White-collar sweatshops

"Globalization" is becoming a dirty word to U.S. tech workers, increasingly angry and anxious as their jobs disappear overseas, never to return.

Topics: U.S. Economy, Globalization,

White-collar sweatshops

John Napier, 53, a senior software engineer at Massachusetts-based EMC Corp., was laid off two years ago.

Despite his master’s degree in engineering and 15 years of experience, Napier has been unable to land a new gig since. “I’ve never in my adult life seen so many ads looking for gold specs that are practically unachievable,” he says. “The interviews are so few and far between. Or they’re just fishy interviews. People don’t seem serious about interviewing.”

Napier says that neither the bursting of the late-’90s tech bubble nor the doldrums of a poky recovery from the recession explain his layoff and ongoing unemployment. He places the blame for his woes on globalization: the double whammy of American companies flooding an already soft job market with foreign workers brought into the United States on H-1B visas while at the same time employing non-U.S. workers still in their home countries to write code or perform other high-tech services.

The latter practice, known as “outsourcing” or “offshoring” or even “near shoring” when it takes place in a neighboring country, is based on a simple economic rationale: Cut costs by sending work overseas to someone who will do it for less money. In the past, such work tended to be relatively low-skilled, such as answering customer service calls, or handling simple forms of tech support. But no longer. Now programmers are feeling the pinch, and the phenomenon may be quickly spreading out of the high-tech sector.

A new study from A.T. Kearney, a management consulting company owned by Electronic Data Systems, predicts that in the next five years U.S. banks, brokerages and other financial service companies will relocate more than 500,000 jobs offshore — fully 8 percent of their workforce. According to A.T. Kearney’s research, the jobs that will move away include “high-end internal functions” such as financial analysis, research, regulatory reporting, accounting and graphic design.

Globalized outsourcing is where the white-collar world meets the sweatshop, and an increasingly thick slice of laid-off workers, like Napier, fear that their jobs haven’t just temporarily disappeared in a dip in the economic cycle — they’ve gone overseas and are never coming back.

“Globalization is now causing insecurity higher up the food chain,” says Josh Bivens, an international economist at the Economic Policy Institute.

For some laid-off employees, like Napier, the trend is nothing less than a betrayal. “The entire American way of life is being mortgaged by a small set of entrepreneurs,” he says, “and it’s not doing us any good.” While he waits for someone to look at his résumé, Napier has found a new salary-free vocation — as an activist picketing business conferences that train companies how to go offshore.

In January 2003, Napier’s theory of the real reasons underlying his continued employment received some direct support. EMC, Napier’s former employer, announced the opening of a software-development facility in Bangalore. Initially, the center will do software support and maintenance, but eventually it will contribute to development of the core storage product.

U.S.-based technology consulting firms have been relentlessly selling the joys of offshoring to their peers. Electronic Data Systems, for instance, has more than 15 centers — in locations such as Auckland, New Zealand; São Paulo, Brazil; and Chennai, India — doing everything from help-desk support to application coding, as part of its “Best Shores” initiative.

The company’s marketing paean to what it calls “global sourcing” purrs that foreign workers provide not just a cost savings but also “faster innovation, reduced time to market, and a greater ability to constantly take advantages of new opportunities in the rapidly changing global marketplace.” In other words, the workers of the rest of the world can get the job done faster and cheaper than the ones in the United States.

EDS is far from the only technology consulting firm bragging about what offshoring can do for its clients; other biggies, including Hewlett-Packard and IBM, are selling the same line. Software and hardware companies are buying the pitch. Brian Valentine, a senior vice president for Microsoft’s Windows division, gave a presentation last July called “Thinking About India,” in which he exhorted Microsoft managers to get the outsourcing “religion,” because competitors such as G.E., Dell and Cisco already had.

“Outsourcing is not just for non-critical work,” Valentine wrote in his presentation, which is reproduced on the Web site of the Washington Alliance of Technology Workers (WashTech), a tech workers group that is lobbying and organizing against the practice. “Redmond is not the center of the universe.” By sending software development to facilities in India, Microsoft can expect “quality work at 50 to 60 percent of the cost,” he continued. “That’s two heads for the price of one.”

“These aren’t low-level jobs that we’re talking about that are being sent overseas,” says Marcus Courtney, an organizer with WashTech. “These are America’s best-paying jobs.”

