Wednesday, April 30, 2008

My job is moving offshore!

Judging from the buzz, or lack of it, it appears that the rhetoric against offshoring has faded somewhat and especially the technology sector seems to have come to terms with the practice. However if one pays close attention it is not hard to notice that there still is quite a bit of resentment – so much so that a lot of businesses try to conceal from their customers the fact that they utilize offshore resources!

A shortsighted Lou Dobbs’ type analysis would conclude that offshoring is hurting the American people – high paying jobs are moving overseas at a fast pace and the Americans are getting the short end of the stick! The people who conduct such analysis are strong advocates of protectionism as the remedy – they want the government to intervene and close the gates to offshoring. While to many programmers and people from other professions who have lost their jobs to their offshore equivalents this may sound great, in the long term such policy would have devastating consequences.

Let’s rewind a few decades and draw a parallel (albeit not a perfect one) with the time when the government intervened to protect the once flourishing auto industry by restricting the imports of the foreign cars to the country. In the short term that was great for the American auto industry and consequently for the armada of people that the industry employed – our great auto companies continued to prosper un-challenged. That is exactly what set them up for the huge catastrophic failure that we have been “watching” unfold in the last few years. By shielding them from the competition in essence the government ensured that they would gradually turn into impaired, intellectually challenged, slow reacting, bureaucratic organizations incapable of competing in the open market. How would that have played if the auto industry was left to face the challenge on its own without government help? I am sure there would have been some “bruising” but the American ingenuity and entrepreneurial spirit would have certainly emerged victorious from the “battle” and we would all be now driving reliable, safe, comfortable, elegant, and highly efficient, American made cars.

Is it painful when the lower cost of the overseas resources puts downward pressure on the compensation of American employees or even worst when an American employee’s job moves offshore? Yes, it is very painful but it is a pain we have to endure for the sake of the long term survival. The government intervention would be like delaying an urgent and absolutely necessary surgery for a patient and giving him painkillers instead. At some point the painkillers loose their power and the patient is in great pain but unfortunately at that point it is too late for surgery…

It must be understood that this phase we are going through is not a common, normal phase – the World has moved somewhat abruptly from a World of multiple closed National Economies with some level of strictly controlled exchange between each other into an open market / global economy that is currently undergoing the greatest transition it has ever seen. It is like having some 200 separate bodies of water all at different levels and each of them connected to each of the other ones through a highly complex system of locks – if all of the sudden all the lock gates were open one can only imagine the kind of havoc that event would wreak, but eventually a new equilibrium state will be reached and things will be peaceful and normal once again although completely different. Until the water settles all we citizens of the World (not just we Americans) will have to learn to swim on those water currents.

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Ted Stockwell said...

Your argument that Americans should endure job losses in return for long-term survival is built on a lot of assumptions that just aren't true.

You state that the world *used to be* composed of multiple closed markets but that now it is one big global economy. WRONG.

In an open global market workers would be free to follow the work. That is, I would be free to follow my job to India and work there. But I can't, India isn't open to that (yes, I've looked into it, I'm sick of the weather in Chicago).

Meanwhile, multi-national corporations are spending big bucks lobbying our elected officials to make it easier to bring foreign workers into this country. This so-called 'openness' is one way only. Until the market is truly open there is no reason act like it is (well, unless it is to your personal advantage, like it is to corporations that are offshoring American jobs).

rational said...

Ted – I agree with you in that the “gates” have not been completely opened and yes in some ways that makes this transition even more challenging and will likely prolong it. I believe that this somewhat controlled opening of the flood gates is intended to smooth the transition as much as possible. The opening of those gates between the EC countries was relatively painless to the participants because of the comparable economies and to some degree the cultural and geographical proximity. A complete opening of the gates between US on one side, and India, China and tenths of other countries on the other side would have potentially devastating consequences so it has to be done gradually. But, we can’t be a spectator - it wouldn’t be realistic for us to think that we can keep our gates closed until everyone else opens theirs – we have to participate in the process if we don’t want to be left out.

Can our government do better – of course, and I certainly wouldn’t mind the government intervening to protect the interest of its people if and when appropriate. My point is that such intervention must not be shortsighted and done for the moment’s political gains but should rather keep our long term interest at heart. We know the direction in which the World is going, even though as you rightly point out it is not there yet – protectionism is not a feasible alternative any more for any country that wants to be a player in the global arena.