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Paul Samuelson Challenges Outsourcing
Noryungi writes "Paul A. Samuelson, Nobel Laureate in Economics, a professor at MIT challenges the outsourcing of jobs (retinal scan login required) to India and China. Choice quote: To put things in simplified terms, he explained in the interview, being able to purchase groceries 20 percent cheaper at Wal-Mart does not necessarily make up for the wage losses."
The western world as a whole is sadly losing more and more of it's technilogical, educational, economincal, and advantages by succumbing to the short-sighted benefits of outsourcing.
What does America produce anymore? What does any other Western country produce? Food? Consumers? It is Very depressing watching this trend. It's more depressing watching my father-in-law, a damn hard working family man lose his job just because he's getting older to some unskilled person outside of my country.
I could go on, but I'm not trying to start a flame..
"It's not stealing if you don't get caught!"
I was reading the english translation of a Japanese business plan (Orient Watch Compant), and the Japanese word for 'outsourcing' was translated into English as "Hollowing-out."
It's an interesting viewpoint: The English word 'outsourcing' imploys that it's just a business transaction - while the Japanese translator used a phrase that has connotations of taking out the core of a business and discarding it.
Perhaps - there's some truth in that idea.
Moneyed corporations, non-working 'poor' and criminal prisoners are turning productive citizens into tax-slaves.
It seems outsourcing costs money and resources as well as saving some. Language, time zone, cultural differences and geographic distances all contribute to the costs. But the resources used to overcome such obstacles are seldom recorded separately, and so do not show up --- leaving the management believing that they have saved money that they have not, in fact, saved.
But it is just a gut feeling.
Religion is regarded by the common people as true, by the wise as false, and by rulers as useful.
I wouldn't give Samuelson much credence, even if he is a Nobel Laureate -- as late as the late 80's he released an edition of his economics textbook that still touted the Soviet Union as a viable alternative economic system.
They've been saying this in California for awhile
Let's not forget that Dell brought back one of its call centers from India due to excessive customer complaints. I've also read that the lower cost of labor overseas is often outweighed by lack of individual action, time zone differences and culturally-caused communication problems. I've heard from several people in ATSI (a telecommunications association) that some clients came back after getting really poor results from offshoring.
Simply put, offshoring is not as clear-cut as everyone makes it out to be once you take in a lot of intangebles. I don't worry too much about it because, sooner or later, the inflation in wages will make offshoring too expensive to consider. It's already made India much less attractive as the one-time costs are taking longer to recoup.
There is a difference between "insightful" and "inciteful" other than spelling.
Precisely what everyone's been arguing for in over the last 20 years..
So, like, maybe it's *not* the best way to run an country...
I don't know why there's all this confusion about outsourcing, since it's really very simple: Right now, the US (and other developed countries) have an economic advantage. By definition advantage means "we're better off than some others," in this case, non-developed and developing nations. If we want a "global economy," that necessarily means evening everything out, and losing our advantage.
You can either have everybody equal, or "us" better off than "them." It should be obvious that you can't have it both ways!
"[Regarding the 'cloud,'] ownership was what made America different than Russia." -- Woz
The reason why so many people have accepted as blind faith the axiom that free trade is automatically good is that the Big Money has funded more economists, columnists, talk radio hosts, etc. This vast Big Money media has for decades used words and slanted, biased, flawed studies to create a worldview friendly to "free" trade, regressive taxes, and an ever-smalled social safety net, along with increased illegal and legal immigration.
Samuelson is a reminder that there are lots of economists who think free trade is a scam. But the average American rarely hears from them. Why?
After 3 decades, the Big Money media machine owns many of the ideas in your brain, and owns the public debate. They bought the public debate with 2 billion dollars of foundations and think tanks. See more about the Tentacles of Rage from Harpers magazine article this month.
eat shiat and bark at the moon
I mean seriously, how often do you actually NEED to ask someone at one of those stores a question about the product that you're buying or where to find something? That's why there are signs, aisle markers, box-printed product specs, items grouped according to their general use (aka departments), etc. All are tools that one should use to get all of the information they need. Unless you have some sort of reading or mobility problem, you should be able to gather all of the information needed to make a purchasing decision in a store by yourself.
As far as quality is concerned, unless your buying brad X instead of name brand, quality shouldn't be a concern.
His argument is flawed for three reasons, one moral, one selfish, one pramatic.
