You can't stop a tidal wave with a fork

Outsourcing swept away my company, my father's life savings, and my sanity. But I'm still not singing Lou Dobbs' protectionist song.

By David Silverman

Read more: Technology & Business, How the World Works

Mignon Khargie / Salon

May 9, 2007 | I would love to blame outsourcing. I would love to agree with CNN's Lou Dobbs that by exporting jobs to India, greedy American corporations are killing independent businesses. I could say this is exactly what happened to me, that it explains why I lost my father's life savings, my company, $4 million and my entrepreneurial American dream. I could take comfort in the fact that outsourcing swept me away in its capitalistic tide, and that there was nothing I could do about it. But this is not what I believe. And these are not the lessons I learned. The truth about America's small businesses in today's global market is a harder and more indelible one, it contains seeds of hope, and this is the story I want to tell.

Let me begin in 2000. I owned a prosperous typesetting business and employed 200 people. My company, Clarinda, had 100 middle-aged women in "World's Best Grandmother" sweat shirts in two light-industrial brick buildings in the fields of Iowa; 30 young Filipinos in a five-story office tower with windows that looked out at South Super Highway in Manila; and the remaining 70 scattered in small locations about the Northeast.

At the time, I was counting my yet-to-be-hatched-IPO eggs as the company soared to $10 million in annual revenue and $1 million in profit. I was following the American dream as laid out in a radical typeface on the cover of Wired magazine. I would raise venture capital to buy my competitors and form a more perfect typesetter. I would be worth millions. Heck, I felt like I already was. I was an exec-u-tive. I had a plasma TV, two Pottery Barn couches, a custom bicycle as good as Lance Armstrong's and a Cuisinart in its box under the kitchen sink in my four-bedroom condo on the Baltimore waterfront.

I know you are smart and think typesetting is long dead. You are correct. The process of laying bits of lead together to make lines of type has passed away for all but the most remote Jungle Daily. But the need to turn rough manuscript into composed pages using computers and software programs continues. At Clarinda, we did just that. The majority of the pages we laid out were for educational textbooks. Our job was to make the little boxes on the side of the page with the blue tinting, or lay out a pile of equations in "Precalculus for Beginners."

My business partner, Dan, had been in printing and publishing his entire life. He was a gregarious man who wore a houndstooth jacket, had a deep tan, puffed up gray-blond hair and the aura of Conway Twitty. As a young man, he played guitar in strip clubs with his uncle. In the 1970s he worked his way up from ad salesman to president of Waverly Press in Baltimore, where he helped take the company public. Then he went to Penta, an electronic page-layout system that existed long before there was an Apple and a QuarkXPress.

I met Dan in 1994 in Baltimore where he was my boss at a company called Datadata, which did retyping of tax law for CD-ROMs with an army of keyboarders in the Philippines. The owners of Datadata called Dan a throwback because he believed in what he called "benevolent capitalism." By that he meant treating workers with respect, giving corporate profits back to the workers, and mixing low-cost overseas production with American workers. A good company, Dan always said, would not compete solely on price; since it paid its workers better and respected them, its quality would be better.

It was the same philosophy of my father, who worked for IBM for 35 years. My father didn't force me to learn the Old Testament to get bar-mitzvahed, but he did make me read the IBM manual on ethics. "IBM is the greatest and most moral company," I would say to other 6-year-olds during games of "war" with sticks and mud. "You aren't out. You're on probation. You have six months to remedy the situation." (Yes, I really did say that.)

In the 1990s, typesetting was done by several hundred mom-and-pop firms scattered across the country, usually within a few hundred miles of the major publishing centers of New York, Chicago and San Francisco. Dan saw an opportunity to roll up the typesetting industry, send some of the work overseas to remain competitive, increase the quality of service, and through economies of scale become a major public company on a scale equivalent to what the printers had done.

In 1999, Dan and I borrowed $2 million to buy the 50-year-old Clarinda, named for Clarinda, Iowa, a town located in the heart of the country. Most of the money came from Small Business Agency-backed loans, intended to spur American entrepreneurship, but a big chunk of it, $200,000, came from my father's savings. The money was the total of Dad's IBM stock, which he had bought, sometimes in fractions of a share, from the very first day that he had received his IBM-issued punch-card paychecks, which he kept in a fireproof box by his desk.

As the new century dawned, outsourcing, now the cold reality of American business, created the obvious problems for us. A qualified worker in India got paid $1,000 to $2,000 a year compared to the $30,000 to $50,000 we paid Iowans. While we could get an advantage by using technology to work smarter, and produce more pages per hour, we ran up against stubborn Midwestern resistance to change. Some of our employees, rather than learn to use the computer effectively, would lean a stapler on the keyboard to "automate" a task.

But we were making progress. We had a branch office in Manila, where we paid workers $6,000 a year, an upper-middle-class salary. We built a training center in Iowa and brought the greatest minds in typesetting to the plant to get us going with the best software and methods. (OK, the greatest mind in typesetting was a fellow who lived in a cabin in New Hampshire, but he did increase our efficiency by a hundredfold -- and drink whiskey in the back of the cab from the airport.)

Our real problem came from our customers, the publishers. We offered to charge them as little as the Indian firms did, but most of them wouldn't even let us bid, preferring to squeeze as much profit as possible out of typesetting.

In the '90s, publishers had merged and merged and then merged some more. What had been hundreds of educational publishers was now just a few. Harcourt bought Mosby, Saunders, Academic Press and the Psychological Corp. Then Reed Elsevier bought Harcourt. The three top companies represented about 80 percent of our business and the pressures on us to maintain those customers were terrible. If Reed said, "Put an employee on site in our office in Texas," we did it, even though it cost us $100,000 a year, which was just about all of our profits on that account. If we said no, we'd have no business at all. It would have been like saying no to Wal-Mart. And just as it is at Wal-Mart, the mantra of our newly merged customers was: "Lower your prices."

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