Courtney believes the outsourcing trend is undermining a U.S. tech job market that’s already soft. WashTech has asked Congress’ General Accounting Office to investigate how the phenomenon is affecting the U.S. labor market. Several states, including New Jersey, Connecticut and Washington, have introduced legislation to ban spending state money with American companies that outsource.

No one really knows how many jobs have been exported so far, but whether they’re hyping the trend or sounding the alarm against it, industry trade organizations, analysts and workers’ groups agree that outsourcing is taking off. John C. McCarthy, an analyst with Forrester Research, predicts that in the next 15 years, 3.3. million U.S. service jobs, from accounting to software development, totaling $136 billion in wages, will move offshore to countries such as India, Russia and China.

In the computer industry, McCarthy calculated that 27,171 computer jobs were sent offshore in 2000; he predicts the industry will send 108,991 jobs offshore by 2005, and 472,632 jobs by 2015. According to the Information Technology Association of America, approximately 10.3 million workers are or have been employed in the information technology (IT) sector in 2003.

McCarthy believes contractors are most likely to be affected. “Traditionally, if you lost your job, you could go work as a contractor, and in some cases make more money. That kind of escape valve has disappeared,” he says.

In a 2003 survey of some 400 IT managers, the Information Technology Association of America found that 12 percent of the companies surveyed had already sent jobs offshore, and that 67 percent of the respondents who were engaged in outsourcing pinpointed software engineering and programming as the areas in which they’d made the move.

The rush to outsource is a case where corporate interests are flatly at odds with those of individual workers and, possibly, of the national economy. From a corporate executive’s point of view, it would be irresponsible to the shareholders not to take advantage of a way to get twice the work for half the money. It would be negligent. But for American workers, the equation works out differently.

Marcus Courtney has been organizing around tech worker issues for more than five years. He says he’s seen a “grassroots explosion” over the issue of H-1B guest workers and offshoring in recent months. It’s a labor movement with a twist — tech workers are notoriously anti-union, tending toward the libertarian end of the political spectrum. But a free market working against them means that it’s time to organize for a little protection.

The tenor of the debate ranges from serious political advocacy on the topic of how H-1B visas and offshoring are affecting the American economy and xenophobic fulminations dedicated to immigrant bashing.

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“I do think that there’s some scapegoating,” says Daniel T. Griswold, an economist with the Cato Institute, a libertarian think tank. “When the economy turns down, foreigners get blamed.”

The countries benefiting from offshoring deny that they’re stealing American jobs. On the contrary, they contend the opposite. In Bangalore in late June, the chair of the National Association of Software and Service Companies, a trade group, argued that outsourcing jobs to India will not lead to job losses in the United States. Instead, outsourcing will help U.S. companies survive the downturn in the global economy. Chairman Som Mittal predicted that once the economy ticks up, concerns about outsourcing will recede.

John Bauman, president of the Organization for the Rights of American Workers, a nonprofit in Meriden, Conn., disagrees. His organization protests outside conferences that teach companies to outsource, its members arming themselves with signs that say “Outsourcing Is Stealing Billions From Americans,” “Stop Outsourcing. Save America. Hire American” and “Will Code for Food.”

Bauman says that his group wants to change American laws, not bash foreigners: “We have no grudges against these people coming over here [on H-1B visas.] They’re very nice people regardless of what country they’re from. They themselves are not at fault; these laws that are allowing them to literally replace our U.S. workers are.”

The movement against H-1B visas is intimately tied to the anger at outsourcing. Anti-outsourcing activists see an insidious progression: Come to America to work for U.S. companies, get trained by U.S. workers, and then take away American jobs after going home.

The number of H-1B visas that allow temporary guest workers to come to the United States is fixed by Congress, a political football that can be fought over domestically. But it’s harder to see how the U.S. government could regulate the “offshoring” of jobs, even if it saw fit to try.

“The practical question of enforcing this is mind-bogglingly difficult,” says Griswold. “It’s one thing to try to monitor slabs of steel coming into U.S. ports. It’s quite another thing to try to monitor and control bits of information bouncing off satellites and flying through cables at the speed of light. It opens up questions of privacy and how powerful we want government to be.”

