We’re heading into an election year in the U.S., which means facts are largely going to be irrelevant to most public discussions of issues for the next fourteen months. Instead, we’ll be treated to spin, counterspin, and more spin. The big Indian software & services companies realize this, and the Times reports that they’ve decided to hire lobbyists to counterspin the inevitable protectionist rhetoric (the original spin, as it were) that “outsourcing is costing America jobs.”
The economic impact of outsourcing is complicated, far too complicated to be given justice in a 30 second ad or crowd-pleasing stump speech. While it’s hard to argue that no jobs have been lost to outsourcing, there’s no reliable number on how many jobs are actually being lost (it’s certainly nowhere near 3.3 million, as was predicted earlier). There’s also some evidence that “insourcing” creates far more jobs than outsourcing takes away (the U.S. remains a net exporter of business services, for instance). And yes, some Indian companies are now opening up decent-sized offices in the U.S., and hiring American workers. (As you’ll recall, this came up back in June, with the infamous Obama campaign memo on Hillary Clinton’s purported connections to India.) See the conservative Heritage Foundation for more; and see this article at IHT for why it may not matter anyway.
The lobbyists quoted in the Times article are even adding some new arguments and approaches to their arsenal:
But the core of the Indian vendors’ new strategy appears to be removing themselves from the limelight. Outsourcing is not about us, goes the new pitch to lawmakers, it benefits Americans, including ones in your district.
The Washington lobbyist who asked not to be identified said that a focus of the campaign was to collect data on Indian companies’ investments in the United States and then to lobby members of Congress from districts where those investments have created jobs.
For example, a lawmaker from Washington State might be told something like this: Indian outsourcing companies may funnel some Seattle-area technology jobs to India, but with the affluence that creates in India, more and more Indians are flying. That has made India a huge buyer of Boeing aircraft and thus a creator of jobs in the Seattle area, where Boeing does much of its manufacturing.(link)
I don’t know — the tradeoff described here seems awfully indirect, and I’m not sure a politican could really sell the rising Indian middle class as a positive to an American middle class that’s currently dealing with economic uncertainty. Readers, do you buy the argument above? Can people think of other instances where the trade-off works this way? What about cases where it doesn’t?
Where do you see the American middle-class in a generation? In your view, will America be more like India is today (small elite, smallish to moderate middle-class, and large poor class)? Or will we still be a predominantly middle-class country with an overall high standard of living?
I’m guessing that the American middle class will contract back to its pre-WW II state… composed mainly of professionals, managers and small businessmen. Most of the blue collar workers currently enjoying middle class lifestyles will see their standard of living decrease. There will be a large working class but probably not as much extreme poverty as currently exists in India. A better comparison might be late 19th/early 20th century Britain. It may take more than a generation to reach that end state, however…
BD writes: >>I’m guessing that the American middle class will contract back to its pre-WW II state…
Correct. But first it will go to its pre-WW I(one state), which was much lower. Then it will slowly go back up and stabilise to ~30% of the population. The size of the American (and Western European) middle class of the last forty years is an aberration from the historic norm and will correct itself to much lower levels. This will be accompanied by rising standards in Asia(incl. India) and Eastern Europe, then in Africa. When this is all over, every country in the world will have the same class composition: ~10% rich, ~30% middle and ~60% poor – just as it has been throughout history. The big difference will be in the cause of the class divide: Since the dawn of civilisation, ownership of land, water and muscle power determined the person’s class, in the future it will be ownership of superior intellect, organisation skills and muscle power that determines the person’s class.
Muscle power ain’t going away…
M. Nam
I hope people keep in mind that US is a $11 trillion economy which grew at 4% last quarter. The next closest economy is Japan which is a country smaller than the suburb I live in :-). As usual Mr. Floridian’s wisdom
is right on the money.
With falling US $ and the benign neglect of it from the fed, it appears that second chapter in outsourcing story is about to start. China will not be able to keep its currency at artificially low levels for long. At which point both India and China will discover (India will do that earlier) their domestic market and dynamics of outsourcing will change.
I recall during the last outsourcing “crisis” – in the 1980s, the NY/NJ Port Authority suddenly went nativist and cancelled a Japanese contract to supply its PATH subway system with new cars. Like now, there was little subtlety to the racism and stereotypes being thrown about in the middle classes and in the press. The Port Authority soon came to understand that no company in America was able to make such subway cars, and quietly reinstated the contract.
yeah…no one talks about ireland when they talk about outsourcing. a white dude competing is expected. they are white. therefore, its good that they are getting on their feet. the brown ude, well…he “stole” “our” jobs.
