9 Articles About Job Destruction
9 Articles About Job Destruction
Date: Sunday, January 04, 2004 3:48 PM
JOB DESTRUCTION NEWSLETTER
www.ZaZona.com
Article 1:
http://www.freep.com/money/business/tool30_20031230.htm
Tool-die shops fighting for life
In conversation, Flannery named one competitor after another that has
gone under. He, like many other toolmakers, blames China. "I know I
sound conspiratorial, but the Chinese are killing us. History shows
that a country needs to be able to build its own swords. Right now
there are lot of toolmakers in Detroit that haven't gone under only
because they didn't want to ruin their employees' Christmas," Flannery
said. He paused, then added, "but wait until January."
Article 2:
http://www.latimes.com/business/la-fi-offshore4jan04,1,2065017.story?coll=la-home-business
'Offshoring' Trend Casting a Wider Net
The outsourcing movement is defying conventional wisdom about what
positions are immune from export
Article 3:
http://www.csmonitor.com/2003/1229/p01s03-usec.html
Around the globe, new 'Silicon Valleys' emerge
As software jobs move to India and beyond, California could lose its
footing as tech startup capital of the world.
Every so often, Walter Wilson wonders if he should become a plumber.
It's not that he is repressing a deep affection for S-traps or
porcelain fixtures. Rather, it's the fact that, to him, the Silicon
Valley of old is dead.
Article 4:
http://www.nytimes.com/2004/01/03/business/03consult.html
Offshore Services Grow in Lean Times
When Procter & Gamble employees forget a computer password or need to
change the number of dependents they claim for tax purposes, they call
one of three places: Manila; San Jose, Costa Rica; or Newcastle,
England. Procter & Gamble, with about 98,000 employees in more than 80
countries, needed two years to consolidate its back office and
personnel operations - and help from a slew of consultants.
Article 5:
http://www.usnews.com/usnews/issue/040112/opinion/12dobbs.htm
By Lou Dobbs
The politics of immigration
In his year-end news conference, President Bush called for an
"immigration policy that helps match any willing employer with any
willing employee." For all the world, the president's idea of an
immigration policy sounds like a national job fair for those businesses
and farms that don't want to pay a living wage and for those foreigners
who correctly think U.S. border security is a joke and who are willing
to break our laws to live here.
Article 6:
http://www.business-standard.com/today/printpage.asp?story=31211
MNCs to get tax break for BPO income
Subhomoy Bhattacharjee in New Delhi
The finance ministry has decided to exempt multinationals with business
process outsourcing (BPO) subsidiaries in India from paying tax. The
impact: Big relief for companies like GE, Dell, American Express and
Hewlett-Packard
Article 7:
http://www.iht.com/articles/123372.html
Coming to terms with the logic of outsourcing
So earlier this year Thibodeau founded another company, White Label,
with a different mission: to help U.S. technology companies subcontract
work to India. "Not only are Indian companies a third of the cost, but
they actually are better," Thibodeau said in a telephone interview from
his office outside Boston. "It's really kind of scary."
Article 8:
http://www.benningtonbanner.com/Stories/0,1413,104~8670~1803415,00.html
Losing good-paying jobs is no boon
They are good-paying jobs, bringing in about $16 an hour before
benefits, according to Lance Matteson, executive director of the
Bennington County Industrial Corp. The Vermont plant is the only one
closing in a consolidation caused by "global competition." Bennington's
jobs are going north to Mississuagua, Ontario.In fact, the loss of U.S.
Tsubaki is a huge blow to Bennington County and the state. These are
the kinds of jobs that allow Vermonters to support their families. They
pay livable wages, not McWages.
Article 9:
http://newwork.com/Pages/Opinion/Raynor/Middle%20Class.html
Global Outsourcing and the Disappearing Middle Class
How adversely impacted is the middle-class in the United States when
jobs are sent abroad?
http://www.freep.com/money/business/tool30_20031230.htm
END OF THE LINE: Tool-die shops fighting for life
BY JEFFREY MCCRACKEN
FREE PRESS BUSINESS WRITER
December 30, 2003
Lee Brithinee is pretty excited. He recently got a paycheck for the
first time in more than two years.
WORKFORCE WOES
This special look at the problems of Michigan's manufacturing segment
concludes Wednesday:
Monday: Longtime Michigan manufacturing workers struggle as good jobs
vanish.
Today: While manufacturing suffers, the tool and die industry faces
desperate times as primary customers cut back or shut down.
Wednesday: Laid off manufacturing workers are having to use networking
and continuing education to find employment beyond the assembly line.
RELATED CONTENT
FIGHTING BACK: Tool and die industry gets political
Brithinee worked all that time -- it's just business was so bad at his
Wixom-based tooling company he couldn't afford to pay himself a salary.
He and his wife lived off her pay, while his eight-person company
became a five-person one and he moved his business from a
10,000-square-foot shop to a 6,000-square-foot one.
"To get through the storm, I had to do little things, like buy our
Absopure water at Wal-Mart, bid out my insurance and negotiate
discounts with everyone I buy from," said Brithinee, owner of Paragon
Model & Tool, which he founded in 1994 to make dies and fixtures and do
other machining work for Ford Motor Co. and large auto suppliers.
"I've had a lot of competitors go poof around me, but I'm still here,"
Brithinee said. "We're still alive."
Many more are not.
Across Michigan and across the country, thousands of toolmakers have
shut their doors, putting tens of thousands of people out of work. Most
of these companies were mom and pop, family-owned tool shops, employing
five, ten, 20 or up to 100 people to make dies, molds, gauges or other
devices needed on factory floors to make items ranging from car hoods
to skateboards.
In Michigan, about 34,000 tooling jobs have vanished since 1998, state
labor data shows. Cities like Grand Rapids have been especially
devastated. The National Tooling & Machining Association estimates 30
percent of the country's toolmakers have shut their doors since 2000
and many left are barely hanging on.
Toolmakers have been slammed by a brutal combination of a declining
U.S. economy that left consumers and businesses purchasing less and a
relentless drive by big, international manufacturers like General
Motors Corp. and aerospace companies to slash tooling costs. This has
led to the purchase of dies, molds and machinery from the country that
has become the bogeyman for U.S. toolmakers -- China.
"Guys that were earning $20 an hour two years ago making every
high-precision tools are now stocking shelves at Wal-Mart," said Matt
Coffey, president of the National Tooling & Machining Association,
whose membership has fallen recently from 2,340 companies to about
1,900.
Coffey estimates there were roughly 14,000 U.S. tooling companies a few
years ago -- a number that has shrunk to less than 10,000 today. The
average company employs about 35 people, he estimates, which could mean
140,000 tooling jobs have vanished nationally since 2000.
Going overseas
Manufacturing employment always ebbs during U.S. economic downturns.
