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Andy Grove Speaks out on Offshore Outsourcing
molarmass192 writes "Andy Grove, of Intel fame, "spoke out" at a recent technology summit in Washington about the current trend towards offshore outsourcing and how it's causing the US to slowly but surely lose its edge in the tech sector. He states plainly that the US government must step in to restore balance between the need for profits and the lure of offshore outsourcing. There are also pokes at the patent system and slow adoption of broadband internet access. An interesting insight into what's going on inside the heads of the US's tech leaders."
I made this arguement to a senior manager of mine a while ago -- we're a health insurance company, and I pointed out that if we were to spend a few million to lobby and get heavy tarrifs passed on outsourced labor, the number of new customers we'd gain/save in the next few years would *far* outweigh the money we save outsourcing our QA (and we don't save that much... We would save some money if it didn't need to be re-QA'ed in the States, but that ain't the way it works in reality).
He didn't get it. Why? Because he couldn't see past the next quarter's budget. Asshat.
Every year during my review, I just pray the words "slashdot.org" aren't mentioned.
My roomate was one of those laid off at Intel, it now takes 3 people at Intel's Aloha, Oregon Campus to do his job (Software QA Engineer). He is now having to work two minimum wage jobs (18 years experience, 7 at Intel, and thats all he can get) to afford living, and ironicly, he now makes just a hair shy of what he was making at Intel, and has less work hours than at Intel.
The Portland area economy is in the dumps, people cant get jobs because they are "overqualified," I would gladly work at Comcast Cable, but Im "overqualified" to man a phone for 8 hours a day and answer people's questons about cable TV.
Thankfully it looks like Ill be working at ACS (formerly Cyberrep) as either a Boost Mobile or Nextel rep.
- Kay
With global worker rights then workers all over the world will have rights.
.work.
That would include those to whom the offshore work is going, who have right to. .
You will also need monocultural global economy for it to work. You are perhaps thinking that that the reason jobs are going overseas is because workers are being exploited by being underpaid, i.e. being payed less than you are ( and thus being able to outbid you on your own job).
This is falacious reaoning. Most of these workers are taking the jobs because they are the best paying jobs available in their local economy where prices on life's necessities are quite divergent from our own. As are their ideas on just what constitutes a necessity.
Poor countries are not, I repeat not analogous to poor sections of rich countries and cannot be treated as such.
Paying someone $40/hr in a $1/hr local economy isn't treating those workers "fairly." It's totally destroying the local economny with runaway inflation, bringing misery to those that can't get those jobs, must pay $40/hr prices, but still make $1/hr. Revolutions have been fomented over much less.
The fact of the matter is that the rest of the world loves being thus "taken advantage of." You earn your $40/hr in a rich local economy that has become rich, at least in part, by taking advantage of poorer nations who now find themselves in a place to compete to get some of that back.
Your job will come back when all nations are equally rich, or all nations are equally poor, and thus share a common economy.
And you can't mandate that. It has to evolve. Or hundreds of millions will suffer. Even die.
You'll also find that most people who wish to protect American jobs think they can do it by opposing a global economy. I can't but feel that most of these people are fairly well off, always have been, have never lived extensively in a third world nation as a local would and thus generally being somewhat clueless as to how things really work, here or there.
Do you want to preserve American jobs and promote global worker's rights?
Go to Mexico. Build houses for the poor while earning a local wage for it.
You might learn something.
KFG
1) The tax code. It's too expensive to comply with the tens of thousands of pages of federal tax regs. Copy the Russians and pass a flat income tax. This does wonders for compliance too: it's just not worth dodging the lower rate, especially when the government is now able to do a helluva lot more audits. Cuts corruption big-time as well.
:-).
2) Lawyers. We're feeding trial lawyers when we should be feeding engineers. Everything from the SCO idiocy to suing McDonald's because some maroon burned themself spilling hot coffee on their lap. We're running doctors out of business with ridiculous lawsuits. Not sure precisely what to do here, but capping "pain and suffering" damages would be a good start. "Loser pays" is worth considering, at least in a limited way (it's too easy to shake down small businesses with the threat of litigation expenses right now).
3) Education. School choice. The thousands of Detroit government school teachers who marched on Lansing, shutting down the Detroit Public School System for that day in the process, are a clear-cut argument in favor of school choice. Let parents find the best schools for their kids. It's clear that the top-down approach we've been using at what laughably passes for "education reform" isn't working.
4) Pass a federal law banning the granting of telecommunications (telephone, cable TV, Internet) monopolies. Yes, this is pulling rank and keeping the takings clause from kicking in will get interesting, but it'd go a long way towards bringing competitors into the high-speed Internet market. I want my fiber-to-the-home 100Mbps Ethernet and HDTV over multicast IP, dammit!
