lack of quality, how we can't equate the on-campus experience to that on a computer screen, how we need to have an American presence in the field. You know, all the arguments they blithely ignore when confronted with them with respect to people's jobs.

One has to expect that the resistance would be keen. The supposedly-independent accreditation bodies might refuse to approve an IIT engineering curriculum. If they did that, they would be the ones called into question. After all, award-winning journalist Tom Friedman has claimed that IIT is "more selective than Harvard," so no one could argue that their program isn't up to snuff.

I'm not one to look for conspiracies everywhere. I can't seriously argue that there's some kind of collusion going on between foreign schools and our schools that prevents on-line learning from taking place. But you have to wonder when you see what would be a huge opportunity for, say, IIT to pull in some serious bucks and extend their brand, and they don't take advantage of it.

If this ever does happen, the entire field of American higher education will be rocked to the core. A system that depends on massive cross-subsidization will collapse under competitive pressures. To see a model for this, we need only look at American manufacturing, at our auto companies.

But Americans should, just once, have the chance to take advantage of offshoring in the same way that CEOs have. If that means a few free-market economists lose their jobs, well, hey, that's just the inexorable workings of the great market, and none of them, surely, could object to that.

Time to get out the map

Citizen Carrie shows us today, among other things, why the Internet is crushing traditional news media. In Stealth White House Meeting with Indian IT Delegation, she reports on a meeting of White House economic officials with a group of business leaders from India. Read it, because it's about all you're going to see from a U.S.-sourced writer about this meeting, and Carrie was able to do that by referencing Indian sources.

But, on to content. The major thrust of the meetings was America's H-1B program, and how desirous the Indian leaders were to have it continue and be expanded. One of the big players in the meetings was Larry Summers, director of Obama's National Economic Council and one of the administration's leading spokespersons for all things economic. Apparently, according to the Indian press, the Indian businessmen came away with confidence that our government, including Obama, was going to continue their support of the program.

India has the natural concern that waning American support for visas that allow Indians to come here and for offshoring will hurt its by-a-thread economy. They see the H-1B program as a cornerstone of free trade; since there are not a lot of goods traveling back and forth between the two countries, it's necessary to keep people and work in the form of services crossing the borders. (Of course, we never hear in any of these articles about the restrictions on Americans taking jobs in India, I guess it would be pretty inconvenient to mention that.)

Carrie cites a Business Week article that fails to mention the White House meeting, but does take up the party line espoused by Infosys co-chairman, Nandan Nilekani, that we need to be concerned that any restrictions on anything will lead to a situation where, "trade between the US and India will be neither free no fair. That’s something people on both sides of the globe need to be concerned about." No mention of possible trade-offs here, but I'll let Carrie have the last word on this point:

Why don't you write a full series of posts along these lines so you can educate Americans on how the loss of good-paying jobs for U.S. citizens is vital for continued good political and economic relations between the U.S. and India? I'm sure if we are fully able to understand the benefits of middle-class workers moving into cardboard boxes, while our "healthy" GDP creates good-paying jobs for Harvard Business School grads, lobbyists, and a select few who are able to latch onto the coattails of the business school grads and the lobbyists, we'd be less likely to call for those uncouth protectionist measures.

One other thing that interested me about the Indian visit was a report of another meeting the delegation had, with "thought leaders" Henry Kissinger and other luminaries (objective sorts like a CEO of a multinational and the former US ambassador to India). What's Kissinger doing here?

It's always possible that Henry has massive contracts with India and so wants to keep the U.S. financial pump flowing, but I had another thought, and, for that, we'll have to refer to the world map (you can look at your atlas if you don't have a map on the wall of your office).

Let's take the 30th parallel north, and start in Saudi Arabia and move east. We start with our "friends" the Saudis, then travel to Iraq, Afghanistan, Pakistan, India, and China. I'm not going to detail our manifold problems in those nations, other than to suggest that an amazing number of our current difficulties have something to do with those six.

And of those six, not one can be counted upon to be a reliable friend to American interests, except, maybe...India? And, if we have to pay a high price for that support, it's very possible that the calculation is that it's worth it. If we have to give a remarkably generous nuclear package to India, we'll do it. If we have to let them have our call-center jobs, we'll do it. If we have to educate their students, then allow them to stay in this country (at least for six years), we'll do it.

But we can't appear to be appeasing India - we're the strongest country in the world - so we wrap the discussion in "free trade," or "jobs Americans can't do," or "helping the downtrodden masses" (the last argument allowing CEOs to think of themselves as Mother Teresas with private jets).

It seems we've completely fallen away from the concept of evaluating policies on the basis of whether they make overall sense. It's not very far from that to the point where we treat any mention of India as being anything other than our good friends (as opposed to a nation with interests of its own) as somehow unpatriotic; we've done that with other countries, and that's not led to positive outcomes, as the U.S. is seen not as an honest broker for good, but as a country that's in the pocket of another. I don't think that makes a lot of sense.

The new economic boom

Andrew Sullivan prints a letter from a reader who has just been laid off. He's not a financial executive or a realtor, he's in the new "boom" industry of infrastructure improvement:

Some construction companies, including the biggest names in the D.C. area, have reduced their workforces by over 90% just to stay afloat. Others have gone bankrupt.

With the collapse in residential construction, and with commercial construction struggling badly, contractors have directed their focus on government projects. For instance, my company bid a small ($600,000) project to demolish an existing government building, haul the material offsite, and restore the work area with new topsoil and grass -- a two, maybe three month-long project. How many contractors bid for this project? THIRTY-SIX! THIRTY-FRIGGING-SIX! Three years ago there probably would have been no more than six or seven bidders, because everybody was so busy. My company cut our bid to the absolute bone, then cut some more. I think we came in 7th or 8th place.

Every bid for government or public authority work we've submitted as a general contractor over the past year has been at cost, meaning break-even. Right now, as my boss told me yesterday morning, we can't even buy jobs (i.e. bidding contracts) at a loss just to keep revenue coming in and the field guys busy.