Throughout U.S. economic history, lower-skilled jobs become like
commodities and flee overseas to lower-paid workers.
However, these toolmaking jobs have always been deemed highly skilled,
paying $40,000 a year or more. And since so many tooling companies are
family-owned, when they close they stay closed, unlike multinational
corporations that adjust to changing demand.
"One of the advantages our manufacturers always have had is that the
toolmakers were here and were good. It undermines the whole
manufacturing base in the long term if they go away," said Peter
Morici, former chief economist for the U.S. International Trade
Commission.
"When all these little toolmakers go away, they don't re-open. Their
sons do something else and that skill is lost. The decline of
toolmaking is like the growth of a desert. Once it starts, it's tough
to stop from spreading," he said.
Understanding tooling
"Tooling," is a broad term for a misunderstood industry. Loosely
defined, it is the machines, devices or tools needed to make a product
-- from office furniture to Barbie.
There are die makers, whose dies stamp out metal parts like fenders,
and mold makers, whose molds are used for plastic parts like a car's
instrument panel.
"Machining" is a term used for those companies that cut or form metal
to precise shapes -- like within 1/10,000th of an inch. Toolmakers have
been considered instrumental to American manufacturing might since the
1800s. In World War II, toolmakers were exempt from the draft.
"Toolmakers are the descendants of the skilled workers who came from
Europe in the 1800s to make ships or guns," Morici said.
In the mid-to-late 1990s, toolmakers thrived amid a U.S. economic boom.
Shipments grew by 85.5 percent and employment by 16 percent from 1992
to 2000, according to the Department of Commerce. Of course, many
toolmakers added capacity, machines and people to meet demand. Those
decisions hurt later when business slowed.
Then, like the rest of the country, toolmakers hit a wall in 2000.
Orders ceased. What was available would be for less money, and it would
take longer to be paid. Automakers also were getting better at re-using
tools and dies, even when they launched a new vehicle.
Enter China. As automakers and other industries spent billions on new
plants there in the late 1990s, a growing class of Chinese toolmakers
sprung up. At first, U.S. toolmakers could reassure themselves all the
Chinese had on them were vastly lower wages. Machining magazine
estimates Chinese toolmakers make between 17 cents to $2 an hour --
versus $15 an hour or more in the United States, not to mention medical
benefits.
But, in the last two years, the quality of dies, molds and other parts
from China has improved, much to the chagrin of U.S. toolmakers.
Chinese workers still aren't as productive, needing more worker hours
to build a similar part than a U.S. toolmaker would. However, their
wage differences and an artificially devalued Chinese currency make it
nearly impossible to compete for work, say lifelong toolmakers.
"My workers' health-care insurance alone is more than the wages and
benefits a good toolmaker gets in China, so yes, I am deathly, deathly
afraid of China," said Gary Theuerkorn, the 63-year-old owner of
Hillside Tool & Die in Roseville, which his father started in 1949.
Hillside builds sheet-metal dies, which automakers and suppliers use to
make inner doors, hoods and other parts. Theuerkorn got involved with
the business in 1963 and is now passing it on to his son David.
He's handing over a company that has shrunk from 50 employees to 40 of
late and hasn't made money since 1999.
"I'll be thrilled if we break even this year, which we might," said
Theuerkorn. "The problem is so many jobs just go to China and we don't
get to even bid on them. Those we can bid on, we have to accept crazy
payment terms, like build a set of dies that cost $500,000 or $1.5
million, then wait a year to get paid," he said.
Theuerkorn then cussed out a multibillion-dollar auto supplier that has
owed him $270,000 for 19 months -- and counting.
More problems
Even without China, tooling business owners are engaged in a delicate
balancing act.
The dies and tools they make can take up to six months to build at a
cost of $35,000 to $500,000 or more. These toolmakers don't get paid
while they are making them -- and often must wait several more months
until the end user is happy that the tool is making the product to the
proper quality.
In the meantime, the toolmakers must, of course, pay for raw materials,
workers, rent, utilities and all the other things that go into running
their businesses.
Banks are often hesitant to give loans to toolmakers who must wait so
long to get paid.
Making banks even more leery is that the sudden global excess of
toolmakers means the machines used to practice their craft have dropped
in value dramatically, with $1-million machines bought in 2001 worth
only $200,000 now. Banks aren't inclined to lend to companies whose
assets are shrinking -- further crippling the industry.
"Banks have reassessed their loan portfolios, especially in regards to
toolmakers, and they don't see regular payment cycles. They pull the
line of credit, and these small companies just go under like that,"
said Michelle Cleveland, vice president of the Right Place, a Grand
Rapids economic development organization.
Grand Rapids has been smashed by the decline in tooling. Overall
tooling sales are down 20 to 40 percent for Grand Rapids firms,
Cleveland estimated.
Increasingly, toolmakers are pushing for political solutions. Many are
older men, hands-on problem-solvers who voted for President George W.
Bush in 2000 but insist they can't now. Their anger might be
influential in next year's presidential election.
Gerald Flannery, president of Detroit-based gaugemaker PMC Mercury, has
testified before the Michigan Senate and lectured U.S. congressman Mike
Rogers on the perils facing toolmakers. He is also president of the
Michigan Tooling Association.
Flannery, who recently laid off six people from what was a 32-person
operation, has been with the 52-year-old family company for 30 years.
He took it over from his wife's father and recently merged with an Ohio
firm "to keep us from going under next year."
In conversation, Flannery named one competitor after another that has
gone under. He, like many other toolmakers, blames China.
"I know I sound conspiratorial, but the Chinese are killing us. History
shows that a country needs to be able to build its own swords. Right
now there are lot of toolmakers in Detroit that haven't gone under only
because they didn't want to ruin their employees' Christmas," Flannery
said.
He paused, then added, "but wait until January."
Contact JEFFREY McCRACKEN at 313-222-8763 or mccracken@freepress.com.
http://www.latimes.com/business/la-fi-offshore4jan04,1,2065017.story?coll=la-home-business
'Offshoring' Trend Casting a Wider Net
The outsourcing movement is defying conventional wisdom about what
positions are immune from export
By Marla Dickerson
Times Staff Writer
January 4, 2004
Recent economic data show the technology sector is perking up, with
U.S. firms posting their first profits in years. Vicki Nelson wishes
she could say the same of her finances.
The Sacramento-area software engineer has drained her daughter's
college fund and sold off furniture to pay bills since she was sacked
in 2001. Still unemployed, she doubts her fortunes will rebound along
with those of high-tech companies, which through the years dumped tens
of thousands of U.S. workers in favor of cheaper hands overseas.
"The jobs have gone to Bangalore," said Nelson, 46, speaking of the
city in south India hailed as the new Silicon Valley. American
companies "are selling us out to save a couple of bucks. I'm worried
about the future of our economy."