That's a good start. From there, we'll have to ride things out until India and China get closer to our standard of living (halfway would be good enough), if their governments can manage not to screw that up. That's a big if, but at least China has Taiwan and Hong Kong to teach them. On the bright side for us, a hefty chunk of the brightest Indians and Chinese live over here
Grove pointed to steel and microelectronics as historical precedents but there are others: textiles, televisions, and cars to name a few. Our leaders need to examine what we did before when we lost and try something different this time. The article also said, 'He [Grove] said he had detected no recognition of the problem from any of the presidential candidates.' There is one candidate who has recognized the problem. He brought it up at the democratic debate a few weeks ago. Dennis Kuncinich is the only candidate I have seen who doesn't just say what the latest polls seem to suggest. Check out his 10 key issues. Also note that he specifically offers a plan for the steel problem that Grove talked about. Want to know how he feels about any other issue? Look to the right column. It is all spelled out in black and white. I know we will end up with another Washington insider in the White House next term but the man we need there is the one who already understands the problems the industry leaders like Andy Grove are seeing and has already formulated a course of action.
Absolutely correct, and rather frightening, actually.
Capitalism is about driving towards economic efficiency, and that means Walmart devouring everything in the American general retail market and countries with cheaper cost structures providing whatever labor they possibly can, to maximize corporate profits.
I'm starting to see a lot more pro-tariff proposals in reaction to this, but in the absence of that sort of trade policy, it seems inevitable that wages will eventually reach equilibrium, corrected for education and technological resources.
Which wouldn't be bad, but it suggests a dramatic reduction in the absolute standard of living in the United States.. or perhaps just a reduction in the rate of growth of standard of living. 21st century middle class Americans enjoy in many respects a far higher standard of living than the absolute richest did in the 19th.
There are things that could preserve our higher standard of living, though, potentially.. the biomedical industry might do it, if American companies can extract enough wealth from the rest of the world for a cure for AIDS or malaria or antibiotic-resistant tuberculosis or the cancers. The technology industry might do it, except we really are giving away the store when it comes to open source software..
Anyone know of any good science fiction or speculative non-fiction that deals in detail with what such a move towards economic equilibrium might look like in this country, say 20 years out?
- jon
Ganymede, a GPL'ed metadirectory for UNIX
Stop beating down bright, but anxious boys in school. Let them do what they love instead of forcing some idea of "social adjustment on them". Allow them more time for science and engineering. Devote less time to "teaching" them how to bullshit their way to a 6 page term paper about nothing. Give them less Ritalin.
Some may not like to hear this but boys are the primary source of young engineers and right now, public education is taking a big dump on them.
I have several friends in the industry that are good engineers, but without degrees. Public education pushed them away. They are the kind of people I'm talking about. What's a PHB going to do when he compares them with someone from another country that has his degree?
There's some other stuff here:
The War Against Boys
>Michael is once again using slashdot as his personal platform to advance his own pet issues.
Just as you are doing now. I gather you see yourself as the opposition though.
Constantly moving jobs to ever cheaper locations is a no-win scenario. For one thing, there will always be somewhere cheaper -- one day Mexico is the place to manufacture, then it's various parts of Asia. Today software engineering is being done in India -- but wages are already rising and India looks a lot like the U.S. 2-3 years ago; tomorrow China might look cheaper. Eventually, and quite speedily, you burn down every bridge to cheaper labor. The marks have wised up and nobody wants to give the multi-nationals a free ride anymore.
For any economy to make gains workers must be able to afford the goods being sold. For the workers to be able to afford the goods they must make a wage that allows for the purchase of those goods.
Profit!
What we have today is a situation where people have spent time and money to earn degrees to gain employment that the U.S. has allowed to go offshore. People in many other countries do not have to hock their futures the way we americans often do just to make a decent day's pay. Of course, their labor is cheaper!
No I know some jerkweed is going to blather on about free market economics, but you know what? Free markets do not exist. They probably never did. I have no problem instituting laws that regulate corporate activities so that everyone can bring home the bacon.
But hear this well: I don't love corp. execs so much that I think they should be the only ones to profit from the unfair way things are set up.
FWIW, I do think there are real economic and security issues in having everything go offshore with hugely important technologies. The people of the U.S. shouldn't stand for it. Those are important issues that we should look at -- that said, I also don't mind letting my own self-interest speak my cause as above.
I don't know that business owners really control their business as much as we imagine they do.
For one thing, when businesses get really really big and complex, I suppose the left hand doesn't know what the right hands doing, and the business "owners" don't really know what it's doing either. It just sort of runs, but they don't really know how.