Competition is a wonderful thing, it really is, and we can see why from this story. With 36 bidders for every project, all these new initiatives that will be generated from the stimulus money will be done at the absolute lowest cost. Our public funds will get the biggest possible bang for the buck.

But there are potential downsides as well, and they may undermine the supposed advantages. The first is quality. I would love to think that all these firms that are winning these bids are doing so while upholding quality, but experience tells me otherwise. Either they're cutting corners somewhere, or they're lowballing the bid to win the contract, and we'll end up paying the overage.

The second is the actions that will be taken to keep costs low, each of which will seem justifiable when we're "spending the taxpayer's money." In this environment, offshoring begins to look downright patriotic, even though it undercuts one of the main reasons we want to embark on this stimulus - that of helping stimulate consumer spending through renewed employment.

We've already seen GM invest a billion dollars, money that was backed up by us, in Brazil. We can bet that the bulk of the modernization of health care systems will be done in other countries.

Thus, we need to temper our expectations for this stimulus. I don't know how it will end up shaking out, but it could well lead, not to a V- or U-shaped output pattern, but to an L, in which we end up stagnant for a long time (while we rebuild the rest of the world). I know that any measures that try to counter this will be labeled as that filthy word "protectionism," but I also know that the last thing we need is an ineffective outlay of public funds.

New hire

AOL has hired a Google executive as their new CEO. What I find interesting about this is that, when AOL wants to improve their Internet advertising, they go out and get a chief executive who has experience doing that very thing. I'm sure they're going to pay him a lot; if he can keep AOL going, he'll be worth it.

But if, say, Microsoft wants to improve their search business, they don't go to Google and attract away some of their top technical minds. Instead, they whine about how they're not allowed to bring in top talent from overseas, the best and the brightest, the magical folks who will elevate them into the stratosphere. They push for visas, they threaten to offshore massive numbers of jobs, when they could go out and pay for the top existing people.

Why are the rules different in these two situations, I wonder?

Outsourcing (again?)

As regular readers know, I rarely waste any of my bon mots. If I write a comment of any length, it will probably show up in a subsequent blog post, and, as it has been, so is it here.

My post yesterday, More on outsourcing, attracted some comments in spite of the fact that it was basically a weak spin-off of an excellent Carrie post (which itself has received some deserved attention, having been featured in the most recent Job Destruction Newsletter and in a post at VDARE.com, which termed it "superb"; they also featured Yours Truly in a post - I must confess to slightly mixed feelings here, as VDARE has occasionally gone over the top in their opposition to immigration, and has a strange affinity for Michelle Malkin, the low-rent Ann Coulter).

One good comment came from Red Oak, and I take the liberty of reprinting it in full:

Poking around that blog [U of Michigan professor Bob Kennedy's book- and offshoring-promoting blog, The Services Shift] is fascinating. It's an excellent illustration of the thesis that our globo-class really is a pack of denatured sociopaths. It is now an unquestioned axiom to these people that the nations and peoples of the earth have no purpose beyond contributing to the "competitiveness" of multinational corporations. I don't mean "sociopath" hyperbolically either, but technically. There is no human value - no culture, no bonds, no shared heritage, no social meaning, outside the "ego", as it were, of corporations.

But what I find interesting is this: we know that this sociopathy is not shared by the businessmen, academics, and politicians of the nations who benefit from the mass offshoring and "H1-B-ing" of America's wealth and jobs. They strike me as normal human beings, looking out for the interests of their own, though they're happy to mouth the globo-crap to the eager Western whores selling out their own nations, who probably think they're "one of them", all playing the big globo-game together. For example, one of the links at Kennedy's blog went here, to an article that is pretty much the standard b.s. about the horrors job "protectionism", with an added bit of interest from our friends the sociopath immigration lawyers, warning that "[w]hile some populist sentiment may call for employers to lay off H-IB visa-holders before U.S. workers, experts say such plans are not only shortsighted, but discriminatory. Facing liability for nationality bias is only one problem with the concept." Got that? They're getting all geared up to invoke (or rather, invent) some "global law" to litigate against preserving American jobs in America during a deep recession that may turn into a depression. Behold this bizarro world Magna Carta: the laws of a nation do not exist to protect the interests of its citizens, the laws of a nation exist to promote and protect the interests of foreigners and multinational corporations from the self-seeking of a nation's citizens.

Now this is disturbing, and infuriating, but, at this stage of the game, hardly surprising. But as I noted to myself that these alleged globo-laws against "nationality discrimination" would be wielded only against Americans - the Chinese or Indians would have the good sense and sane patriotic sentiments to laugh them off and tell any protester to stuff it - a question just occurred to me: I wonder what the foreign beneficiaries of visas and offshoring think of the likes of Mr. Kennedy and his ilk (like those helpful native immigration lawyers who are devoted to screwing their countrymen - unless the Americans are the co-ethnics of foreigners they're helping and just engaging in standard ethnic nepotism). Nobody, after all, has any admiration or respect for sell-outs and traitors, not even the people who are using them. Do they just consider them useful chumps, or do they actively despise them? I'm just curious, because I think holding such types in contempt is a pretty basic and pre-rational human reaction.

I didn't try to respond to everything, there's a lot packed in that comment, but I did write:

Thanks for the comments. I wonder if you've ever had occasion to check out Bakan's book, The Corporation. Bakan. a professor at the University of BC, lays out an interesting case that the very structure of a corporation makes it pathological in nature, that it is inherently incapable (if acting "properly") of promoting the common good. The book was written in 2004, and now seems prescient in detailing the implications of the legal construct.

What this thesis makes me think is that most individual people within corporations are not sociopaths (though I have run across a few), but people who are conditioned by their surroundings into taking positions that turn out sociopathic. Obviously, they are gullible, believing the likes of "statesman" Bill Gates as they trash the reputations of US workers, but that's natural of those who thrive in hierarchical institutions. If you can convince yourself that the greater good is being served by moving thousands of jobs overseas, it's easy to overlook the concomitant harm.