As the U.S. struggles with the longest jobless recovery in recent
memory, white-collar workers are facing a harsh reality. Just as
highways paved the way for migration from America's cities, the
information superhighway has given rise to a new set of economic road
rules: If it can be digitized, it can be moved.
Retailers, banks, airlines, hotels and hospitals are sending work
offshore, from back-office accounting to front-desk customer service.
Ditto for government agencies. Today, a laid-off Californian with
questions about food stamps can get answers from a telephone hot line
staffed in part by workers in India. The state of California two years
ago outsourced the delivery of some welfare benefits to Citicorp
Electronic Financial Services Inc., which uses English-speaking workers
in Bangalore and Pune to assist the down-and-out in Bakersfield and
Pacoima.
Powered by high-speed global communications and educated foreign
workers, the so-called offshoring trend is rapidly moving beyond call
centers and data processing. And it's defying conventional wisdom about
what jobs are immune from export.
Indian radiologists contracted by Massachusetts General Hospital in
Boston are processing X-ray images of U.S. patients. Foreign legal
eagles are writing patents for U.S. firms. Tax clients of Newport
Beach-based SurePrep can thank Indian accountants for that fat refund
from Uncle Sam. And far from Wall Street, equity analysts from
developing nations are crunching numbers once reserved for six-figure
American MBAs. Even foreign economists are willing to prognosticate on
the cheap.
"There's a guy in India who has been contacting me" about a job, said
Mark Zandi, chief economist at Economy.com in West Chester, Pa. "My
immediate reaction is that he couldn't possibly do it from there. But
when you start to think about it, why not?"
Economy.com in October estimated that nearly 1 million U.S. jobs had
been lost to offshoring since early 2001, with 1 in 6 of those in
information technology, financial services or business and professional
services - the bedrock of the "new economy." Forrester Research Inc.
projects that 3.3 million service and professional jobs will flee the
country by 2015. Researchers at UC Berkeley figure that at least 14
million U.S. service jobs are vulnerable.
Despite all the angst about foreign defections, economists say the
collapse in business spending is the principal culprit behind U.S.
employment declines. And the focus has been on the manufacturing
sector, which has shed nearly 2.7 million net jobs in the last three
years. Still, analysts say offshoring has been a factor and will
continue to be a drag on U.S. job creation and wages.
"There is no shortage of smart, qualified people overseas who are
willing to do this work for a lot less," said Kim Berry, 45, a
programmer who develops software for a small firm in Citrus Heights,
Calif., and makes $42,000 a year. That's only about half what he made
working for Hewlett-Packard Co. at the peak of the economic boom, but
he figures he's lucky considering that so many of his former colleagues
aren't working at all and foreign programmers are lined up just waiting
for their chance.
Offshoring has touched a chord with middle-class Americans who thought
workers in coveralls, not cubicles, were the ones at risk. Jobless
white-collar workers have picketed outsourcing conferences and created
websites, organized petition drives and sent e-mails to lawmakers. A
Florida tech worker outraged at having to train his foreign replacement
is running for Congress.
Indiana Gov. Joseph Kernan in November ordered a state agency to cancel
a $15.2-million contract with an outsourcing firm after citizens went
ballistic at the notion of workers in India upgrading their state's
computers to, of all things, process unemployment claims of laid-off
Hoosiers.
Bills introduced in Congress and at least four state legislatures would
preserve U.S. service jobs by slapping restrictions on foreign call
centers or giving Americans preference in government contracts. The
issue could figure prominently in the 2004 presidential election if the
nation's job engine continues to sputter.
"U.S. workers were told that the right thing to do was to become a
professional and the winds of globalization wouldn't hurt you," said
Jared Bernstein, senior economist with the Economic Policy Institute in
Washington. "What we're learning is that virtually no occupation or
skill level is insulated. That's causing a lot of rancor among those
who thought this only happened in old and dirty industries."
Bernstein says the U.S. would do well to take a hard look at its trade
agreements and craft public policy to keep jobs in crucial sectors such
as technology at home. Others say protectionism will prove as futile as
it did with manufacturing and will harm the U.S. economy in the
process.
Stuart Anderson, author of a recent study critical of legislative
attempts to restrict offshoring, noted that for the Indiana computer
upgrade contract, the bid by an American subsidiary of Bombay-based
Tata Consultancy Services was $8.2 million below the next lowest.
Indiana taxpayers would be ill served, he said, if they end up paying
more to upgrade state computers just to ensure that people who live in
the United States get the work. It would be far better, he said, for
Americans to grab the savings and use them to make purchases and
investments that would create additional jobs and wealth elsewhere in
the economy.
"There's this growing perception that somehow free trade in services is
bad," Anderson said. "That if people in other countries land better
jobs, that means we won't have good jobs here. But it's not a zero sum
game."
Take call centers, for example. While many Americans are shocked that
foreigners with nearly flawless English are the ones booking their
flights and finding their lost welfare checks, few would swap places
with them. In the United States, telemarketers rank somewhere near repo
man in prestige, with lousy pay to match.
But in the developing world, a job with a headset is desirable, said
Lance Rosenzweig, chief executive of Los Angeles-based PeopleSupport.
Launched three years ago with 10 workers in the Philippines, the firm
employs 2,000 there handling customer calls for firms such as Expedia
Inc. and Earthlink Inc.
Business is so brisk, Rosenzweig said, that his workforce probably will
double in 2004. He said the firm last year received more than 100,000
resumes from the Philippines, where many students are taught in
English. Most of the company's hires are college graduates eager to
chatter away in the middle of the night for starting pay of about $4 an
hour, good money in a country where the average family income is $2,600
a year. Rosenzweig said turnover was one-fifth that of U.S calls
centers.
"It's a career in the Philippines," Rosenzweig said. "In the U.S., it's
a little money until you find something else."
Call centers are one thing. What really has Americans spooked is the
export of well-paying professional positions. Dave Wyle, founder of tax
preparer SurePrep, said some potential customers had accused him of
undermining the U.S. economy by hiring Indian accountants to process
tax returns for $400 a month, one-tenth what an accountant in the
United States would command.
Wyle's response is that advances such as spreadsheets and software
wiped out thousands of paper-pushing jobs in accounting offices while
improving accuracy and efficiency, "and nobody thought that was a bad
thing."
After processing 7,000 U.S. returns in its first tax season in 2003,
SurePrep is projected to handle 35,000 next year and more than 85,000
in 2005.
"It's growing like crazy," Wyle said. "We do the work more efficiently.
Companies make more profit. Everybody benefits."
A lot of people in California would disagree.
On a percentage basis, the Golden State's job losses have been on par
with those nationwide, about 1.9% of nonfarm payroll since employment
began sliding in March 2001. The state's outsize fiscal pain stems from
the type of jobs it has lost - tens of thousands of lucrative high-tech
positions and the fat bonuses and stock options that went with them.
