It's time for a moratorium on offshoring
- — 11 September, 2010 04:21
Henry Ford, the automaker, was a genius. He was willing to pay his workers more than twice the going wage to ensure a loyal and stable workforce. Ford felt that a population with a solid and secure income made the best consumers. And he was right. He sold 15 million Model T automobiles, most to the emerging middle class.
Ford's recognition of the consumer as the country's economic engine was farsighted. The U.S. economy is consumer-driven, not export-driven like that of China or Japan. We need middle-class people with paychecks to keep the corporate lights on. For the U.S., the equation is simple: no consumers, no business. But that bulwark of consumerism is under intense pressure these days.
A number of studies have shown that in the last few decades, the rich have gotten richer, the poorer have gotten poorer, and the much-needed middle class has shrunk. Worse, this was taking place long before the 2008 Great Recession put 15 million Americans out of work -- most from the middle class.
You can't really blame business for the layoffs . If there are no customers, there is no work, and no work means no workers. As business shrinks, the workforce shrinks. Unfortunately, as the workforce shrinks, so does the number of customers to buy what the business is selling. The result is an economic death spiral.
Won't this problem just pass as it has in the past? Maybe yes, or maybe no. This situation is different from past downturns in two main ways.
First, in the past when things started to get better, the jobs came back. But during the past decade, many American jobs were offshored, meaning they will probably never come back. With layoffs, there is an intention to rehire when times get better, but offshoring precludes that because the jobs are already refilled, with workers in another country.
Second, we face a far more subtle and long-term wave of moving jobs overseas. America has run a trade deficit every month for the past 25 years. The U.S. trade deficit for June 2010 was $50 billion. Yes, in one month the stuff we imported was worth $50 billion more than the stuff we exported. Our increasing trade deficit also means we are increasingly relying on overseas workers to fill our needs, not domestic workers. You know that cannot continue forever. Now, add in the current recession, and you have a one-two punch from which we might not be able to fully recover.
The inevitable question then becomes, in these very hard economic times, should we be exporting viable American jobs overseas? Is it time for a moratorium on offshoring?
This is a difficult question, since it seems to go against our American version of capitalism. Or does it? Certainly it pits immediate rewards now (lower costs) against greater rewards later (increased future business from a vibrant consumer base).
What does this have to do with IT? Well, IT can be a cog in this wheel of the destruction of the middle class when it outsources IT jobs overseas. Offshoring has always been controversial; now it is central to the argument: What are we doing to our consumer base?
And for what? Even the short-term benefits of offshoring are questionable. Studies have shown that the real savings from offshoring are lower than expected. In 2004, consultancy Ventoro polled executives at more than 5,000 firms using offshoring and found that the average savings was less than 10%. Worse, 25% found that their costs went up.
Given the potential damage to the middle class and the questionable benefits obtained, it makes sense to at least consider suspending offshoring for the next few years.
What can IT really do? Well many shops could find the 10% savings elsewhere if they really tried. It would be painful, but possible. But the practical answer is that IT can do very little directly. What it can do, however, is to take a stand and start a discussion about what we need to do, not as an IT shop, not as a business, but as a people. Are we really willing to trade our future, and our children's future, for some short-term benefits?
Is this a case of patriotism vs. capitalism? Not at all. Rather, it is a case of restoring the balance between short-term needs and long-term stability. China, the new kid on the capitalistic block, does it. So do many other capitalistic countries. After all, what is more capitalistic than saying, "Us first"?
George Tillmann is a former CIO, management consultant, and the author of The Business-Oriented CIO (John Wiley & Sons, 2008). He can be reached at email@example.com .
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