As to your point about a nation's laws, it does seem as if we, perhaps out of a sense of guilt about our good fortune (much of which came out of the hard work and sacrifice of our forefathers and -mothers), are the prime movers in a kind of implicit global law. We have to educate the world's youth and employ the world's workers, because we have so darn much. The protectionism of others is understandable, because they have so little; we, on the other hand, have an obligation to look out for everybody else. That we may need to change the rules in response to new conditions is not a popular idea at all.

Your last point, about the way we're regarded by the folks who are profiting the most from our giveaways, is an interesting one. Perhaps, after years of our giving foreign aid and education and citizenship to large numbers of immigrants, they've just come to expect that we'll keep the giveaways coming.

---

A quick word on another comment. I'm not sure what exactly to what this comment was responding, but it stated:

Work visas stop offshoring of high-skill jobs? Work visas stop the offshoring of high-skill INDUSTRIES.

One hears this a lot (and it probably deserves a lengthy post of its own) but this sentiment doesn't fully hold up. Essentially, what this implies is that these high-skill jobs are going to foreigners no matter what we do about it, but we're better off if they at least do them in this country.

This seems plausible, the taxes stay here, and we presume that ancillary companies and suppliers are better off. I honestly don't think we can balance that yet against the technology leakage when those job-holders return home, and the loss of capacity to perform that work by Americans. I don't think, long-term, that we will retain those industries anyway in the wake of a recession and the idle workers of Asia. There's a kind of neutron bomb idea here, that we can retain industries without them actually employing people, and that's somehow a good thing. Again, I don't think we've really begun to understand this yet, but it's difficult to see this as an absolute good for Americans, no matter how it turns out.

More on outsourcing

I don't have a lot new to contribute on this topic, largely because I don't do the tough work Citizen Carrie does in digging out the news and trends about the movement of jobs overseas and the accompanying smokescreen in the press. Her most recent post, Ross School of Outsourcing, is long but more than worthwhile to read. (This explains why she didn't post for five days, I'm thinking.)

The motivation for her post is a deconstruction of a Detroit News commentary by Robert (Bob) Kennedy, and Carrie does a fine job of going through it (and how she stomachs yet another variation on the offshoring is good, visas are better, American workers are unqualified and lousy, I can't imagine). Kennedy is a University of Michigan professor, something that apparently doesn't require the examination of multiple sides of an issue, especially as he is also the executive director of the William Davidson Institute. This is one of those ostensibly "non-profit, independent, research and educational institute[s]" that has been financed by an "international manufacturer of glass products."

It's not impossible that the WDI began as a place of legitimate inquiry, but it's oh-so-easy to look at who's writing the checks, an international manufacturer that employs a lot of overseas workers, and conclude that the development of a belief that offshoring is socially positive is a good career move. (Whether a public university should accept money to promote the beliefs of the donor under the aegis of the institution is a big issue, one for another day.)

I'm not going to even try to rehash Carrie's post, it's so dense (in a good way) that I couldn't do it justice, but I will follow one of her links, the one to Bob's blog. Actually, the blog isn't totally Bob's, there's another contributor named Lou LaFrate. He is not a staff member at WDI, he's a Director of Business Development in the automotive field. I don't know what company Lou works for, but I have my suspicions.

Anyway, this blog essentially exists as a promotional mechanism for Bob's new book. (To show you the incestuous nature of these matters, at least three of the nine Amazon reviews, which are all 5-star!!, are written by WDI staff - in other words, they work for Bob. Lou's got another, and a few are hard to tell.) You can find it on your own.

As Carrie says:

In an odd way, his site will make an excellent resource for anti-offshoring bloggers who might be looking for something to write about. Kennedy probably has the finest collection of links around that talk about the great benefits of offshoring, outsourcing, and how the loss of millions of manufacturing and higher-level service jobs in the U.S. will ultimately lead to greater prosperity for all.

And that's certainly true. Just catch this item (posted by Lou):

A story in the LA Times reported that employment in the region surrounding San Jose dropped 1.3% late last year. The key reason cited is the lack of "enough skilled workers needed to drive the next decade's innovation". This specific issue is addressed as one of the 5 key drivers of globalization in chapter two of Bob's book.

They captured the essence of the story correctly, then used it to frighten us with the news that students at the Indian School of Business "have chosen to opt for domestic offers over international offers." (The story is simplistic if it thinks the key reason for lower employment in a severe recession is a lack of skilled workers.) The whole blog is like this, that offshoring is not just inevitable (which may be true), but is desirable as well. If it were just another advocacy blog (like, quite often, my own), that would be fine. There's definitely a point of view, as the current political trend is described as:

more and more defensive posturing by politicians introducing “buy American” provisions in legislations, restricting H-1B visas, etc.

That this might not be "defensive posturing," but a principle that American money should go to support Americans, is not something Bob and Lou want to get into.

What is disturbing is that a university and its faculty are supposed to be seekers of the truth. They're supposed to look at all sides of the issue and try to find reality in it.

Bob, on the other hand, has made up his mind and is willing to cherry-pick facts to support his bought-and-paid-for notions. He's done well jumping on the offshoring wave, and he's going to ride it as long and hard as he can.

And mroe power to him. He can advocate offshoring while ignoring every argument that someone might present which points out possible deleterious long-term effects, and it will have no effect on his tenure, his large private consulting business to overseas and multinational corporations, his book sales.

It may just take the maturation of distance learning technology, in which his job is given to one of those Indian School of Business graduates who's staying home, to get Bob to question some of his assumptions. We can only hope.

Surowiecki again

I'm not fond of writing in a way that suggests piling on. Obviously, anyone could take a, say, Thomas Friedman book and spend days going through and pointing out the infelicitous phrasing, the lack of willingness to climb past the self-aggrandizing neo-cliches, and the inability to take any thought to the next level. But that's pretty pointless, though I reserve the right to do that with any Friedman book or column I happen to come across.

So I'm not trying to focus on James Surowiecki of The New Yorker, even if it appears that way. It just happens that he's written on topics that interest me, so I will write about him again, even though I did so just yesterday. I actually have two points here.