When adjusted for inflation, personal income in California plunged 3.4%
from January 2001 through July 2003, compared with a decline of 0.1%
nationwide, according to estimates from the state Department of
Finance. By its count, no other state did worse.
A lot is riding on California's ability to regenerate similar
high-paying positions. Optimists are banking on biotech, nanotechnology
and other emerging fields over the long haul. In the meantime, the
traditional technology sector has shown signs of life. But, so far, it
hasn't translated into job growth in California, and some industry
veterans are blaming offshoring.
Cici Mattiuzzi, director of the career services office for the College
of Engineering & Computer Science at Cal State Sacramento, said she had
never seen job prospects for tech grads so dismal in her 25-year
career.
"The people I talk with at the huge companies here - Intel,
Hewlett-Packard, Oracle - all indicate that they are hiring. But they
are not hiring in the United States," said Mattiuzzi, who said small
firms were telling her the same thing. "My hope has been that the
market would turn around this spring, but with the amount of
outsourcing, I'm not real optimistic."
http://www.csmonitor.com/2003/1229/p01s03-usec.html
from the December 29, 2003 edition
Around the globe, new 'Silicon Valleys' emerge
As software jobs move to India and beyond, California could lose its
footing as tech startup capital of the world.
By Mark Sappenfield | Staff writer of The Christian Science Monitor
SANTA CLARA, CALIF. - Every so often, Walter Wilson wonders if he
should become a plumber.
It's not that he is repressing a deep affection for S-traps or
porcelain fixtures. Rather, it's the fact that, to him, the Silicon
Valley of old is dead.
Just a few years ago, he was a star of the silicon revolution. As a
software developer, Mr. Wilson was such a precious commodity that tech
companies pleaded for Congress to let in more of his foreign colleagues
to meet what seemed a bottomless demand. Now, however, Wilson can't
find a steady job.
The collapse of the tech economy hurt, to be sure. But that's not what
has him daydreaming of sink snakes. He's been pushed to his financial
edge because, increasingly, jobs like his are being sent to India.
For years, companies from carmakers to telemarketers have cut costs by
replacing American workers with cheaper employees based abroad - and
tech companies have been no different. But Silicon Valley had always
stopped short of sending its high-skill research and design jobs
abroad.
Now that it, too, has joined the trend toward outsourcing, Silicon
Valley's future as the lodestar of the tech universe is at stake. For
the moment it means that many workers will need to reinvent themselves
or relocate.
More deeply, though, it points toward a new kaleidoscope of "Silicon
Valleys" worldwide, as foreign engineers now doing the work of Silicon
Valley corporations spin off to form their own startups.
It is the same pattern that helped create Silicon Valley's unique
startup culture, as young designers at firms such as Hewlett-Packard
and IBM broke away to set up their own businesses. Now, the tech
industry's desire for cheaper labor is sowing these seeds around the
globe.
"We're seeing a fundamental shift," says Jim Koch, director of the
Center for Science, Technology, and Society at Santa Clara University.
"Innovation is becoming a truly global phenomenon."
That is partly the result of economic necessity. The legendary excess
of the late 1990s has been followed by a new frugality in which
investors and venture capitalists actually expect a profit.
One of the surest responses has been to cut payroll costs by hiring
overseas workers - even in high-skill, high-paying jobs like software
design.
Ironically, though, the shift is possible because of the success of
Silicon Valley's Internet revolution. Many of the foreign workers
brought in during the boom have returned to their home countries with a
new level of expertise. And perhaps more important, the advances of
recent years have reshaped the global communication network through the
Internet, telecommunications, and wireless net- works.
Indeed, in typical Silicon Valley fashion, when Vic Kulkarni considers
the fate of the cradle of the tech world, he takes the idea a step
further and suggests that the very notion of Silicon Valley is becoming
outdated.
"Wherever there is talent, we want to go," says the president of
Sequence Design, a company that produces software to design computer
chips. "Only time zones are boundaries in my head anymore. There are no
geographical boundaries."
Design teams schedule meetings across countries, simultaneously
involving employees in India, Japan, Boston, London, and here. "We
don't have a headquarters," he says. "If I'm traveling to Japan, that's
where the headquarters is."
With his new 20-person research and design bureau in Delhi, his company
can work 24 hours a day, splitting tasks between the US and India.
Moreover, the Delhi bureau costs him about one-third of what it would
cost him to set up a similar operation in Silicon Valley.
The consequence for Americans
That math, however, has sent American software engineers into
unemployment lines. "We have definitely felt it," says Fadi Bishara of
TechVenture, an outplacement firm in Menlo Park, Calif. "Three or four
years ago, there was a tremendous demand on all levels of software
developers... Now, 20 percent of the work that would normally be done
by local people has been shifted [overseas]."
Software developer Wilson has had to refinance his house, put off
buying a new car, and scale back the plans for his kids' education from
pricey private colleges to state schools. Fortunately, he says, he has
other skills to fall back on, or else he might have been truly tempted
to pick up a plumber's wrench. "The plumbing hourly wage is about the
same as a software engineer now, and they can't send plumbers
overseas."
Yet Wilson also sees a change in Silicon Valley beyond his own
situation.
He came here in 1995 because, as a techie, Silicon Valley was to him
what Paris was to impressionists or Milan is to fashion design. For a
half-century, Silicon Valley has been unique - a cauldron of pure
capitalism.
Now, however, Silicon Valley's outsourcing is feeding an emerging class
of tech hubs worldwide. In the not-too-distant future, he worries,
Silicon Valley could lose its preeminent place.
"That sort of fantasy and luster will be gone," says Wilson. "The way
it was, the
creative stuff was done here... But we're going to see more and more of
that sent overseas. Why would you keep it here?"
A unique confluence
Entrepreneurs and venture capitalists don't deny that outsourcing will
probably gather speed.
But many maintain that even in a world of truly global innovation,
Silicon Valley remains a unique brew - bringing together world-class
universities, massive quantities of money, perfect weather, and an
almost kamikaze approach to capitalism that doesn't fear failure.
Bangalore, India's nascent Silicon Valley, "is a much more risk-averse
culture," says Ravi Chirevolu, who travels to India for his job with
Charter and Venture Capital in Palo Alto, Calif. "In Silicon Valley,
it's sexy to be in a startup; In Bangalore it's always better to work
at some company you've heard of."
The culture of taking risks in order to be at the forefront of
innovation, he and others say, is central to what Silicon Valley is,
and crucial to it remaining relevant in the future.