Maybe, theoretically, they could issue an order down, like "Hey, only package your chips over here," right? But could it actually work? Maybe not! Maybe that'd cause all these huge social uphevals.
Maybe businesses, once formed, are like parts of a gigantic organic system. You might not be able to just suddenly uproot a major artery, and move it somewhere else, without having major effects on yourself, your environment, and whatever else plays a part (who really knows what, right?).
So, I don't know. Is it really hypocracy? Maybe powerful people aren't really as powerful as we imagine them to be?
I've read some things by some very wealthy people. I can't understand it all. But some of these people seem to me to be pretty sincerely interested in doing what's right.
Now, granted, the vast majority of these people seem pretty skanky to me. Enron? Right? I suspect that most big business is like that.
But when I read about people who really seem to be trying to do good, like O'Rielly, I just don't think it's a PR thing. I think these people are serious.
I don't know; Maybe someone who knows better can reply to me.
I believe that one of the reasons that labour is significantly cheaper in India is because the socioeconomic system is vastly different. India has government sanctioned bonded child workers. And whenever you can introduce virtual slaves into an economy, you can dramatically drive down the price of everything else.
Bonded child labour? Slaves? In India?
Yes:
http://www.cbsnews.com/stories/1999/11/22/60II/mai n71386.shtml
http://www.hrw.org/reports/1996/India3.htm
http://www.anti-slavery.org/global/india/
The argument that we should be more efficient, smarter, better, more competitive against our foreign counterparts -- that's just a red herring until more fundamental human rights issues are addressed.
I'll consider outsourcing to another country economically fair and ethically legitimate when that country meets some minimum (I admit this to be somewhat fuzzy) world standard of human rights.
FYI, Indian companies already outsource to China, today. China, Eastern Europe/Russia, Vietnam, Mexico, etc. In fact, so called "daisy-chaining," where an Indian company gets a US contract due to its relationships and reputation, and promptly outsources it elsewhere, is the new buzzword. Computerworld calls this "a trend to watch."
You want to talk about China? The Sept 15 Computerworld had an article about outsourcing that profiled a number of different countries. Here's some fun quotes and facts about China:
Get your raincoats, storm's coming.
I'm a web consultant based in Canada. Our clients tend to be organizations that outsource most of their IT, and we've seen an increase in overseas offshoring, primarily to India, in the last couple of years. Almost without exception the quality of work is awful. Projects are poorly planned and code is indecipherable.
I find it hard to believe that this is because there aren't any good Indian developers. The situation seems to be more reminiscent of the bubble days of the tech economy in North America, when companies were hiring anyone they could get their hands on, and trying to pass them off as savants when they were fresh out of some diploma factory. This wasn't the only reason for the massive collapse, but it seems likely it was a contributing factor.
I expect as the false economy of offshoring is slowly seen for what it is, as poor quality and project failure take their toll, that a similar thing will happen with the tech sectors of these nations. (Likely not as drastic, as there was a nasty combination of things that caused the bust over here).
There's money to be made off the pipe-dreams of starry-eyed PHBs, but there's a price to be paid for fueling their disappointment.
This is the voice of World Control. I bring you Peace.
Not to mention incentives to become educated. Unionized garbagemen are now making more than formally educated and experienced professionals. While that may be amusing, if the wage gap between professionals, under global competition, and service industry workers, gets smaller and smaller, it will be a tremendous dis-incentive to young people to go to school and take out massive loans.
These are some very serious concerns... we will all certainly be fine in the short term, this economic malaise will pass, but longer term the structural issues in global competition between the western world and the developing world are going to be, well, scarey.
Larry
I live in New Zealand and work (embedded firmware etc) for a company owned by an American corporation. My salary + overheads are a third of what it costs to put an American behind a desk to do the same job. OK, we're not talking complete sweatshop, but the basic principle is there.
It is easy to say that the American engineer is getting screwed becasue he can't get a job. In many ways, the NZ economy is also getting screwed (at least in the short term) because my skills are going into building the American corporation rather than some New Zealand company.
In reality I think we're only seeing the thin end of the wedge. Countries like China, India etc have the potential to become stronger and stronger. As these countries get upskilled in all areas (manufacturing and engineering), the value added that comes from America is diminished. What's left for the American corporation to do? Marketing. How long before marketing etc also get commoditised and go offshore along with service organisations (tech support etc which already have)? Eventually there are likely to be full Chinese etc corporations with the capability to do everything better and cheaper. Where to then?
Bottom line: American corporations are so driven by quarter-by-quarter profits that they do not invest in the future. This will fail not only those corporations, but the economy on which they're based.