1) It can be dangerous to look at what people quote in preference to reading the whole thing. Case in point, Andrew Sullivan quotes Surowiecki:

Historically, productivity has been “procyclical”: it rose during booms and fell during recessions. But not this time. Even as the economy did a cliff dive in the last quarter, productivity rose an impressive 3.1 per cent. And since, in theory, workers get paid more the more productive they are, their increased productivity has helped them avoid pay cuts.

I read this and thought, has Surowiecki missed the boat this thoroughly again? Since productivity is generally measured as output per hour of employment, all we need is what we're seeing, where the denominator (hours worked) is falling faster than the numerator (economic output). And this is true enough, and belies the Sullivan title for his post, Silver Lining Watch. It's not good news at all that we are shedding jobs faster than we can cut spending.

Added to that was the loopy application of a true-enough theory, workers get paid more as productivity rises, to a specific point in time, one short enough that the theory does not hold. If we are avoiding pay cuts (and we're not - Microsoft is cutting pay for its contingent staff [at least that's what I'm told in my comments], and Acco Brands is cutting pay by 47% for a while - so it's premature to argue that this won't happen), it has little to do with perceived productivity and more to do with the general stickiness of wages.

To my surprise, once I read the entire article, I found that Surowiecki has actually spoken to most (I stress, most) of these issues. It's actually a good piece, notwithstanding the flaw about pay cuts, that wages are not quite as sticky over the long haul as many would like to think. My conclusion is that it's important to look past the quote that Sullivan cited and read the whole thing.

2) However, Surowiecki misses something else, and it's a big something else:

Bad times have always meant job losses, of course. But what’s distinctive about the speed and depth of today’s job cuts is that, even before the recession hit, American companies were, by historical standards, running lean operations. While the economy grew at a respectable rate for much of this decade, hiring did not. So one might have thought that companies would have had less room to slash payrolls, since they were already relatively slim. Instead, the same companies that were slow to hire after the last recession have been fast to fire during this one. G.D.P., after all, actually grew for much of 2008. Yet every month companies were cutting jobs. And after the credit crisis erupted, in September, companies wasted no time: as fast as consumer spending was plummeting, businesses were cutting payrolls even more aggressively. Companies have always wanted to do more with less; nowadays it’s a positive obsession.

This is true enough, but what is completely missed is the existence of greater labor pools. I'm referring, of course, to the existence and accessibility of overseas labor. Companies don't need to, as Surowiecki puts it, "hoard labor," because they can get warm, cheaper bodies that are a T1 line away.

Missing this factor is a huge omission. What we are seeing is a revolution in the way we hire and retain labor, and how we account for it. Frankly, I don't trust any of the productivity numbers I see any more; determining this was always problematic, but the presence of giant sources of hitherto untapped labor has thrown these statistics up for grabs, and I doubt we're capturing a lot of that.

You cannot hope to understand the labor market of the 1970s and '80s without considering the influx of women, and you can't discuss today's without taking offshoring into account. That we continue to try, among the punditry and the statisticians, is a major logical flaw, and no article that misses these factors can reach conclusions we can trust.

Darn, she got there first - Microsoft edition

One of the challenges in trying to produce something novel every day (as opposed to the bloggers who churn out tens of rip-n-point posts) is that smart people tend to plow the same ground, and they're often quicker than I. Citizen Carrie has done that to me again in her work the past few days on the two big Microsoft stories.

First, she used the overpayment to laid-off Microsoft workers as a springboard to a discussion of outsourcing. There's a lot here, but the big takeaway is just how much offshoring is done under the radar. As I've written before, there is no official count of just which jobs and how many are being sent overseas, which leaves the question open enough that opinions end up carrying the day. The business apologists contend that the issue is overstated, that few jobs are in fact moving. After all, there are no numbers to back it up. (Personally, as someone in one of the major offshoring job categories, I think there's plenty of it, and more to come.)

Carrie also has this:

If you ever want to know what it's like being the low person on the totem pole, try working in the unglamourous fields of finance, accounting, payroll, human resources, legal compliance, etc., (heck, might as well add IT) in most corporations. These employees are scorned for not adding direct value to an organization and are treated as nothing more than parasites draining away profits. Instead of being treated as valuable team members, they are treated as being people who are ripe for outsourcing to the BPO company that comes in and gives the niftiest PowerPoint presentation.

2Truthy had a comment that HR folks "tend to have the loftier roles in companies." It turns out they're both right. The lower-down people, those who administer benefits and do pre-interview screening, tend to be, just as Carrie says, down in the pits with all the other outsourceable people. I've seen a big evolution there in the IT world, where, in many companies, there are no HR people at all. Hiring managers have had to add base-level resume screening to their repertoire of talents.

On the other hand, 2Truthy is right in that the top HR people are thought of as massively important. After all, we can't expect a CEO to deal directly with the outside search company that's been hired to conduct a "nationwide" hunt for the next CFO. Very often, an executive who's being groomed for bigger things is given a top role in HR so he or she can get an overview of the company.

Of course, this just makes the gulf between management and the rank and file wider, but this is necessary if the big guys are going to be able to make the tough decisions. Only by dehumanizing the employees can the non-sociopaths in the executive suite (there are a few) handle the rampant destruction they cause.

[Carrie also links to the recent Friedman column that talks up innovation. In his typical fashion, he issues pronouncements without having to consider reality. Essentially, the government should go into the venture capital business and, when the new-energy version of Microsoft or Intel hits, we the people will make 80% of the returns.

This sounds somewhat compelling, but fails to talk about the end game. Does the government retain that stake on into the future, thus nationalizing the energy industry, or do we miss out on the greatest returns?

Friedman also returns to the curious point that he has been pushing, that we should strive to produce this new energy at the lowest price possible, his so-called ChinIndia price. That it is not the goal of an American country to provide low-cost energy to the world, not if there is a higher-cost point that leads to greater profits, never occurs to our happy pundit.]

Carrie also has a post about Microsoft's other great announcement, their "Elevate America" project. As Carrie puts it:

[T]hey will take the few remaining people in the U.S. who don't know how to type up resumes, much less send them off as email attachments, and educate them into crackerjack, top-notch Microsoft Certified professionals.