1) Why is an American job better than an Indian (or other foreign country job). From a global perspective, the best outcome is a maximization of jobs and real wages. Sure Indian programmers get paid $10/hr (well I do too and I work in the US in IT but that's beside the point), but $10 buys more in India.
2) Trade is bi-directional If we were to restrict outsourcing of labor, other countries will may complain to the WTO resulting in sanctions. Even thinking as a completely selfish nation, I do not think the sanctions would be worth the slight boost to productivity.
3) Some companies need outsourcing to survive Numerous company CEOs have reported that without being able to outsource some of their IT section, their company would've gone under. In essense, the company outsources maybe 300 lower skill IT jobs to save 1000 higher skill IT jobs in the US.
-- Political fascism requires a Fuhrer.
However, having seen two-tiered workforces in action, I can tell you from both sides that it is not a viable long-term strategy from a Company's perspective. Contract/outsourced employees just do not care enough to reach for excellence, and they have no reason to. Why would anyone give 110% to a Company that is willing to accept 80% (or 70 or 60) effort, as evinced by their willingness to tier their workforce in the first place.
Finally, I feel bad for people just starting in IT in a soft job market, where there are fewer and fewer entry level positions. The same companies that are screaming for senior level talent refuse to develop it here.
I, for one, welcome the challenge of outsourcing. If there is an Indian (or Filipino or Russian) engineer out there willing to work for 20% of my pay, then I just have to be 6 times better. Get close to the customer, master your craft, continuously improve and do not become complacent. If done properly, your lieklihood of being outsourced becomes slim to none.
You mean it doesn't matter how cheap you can make something, if someone doesn't have a job to purchase it they WON'T?!?
DEAR GOD! What will we do about an economy now?!?
The outsourcing of high-paying jobs (heck, even low-paying jobs) does nothing but "appear" to help the economy in the short term because people still have savings to purchase goods at "reduced prices." But once that money dries up, it doesn't matter if that laptop is $4000 or $40 because people will be spending their money on catfood to survive.
Ugh... really... we need to move AWAY from a consumer-driven economy.
Diplomacy is the art of saying, "Nice doggie!" until you can find a rock.
In their paper, Mr. Bhagwati and his co-authors write that such an assessment of the education systems of India and China "almost borders on the ludicrous." In an interview, Mr. Bhagwati said, "You have a lot of people, but that doesn't mean they are qualified.
The problem is that management doesn't seem to care if they're qualified or not. If they can save a buck (or many bucks in this case) they seem to overlook the qualifications.
Some of the jobs being offshored would have lots of requirements stated in explicit detail if advertised here in the US (such that it would be virtually impossible to find anyone who has all of the required skills) , but when they're sent to India those requirements tend to get overlooked... "You've got a BSCS from Bangalore Uni - you're hired!"
The thinking on management's part seems to be that they can make up for lack of technical skills by throwing more (cheap by US standards) bodies at the problem.
Eventually they'll realize that this doesn't work (and anecdotal evidence suggests that this is already beginning to happen).
if minimum wage were all that were offered, there would be :) but then of course the company that pays minimum + epsilon would snatch all the talent. answer: corporate salary cap, just like in sports.
Why not allow people to move whereever they want, and force the corporations to stay inside national borders? Wouldn't this be a more sensible approach to "globalization"? Instead we allow corporations to move wherever they want, and lock people up inside borders.
Is the idea of a person even a concept in your theory of economics? Or, in your theory, are people invisible, with the focus on profits, raw materials in one end, and manufactured goods on the other side? It's something to think about, when a theory allows for certain things to remain invisible, it tells you a lot about what the creator of that theory thinks is important. That's why our economy is said to be in a "recovery" while most people continue to do worse. Our economists don't have a concept for people in their theory, the measurement is of profits. So, if profits are up, but lots of people are starving, then it's still a recovery. This should give you insight into what classical economics is all about. It's a theory designed to decrease one's understanding of what is really going on.
Take a look at how they view corporate workplaces. According to them, raw materials go in, and consumable goods come out. They fail to notice that people go in, and people come out. People come in energized, they go out, exhausted. They might come in with two arms, and come out, perhaps with one. Economies transform people, and mold and shape them. They might come in humble, and ready to help the world, and go out the other side, a jaded, arrogant CEO. The problem is, if our concept of economic institutions doesn't measure the effects of those institutions on people, the air, the envionrment, etc., then our theory will hide all of the negative effects of corporations. Not to mention, that if we fail to take into account all of the effects of our production institutions, then prices will be grossly distored.