Mark Twain also said this:
Time will tell which of those two quotes will come to pass.
Murali – whats your point ? Mine was clear – SM is a house with rules about what can and cannot be said. This includes generalizations about certain groups (positive and negative).
M Nam – bloody oath. The pyramid is the most common social structure. Good call on percentages. I dont suppose pre- WWI life was easy.
Branch Dravidian – middle class life as exists in the western world will probably vanish. I wonder how this will play out in Scandinavia. Will there be a revolution ? Sadly I suspect that I will see it in my lifetime 🙁
Puli – you are right. Ireland has been at the forefront of the offshoring boom for several years. Whinging begins only when the foreigner gets more.
I suppose being poor in the Western world sucks more than being poor in the Third World.
Those who claim that the middle class in US will vanish mistakenly assume globalization to be a zero sum game. If the west gets poorer only than the developing world gets richer … which is inherently flawed logic.
Not that I think it is a zero sum game but it certainly is not a everybody can win scenario. The resources on earth are limited and we haven’t figured out how to exploit resources in the outer space yet.
I keep getting reminded of the scenario depicted in V for Vendetta about the US! I wonder what’s to happen.
The US economy is so deeply researched and the data so readily available that we don’t have to go far to bring some desperately needed facts into the debate. Let’s look at the last 20 years, a crucial timeline during which several calamities hit the US society very hard. Contrary to popular belief, they did not hit the US economy at all.
The first blow was the offshoring of manufacturing, turning once productive and prosperous regions into Rust Belt, eliminating half the factory jobs, forcing $18 per hour auto workers to seek $8 per hour service jobs. The other calamity was the growing foreign trade imbalance, which meant we started to produce less and consume more, or as Lee Iacocca put it, “We became a colony.” A colony exports raw material, in our case, steel, and imports finished goods, in our case, cars. The next wave of assault, thanks to new technology like computers and the Internet, both cheap and quickly implemented anywhere in the world, was the outsourcing of non-manufacturing jobs. All of a sudden, nobody was safe. One could be a highly trained radiologist in the US and still lose work to an Indian radiologist who is grabbing X-rays taken last night in America off the Internet, making a diagnosis and e-mailing reports back to America.
Follow this link. (Sorry, I don’t know how to make it clickable.) http://www.census.gov/hhes/www/income/histinc/h08.html During the same disastrous timeline of 20 years, the Median Household Income (not average but median) grew 14% in 2006 dollars after adjusting for the CPI. This is irrefutable data. Averages can mask huge income disparities but medians portray a fairer income distribution. The year-to-year figures are standardized to 2006 dollars and adjusted for CPI, which mean that all the variables are squeezed out to present an apple-to-apple comparison between 1984 and 2006.
Of course, the “widening income gap” theorists would like to jump in at this point. To allay their fears, let’s look at what the economists call Gini coefficients, a measure of income disparity within a country. The Gini coefficient for the US was 0.38 in 1984 and 0.42 in 2000. The higher the score, the wider the gap. A coefficient of 1.00 would indicate that one person has all the wealth, whereas 0.00 would mean that all the people have the same wealth. The GO rose a slight 0.04, from 0.38 to 0.42, over the same timeline that the vaunted US middle class supposedly shrunk drastically. Follow this link http://en.wikipedia.org/wiki/Gini_coefficient
There will be many quibbles with the data, and I am trying to anticipate a few. 1. Household incomes rose because more spouses started to work. Yes, but there are more one-income households today, thanks to rising divorce rates. One cancels out the other. You can mine the US Census figures if you would like. 2. Today’s technology driven outsourcing is different from the manufacturing driven outsourcing of the past. How precisely? And technological advantages cut both ways. 3. The income and income distribution data cannot possibly reveal the many pockets of misery inflicted by outsourcing. Of course! Who can be insensitive to the plight of a 50-year old IT guy who brought home $100,000 a year, gave his family a decent life, still has two kids in college and a huge mortgage but just lost his job to an Indian software company. This 50-year old doesn’t have enough time left to learn new languages, and even if he did, he can’t afford to work at the Indian programmer’s salary. At age 55, I can sympathize with the worker that is beyond re-directing and rehabilitating for reasons of age if not educational level and other socioeconomic handicaps.
But facts are facts. Personally, I want to preserve every US job. Intellectually, I need to take a stand on outsourcing.