I plan to keep my eye on this, but what has been presented so far does not overwhelm. There are four sections at the link, three of which are essentially ads for training programs. The one free part features five courses, each taking 2-3 hours, and they essentially constitute Computing for Dummies.

This kind of thing may be helpful for a very few people, but it's hard to believe that any of this will lead to a way upwards for our economically downtrodden. I'm guessing that the vast majority of the people who can read this blog will pass the "Digital Literacy Certificate Test" without cracking a course.

Still, I'm not an anti-Microsoft person (nor am I a zealot for them as are so many). They have a great number of resources for developers on the Internet, and it's possible that Elevate America will evolve into something useful. At the same time, let's not, for example, ramp up the H-1Bs just because MS has a program with the word "America" in the name.

Fire up the plane

Citizen Carrie has a post, Links Galore, where she has once again collected useful articles about politics and jobs and stuff like that. There are three links to stories about how IBM is coping with the economic downturn (quick answer: with their typical cutting-edge innovations in offshoring), and I may well have more to say about these topics when I can stomach it. For the time being, read Carrie's post and follow her links.

You're so close

Paul Krugman is generally one of the good guys, and I assume his Nobel Prize is well-deserved, but even he can miss things once in a while. In this piece in the NYT last month, he talks about the reluctance of Germany to buy into the generally-accepted European rescue plan. Krugman feels that the lack of unanimity will destroy any attempt to solve the problem. And there's this:

To understand the problem, think of what would happen if, say, New Jersey were to attempt to boost its economy through tax cuts or public works, without this state-level stimulus being part of a nationwide program. Clearly, much of the stimulus would “leak” away to neighboring states, so that New Jersey would end up with all of the debt while other states got many if not most of the jobs.

Now, take the preceding paragraph, replace "New Jersey" with "the United States," and replace "state" with "country," and you get a perfect description of what will happen to our stimulus. All this talk we hear about new jobs in energy or in medical IT is just that, talk, because of the "leaking" to which Krugman refers. Obama may think that some miniscule tax credit will induce companies to keep those stimulus-generated jobs from leaving, and that is a remarkably naive belief for such a smart guy.

What amazes me is that Krugman doesn't see it, that he is as blind to the real implications of the global economy as is everyone else.

For more about this, look at a Carrie post from a couple of days ago. There's a pretty lively discussion there about the magical IT jobs that will come from Obama's desire to computerize medical records.

Second verse, same as the first

[I'm pretty sure I got this link from Citizen Carrie, but I couldn't find it in the shamefully few seconds I spent looking for it. {Added note: Found it, not sure what happened the first time around.}]

It's a post by James Carlini from Christmas, but it has lost none of its bite since the holidays. It expresses as well as anything I've read the sad reality of the inconsistency in saving auto company jobs (or pretending to), while we've done nothing to stem the outflow of information technology and telecommunications jobs:

It’s funny and sad how the government did nothing to protect cutting-edge jobs in IT and telecom but now elects to protect mediocre, Industrial Age automobile jobs that aren’t even producing world-class products.

The concern of losing an industrial base of 1 million jobs was a recent top concern of Congress. Some automobile bailout proponents claimed it would be cataclysmic to let all these people lose their jobs and the economic impact in the U.S. couldn’t be fathomed by anyone. How do you fathom it?

There’s no longer anything to conceptualize about this type of catastrophe. It has already happened. We are already past the point of seeing what losing 1 million good-paying jobs does to the American economy. Ask the highly skilled people who were in the IT and telecom industries who have had to take jobs paying a half to a third of what they were making.

The recent job erosion in these industries has cost individual families their lifestyles as well as their houses as the economy continues to sputter. The tsunami wave of lost IT and telecom jobs has already hit the economy and has affected other parts of it. There was no preventative action to try to avoid it.

We don't understand this, we don't really have any desire to understand this, not as long as we can soak up the pablum being fed to us by our business and political "leaders." What we're told is that wonderful new middle-class jobs will emerge to replace these routine jobs; in the next breath, we're told that those jobs will be in construction and home remodeling, and we know that cost constraints will keep the salaries for those as low as possible. Carlini continues:

What Are the Skills of the Future?

This is a hard question that Congress, the media and everyone else better start asking before we slip more into a second-rate economy. We lose cutting-edge jobs and future prominence in emerging technologies while we protect those in Industrial Age jobs. Is that a good strategy? We had world-class software skills that were second to none in this country.

Many in government positions failed to recognize this was a large “special interest group” that they should have been aware of and fiercely guarding their growth instead of listening to the corporate lobbyists telling them to open up the floodgates for cheap labor.

Most companies either outsourced their IT departments or replaced workers with cheaper visa workers. Though this may have made short-term sense to get executive bonuses for “cutting costs,” now we’re seeing the long-term effect of less spending, less new car buying and defaulted mortgages and credit cards from those displaced from the IT and telecom industries.

Congress should have rushed to protect these jobs as they are the real jobs of the future and national security. Software skills, engineering skills and complex project management skills will take a country further in this global economy. These were jobs that required complex skills, degrees, advanced degrees and constant training rather than union membership.

As for the economic experts on TV and in other media, they can’t seem to connect the dots in our failing economy. It’s pretty simple. Car sales are at 20-year lows, mortgage foreclosures have skyrocketed and credit card debts are soaring through the roof because many people have lost good jobs and salaries from the beginning of this decade and are now at the end of their monetary rope.

I have, believe it or not, nothing more to add.

Wishful thinking

I always hesitate to link to a piece that has nice things to say about me (even though I appreciate and like to read them), partly out of the way I was raised that says one doesn't toot one's own horn (which puts me way out of step with what people say is needed to succeed - and I believe it), partly because of a vague sense that the Internet might implode through infinite regress.