What exactly does a globalized economy mean, when people aren't allowed to usurp barriers that corporations can pass through like thin air? Can we call that a globalized economy?
Any place where the price of real estate consistently outpaces income is setting itself up for cost disadvantages. This has long been true in the coastal metro areas of the USA, and is now happening in non-metro areas, such as San Luis Obispo.
In 1969, my parents sold a nearly new 3 bedroom house in rural New York state and bought a new 4 bedroom house in a San Diego, CA, suburb for the same price. In both cases he could, as a high school graduate of no academic distinction who held a factory foreman's job, obtain a loan of about 2.5 times his gross pay. His commute to work was about 1/2 hour.
In 2002, in the Bay Area, with a tech masters degree, I'm limited in choice to a one bedroom condo with an 80 minute commute. Homes are available, but only to those with astonishing credit who are willing to live with the fear that comes with a 2% down payment and 'creative' financing.
Spiraling land values should be regarded as a crime, because they force startups to locate away from research universities.
The clearance system sounds logical. It is not. It is completely arbitrary. -- John Bolton
The Soviet Union was a police state that overspent on the military and secret police, with political hacks running agriculture and civilian production. It could be argued that their problems were more political than economic.
The clearance system sounds logical. It is not. It is completely arbitrary. -- John Bolton
The economic theory, which is perfectly sound, says that yes, wages will drop here, but prices will drop too. In the end it should be a wash.
The political reality is that companies use their clout with the government to create firewalls between countries so they can price their goods differentially in each country. Witness the FDA getting hot and bothered by people importing their drugs from Canada, and of course our long time favorite here, DMCA and DVD regionalization. The result is some people get the benefits of globalization and the benefits of protectionism combined; others get the costs of each combined.
It's just goes to prove what my old uncle Ivan, who was a cynic first and radical second, used to say. "Kid, nobody believes in capitalism. Nobody believes in socialism. It's socialism for me, capitalism for you!"
Post may contain irony: discontinue use if experiencing mood swings, nausea or elevated blood pressure.
Isn't Slashdot a blog?
Information wants to be free.
Entertainment wants to be paid.
You just want to be cheap.
You're absolutely right! Ridiculous indulgences like 40 hour work weeks, worker rights, government regulated health standards, health insurance, etc, are anachronistic in the brave new world of tomorrow!
... to... keep paying the least possible amount to gain the greatest amount of profit!
Yes, your ancestors spent generations fighting for a better life and an end to corporate exploitation of the work force, but so the f*ck what? We should just throw it all away right now in a desperate race to the bottom so that we can all compete! Because competing means paying the least possible amount to gain the greatest amount of profit so we can reinvest capital, in order to
Flamebait? Just how do you figure? After all, in order to compete, we have to reduce our wages by an order of magnitude. Suggesting that we can work our way out of that is crap, predicated on some bizarre elitist viewpoint that motivated folks here can do more than motivated folks anywhere. So we have to reduce wages catastrophically. Which will make everyone poor. Which will throw us into a depression, bankrupting our already bankrupt government, and putting everyone at the whim of the few employers offering any sort of wages whatsoever. Say bye bye to any decent lifestyle. Or you could just save a step and move to India/China and enjoy what those countries have to offer. Assuming they'll let you.
We don't *have* to import all this shit! Read the article and think for once! Cheaper imported goods do NOT make up for having no job! You cannot have free-trade global marketplace when you have vast disparities in costs and standards of living!
You, like everyone else in the US, have bought into the "grow or die" paradigm. It's blazingly obvious that that is not sustainable. Scream "zero sum" all you want, but you are being sold a pyramid scheme. Yes, it's done well for us for the last century. That's a blip on the radar of history. It has coincided with the oil age, another anomaly. This insane insistance on constant economic growth is going to destroy us all.
The redistribution of wealth comes at a premium from base.
If the base is high, say between the US and Canada (not Mexico yet,) or across most of the EU the changes mean that "A rising tide lifts all boats." Economies progress to a higher level by building on what came before.
If the base is low, say between India and the US, the flow is the same, (economics as thermodynamics) but the changes means that you get burnt by the __rate__ of the transfer.
In effect, you have a redistribution of poverty, not one of wealth.
