May You Live In Interesting Times
August 25, 2003

By Rohit Shukla, Larta VOX Publisher

In the days of the "New Economy", in recognition of America's ascendancy, many pundits forced upon us (and themselves) the need for a re-evaluation of the business cycle. The dominant school argued that the cycle was at an end as a concept, that the spiral of greater efficiency, effectiveness and productivity in an age of borderless commerce would drive us toward an immortal prosperity. A minority argued against such a notion, preferring to believe in the pre-eminence of borders and of the essential history of the nation state as a self-contained barrier to this utopian future.

Now, it seems, both sets of prognosticators were wrong. The majority drank too much of their own Kool Aid. The cycle is not bust, it's simply become broader and more universal, affecting us directly in ways that are not yet charted. The minority overstated the importance of borders; despite the protectionism that periodically raises its ugly head, globalization has crept in, and is already changing the business of business, and with it the nature of our economy.

In the wreckage of that New Economy, a revolution has been born, and there is no going back. It is not hyperbolic to suggest that America is less prepared to deal with the impact of this revolution, psychologically, economically, politically and culturally, than we were at the onset of the industrial revolution, and less committed as well.

It is referred to by various names, reflecting its rapidly changing character. A couple of years ago, it was called Business Process Outsourcing. America's largest companies, including General Electric and Citibank, were rapidly outsourcing their back office work to places like India. Outsourcing has been with us for some time, Jamaica being a preferred destination in the 70's and 80's. But the growth of information technology, the dramatic changes in communications infrastructure and technology and the need for computing ability led to the well-documented emergence of India as a haven for offshore software development. Cheap labor is the mother's milk of this revolution.

So long as the shift to offshore development involves such things as manufacturing to a specification, the response from pundits and politicians has been more muted. China has become the pre-eminent offshore manufacturer in the world, and everything from generators to garments is increasingly made in China. But in areas that are perceived to be "higher value", like software development and integration services, the response has been hysterical and, in the long run, absurd.

As Jim Lorick pointed out in The Politics of Outsourcing in the August 18th issue of Larta VOX, the cost and benefits argument is hard to counter, unless one is willing to court extreme hypocrisy. We certainly can't have it both ways, calling for a regime of free trade, using the WTO as a shield worthy of attainment, cajoling countries into opening up their markets, casting the issue as the best hope for economic development, and then balking and backtracking when the shoe is on the other foot. Clearly, global competence and competitiveness was a much-desired prospect of the information revolution, a revolution we celebrated a few short years ago. Now that hundreds, even thousands, of Indians are starting to reap the fruits of their labors, often in service to our own economy, we start to have second thoughts. Legislation proposed or passed in several states seeks to close the barn door after the horse has bolted, as Lorick points out.

In a show of considerable ignorance, much of this post-global ignorance assumes a moral high ground. America, it says, has trained these people, and now they're using their education against us. The truth, however, is far more shaded. Thousands of Indians and others who worked on the front lines (or back offices) during the heyday of the dot com boom (and the accompanying telecommunications buildup) were trained in their home countries, in institutions that have recently become the stuff of legend, like the Indian Institutes of Technology (IIT). Thousands more came to the U.S. on so-called H1B visas to work for cheaper wages on projects that were being assembled faster than one could shake a stick at. So, the fiction of our largesse coming back to haunt us is often misplaced and pompous.

One way to look at this is the populist one. Assume the mocking tone of the commentator writing in the New York Times Magazine last week, when he suggested that the Chinese should pay American consumers to consume the products that they were making which we were no longer able to make. It should be no surprise that people actually genuflect before such populist rhetoric. Politicians, as this same commentator pointed out, rush around the country railing about the need for "good jobs" without attempting to explain what has changed, how things were changing, and what challenges Americans of all kinds were likely to face in a world where skill and competence were not the province of the first world anymore.

Another way to look at this is more thoughtful, and variations of this approach are already being bandied around the country: call for certain conditions to be imposed on companies who use offshore developers to create value for products they then market and sell in the United States. This notion, first practiced in the 1980's when "local content" legislation swept the country may have worked in persuading Japanese auto manufacturers to relocate vast plants here (that and the propensity of Southerners to work for cheaper wages than their Japanese counterparts, let us not forget!). But it does not - and will not - work when you consider that software development is much like collaborating on a movie script. It is difficult and silly to separate out contributions by different authors working on the script, which is why they all share credit. Implementing a regime of "local content" on companies that offshore their software development work will invite a range of clever and evasive responses and ultimately lead to a mockery of the regulations.

A third way is to embrace the future, and the uncertainty. It is the most radical way of all, fraught with huge risk. It is going to be politically unpalatable sometimes. But lets understand some basic facts. Many studies that have been profiled in VOX and in the media have suggested for many years that information technology professionals have been in short supply in the U.S. This is no surprise, given the declining interest in the sciences and in engineering in particular, by homegrown graduates. If Law and the MBA become the preferred avenue for many - if not most - of our best and brightest, can we afford to protest and complain that bright and capable people in India or China are meeting a critical need, just because engineering and scientific careers are more celebrated in those countries? Another fact: the number of actual American jobs that are being displaced directly is small; certainly higher-end programming work has been developing offshore for at least a decade. What has happened is the gradual disappearance of other, related jobs (customer service, phone-based technical assistance). It is true that future jobs in this area may be foreclosed for Americans, especially those Americans at the bottom of the rung that, theoretically, could be trained to assume back office and less complex jobs.

Indeed, companies have automated many of these functions, and automation is a by- product of the growth of information technologies and computing. (Despite these advances, however, getting through call trees for such basic functions as understanding your phone bill increasingly requires an advanced degree). Companies that have not entirely automated their phone-based interactions continue to find large pools of cheaper labor in countries like India and the Philippines, where English language skills are established, and where retraining programs are widespread (to teach phone operators who handle customer inquiries, sales and billing procedures the basics of American slang, for example).

It is not going to be an easy ride. Increasingly, companies in countries that have been at the forefront of the revolution are moving "up the food chain", developing products that will compete directly with products here, vying for the attention of every consumer and every business in the U.S. along with homegrown companies, and winning on quality and customer service the American way. The unwillingness of politicians and pundits alike to discuss these issues in a thoughtful way, to come clean with American consumers who are more prone now to see the world realistically, will succeed only in fulfilling the promise of the great trend in American politics and political discourse: pseudomorphism, the retention of infantile characteristics in the adult.

See Working Towards a Workforce, which appeared in the July 15th issue of Larta VOX and highlighted the critical shortage of science and engineering workers in the U.S.

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