Nevertheless, I point you to a post from Citizen Carrie, not because I'm mentioned in it (grateful as I am), but for the part below me, where Carrie directs us to, first, a story in the Mercury News that discusses the fraud on the part of the Indian outsourcer Satyam, and second, a post from 2Truthy about "the culture of corruption" in Silicon Valley, and how it has been influenced by their sleazy dealings with Indian companies. There's a lot in the second piece, based as it is on an interview with a former CEO - there's a lot here, and I don't want to quote it all, but here's some:

It is unfortunately pretty likely that the fallout of Satyam’s scandal will be minimal, since I do know there are executives and vc’s scrambling around to do “damage control” in order to protect the Sacred Cash Cow of outsourcing. Ever hear of Compete America? A powerful lot of lobbyists who will stop at nothing to keep cheap workers coming in here from India whether Tata, Satyam, Wipro or the rest of them. It’s hard to say if it will backfire, but it is long overdue that it does. This practice of hiring Indians to do the work of local professionals has been an obvious boondoggle from the get-go, and anyone from the boardroom to the cubicles who is the least bit honest will tell you the same thing. It has been a disaster. Most of them don’t even speak English, and are they are thrust anyway at the local scientists whom they are supposed to “help round out” product teams before having to “train them” right before they are laid off. Is this right? Of course not. Does it happen? Every day around here.

The practice of hiring Indians was the brainchild of Larry Ellison and Bill Gates who realized, without any conscience, they could wildly, wildly pad their personal profits by paying their workers less, and get away with creating a culture of indebted servititude to boot. This is no small coincidence that the quality of customer service and product development has continued to degrade with the onset of outsourcing....

Although an American business person’s handshake was/is supposed to mean your word, this is not -- nor has it ever been the case with the Indian businesspeople, a predominant culture of back stabbers, liars and cheats, and this is no secret. That’s the way it is. Sure, we have our share of corrupt Skillings (Enron) and Maddoffs; but these people are far worse. From my first and last business dealings with Indians, they have no qualm with lying and cheating and they operate on this level as if it were expected. And they use the people of their populations as human trafficking chips so that our vc and business community leaders can exploit them for personal profit. I know that the collective spirit of our population would find this reprehensible, if they only knew. The perpetual chokehold Bill Gates and Compete America has on the U.S. government to silence the atrocities of outsourcing through its payoffs to elected officials is staggering, and the American public is left with only propaganda about how wonderful outsourcing is while it destroys the lives of Americans. It is a globalists dream, not an American one....

It’s no secret that venture capitalists will not fund start ups here who do not use questionable HR firms to hire H-1bs and other “preferred and/or recommended” Indian workers who are paid less than their American counterparts. It is also no secret that, with little exception (and there are a few exceptions, of course) the quality of the Indian workers is far inferior....

Funny, how Obama is talking about “IT spending.” The increase in IT health spending is no accident, and has his carbon footprint all over it. Do you really think IT health spending is going to cure cancer or expand access to quality healthcare? Hahahaha, the American public is duped again....

Satyam is on of several corrupt, shameful organizations that should never have taken root in this country, just like the other outsourcing companies that have ruined the quality of our products and lives of our scientists and their families.

This is pretty strong stuff, of course, but it comes from someone who is right in the midst of it. I have hesitated to tell my own story previously, because I'm very sensitive to a charge of racism, and I don't like to generalize my experience too far. But I lost my last full-time job in no small part due to an Indian fellow who wanted my position, felt he deserved it, and lied to our boss in order to make sure that I would be laid off and he would move up. This is a guy who was a decent programmer (but not incredible), here on an H-1B, and felt himself superior to all those around him. Was that because he is an Indian? I couldn't say (though I would say that, statistically, I've found more arrogance and superiority in south Asians; not 100%, but pretty high).

The Mercury News article states, contra to the above, that Bay Area executives are beginning to take another look at the costs and benefits of outsourcing, and that they're starting to be concerned about sending proprietary information overseas. (Two points: there are people, including this very blog, who have been warning about the perils of blithely shipping all kinds of data to our firm foreigh "friends"; and this quote, that "The full extent of outsourcing by U.S. companies to India is unknown." It is not at all hard to posit that there are powerful forces that have no desire to collect such data - odd, given how much information we collect on everything else.)

One suspects that 2Truthy's interview subject wouldn't believe that there will be any changes to existing practice. Neither would the Job Destruction Newsletter (I couldn't find a direct link to this particular issue, available through e-mail):

The blogosphere is abuzz over the Satyam scandal in India. Many of them are declaring the incident to be the beginning of the end of offshore outsourcing and a return to "Made in America" for all things in Computer/IT. Others hope that Satyam can be used as a silver bullet to put a stop to the H-1B visa program.

Folks, stop drinking the KOOL-AID!

In the grand scheme of things the Satyam scandal will probably amount to very little in terms of restoring jobs in the U.S. It might even make India more competitive because if Satyam folds, labor in India could become cheaper, which is the main reason we have lost so many jobs to that country in the first place. Ex-Satyam employees will have to go somewhere and big outsourcers like TCS (Tata) and Infosys will be waiting to offer them jobs at cut-rate salaries.

This seems about right.

All of this is why I urge us to take Obama's new plan with a huge chunk of salt. These "New Energy" jobs that are going to energize our economy, plus the massive investment in medical technology, how much of this activity is really going to take place here? Unless there is a tax break which amounts to the government paying the workers directly, the same competitive pressures will have those jobs flowing overseas with gusto. The wind turbines we're going to need will be made, not by newly middle-class workers in Iowa, but by the newly-idle factories of China.

These magic multipliers from the economic models do not take into effect the rise of a global workforce, and there's a really good chance that our "stimulus" will simply stimulate the economies of China and India. As usual, I'd love to see the press ask these questions of the new economic team, but I'm not holding my breath.

Do they have blue pencils in Bangalore?

From Phil Rosenthal at the Chicago Tribune, a story that says that the Chicago Sun-Times may outsource its copy-editing, and Canada and India were mentioned as possible locations for this work.

I'm not sure how much one can save by sending any jobs to Canada, so one would have to assume that there would be less actual editing going on. If they go to India, of course, lower salaries could allow even more editing.