The current immigration policies of the US (and Canada and the EU for that matter,) albeit prejudicial, flawed and exclusionary means that the __rate__ of the transfer is occuring at a tolerable pace.
The current phenomenon of __foreign__ out-sourcing (out-sourcing ''per se'' is not is a major problem since the expense base is directly comparable and commensurate,) is the cause of all the arguments.
The comparative advantage of some labour costs is __too__ great because you're comparing Apple to oranges.
The annual GDP PER CAPITA of Malaisia or India is so much lower than the US (or Caqnada or EU,) GDP PER CAPITA that instead of conferring an advantage, (which it ''does'' do in absolute dollar terms,) it leads to a reverse flow.
The wealthy get poorer instead or the poor getting richer.
I find it amusing that our politicians, who are so concerned with competing on ''a level playng field,'' are more interested in squeezing the money to be made from the difference between the poor and the rich.
MSBPodcast.com The opinions expressed here are my own. If you don't like 'em... Think up your own stuff.
serendipity, this is on drudge right now:
5 4~ 2388909,00.html
http://www.dailynews.com/Stories/0,1413,200~209
Illiteracy shockingly high in L.A.
Half of workers unable to read
By Rachel Uranga
Staff Writer
Continued immigration and a stubborn high school dropout rate have stymied efforts to improve literacy in Los Angeles County, where more than half the working-age population can't read a simple form, a report released Wednesday found.
Alarmingly, only one in every 10 workers deemed functionally illiterate is enrolled in literacy classes and half of them drop out within three weeks, said the study by the United Way of Greater Los Angeles.
"It's an emergency situation," said Mayor James Hahn, adding that poor literacy rates could jeopardize the region's economy by driving out high-tech businesses and other industries that pay well.
In the Los Angeles region, 53 percent of workers ages 16 and older were deemed functionally illiterate, the study said.
That percentage dropped to 44 percent in the greater San Fernando Valley -- which includes Agoura Hills and Santa Clarita -- but soared to 85 percent in some pockets of the Valley.
The study measured levels of literacy across the region using data from the 2000 Census, the U.S. Department of Education and a survey of literacy programs taken from last September to January.
It classified 3.8 million Los Angeles County residents as "low-literate," meaning they could not write a note explaining a billing error, use a bus schedule or locate an intersection on a street map.
And despite hundreds of millions of dollars spent in public schools over the past decade to boost literacy rates, functional illiteracy levels have remained flat because of a steady influx of non-English-speaking immigrants and a 30 percent high school dropout rate, authors of the report said.
---and some more at the URL
But! That's not NEAR as important as customised cars, the latest pop music and videos, near-universal addiction to professional sports, wearing the latest cool fashion and being able to ace videogames! We'll show 'em! Hey, let's throw MORE tax payer money at the public schools! Hey, let's just ELIMINATE borders! Hey, MORE tax breaks for corporations to move overseas! Waitaminnit! I got it! WARS! Let's just have MORE WARS and just TAKE what we need! That should work!
If I can get goods from anywhere in the world, I want to be able to work anywhere in the world.
If I make gatget XXX, and my workers are in India, and I have a programmer called Hacker who lives in Japan, and I want to hire him in India, I have to go through so much crap to get him to work there that it is not feasible.
All providers of the service "Work" should be able to provide such service to demanders of the service "Consumers of work" without any limitation from government. Immigration/emigration policies are as detrimental to international trade as tariffs and import restrictions on goods.
Because "work" is an input of production, just like "wheat" and "gatget xxx".
I say that the US, by restricting the flow of people in or out of the US, and by not strongly requesting from foreign governments that they do the same, is actually hurting the long-term net economic gain.
"Piter, too, is dead."
No, you don't understand. The companies benefit from the outsourcing *at first*. Those that do it make more money. Then other companies do it. Then some of them pass on the savings to consumers ***and they make more money***. The other companies can either allow that company to take business away from them, or they can also pass on the savings to consumers.
Do you see how this works? Initially every improvement results in extra profits. In time, those profits get competed away in a free market. That's why free markets are so wonderful. The force entrepreneurs to keep creating new improvements, and they keep the profits earned by capital down to a minimum.
-russ
Don't piss off The Angry Economist
Are you the host of this show?
/. are well aware no help is needed there, thanks anyway.
Can I get a mic over here?
