Features » January 27, 2005
High-Tech Hijack
Corporations ramp up offshoring of IT service jobs
By David Moberg
Stephen Gentry had worked as a programmer for Boeing for 15 years before he was laid off in July 2003. His last project was training his replacements, software engineers from India. They were working in Seattle on temporary visas before returning home to do Gentry’s job at Infosys, one of India’s leading subcontractors of information technology (IT) services.
Eighteen months later, Gentry, 52, who earned a computer sciences degree while working as a construction worker, still hasn’t found a job. “American corporations,” he says, “are so greedy and cutthroat-oriented they don’t care about me, you or anybody else except their bottom line.”
Gentry is not alone. The offshoring of work once done by Americans is growing rapidly. Over the past few years, corporations have shifted roughly a half million business service and IT jobs, many highly skilled, to developing countries. This has kept high-tech unemployment up, driven down wages, sparked widespread job anxieties, depressed support for free trade and generated a political backlash.
Elite apologists for globalization had long assured workers that they had a secure future with a college degree and a service job, especially anything computer-related. Now fewer Americans share the blind faith that the market will supply new and better jobs, as corporations cut costs by sending work—ranging from customer services to reading X-rays—to countries like India, where wages are often one-tenth the level in the United States.
Nobody knows precisely how many high-tech service jobs have been moved offshore. The number is still much less than the number of manufacturing jobs moved overseas, but future prospects are grim. Multinational companies are speeding up plans either to outsource more jobs to overseas contractors—including both U.S. multinationals and fast-growing foreign firms like Infosys—or to set up their own offshore service operations. IDC, a private IT research firm, predicts that IT offshoring will increase by more than 500 percent by 2007, and, according to the company’s senior vice president for research, Frank Gens, China—now moving into services—“represents a wild card that could well accelerate the U.S. offshoring trend.” Forrester Research predicts 3.3 million service jobs—a third of them in the highest-paying fifth of the job market—will go overseas by 2015. And a University of California Berkeley study estimates that that 14 million service jobs are vulnerable.
“If you work behind a computer screen, your job is up for grabs,” says Sanjay Kumar, former CEO of Computer Associates, a leading management software company.
End of the line
Offshoring service work is the latest chapter in the history of capitalist reorganization of work. Early capitalists subdivided and routinized tasks so they could be performed by less-skilled—and lower-paid—workers. With digitization of information and standardization of software, the strategies behind dividing the manufacture of widgets can be applied to bytes of information relating to insurance claims, financial accounting, tax preparation, and hundreds of other tasks.
This new division of work meshes with two other growing trends: first, outsourcing, or subcontracting, of tasks to other companies, including even core tasks like manufacturing and design of products and, second, the shift of production overseas. Manufacturing was the first to go global, but with the expansion of high-speed Internet links and plummeting international telecommunication costs, the stage was set for offshoring services.
Multinational service corporations had long expected to globalize, mainly by setting up foreign branches to provide services. A few, like General Electric and American Express, began using technical and service workers in low-wage countries to cut costs for their own global operations or, later, to provide services for other companies. Now a wide range of multinationals can digitally fragment their work, outsourcing to many different worldwide suppliers in a search for the lowest cost. Consultants—many with a financial stake in outsourcing services—promoted offshoring as the wave of the future.
Over the past decade, companies in developing countries have become major offshoring players as well. Indian software companies in particular expanded by taking advantage of tens of thousands of English-speaking Indian engineers, who had worked in the United States on temporary visas, to develop a skilled workforce and knowledge of American business. Their reputation for good, cheap work was boosted by the surge of contracts to fix Y2K software problems. Meanwhile, Indian universities have been churning out thousands of graduates, and the government relaxed controls on foreign businesses and service exporters.
Winners and losers
Offshoring services hasn’t always been as smooth or as cheap as promised, but companies have prospered. An Institute for Policy Studies/United for a Fair Economy study found that executive pay for the 50 largest outsourcers of service jobs increased dramatically in 2003 to 28 percent above the average for large-company CEOs.
But will offshoring be good for everyone else? Here’s the pro-offshoring argument: Businesses that offshore jobs will save money, cut prices, expand sales, make more profit and then reinvest in new, high value-added, high-skilled jobs—if only redundant workers will just retrain themselves. But that scenario has its skeptics. Marcus Courtney, president of WashTech, an IT local of the Communications Workers, asks, “Everybody assumes they’ll reinvest here, but why wouldn’t they reinvest where it’s cheaper?” Indeed, Philip Mattera of the Corporate Research Project reports that venture capitalists now ask IT start-up companies to present their offshoring strategy.
High-level American IT jobs are still growing. However, overall IT employment declined in recent years even after corporate IT spending rebounded. The threat of offshoring has also depressed IT wages, and college IT enrollment is dropping. Meanwhile, offshore firms are moving higher up the services skill ladder.
Silicon ceiling
Most new U.S. jobs, according to the Economic Policy Institute (EPI), are not steps up: They pay 21 percent less on average than job-losing industries. Six of the 10 occupations that the Bureau of Labor Statistics forecasts will provide the largest number of new jobs through 2012 require no college education and typically pay low wages. Foreign investment—contrary to hype about “insourcing” of jobs to the United States—is no solution. Foreign investors have mainly acquired existing U.S. companies, according to EPI, resulting in a net loss of jobs and a rising trade deficit, while generating a measly 25,000 jobs a year from new enterprises. And stirring up a hornet’s nest among economists, Nobel Prize winner Paul Samuelson last summer pointed out that the U.S. economy could end up losing, not winning, from expanded free trade if low-wage foreign competitors drive down the price of products where the United States theoretically has a comparative advantage. That seems increasingly possible.
What’s the solution?
In the short run, legislation has been introduced at the state and federal level to restrict outsourcing of public jobs, tighten tech visa controls, increase disclosure of offshoring, ensure privacy of information and otherwise regulate offshoring of services. But such legislation, while useful, would have limited effect. Meanwhile, two Indian union leaders recently toured the United States, advocating transnational labor action to raise labor standards in India—call centers can be oppressive operations—and slow offshoring. But tech and business service workers are largely unorganized in both countries.
The U.S. government could spur new job creation by increasing scientific research funding (which Bush is cutting) and linking corporate use of federal research to investment in the United States. It could also expand trade adjustment to cover now-excluded service workers and provide all displaced workers more comprehensive education (which Bush opposes).
In the long run, however, workers and communities must win a greater voice in corporate strategic decisions through federal reform of corporate governance, shifting of more of the financial burden from displaced workers and their communities to corporations, collective bargaining and putting pressure on pension funds. Pension funds and corporate reformers should also try to reduce Wall Street’s focus on short-run profits. And any national economic benefits from globalization must be shared with everyone—such as through universal health care, improved pensions and higher service sector wages—not hoarded by a tiny elite.
The crisis looming from the massive offshoring of the service industry may make these currently utopian notions politically feasible—and a matter of practical national survival.
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Appeared in the February 14, 2005 Issue
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