"Silicon Valley has some very unique aspects that make it the center of
the high-value part of the entrepreneurial process," says Steve Bird of
Focus Ventures in Palo Alto. "The real innovation is still happening
here, and I expect that to continue."
http://www.nytimes.com/2004/01/03/business/03consult.html
January 3, 2004
Offshore Services Grow in Lean Times
By JONATHAN D. GLATER
hen Procter & Gamble employees forget a computer password or need to
change the number of dependents they claim for tax purposes, they call
one of three places: Manila; San Jose, Costa Rica; or Newcastle,
England.
Procter & Gamble, with about 98,000 employees in more than 80
countries, needed two years to consolidate its back office and
personnel operations - and help from a slew of consultants. Various
firms first helped the big consumer products company join those that
have become flexible in how and where they operate the business. Now
they are helping Procter & Gamble hire outside contractors to help run
the three "shared service centers" that it set up.
"P.&G.'s the leader," said Dennis A. McGwire, president and chief
executive of TPI, a consulting firm that helps companies decide whether
to move operations offshore and if so, how and where. "They're just one
of the smartest companies that I have run into."
What Mr. McGwire calls smart, others call the makings of an economic
nightmare. The business of his privately held company, one of Procter &
Gamble's consultants, is to advise companies about moving white-collar
jobs overseas.
That process is a hot-button issue in American business and politics,
both awash in worries that the job losses in American manufacturing
over the last three decades are beginning to corrode the service and
technology sectors, as well.
But such advisory work is proving to be a boon for many consulting
firms, which have been hit hard by the slack economy and the reluctance
of corporate executives to spend on big information technology
projects. Advising on whether and how to move operations offshore and
if so, whether to pay someone else to run them, is too small a market
to offset broader revenue declines for the consulting industry, said
Rebecca S. Scholl, a principal analyst in the Paris office of Gartner
Inc., a research and consulting firm that has studied the phenomenon.
But such advisory work is growing quickly and, in any event, may also
be one of the only new games in town, said Tom Rodenhauser, president
of Consulting Information Services in Keene, N.H. "Strategy firms are
really focusing on sourcing as a big business for them, because the
traditional cost-cutting work is drying up. Clients are doing that
themselves," Mr. Rodenhauser said. "This is the only new phenomenon on
the horizon that the strategy consultants can advise on."
Moving operations to cheaper locations has always been a response to
economic weakness; in this case, though, consultants say the shift is
unlikely to slow or reverse as the economy improves. With excess
capacity for almost every kind of service function making competition
intense, companies have every reason to take advantage of the lower
wage scales in other countries, where the workers may be better
educated than their counterparts in the United States. Client companies
often do not want employees to know that the consultants are
investigating whether their jobs can be shipped elsewhere, said Vas
Kodali, a principal at the A. T. Kearney consulting firm, a subsidiary
of EDS. One of the most important parts of the process - and a step
that may often fall victim to the bottom line - is attending to
employees whose functions are moved, he said.
"How do we make sure that the jobs that are offshored," Mr. Kodali
explained, "that the people who were in those jobs, have
opportunities?,"
That task may become more difficult as the kinds of jobs that companies
want their overseas employees to perform continue to change. No longer
are they just operating call centers, which call for relatively little
exercise of judgment or authority. Overseas facilities are now handling
all aspects of employee compensation, benefits, finance and even
accounting - in short, any functions that are not unique to the company
and are not part of its essential business, said Rudy Puryear, director
and head of the information technology practice for Bain & Company in
Chicago. "Activities that are highly proprietary and that are unique to
the company, it's particularly difficult" to move, he said. And
companies are reluctant to relocate those operations whose secrets they
need to protect - the development of corporate strategies, for example.
Todd Furniss, the chief operating officer of Everest Group, another
firm specializing in helping companies move operations offshore,
distinguished between rules-based and judgment-based operations.
"Rather than the entire mortgage application process, we might say we
can outsource the underwriting process offshore," Mr. Furniss said. "Or
instead of saying all of H.R., we might say just the payroll
component."
The consultants study exactly what a company does and then identify
which services, like payroll, can safely be delegated to overseas staff
or purchased from a third-party supplier. The number of such advisory
projects that A. T. Kearney is working on has more than tripled over
the past three years, Mr. Kodali said.
The next step is figuring out possible host countries, he explained,
and deciding whether to hire another company to provide a service there
or to build a center that will provide the client with exclusive
service.
The experience of Procter & Gamble illustrates both what more and more
companies are trying to do and what roles consultants play.
Intent on cutting costs, the company began in 1998 to evaluate ways to
consolidate back office operations worldwide into shared service
centers, as they are known, said Alfonso Cos, a vice president for
client services at Procter & Gamble who was picked to join a team of
about 10 executives to lead the consolidation effort. "We were
latecomers to the shared services space," said Mr. Cos, behind
companies like Boeing and Allied Signal.
Procter & Gamble figured it could eliminate duplication - there would
not be separate payroll functions in 70 different countries - and cut
staff. By setting up the shared service centers overseas, Procter &
Gamble also calculated that it could benefit from salary arbitrage:
wages would be lower in the selected host countries.
Andersen Consulting, the company now known as Accenture, played a
critical role at this juncture, helping Procter & Gamble identify
countries that would be hospitable. The company and its consultants
narrowed the list of cities to 12 from 104 and eventually picked San
Jose, Manila and Newcastle.
"It was very controversial," Mr. Cos said, because the consolidation
would take business processes away from well-established units of the
company in cities like Cincinnati, Mexico City and Caracas, where it
had a highly visible presence. Now Procter & Gamble employs about 1,200
people in San Jose, 1,000 in Newcastle and 600 in Manila.
The centers began operating in 2000 and were so successful that Procter
& Gamble considered offering to sell payroll and other human resources
services to other companies, Mr. Cos said.
"If we are as good as we think we are or are becoming, what is the
opportunity to compete for other business outside?" Mr. Cos recalled
thinking. "We toyed with the idea for a while and realized it was
totally out of our strategy."
Instead, the company has sold most of its employee services operations
in each location to International Business Machines, which runs them
for Procter & Gamble but can also offer the same services using the
same facilities to other companies. So far, about 600 Procter & Gamble
employees have become I.B.M. employees as a result, Mr. Cos said.
More and more companies are going to combine shifting operations
offshore with outsourcing as Procter & Gamble ultimately has done, said
Ms. Scholl, the Gartner analyst. Her firm predicts that such
combination deals, which account for about 1 percent of the business
process outsourcing market today, will account for about 14 percent of
the market, or $24 billion, in 2007. The trend is not limited to
American companies. Taca, an airline based in San Salvador, El
Salvador, hired Bain to help it cut costs by identifying functions that
could be purchased more cheaply from outside providers. Because of
relatively low wages in El Salvador, it made no sense to outsource
operation of its computer help desk, for example, said Jaime A.
Pocasangre, vice president and corporate controller at Taca. But for
computer hardware repairs, which require visits by technicians, the
airline has hired Decision One, a company based in suburban
Philadelphia.
