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U.S. Outsourcing Millions of Jobs

Even the former Wal-Mart CEO frets about a nation of hamburger slingers. Second in a series.

By Charles Campbell 19 Oct 2005 | TheTyee.ca

Charles Campbell edited the Georgia Straight weekly for 11 years, and helped to establish the venerable alternative newspaper as an influential and respected voice in the Vancouver media. As the Vancouver Sun's entertainment editor, he increased the section's readership by more than 30 percent in two years. Most recently, he served on the Sun's editorial board.

As an editor and writer he's been closely involved in work that has won more than 60 awards. In 2000, he was honoured with a Southam Fellowship by the University of Toronto's Massey College.

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In Canada, the effect of global trade on Canadian jobs has been an issue for decades. We are a trading nation, and our economic success depends greatly on our ability to trade internationally. We depend in particular on the U.S., which buys 85 percent of our exports.

So we've negotiated trade deals: for more than 30 years, the Auto Pact ensured that we shared in the production of the cars we drive. Free trade agreements involving the U.S., and then Mexico, have sought to protect our access to the U.S., for good and ill.

Now protectionist sentiment is welling up in the U.S., as the country's power erodes. America is vulnerable at home, ineffectual in Iraq, and worried about booming economies in China and India.

Some U.S. industries - from call centres to film production - have come to Canada. However, in a speech to a business forum organized by the Vancouver Airport Authority, Federal Industry Minister David Emerson said U.S. protectionism makes his blood run cold. "If investments are systematically and continuously biased toward the United States because of border risk, we've got some big, big problems in Canada."

Yet much U.S. apprehension is a result of U.S. companies shipping U.S. jobs outside the country. Emerson's speech didn't touch on the fact that in an increasingly global economy, where corporations are able to subvert the rules we make to protect stable livelihoods for ordinary people, U.S. protectionism is just one element in the equation.

Trend is 'profoundly destabilizing'

SFU associate professor Andy Hira, co-author with his brother Ron of the book Outsourcing America, sees global outsourcing as the most troubling issue for the North American economy. Business leaders, too, see huge implications. Bernstein Investment Research, a highly respected U.S. firm, says the trend is as significant as the industrial revolution, and calls it "profoundly destabilizing."

The Hira brothers' book cites a University of California Study that estimates 14 million U.S. white collar jobs - one in nine - are at risk. A 2004 report by Forrester Research suggests that a total of 3.4 million U.S. white collar jobs will move overseas by 2015, with 830,000 jobs leaving by the end of 2005. A Progressive Policy Institute report claims 12 million jobs are vulnerable, with most paying more than the U.S. median wage. Yet another report stated that 2.3 million banking and securities jobs are at risk. And another that 700,000 customer service and corporate back-office jobs will move overseas by 2008.

What's more, these figures don't take into account jobs that might otherwise be created in the U.S. And then there is the ripple effect. Last year in the Wall Street Journal, one analyst predicted that 17 percent of U.S. office space will be vacated within 12 years as a result of offshoring.

The jobs leaving the U.S. are not just IT and call centre work. The Reuters news agency is hiring 1,500 staff in Bangalore - 10 percent of its workforce - at the expense of American jobs. The U.S. health care industry is sending X-rays and MRIs to be read by Indian radiologists. One analyst expects that in 2005, 400,000 U.S. tax returns will be produced in India.

Still, it's information technology, particularly software development, that is most at risk right now, as global corporations tap into a young, well-trained, usually English-speaking workforce that earns about 20 or 30 percent of the wages garnered by a comparable U.S. worker. The Hiras argue the lack of opportunity in the IT sector is reflected in a 20 percent decrease in U.S. computer science enrolment in 2003-04.

Software engineers have particular reason to be apprehensive. "Almost the entire IT services industry in India … is set up for export," the Hiras argue. During the decade ending in 2008, revenue from software exports is projected to rise to $50 billion from $2.7 billion.

U.S. wages undermined

The costs of global outsourcing are complicated and extensive: unemployment benefits, retraining costs, the disincentive for corporations to train an increasingly mobile workforce, downward pressure on wages, and lost personal income-tax revenue.

"In the three years ending in 2003, more than 5.3 million U.S. workers who had held their jobs for at least three years were displaced," Outsourcing America states. "In January 2004, only 65 percent of them had found full or part-time work, and a third of the employed suffered a pay cut of at least 20 percent."

Then there's the emotional toll, and not just to those who have lost their jobs. A July 2004 survey in the San Francisco Bay area found 27 percent of those polled are worried about losing their jobs. "Economists could attempt to estimate the lost wages and benefits from unemployment and reemployment at lower salaries, but there is no way that they can calculate the costs extracted from individuals, their families and their social networks."