But other economists say that while offshoring may be good for a company’s bottom line, it may ultimately not be good for that same company’s market. “It makes perfect sense for the individual company, and it makes no sense for the U.S. economy,” says Alan Tonelson, author of “The Race to the Bottom: Why a Worldwide Worker Surplus and Uncontrolled Free Trade Are Sinking American Living Standards.”

An individual company may cut costs and increase profits by sending jobs overseas, says Tonelson, but in the long run that will erode the huge market that they depend on most — the buying power of U.S. consumers. “If all of this outsourcing to India and China and Russia, if it was mainly serving those economies, it would be different, but much of this outsourcing is serving the U.S. market.”

In other words, in the effort to make goods and services more cheaply, American companies may be undermining their own long-term interests. “American industry has been firing its best customers, which are its own workers,” says Tonelson. “It’s as if these companies expect the American consumer to keep on consuming.”

But discussions about tech jobs moving overseas tend to ignore how many new jobs are created by the growing demand of foreign markets, other economists say.

“So far, the rise in globalization has been pretty darn nice for people who are in the top end of the technology and tech skills spectrum,” says Gary Burtless, an economist at the Brookings Institute. “It’s worked out pretty darn well. Whatever they might say, folks in those occupations have enjoyed faster income gains, even taking into account the last two bad years, than people in most occupations in the U.S. I believe that the United States is still a very, very big net exporter of computer services. That means that on balance a lot more people in this industry who work here in the U.S. owe their living to the fact that the U.S. is selling in a huge world market.”

If the U.S. government starts trying to set restrictions on the ability of U.S. companies to export work to other countries, Burtless says, those countries may stop buying products from those same American companies. “Microsoft is worth a tremendous amount more because it is selling in a global market,” Burtless says. “But if the U.S. tries to create a new set of rules, there is no earthly reason [other countries] have to buy Microsoft. They can buy Linux.”

There are things that workers can do to save their jobs, says WashTech’s Courtney, such as fighting federal research and development subsidies to companies that are sending jobs overseas. Why shouldn’t workers demand the same protections that software companies do for their intellectual property rights? asks Courtney.

“The high-tech industry today is pushing our elected officials and leaders to go over to China and India and demand protection for their intellectual property rights,” Courtney says. “Why aren’t they over here demanding the protection of our economic interests?”

In a depressed economy, worker anxiety naturally rises. But the Economic Policy Institute’s Bivens thinks that the whole outsourcing threat is overblown: “I think that there’s a real bias toward exaggerating the outsourcing we’re doing. You always hear that India is taking away a lot of these jobs. It’s still really, really tiny in the latest data, which is two years old.”

Bivens concedes that “maybe it’s exploded in the last two years,” but he points out that the technology industry has an incentive to keep the offshoring option in the public eye as it engages in a continuous political battle to maintain the number of H-1B visas it can extend to foreign workers. The threat is potent: “Fine. If we can’t get the visas, we’ll just send the jobs over there!”

Certainly EDS, Hewlett-Packard and other companies selling offshoring services to high-tech companies have a vested interest in pumping up the appearance of a trend. In fact, a competing research firm, Gartner Group, challenged the study by A.T. Kearney (EDS’s consulting group), which predicted 500,000 financial services jobs would go overseas in the next five years. In a report entitled “White-collar Job Loss Due to Offshore Outsourcing Inflated,” Gartner acknowledged that “among IT jobs in the more-developed countries, the offshore migration is already occurring.” But “immediate concern, however, is unwarranted over the loss of non-IT professional or white-collar jobs,” the report said.

Bivens also argues that your average corporate executives have to pay lip service to the outsourcing trend to sound like they’re on the cutting-edge — and keep their jobs: “To a chief information officer, outsourcing is a sign of creative cost-cutting. They’re never going to say, No, we’re not considering it.” Studies that rely on asking executives about future plans could therefore produce inflated numbers, he says.

But after reading yet another article about the cost savings of outsourcing and offshoring, who can blame unemployed or underemployed tech workers for believing that their jobs have been farmed out to some faceless worker in China who will work for half the money?

Bivens thinks that in most cases that fear is simply a convenient myth: “The No. 1 thing that is hurting information technology professionals is the recession and the popping of the tech-market bubble. Outsourcing, [even] if it’s second, would be way distant.”

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