"Before, it was our staff," Mr. Pocasangre said. "We could give 24-hour
response time," but only if flights from San Salvador to whatever
office had the problem - a broken printer or other piece of equipment -
were not full, he said. If the printer in the New York City ticket
office broke and could not be fixed for a day or more, that could have
serious revenue implications, he added.
Pure consulting firms face tough competition from big companies that
are both consultants and service providers, like I.B.M. and Accenture.
The latter often offer to operate back offices for companies regardless
of their location, said Brad Smith, vice president for research at
Kennedy Information, a company in Peterborough, N.H., that tracks the
consulting industry. "Companies like I.B.M. and Accenture are literally
hiring thousands and thousands of people in places like Bangalore and
Shanghai and wherever else they think a strategic location should and
would be" for running such operations, Mr. Smith said. But keeping up
with what the consultants and their clients are doing is difficult
because many do not want to advertise their actions for fear of public
or legislative backlash, said Mr. Kodali of A. T. Kearney. "They're
very careful about confidentiality," he said. "But at the end of the
day, they know they have to reduce their cost structure."
http://www.usnews.com/usnews/issue/040112/opinion/12dobbs.htm
Money & Business 1/12/04
By Lou Dobbs
The politics of immigration
In his year-end news conference, President Bush called for an
"immigration policy that helps match any willing employer with any
willing employee." We already know there are plenty of employers in
this country willing to break the law and hire illegal aliens. And
there are 8 million to 12 million illegal aliens already living in this
country, so we know there are plenty of willing employees.
I'm sure the White House staff will clean up the language a bit in the
coming months. But for all the world, the president's idea of an
immigration policy sounds like a national job fair for those businesses
and farms that don't want to pay a living wage and for those foreigners
who correctly think U.S. border security is a joke and who are willing
to break our laws to live here.
Bush's plan would be the most aggressive immigration reform since the
controversial bill signed by President Reagan in 1986 granting amnesty
to millions of illegal aliens. That was widely criticized for rewarding
illegal behavior and virtually ignoring those who had been waiting for
legal entry into the United States. The chief Senate sponsor of the
bill, Alan Simpson from Wyoming, admitted at the time that the
legislation's effects were unclear. "I don't know what the impact will
be," he said, "but this is the humane approach to immigration reform."
The former senator and all the rest of us now know what the
legislation's effects were. Eighteen years later, there are an
estimated 8 million to 12 million illegal aliens in this country.
And now there are those in Congress who want to solve the problem by
simply making illegal aliens legal. Republican Sen. John McCain of
Arizona is sponsoring the Border Security and Immigration Improvement
Act to make it easier for foreign workers seeking U.S. employment
opportunities and to simplify the permanent- residency application
process. Similar legislation, the Agricultural Job Opportunity,
Benefits, and Security Act of 2003, is sponsored by Republican Sen.
Larry Craig of Idaho and Democratic Sen. Edward Kennedy of
Massachusetts. It would allow undocumented farmworkers and their
families to qualify for permanent residency after a specific tenure of
work.
And Republican Sen. Orrin Hatch of Utah has introduced a bill called
the Dream Act that would allow states to grant in-state tuition rates
to children of illegal aliens. Meanwhile, out-of-state parents of legal
residents would get no such break. Each of these politicians is doing
nothing more than pandering to the business and agricultural lobbies,
and none of these legislative initiatives addresses the economic and
social impact of their passage. The powerful lobbying groups have a lot
to gain from illegal immigration, while the burden of the real costs
falls on the rest of us taxpayers.
Lost wages. Over the past 10 years, more than 2 million low-skilled
American workers have been displaced from their jobs. And each 10
percent increase in the immigrant workforce decreases U.S. wages by 3.5
percent. Steve Camarota of the Center for Immigration Studies says our
lawmakers don't understand what unchecked illegal immigration is doing
to workers. "To them it looks like immigrants are doing jobs nobody
wants," he says. "But what they really mean is that they are doing jobs
that they as middle- and upper-class people don't want."
The average working American knows what our political leadership is
ignoring. Illegal immigration carries a steep cost to society. States
spend more than $7 billion each year on K-12 education for illegal
aliens and hundreds of millions more in treating illegal aliens in
border-state hospitals.
More than three quarters of Americans say we need stricter controls on
immigration. However, a Chicago Council on Foreign Relations survey
found that only 14 percent of our political leaders agreed that current
immigration levels represent a critical threat. I can think of no issue
on which there is greater disconnect between our political leaders and
the American middle class than illegal immigration.
Congress and the president must create a national immigration policy
that is far more than a job fair for illegal aliens and a gift of
citizenship to those who break our laws. We desperately need a national
immigration policy that is effective in securing our borders, rational
both economically and socially, and, as Simpson said 18 years ago,
humane. The only way we can meet those goals is for our politicians to
rise above pandering to lobbyists and special-interest voting groups
and to talk honestly about the issues that now confront us. Don't hold
your breath.
http://www.business-standard.com/today/printpage.asp?story=31211
MNCs to get tax break for BPO income
Subhomoy Bhattacharjee in New Delhi
Published : January 2, 2004
The finance ministry has decided to exempt multinationals with business
process outsourcing (BPO) subsidiaries in India from paying tax.
The ministry is expected to issue a notification this week saying
foreign firms whose call centres in India only take orders for buying
and selling goods and services, will not have to pay tax for such
operations.
The impact
Big relief for companies like GE, Dell, American Express and
Hewlett-Packard
BPOs for insurance, credit cards, pension funds services out of tax net
The ambiguity on tax was squeezing growth by 50-60 per cent
Several thousand BPO jobs were in limbo
The Central Board of Direct Taxes (CBDT) had appointed a task force on
non-resident taxation to clear the uncertainty over Section 9 (1) of
the Income Tax Act, introduced in the Budget for 2003-04, which held
that while receiving calls per se was not taxable, selling products
through tele-marketing was.
The board has now clarified that call centres are only providing
services that are incidental functions, while the core activity of
manufacturing and supplying goods and services are done abroad. Under
such circumstances, profits from the BPO operations of multinationals
will be insignificant and difficult to determine.
The only rider is that the transaction between the two parties should
be at arms length.
Finance ministry officials, however, said BPOs or call centres of MNCs
engaged in providing "core services" would come into the tax net. The
tax levied will be to the extent to which the profits of these
non-resident companies are attributable to their Indian operations.
Core services have been defined as those which have substantial revenue
implications for the parent company.
It has cited the example of call centres, which provide software
support services over the telephone, or engage in annual maintenance
contracts for offshore customers. Travel-related services will also
fall under this category.
