If the North American Free Trade Act passes, "you will hear a giant sucking sound of jobs going south of the border". - H Ross Perot, 1992
In the developed world and particularly in the United States, the scope of jobs disappearing overseas is widening beyond all imagining, to professions that almost nobody expected to be hit, and with far higher incomes than anybody thought possible as globalization bonds with the law of unintended consequences.
The catalyst is the Internet. As instant communication becomes more ubiquitous, the developed world's white-collar professions, from CAD/CAM (computer-aided design/computer-aided manufacturing) to accounting to medicine to architecture to aircraft design to research and development to engineering to equity research and financial management to knowledge management to revenue-cycle management - a whole panorama of high-income employment - are inexorably going.
The impact on American and European society is inevitably going to be far more profound than almost anyone understands today. It is already responsible for major positive changes in the living standards of the middle class in other parts of the world.
The United States currently accounts for as much as 70 percent of the world's "outsourcing", as it is called, or sometimes offshoring. McKinsey & Co, the international consulting firm, projects that the flight of jobs offshore to developing countries will grow by 30-40 percent a year over the next five years. By the highest estimates, as many as a million jobs have disappeared overseas from the US job market since the current economic slowdown began in 2000 and could represent a major reason for the struggle the US economy is undergoing to right itself.
McKinsey puts the number lost from the United States at a much lower 400,000 today, but expects it to grow to as many as 3.3 million by 2015. The business-consulting firm A T Kearney Inc projects that half a million jobs, or 8 percent of total employment by banks, brokerage houses and insurance companies, will go overseas within five years.
But to show how extensive the phenomenon can be, consider some of the more unlikely developments over the last three months:
This article concentrates mainly on India and is only a small specific sample of the developed-world jobs and services that are in the process of disappearing overseas. Canada, Ireland and Israel, with large English-speaking populations, are also particularly attractive to Western firms, primarily because English is widely spoken, and well. But in other countries such as India, the Philippines, South Africa, Ghana and Sri Lanka, English is also widely spoken, and well, and costs are minuscule. Russia, with its well-educated tech professions, is also a destination.
"Anywhere you have social and economic growth, any of the Third World countries are wonderful opportunities to set up services platforms. You can pretty much follow where the British Empire went," Marc Liebman, president of Everest Group, an outsource consulting firm in Dallas, told Asia Times Online. "They left strong business and physical infrastructure behind them."
In a stunningly prophetic article, Frances Cairncross, a senior editor at The Economist, wrote in 1993 that the communications revolution had wrought what she called "the death of distance". In that article, she posited that there had been three profound transport revolutions since the 19th century, the first when the arrival of steam initiated a steep fall in the cost of moving goods. The second came in the 20th century, when the cost of transporting people fell to the point where vast migrations across borders brought tens of millions of immigrants from old Europe to the Americas, and since has resulted in massive movements of economic refugees from the poor countries to the rich ones.
The third revolution, Cairncross wrote, would dominate the first half of the current century. It is the diminishing cost of transporting information. Her vision has come true even faster than she thought. Because of fiber-optic cable, satellites and digital compression, the transport of information can be basically free. The enormous charges for personal calls on telephone lines across the Atlantic or the Pacific are virtually all gravy. Once the satellite or the cable is in place and the capital expenses are paid, there is no expense. Companies with their own transponders on satellites have lowered their costs dramatically.
Thus it is possible, for instance, for Fidelity Investments to put its call centers in Ireland. It is increasingly probable that a call to any repair service or help line will be routed not to the Midwestern United States but overseas to the Philippines, Ireland, India or any one of a half-dozen other locations. Indian schools are training prospective employees to speak in American accents. Back-office processing such as accounts receivable and payable, claims processing, revenue collection and passenger management are not going to be done in the United States anymore.
JP Morgan Chase, the investment-banking firm, said it plans to move some of the work of preparing stock-market research reports to India. The Financial Times of London has more than 100 such analysts in Manila, entering data from company reports all over Asia into computers, so the information can be sold as databases for investment banks at a fraction of the cost the banks would have to pay their own people.
"What we went through 10-15 years ago with manufacturing and blue-collar jobs, we are now about to go through with white-collar jobs," said Michel Jenssen, president of supplier solutions for the Dallas-based Everest offshore consulting group. "It still takes three to six months to ship manufacturing components offshore, less if you can send by air. But with services, with telecommunications technology, movement is now measured in milliseconds. You can move the work around, you can scan images, you can move workflow to India with no more difficulty than you move it from the San Francisco Bay Area to Texas."
It is possible, as Vivek Agrawal, who led a McKinsey team studying the issue of offshoring and wrote a report titled "Offshoring: Is It a Win-Win Game?" said in an interview recently with Asia Times Online, that the departure of these jobs is healthy for American society. It frees up capital and labor for more rewarding, or productive, or effective jobs, Agrawal says. A JP Morgan Chase spokesman told reporters recently that moving market research preparation to India would get rid of number-crunching, freeing its US staff to focus on higher-level financial analysis and spending more time with customers. But it is hard to figure out what jobs are more rewarding or productive or high-end, for instance, than thoracic surgery or architectural design, or what jobs can replace them in the developed world.