Engineering is the art of compromise.
If you can tell me the difference between the government owing the corporations and the corporations owning the government I'd like to hear it.
Then we'll take up what the possible difference between these states and fascism is. It isn't a pleasant subject.
You make one fundamental assumption that is false though. Capitalism and Corporatism are not the same thing. Free trade is the natural human state. Modern corporations are government contructs upheld at the point of a gun.
They are serfdom, not capitalism.
Capitalism is simply the right to mind your own business.
Corporatism invokes you to mind their business under the promise of the protection of the liege lord.
Note carefully the difference between the two.
Read Thoreau's "Life Without Principle" (in this case principle is used in the economic sense. We'd probably say capital instead).
On it's surface it seems to revile business in its every word, but this is misleading. Thoreau was actually a capitalist and businessman. Every rugged individualist is really. It simply goes with the territory. If you insist on being your own man you must, of necessity, take care of your own business. Or retire from the world, which is what Thoreau did not do.
It is, at its heart, one of the most stunning paens to capitalism every written.
You'll find it a refreshing alternative to Ayn Rand and much better literature, especially since it's only a handful of pages long but says more of real value.
KFG
I used to work in the IT dept. at Andy's old company. It was pretty brutally slashed, with jobs going to India. These layoffs were "hidden" from local communities to lessen the impact of panic from realtors and govt. officials from a loss of home price values and taxes. Hospitals in the area were unaware of the cutbacks, when they came in based on Intel growth. I'm not saying they're owed growth, but steps were taken to minimize exposure of layoffs to the community, and it was hidden from total company employee numbers by hiring going on overseas.
I also know people who were being asked to train their replacements overseas, and once completed, were to lay off people in the hundreds.
The fact remains that while Andy is "Torn" between stopping it and retaining shareholder value, nobody really cares as long as a profit is shown and stocks go up. Questions were asked of his successor at campus meetings about this, and he danced his way out of saying that jobs were flowing overseas... but it was obvious. Mr. Barrett recently came out and blatantly stated that Intel is expanding heavily overseas in efforts to cut costs.
Again, stocks are rising... who really cares?
I'm employed now, but during this wave of layoffs, approx. half targeted were longtime employees who were presumably making the most money.
I don't have much animosity personally towards Intel. They drive their people really hard, and this will come back to bite them as the economy improves and good people leave in droves. I personally am glad to be free of the hard-driving tactics of work there. And I've met people who were dying to be laid off just so they could retain unemployment benefits - which they're not eligible for if they ask to quit. In this economy, there's little for them to turn to right now.
But the time will come.... They'll bail.
For various reasons I've been to the "urgent care" clinic a few times in the past couple of years. Usually it was because the ailment was too trivial to deal with the appointment/timeoff process with my regular doctor.
Each time I've been there, I've been treated by a doctor who was foreign born and in one case, had been in the US less than a year (I asked). One doctor was from Egypt and the other was from Romania. Both appeared to be what I'd call "awkwardly competant" -- they treated my ailments, but their whole interaction with me was really odd. It wasn't exactly confidence inspiring, and was markedly different from the experience I've had with foreign doctors when I've been at the University Hospital.
Anyway, this urgent care clinic is part of a corporation, and urgent care medicine is a lot of schlock work (colds, cuts, burns, etc) at bad hours that a lot of doctors don't like to do...for less than a 'normal' salary of $150-200k.
So why not start a program of importing doctors from overseas? And I think that's exactly what they've done. And it wouldn't surprise me with the cost pressure on the medical system in the US if this didn't become a lot more common, with the lower end of the medical practice getting filled with foreign doctors.
I don't know what country you live in, but in my country the cost of housing has consistently increased (by at least 5%) every year for at least the past 14 years and is showing no signs of slowing down any time soon. How is cheap foreign labor going to help with this?
It may amuse some countries to see the citizens of most first world countries squatting in the streets because they can't afford a place to live on world wages, but I won't be too happy about it. Other than housing costs, however, I would tend to agree with your premise. Wages are always relative to what you can buy with them.
I haven't noticed this prices-falling-faster-than-wages phenomenon you refer to though. While the prices of some goods have fallen, mostly due to Chinese labor, the prices of most non-technological goods seem unaffected. I have not seen any drop in basic cost of living goods. If anything the cost of food, electricity, water etc have increased.
I don't know how much I'm going to enjoy my new $5 70" plasma HDTV television with Blueray DVD player (built by 10 year old kids in Port Moresby being paid in fishing hooks) while living in a tent on public land. Where am I going to plug it in?
Quite an experience to live in fear, isn't it? That's what it is to be a slave.