The assessing officer of the department will have the right to
determine whether the nature of services match with that of the parent
company.
http://www.iht.com/articles/123372.html
Coming to terms with the logic of outsourcing
Mark Drajem Merrill Lynch and Morgan Stanley have won the mandate to
manage a $2.5 billion sale of shares in Oil Natural Gas Corp.,
Friday, January 2, 2004
Bob Thibodeau founded Financial Systems Architects in 1998 to help
companies, such as Citigroup, handle electronic transactions. By 2001,
he was driven out of business. Lower-cost Indian competitors undercut
his bids on two straight contracts, he said.
So earlier this year Thibodeau founded another company, White Label,
with a different mission: to help U.S. technology companies subcontract
work to India.
"Not only are Indian companies a third of the cost, but they actually
are better," Thibodeau said in a telephone interview from his office
outside Boston. "It's really kind of scary."
Thibodeau is not the only U.S. executive who says the shift of U.S.
technology jobs to low-wage countries is unstoppable. In the next
decade, as many as 6 million U.S. jobs may be sent to India, Ireland,
Israel and other nations by companies in search of lower costs and a
tech-savvy, English-speaking work force, Goldman Sachs Group said in a
September report.
Indian workers earn as little as one-tenth of what their American
counterparts do, and India produces 67 percent more engineers and
computer scientists each year than the U.S. does. The slowing growth of
the U.S. work force may also push companies to accelerate the transfer
of jobs.
"More and more companies know they need to go global, they just don't
know how," he said. Those companies that do not try to expand overseas
"are going to succumb to competitive pressures."
While outsourcing, as the migrating-jobs trend is called, benefits
companies such as Microsoft and Texas Instruments, it has triggered a
debate about whether the U.S. economy is better off. About 2.4 million
jobs have been lost in the United States since President George W. Bush
came to office in 2001.
"We used to think that displaced workers, given new training, could
move up the value chain," the former U.S. trade representative,
Charlene Barshefsky, said in an interview. "There is now a question
about whether that upward movement will be possible."
Analysts say the shift of jobs overseas is one reason job creation has
not matched economic growth, which rose at an 8.2 percent rate in the
third quarter, this year.
"The idea that corporate America is stepping up and hiring again is
ludicrous," Stephen Roach, Morgan Stanley's chief economist, said in a
Dec. 9 televised interview with Bloomberg News.
U.S. services hiring is virtually unchanged over the past 22 months, in
contrast to a 5 percent gain in the six previous business cycles, Roach
said. That means the U.S. is "in the hole" by 2 million service jobs,
compared with a "normal" business cycle upturn, he estimates.
The Federal Reserve and the World Bank say that the loss of 6 million
jobs over two decades is dwarfed by an economy that has 130 million
jobs. More important issues for the economy are the aging U.S. work
force and new technologies that enhance productivity.
U.S. workers who are not designing computer chips or answering
telephones will be working on the next level of high technology, such
as nanotechnology, the science of manipulating atoms or molecules for
commercial application, Commerce Department Undersecretary Phillip Bond
said in an interview.
The economics are convincing. Indian computer programmers at companies
such as Tata Group, Infosys Technologies and Wipro earn about $12,500 a
year, a sixth of the U.S. average.
"Given the ease of global outsourcing and labor substitution through
computer software, many companies are playing it safe," Robert Reich, a
former labor secretary, said in an interview.
Thibodeau said his firm has already contracted with Electronic Data
Systems, the world's second-largest seller of computer services, to use
Indian engineers for a data contract with General Motors.
"Every single job is up for grabs these days," said Marcus Courtney,
the chief organizer for the Washington Alliance of Technology Workers
in Seattle.
Bloomberg News
http://www.benningtonbanner.com/Stories/0,1413,104~8670~1803415,00.html
Bennington Banner
Losing good-paying jobs is no boon
Tuesday, December 02, 2003 - Seventy people are losing their jobs at
U.S. Tsubaki.
They are good-paying jobs, bringing in about $16 an hour before
benefits, according to Lance Matteson, executive director of the
Bennington County Industrial Corp.
But no one from the plant will talk about the closing.
The Vermont plant is the only one closing in a consolidation caused by
"global competition." The factories in Massachusetts, Ohio, California
and Minnesota will stay open. Bennington's jobs are going north to
Mississuagua, Ontario.
In fact, Pollyanna pretenses about flooding the local workforce with
highly qualified employees and adding another ideal manufacturing
location to the economic development inventory are specious,
embarrassing and arrogant.
In fact, the loss of U.S. Tsubaki is a huge blow to Bennington County
and the state. These are the kinds of jobs that allow Vermonters to
support their families. They pay livable wages, not McWages.
The unfortunate timing of the company's announcement can't be
overlooked in light of Gov. James Douglas' Monday visit to the
Bennington County Industrial Corp.'s "Thanksgiving dinner to celebrate
business and entrepreneurial successes" in the county.
Whatever bragging rights the BCIC was ready to ballyhoo are fatally
circumcised by the loss of 70 manufacturing jobs that have been a
mainstay of the local economy since 1977.
Coincidentally, the governor's office on Monday released its synopsis
of Douglas' Job Creation & Economic Growth Plan.
Among its high points are:
* Providing a competitive environment for Vermont businesses to prosper
and grow by reforming the permit process and workers' compensation;
offering job training and tax credits.
* Stepping up efforts to market the state through creation of the
Vermont World Trade Office and offering assistance to win federal
government contracts.
* Setting up Green Mountain Zones, areas targeted by regional economic
development agencies, where businesses are encouraged to locate with
accompanying tax incentives.
The governor has earmarked potential clusters in alternative energy,
nanotechnology, microelectronics, financial services, optics, among
others.
The plan also outlines technology initiatives that would bring
100-percent cellphone coverage to the state's major highways (he must
read the Banner), and broadband Internet service to 90 percent of all
households in the state by 2007.
Unfortunately, the governor's plan is conspicuously missing any mention
of bringing down electricity costs or repealing the roughly 5-percent
telecommunications tax. Nor does it address the state's commitment to
make sure all of Vermont - not just north of Route 4 - will benefit
from this plan.
We cannot afford any more job losses in any corner of the state. We
urge our local legislators to look carefully at the administration's
economic plan and lend their support to any and all efforts that will
bring real jobs to real Vermonters.
http://newwork.com/Pages/Opinion/Raynor/Middle%20Class.html
Global Outsourcing and the Disappearing Middle Class
by
William Raynor
The State University of New York.
Email: wraynor124@aol.com
Copyright ) 2003 William Raynor. All rights reserved. Published here
by permission.
Dr. Raynor is a Professor of Finance at the State University of New
York (SUNY) at Delhi. He has had broad professional experience in both
academic settings and the private sector, as well as extensive
international experience in Peru, Ecuador, Puerto Rico, the Dominican
Republic, Mexico, and China. He has special interest in Latin American
economic and trade issues.
