- 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:
-
- - India is emerging as the health-care destination of
choice for an increasing number of surgery candidates, with more than 60,000
foreign patients from 34 countries treated in its top-flight Apollo Hospitals
chain in the past decade. A delegation of Indian doctors was recently invited
to London to brief British Prime Minister Tony Blair's medical advisers
on flying surgery patients from the United Kingdom to Mumbai and or New
Delhi for operative and post-operative care, allowing them to recuperate,
and flying them back to the UK far cheaper than treating them at home.
Routine cardiac surgery at the best hospitals in India costs about US$35,000,
with a success rate of 98.5 percent, compared with about $150,000 in the
United States. For more complicated problems that cost far more than that,
cost differentials are anywhere from 200 percent to 500 percent to off
the chart. And India is not alone; breast implants in Thailand from top-flight
cosmetic surgeons cost as little as 50,000 baht ($1,260) compared with
a median price of about $5,000 in the United States.
-
- - Fifteen global car makers, including General Motors,
Ford, DaimlerChrysler, Audi, Isuzu and Nissan, have set up design offices
in India with a combined budget of $1.5 billion to outsource auto design.
Industry estimates are that the cost of auto design in Europe's exclusive
Pininfarina and Bertone design houses run as high as $800 an hour, while
low-cost designers in Bangalore can do lower-level design for $60 an hour.
-
- - India's government is in the process of liberalizing
its accounting rules under continuing World Trade Organization (WTO) negotiations
on services. In a move being closely watched by the Big Four accounting
firms - PriceWaterhouseCoopers, Ernst and Young, KMPG, and Deloitte Touche
and Tomatsu - accounting, bookkeeping and auditing services are to be opened
to overseas competition by the end of next year. Indian firms are to be
given reciprocal market access abroad. Indian accounting costs are a fraction
of those in the United States.
-
- - Fashion design is a fast-growing field in Vietnam and
India; 350 domestic and international buyers came to Mumbai to look at
India's fledgling clothing fashion designs in a glitz-filled week in July.
Designer Rophit Bal is working with putative tennis star Anna Kournikova.
Ritu Beri is showing in Paris. Tarin Tahiliani has been featured in New
York's Fashion Week and is booked for a show in Milan, the heart of Europe's
fashion industry.
-
- - The US Department of Education estimates that the United
States will need an additional 2.2 million teachers over the next decade.
The Executive Recruiters Association, the representative body of recruitment
agencies in India, is urging the Indian government to appeal to the WTO
seeking an end to what they consider to be restrictive trade practices
in the teaching professions and allow more Indian teachers into the US.
Indian teachers, with excellent English-language skills, would find an
annual salary of $35,000 an enormous amount of money. There are already
some school districts from Texas said to be recruiting in India.
-
- 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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- Copyright 2003 Asia Times Online Co, Ltd. All rights
reserved.
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- http://www.atimes.com/atimes/South_Asia/EJ08Df03.html
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