Seriously, I like the part where we have a guy who is apparently of Indian descent saying all the manufactuing will go to China and all the high tech will go to India.
Ho ho ho. Well, we're not seeing a bit of ethnic pride there eh? I mean facts are facts and there's pretty much zero computer hardware produced in India. Now if you want to argue that chip foundries are manufacturing, I'm with ya. But when you suggest that chip foundried aren't tech, you're starting to lose me a bit. You got to be careful with the language here.
Indeed, India's big advantage is the common use of the English language as much as their tech exprtise. So, this equation of India gets tech and China gets manufacturing seems a bit of an overly creative interpretation of what's going on. I'd say it's more like China gets tech and manufacturing and India get skilled services that require extensive English skills like accounting and insurance and the like.
Some people think India will do something in software, but as we here at
Anyway, I think this misreading of the roles of India/China with reflection on the guy's ethnicity really points out something even more important which is that people are flawed and tend to believe what they want to believe. This is the most damning thing of all for the critics of Samuelson's report.
I was looking forward to reading his explanation (especially since I disagree) but it isn't there. The article /. linked to is just a tease. It's an article about an article, with the meat apparently appearing in something "Journal of Economic Perspectives". Bah. Come back when you're ready to play.
So without any new input, I'll just jump into the flamefest, and say that as an economic "problem", outsourcing is identical to technological advancement. If a computer takes someone job, most Slashdotters would cheer. But if that replacement's name is Apu instead of Bender, suddenly people are screaming. I ask: WTF is the difference?
And outsourcing labor is not only equivalent to a tech advance -- it actually is one. Before you had comm technology so that an Indian could take a tech support call from an American, before you had transportation infrastructure that could move goods at high speed over vast distances, service and manufacturing couldn't be outsourced. But now it's possible. The tech advance is that somebody looked at a spreadsheet and said, "holy crap, we can actually do this now."
Protectionism is ludditism. Yummm.. now that's some good flamebait. :-)
As copyright owner of this comment, I authorize everyone to defeat any technological measure which limits access to it.
Immigration laws, environmental impact, etc. are drags on the model, but they do not invalidate it. They only reduce the amount of benefits that we should expect to see from outsourcing. Also, outsourcing of intangible goods and services is a relatively new phenomenon -- with practice, I think we can expect to see better gains when the circumstances are right.
... Mr. Samuelson and Mr. Bhagwati agree that the way to buffer the adjustment for the workers who lose in the global competition is with wage insurance programs. "You need more temporary protection for the losers," Mr. Samuelson said. "My belief is that every good cause is worth some inefficiency."
Listen, I'm pro-outsourcing, pro-globalization, and very anti-Bush. Why? Here's a quote from the article:
The role of government is to address market failures and balance efficiency with fairness. The role of the market is to provide goods and services with ruthless efficiency. Too much government and we're wasting resources that could have been put to better use. Too much market and we're sacrificing the poor and disadvantaged for the benefit of all. I want free markets tempered by a government that knows enough about capitalism to rein in its worst effects without heading too far down the socialist path. I'm not sure we'll get the right balance from Kerry, but I know for sure we haven't gotten it from Bush.
There's plenty of difference. If a computer takes your job, the job's still in the SAME COUNTRY. You can retrain and compete again to get the job. In offshoring, your job is now overseas. The money moved, but you're not allowed to even if you were willing to live in a country with a lower standard of living and a lower salary. ...immigration laws and all that jazz.....
It was Lenin. I think the quote was more like "the capitalists will sell us the rope with which we'll hang them".
Actually, getting people to sit there and be bored for 8 hours a day without rebelling is a tough task. It generally takes about 12 years to get a human being to behave in this way.
I know you aren't being serious. But, setting that aside for a moment, if I really were effective, more would be happening than merely getting flamed on slashdot. There's plenty of history that shows what happens to people when they are too effective, as in Martin Luther King, Malcom X, etc. Part of the solution to this is of course realizing that we need to avoid the cult of personality that gives one leader all the power. That's why people like Chomsky can't stand being given all the credit when he gives a lecture. The only reason people like Noam can do what he does, is because large groups of people support his work, and he has repeated that fact over and over. Understanding this is part of how we fight the illusion that we need great leaders (or the US military for that matter) to come save us.
Also, the majority of people are already discontent. There's a reason you get slow service at your local McDonald's. They know they're getting screwed. They just haven't figured out what to do about it, yet.