How adversely impacted is the middle-class in the United States when
jobs are sent abroad? During the past 18 months, the dramatic increase
in outsourcing professional jobs overseas (offshoring) has been well
documented. No doubt, this has contributed to the limited number of
jobs being created domestically during the current economic recovery.
Many of the white-collar professional jobs--engineering, accounting,
architecture, etc.--are gone forever. Yes, GDP, productivity, and other
economic indicators have substantially improved, but domestic
employment expectations fall short in at least two ways:
1. Number of jobs: "American employers hired far fewer workers than
expected in November... The number of workers on U.S. payrolls outside
the farm sector last month edged up by 57,000... far lower than
economists' forecasts of a 150,000-job gain..." (Willard, 2003).
2. Quality of jobs: According to Dr. Paul Craig Roberts, "Only a few of
the 116,000 private sector jobs created in October provide good
incomes... the remainder of the 116,000 new jobs consist of temps,
retail trade, telephone marketing, and fund raising, administrative and
waste services, and private education and health services." (Roberts,
11/12/03).
Of course not all of the disappointing job news is from outsourcing,
and a significant portion of domestic output can be attributed to
productivity gains. Because of technology advances and new ways of
working, firms can produce more with fewer people. "Productivity of
U.S. companies rocketed at a 9.4 percent annual rate in the third
quarter, the best showing in 20 years..." (Aversa, 2003).
On the other hand, productivity numbers can be very misleading, as Dr.
Roberts points out: "Pundits tend to associate "productivity" with
factories and assume the high number means manufacturing is
prospering." (Roberts, 12/9/03). But manufacturing is where many jobs
have been lost, and distortions can occur when productivity comparisons
are made to other sectors of the economy.
What about the professional and high-tech sectors? U.S. firms
increasingly are replacing domestic engineers, IT workers, accountants,
medical professionals, and almost any other middle-class job you can
think of, with equally qualified individuals overseas, especially in
India. "Many U.S. white-collar workers are also in for wrenching
change... No wonder India is at the center of a brewing storm in
America, where politicians are starting to view offshore outsourcing as
the root of the jobless recovery in tech and services... As companies
rely more on IT engineers in India and elsewhere, the argument goes,
the U.S. could cede control of other core technologies." (Kripalani,
Engardio, and Hamm, 12/8/03).
Increasingly, there is a global surplus of highly educated workers,
which is too enticing for U.S. firms to ignore. Not only can they hire
high-end workers for a fraction of domestic salaries, but often also
save money by avoiding U.S. OSHA, EEOC, EPA and other regulations.
"Predicts Nandan M. Nilekani, managing director of Bangalore-based
Infosys Technologies Ltd: 'Just like China drove down costs in
manufacturing and Walmart in retail,' he says, 'India will drive down
costs in services.' But deflation will also mean plenty of short-term
pain for U.S. companies and workers who never imagined they'd face
foreign rivals." (Kripalani, Engardio, and Hamm, 12/8/03).
While current news stories have focused on the possibility of inflation
because of robust economic activity, the Fed has taken a guarded
position:
"'The probability of an unwelcome fall in inflation has diminished in
recent months and now appears almost equal to that of a rise in
inflation,' the Fed declared in its statement. Thus, the Fed has
declared the economic and inflation risks each balanced - more evidence
of neutrality." (Wallace, 12/10/03).
Outsourcing jobs overseas contributes to deflationary possibilities,
because it encourages additional increases in foreign capacity, both
for manufacturing and high tech services. Capacity is still slack in
the U.S., and is another reason the Fed is not yet worried about
inflation: "Greenspan & Co. believe they have the latitude to let the
economy steam along until the output gap narrows significantly before
considering any rate increases." (Wallace, 12/10/03).
However, the fact that the Fed has not already increased rates is very
telling. Given the near unprecedented increase in output, the Fed's
neutral position is an indicator of just how much permanent structural
change there may be in our economy. From the Federal Reserve Bank of
New York three months ago:
"The current recovery has seen steady growth in output but no
corresponding rise in employment. A look at layoff trends and industry
job gains and losses in 2001-03 suggests that structural change - the
permanent relocation of workers from some industries to others may help
explain the stalled growth in jobs." (Groshen & Potter, August, 2003).
Jim Jubak also takes note of the Fed's report: "The New York Fed's
report goes out of its way to differentiate this downturn from past
recessions...there are trends working their way through the economy
that aren't cyclical. Some--and no one knows exactly how many--of the
jobs lost in the recent economic downturn won't be coming back. They're
gone for good, exported to low wage countries..." (Jubak, 9/9/03).
There are several other implications for middle-class America:
1. Even if there is an increase in inflation in the short-term, what
will stop long-term downward pressures on costs/prices; i.e.,
deflation? India, and other countries, are only going to encourage more
job outsourcing from the U.S. and add to capacity. Technology will only
continue to evolve and allow firms to produce more with less.
2. If government intervention is not taken on the outsourcing issue,
will it force intervention in other areas? What will the impact be on
health care, for example? If jobs are outsourced or less secure, how
long can middle-class America continue to have health care linked to
jobs?
3. What is the optimal balance between lower prices and good paying
jobs? The recent West Coast grocery store strike is "... emblematic of
a larger national anxiety over tradeoffs between consumer prices and
decent-paying jobs." (Wood, 12/11/03). While these jobs are not being
outsourced, the same underlying reasons for moving jobs offshore, cost
reduction, is the central issue. To what extent will middle-class
Americans tolerate job losses and declining wages just to obtain lower
consumer prices?
4. Middle-class America is already experiencing severe pressures in
other areas:
A) Family relationships have changed: "These days many parents are
facing a new fact of life: ongoing financial help to their adult
offspring, even into middle age." (Gardner, 12/11/03).
B) To obtain middle-class status for their families, parents have
financially leveraged themselves. Nobody has documented this stress
better than Elizabeth Warren and Amelia Warren Tyagi. Their newly
released book: The Two Income Trap: Why Middle-Class Mothers & Fathers
Are Going Broke, is ground-breaking. They provide a comprehensive
analysis of how middle-class families are too leveraged, and within a
whisker of being pushed off a financial cliff. The continuation of
outsourcing jobs overseas may be the final gust of wind that does it
for many of them.
The University of Pittsburgh's Professor Emeritus Fred Thayer also
writes about the disappearing middle class and the relentless cost
reduction efforts by corporations. "Global competition now compels
corporations to adhere to standard economic principles by drastically
reducing costs by punishing workers and retirees in order to sell their
output at the lowest possible prices. This trend will inevitably spill
over into public and nonpr
Support this Newsletter and ZaZona.com by donating:
www.zazona.com/Donations.htm
To Subscribe or Unsubscribe send an email to
Back to archives