Here in Chicago, we know that the only surprise is that the Trib filed for bankruptcy first:

The company [Sun-Times Media Group], which last year cut $50 million in costs and this year has said it plans to eliminate another $45 million to $50 million to stem losses, earlier this week proposed a 7 percent cut in compensation for all union workers at the Sun-Times and its dozens of sister Chicago-area publications and Web sites.

It's good to know that the lower salaries workers will receive here will go to help the struggling economy of India.

"...then found that is related to Sports field”

The Baltimore Sun's John McIntyre reads Maureen Dowd so we don't have to:

Maureen Dowd of The New York Times has discovered, somewhat belatedly, the outsourcing of journalism to offshore (read: cheaper) operations.

In particular, she describes in a column one James McPherson’s coverage of events in Pasadena, Calif., from Mysore City, India. Mr. McPherson’s epiphany was that he could produce Pasadena Now and not only eliminate those tiresome and slow-moving editors with their quibbles about factual accuracy and clarity, but also the reporters and their princely wages of $600-$800 a week.

He’s as proud as if he had invented the sweatshop himself: “I pay per piece, just the way it was in the garment business. A thousand words pays $7.50.”

One barely knows what to say, so we'll leave the last word to McIntyre:

It is a singular achievement for American newspaper journalism: to have transcended satire. Nothing in Evelyn Waugh’s classic Scoop can rival what American publishers and publishing executives are doing seriously.

It was once thought that some publishers displayed their contempt for the public by publishing trash — celebrity gossip, scandal, grotesquely slanted news stories to benefit a political party or cause — the kind of twaddle in the London tabloids that Waugh so adroitly mocked. Now, contempt manifests itself in an apparent lack of any concern for providing anything that anyone would want to read.

Given the current hectic pace at which newspapers are diminishing themselves, they will soon shed those annoying readers as thoroughly as Pasadena Now dropped those redundant reporters.

(The title of this post refers to the aha! moment of the Indian reporter when she found that the Rose Bowl has nothing to do with food.)

More on (moron?) the market (and other systems)

I wrote yesterday about how government intervention, even that which is designed to "free the market," is inescapably non-market in nature. I may have appeared to disagree with that intervention, but I don't; despite being essentially a free-market guy myself, I recognize the need for democratic institutions to condition the market at times. It's the specific remedy which needs to be discussed, and I really don't care for the snake oil that's being peddled by folks who want to cover up the real effects. For example, a cap-and-trade system is not market-based at all, as the cap has to come from somewhere, and it is fair to question how these caps will be derived, who will benefit, and so forth.

More broadly, and excuse me if I've written about this before, we need to understand that these systems in which we live are created by human beings for the benefit of human beings. There are those who would claim that free-market capitalism and representative democracy have somehow been conferred on us by God, but that's a pretty unhelpful view, not to mention kind of nuts.

Since they are human-created systems, we have the right to change them when they don't work in the ways we would like, when their results cause conflict with other values. We could have a health care system based solely on market principles, but it offends almost everyone's sensibilities to see people dying in the street.

Clearly, if we believe in the basic premise of the system, it makes sense to find solutions within the system itself. One of the remarkable aspects of our democratic system is that it offers a marvelous balance of powers within the system, so we can frequently find redress by using the system as it was designed. For example, no elected official has an infinite term, so dissatisfied voters can turn out that official at the completion of the term.

More amazingly, our democracy allows us to change the system itself. Do we want term limits for senators? We can get that by passing an amendment to the Constitution. One of the current issues in Illinois is that we don't have a recall provision in the state constitution, and a lot of people would like one, if only to get rid of the hugely unpopular governor. However, there is a mechanism by which we can add a recall provision if it has sufficient support, and this is a real strength of our democratic system.

Unfortunately, free-market capitalism has no such facilities within itself for change. The very essence of it is "freedom," which includes freedom to uplift as well as tear down. If a CEO decides to pay his/her workers 50 cents an hour while pocketing $20 million a year, there's nothing in free market doctrine that prevents that, no matter how much our sensibilities might be offended. (Yes, I understand that there are other countervailing long-term tendencies, such as competition among companies for that labor and worker mobility, but these tend to work fairly slowly.)

It is natural to assume that, were pure free-market ideology allowed to prevail, that individual incomes would fit a bell-shaped curve. I don't know if that's exactly true, but let's assume that as reasonable. Obviously, that would leave significant numbers of people below a line of subsistence, and that result offends most of us. But, working within the free-market system, we have no correction to this.

Therefore, we need some extra-market way of making results conform to our other beliefs, our sense of fairness and justice. Few people realistically complain about such things; only a very small number of people on the fringe would seriously contend that we should dismantle our public education system, even though it clearly is not the result of free-market forces.

Most of us understand this pretty well, we really don't think, Reagan notwithstanding, that government is always the problem. It is the only system through which the mass of people, through their elected officials, can effect changes to the result of the pure free market. That is why the current Republican thrust to paint Barack Obama as a "socialist" for believing that wealth needs to be shared is doomed as a campaign strategy, because there are few of us who are rich or heartless enough to believe otherwise - we are all, in the Republican formulation, socialists, even the preposterous Joe the Plumber.

What is interesting is to see even the most unassailable orthodoxies, upon closer examination, fall prey to modification based on real-world results. There have been few things more unanimously supported over the last few decades than wondrous free trade. Anyone who pointed out potential pitfalls (or that the very definition of "free" in this context is problematic) was hooted down as ignorant; certainly no self-respecting economist would utter a discouraging word. That "amateurs" would point out that 60,000 Americans paying $1 less for a sweater doesn't really make up for the loss of a $40,000 per year job made no difference to the folks who believed that national income was the only measure of success. Concern over the plight of workers who were losing their careers was swept aside in a fervor of graphs and equations that proved we were better off, no, really.

So it's interesting to read an article in The New Republic by Christopher Hayes in which he documents growing doubts among economists that the gains from free trade are as large as we were promised, that other factors need to be taken into account (link from Mark Thoma). I won't quote from it, you should read it for yourself, but it does show that theory can sometimes yield to practical results, at least in some minds. We would be wise to heed this example in considering future "common wisdom."