Agrawal describes most of the information-technology (IT) jobs headed offshore as relatively low-skilled. If Indians or Pakistanis or other nationalities can do the really high-skilled jobs, he says, it is much more likely that they would obtain visas to move to the United States and do the jobs here - although the US government, on October 1, cut the quota for so-called H1-B visas for skilled workers from 195,000 to 65,000. The effect of that cut is most likely to be that US employers, unable to find people to do the jobs here, will take the jobs to where the workers are - and pay them lots less, thus losing the multiplier effect of their paychecks in the United States (see H1-B visas: US gets it wrong again ).
The loss of these jobs overseas is also probably going to affect developed-world inflation. The investment bank ABN-AMRO, in an October 3 analysis of the US economy, wrote that while a cyclical rebound in economic activity is forecast for late 2003, "this rebound will not produce the typical firming in underlying inflation that influenced monetary-policy decisions and the interest-rate outlook in previous recoveries".
That is at least partly because, while US Federal Reserve chairman Alan Greenspan has been given credit for keeping inflation in check in the United States over the past decade, it is equally likely that it has been due to outsourcing and offshoring. Inflation classically starts to pick up as households increase consumption spending and firms increase investment spending. That tightens the labor market, which in turn means that labor can pick and choose between jobs, and for many jobs there aren't enough workers. Workers had the luxury of going on strike to demand higher pay.
But since manufacturing jobs first began to go offshore with the assembly of consumer products in the 1950s, workers from auto plants to steel mills to the panoply of America's rust-belt industries discovered that going on strike to demand higher pay meant their jobs could disappear, first to Japan, then to South Korea and Taiwan, then to the Southeast Asian countries, and then all over the world.
Now, ominously, that is beginning to happen to the middle class as Cairncross's thesis on the death of distance starts to prove out. What happens if, for instance, US health-insurance providers cotton to the fact that an unwilling Joe Bloggs could be flown to Honduras, say, to have his gall-bladder surgery, and that his airplane fare (charter, of course, to take a planeload of surgery patients at a time) and lodging could cost half or a tenth what it costs at Sinai Mercy Omni-Surgery in Middletown, USA? The insurance company, like the British National Healthcare Service, would contemplate that the out-of-control cost of medical care in the United States is going to stabilize, no matter how much Mr Bloggs would prefer to have his gall bladder incised at home - especially if their pharmaceutical costs descend as well.
And they well could. In August, the multinational pharmaceutical companies struck a deal with the WTO to create a loophole that allows the neediest countries to override patents on expensive drugs and order cheaper copies from generic manufacturers in exchange for a small payment. A combination of AIDS drugs that in the United States costs $14,000 per patient per year can be delivered for a small fraction of that amount.
Indian pharmaceutical companies, for instance, are producing generics for many pharmaceuticals at pennies on the dollar compared with the cost in the United States. Even today, hordes of US consumers go to the Mexican and Canadian borders to buy their prescription drugs.
Americans, and later Europeans, watched with equanimity starting in the 1950s when manufacturing jobs started to disappear into low-cost factories in Asia. Only the workers who had filled these emptying factories and the labor unions who represented them railed against the loss of jobs. Nonetheless, while in 1950 about 35 percent of America's labor force were engaged in manufacturing, that figure has fallen to about 12.5 percent today.
McKinsey analyst Agrawal and the team that wrote the study argue that offshoring is not particularly bad for the United States because at least 70 percent of US jobs are in services that are produced and consumed locally.
"We would argue that not only is the US fully capable of withstanding these changes, as it will be able to create jobs faster than offshoring eliminates them, but that the current debate misses the point entirely." The point is, McKinsey says, that offshoring creates wealth for US companies and consumers and therefore for the US as a whole and is "just one more example of the innovation that keeps US companies at the leading edge of competitiveness across multiple sectors".
Indeed. It's great for companies. McKinsey estimates that management jobs moving offshore will rise from zero in 2000 to 288,281 by 2015. Business jobs will rise from 10,787 to 328,281. Computer jobs going offshore will rise from 27,171 in 2000 to 472,632 in 2015. Office jobs - the back-shop data-entry jobs that consist of keying in data - already projected at nearly 590,000 by 2005, will skyrocket to 1.66 million by 2015.
Ironically, many of the disappearing jobs owe their departure to H Ross Perot, the failed US presidential candidate whose "giant sucking sound" quote started this article and which continues to reverberate across the United States today.
The five biggest outsourcing consulting companies in the US today are in Dallas, Texas. Asked why, Marc Liebman of Everest said, "Because Ross Perot was here." Perot, first with his company EDS and later with Perot Systems Corp, pioneered data transfer and became a worldwide provider of outsourced IT services.
According to BusinessWorld, an Indian publication, Perot Systems in 1999 entered a 50 percent joint venture with HCL Technologies of India to create HCL Perot Systems to handle billing and claims for health care companies in the United States. It is a pioneer in outsourcing data overseas to cheaper labor for major corporations.
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