Outsourcing America argues the trend's ancillary benefits to the economy are hardly moving in the U.S. labour force's direction. "From the end of the recession in 2001 to the first quarter of 2004, corporate profits grew 62.2 percent while labor compensation grew only 2.8 percent," the book notes, citing a study by the Economic Policy Institute. In other post-WWII economic recoveries, corporations averaged 13.9 percent to workers' 9.9 percent.

Yet while the Hiras predict a dire future, they acknowledge that, "the public debate has been drenched with innuendo presented by both sides as unassailable natural laws". Their book stands mainly as a warning.

'Pain' and 'opportunity'

Thomas Friedman, the New York Times columnist who won a Pulitzer Prize for The Lexus and the Olive Tree, his 1999 book on globalization, defines the outsourcing issue mainly as a challenge. In The World Is Flat, he sees it driving U.S. competitiveness to a new level. "It's time to think about the opportunity as well as the pain." He defines this opportunity as cheaper goods, global development, international security enhanced by linked economies and capital that is freed to do more sophisticated work.

Friedman cites a Morgan Stanley study that declares cheap imports from China have saved U.S. consumers $600 billion since the mid-1990s. He also offers a sympathetic portrait of Jack Perkowski, head of China automotive outsourcing specialist ASIMCO, who says limited health services help keep his Chinese benefits costs down. "Anything which can be done to reduce a U.S. company's liability for medical coverage would be a plus in keeping jobs in the U.S.," Perkowski adds.

For North American industries, Perkowski declares, the imperatives are unavoidable. "Either you get flat," he says, adopting Friedman's vernacular, "or you'll be flattened by China."

Although it comes almost as an afterthought, Friedman does acknowledge some risk. "Even as a free trader, I am worried about the challenge this will pose to wages and benefits of certain workers in the United States, at least in the short run."

Friedman puts a big onus on individuals, and he quotes a layoff-related memo from Reuters America's David Schlesinger on the subject. "Every person, just as every corporation, must tend to his or her own economic destiny, just as our parents and our grandparents in the mills, shoe shops and factories did."

Friedman lauds "flexible" U.S. labour laws: "The easier it is to fire someone in a dying industry, the easier it is to hire someone in a rising industry." And always remember, he declares, with all the blunt tools of emphasis a writer can employ: "The Indians and Chinese are not racing us to the bottom. They are racing us to the top -- and that is a good thing!"

Hamburger helpers

Some of the counterpoint in Friedman's book comes from an unlikely source: former Wal-Mart CEO David Glass: "One of my concerns is that, with the manufacturing out of this country, one day we'll all be selling hamburgers to each other."

BC Federation of Labour president Jim Sinclair, who sees outsourcing as a key issue in the economic future of our province, asks the same question. "Twenty years ago, the biggest employer in North America was GM," he says. "Today the biggest employer is Wal-Mart. Their employees buy at Wal-Mart because they're making $8 an hour, no benefits, no pension. They can't afford to buy anything anywhere else. What are we going to do with a million employees who make $8 an hour? This is a big problem for us."

He disputes Friedman's notion that individual initiative offers a realistic buffer to displacement. "Not everybody is going to be an entrepreneur in this society; there's only so much room."

Sinclair says he accepts that technology will change work at a rapid pace. "Work is going to be restructured. It's been happening since the beginning of the industrial revolution. The question is only, what is going to happen to us when that happens?"

Friedman barely mentions the labour movement in his book, except to note that globalization has turned unionists and protectionist Republicans into unlikely allies. He does say flattened global supply chains "take a certain element of humanity out of life".

He does ask: "How much friction would you like to see government remove, through deregulation, to make it easier for companies to compete on Planet Flat?" But he never effectively answers the question. Instead, he says: "Sort that out."

Outsourcing a 'cancer'

Yeah, it's complicated. However, for Sinclair, one thing seems very clear. "Contracting out and outsourcing is a cancer in the workplace. It is the thing that employers are using to destroy the labour movement. That's how we feel."

That's why the Telus dispute has been such a bitter one. "We accept that as the technology changes, the work is going to change," Sinclair says. "The issue is, can the company give the work to someone who's going to do it for a whole lot less? The only thing that has stopped them is the contract."

In B.C., where the union movement is much stronger than it is in the U.S., that depth of feeling has polarized the discussion of how our governments should help business compete in an extraordinary global economy and protect the interests of ordinary workers.

For the BC Liberal government, the flat-world strategy is a key component of its economic policy. For the labour movement, that strategy is a road to oblivion.

Read Part 1 of the Tyee's Outsourcing BC series here.

In Part 3, we'll look at the benefits and risks of provincial and national strategies to strengthen our economy and protect us against outsourcing.

Charles Campbell is a contributing editor to The Tyee.  [Tyee]

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