Another cost of globalization

I have had disagreements with people, some through this blog, some not, who contend that I am anti-globalization, that I fall in with the blood-throwing wild-eyed anti-WTO nuts. I am lumped in with those who believe in protectionism, I guess because I don't genuflect to a copy of The World Is Flat, Tom Friedman's tribute to the wonders of globalization, reporting he did based on talking to a series of people who are profiting from, well, globalization.

It is a measure of our increasing need to polarize our opinions that you're either for unbridled globalization, or you're in favor of building high walls around the nation and keeping out all foreign influences. Yet, if there's one thing history teaches us, especially recent history, it is that extremism is almost never desirable, that a vast array of society needs to fall somewhere between the two poles.

One way this mediation happens is through government policy; when mediation fails, we see it as some groups profiting at the expense of others. Take globalization's employment component, the offshoring of jobs. We see companies and their executives making large sums of money from the destruction of towns and careers, and it's clear that they're not paying anything to compensate the nation for that destruction. In fact, tax policy actually makes offshoring that much more attractive.

Now I'm not saying, and never have, that government fiat should ban offshoring, that jobs should be forcibly maintained in a high-cost country like the United States. Even if it were possible to craft legislation that would accomplish job retention, it probably wouldn't work, not without massive dislocations (and, of course, certain industries would find ways to get around restrictions, mainly through lobbying).

But offshoring has massive costs that are not being borne, even in part, by the entities that are profiting from it. Those costs are being endured by the people who can least afford it, those folks who have lost their careers (and I do wish we would stop talking about job loss; career loss is a far more accurate term for a lot of people) and the communities that depend on those people. The multinationals march into the future of infinitely large Chinese and Indian middle classes, leaving behind citizens of the country that financed their growth in the first place.

The point is, if retraining and longer unemployment benefits are the best answer we can come up with to deal with job dislocation (and they are decidedly imperfect), then it is not wrong to expect corporations or their executives to pay for those things. Vague hand-waving about how society is made better through globalization does nothing to ease our transition through this great experiment.

Now maybe you don't believe what I'm saying about offshoring. Perhaps you believe that the labor market is one big crapshoot, that you take your chances when you choose a profession - if it turns out that Indians can do your job more cheaply, that's just the way it goes, too bad. And while I believe that belief comes from a horrendous misreading of the American Dream, it's your right to feel that way.

But then you see what's happening to world financial markets. As globalization has increased, finance has become increasingly interlinked, and a crisis in one economy can bounce around the world and back as fast as the bits can be transmitted. There's a cost here in increased risk, and there's a sense that no one has paid for the assumption of that risk.

However, the cost always has to be paid, and a cost that comes out of necessity is almost always greater than one that is planned. And that's what we're seeing now, as our government is planning to shovel out a seemingly endless supply of money to fix problems. Much of that money is going to companies that, while nominally based in the U.S., actually see themselves as transcending national borders.

When we all pay to stabilize a financial institution that has significant business overseas, we're engaged in a kind of foreign aid. I've argued before that we have missed the reality that offshoring is a variety of foreign aid, in which manufacturing workers in Ohio are paying their careers to people in developing nations. Now we're all doing it, and there's very little assurance that we'll get anything back that is close to what we've paid.

Fareed Zakaria has a Newsweek essay which is pretty close to the mark. He sees the current crisis as "deep, wrenching," but likely less severe than the ones we used to have in the 19th century. Recessions are shorter and less frequent, and it's due to the balance we've struck between the prosperity-creating free market and the regulations we've enacted to curb some of its excesses:

Capitalism is now a global phenomenon, powered by the actions of companies and governments all over the world. Countries will continue to rely on free markets and free trade to get growth and rising standards of living. Over the last three decades countries have liberalized their markets not because people like Bob Rubin or Hank Paulson forced them to do so, but because they could see the benefits of moving in that direction (and the costs of not doing so).

To Zakaria, the true change from this crisis will come in the world's opinion of the United States.

The real fallout of the financial crisis will be the delegitimization of American power. People around the world once saw the United States as the most modern, sophisticated and productive economy in the world. Now they wonder, was this all a house of cards? They listened to American policymakers with respect, even awe. Today, they wonder if these officials know what they are doing. This loss of credibility will have hard consequences. The scholar and analyst Zachary Karabell said on CNN two weeks ago, "We will look back on this as the moment that the global capital base moved outside America." For decades, the United States has attracted massive amounts of capital—80 percent of the surplus savings of the world—which has allowed it to live beyond its means. That era is drawing to a close. America will have to fight to attract capital and investment like every other nation.

He argues that the solution will come from "smart government," from effective policy-making instead of rote citing of "ideological mantras." But we're a long way from that:

Policies are designed to pay off powerful constituents rather than generate long-term growth. We have the most expensive and inefficient health-care system in the industrialized world, the most wasteful energy usage, the lowest savings rate, the worst maintained infrastructure, a complex and corrupt tax code. We've gotten by despite all these problems because the overall system has been dynamic and the world looked to America as the place to put its savings and its faith. But the free ride is coming to an end. It's time to get serious.

Of course, Zakaria offers no way to get to that seriousness, no one does, because our system is so entrenched in its beliefs that we can't look beyond them. Our more progressive presidential candidate isn't talking about anything so radical as fixing these things, offering only hazy "change," so caught up is this country in its worship of the free market.

And now we have a bailout, and another one, and another one, and we throw money we don't have at our problems, and we take it upon ourselves to fix a global system. We don't fix health care, because we need to cut in all the wasteful third parties that are a part of the problem now. We don't turn off our minivans when we wait for little Billy to finish soccer practice, because we want to use gasoline as an inefficient source of heat. We don't want to save money, to defer gratification; after all, we "deserve" our little luxuries.

And we see our status in the world decline, we watch the ideals that once defined America become tarnished through greed and fear, and we tell ourselves, everything's going to be all right, because it always has been before. And we slide, not all that slowly, into the abyss.