Maybe We Could All Deliver Pizza . . .

[Randy Burge]

Maybe We Could All Deliver Pizza . . .

By Jodie T. Allen
Sunday, March 7, 2004; Page B01
<<http://www.washingtonpost.com/wp-dyn/articles/A35469-2004Mar6.html>http://
www.washingtonpost.com/wp-dyn/articles/A35469-2004Mar6.html>

To hear the pessimists tell it, "Snow Crash" is right around the
corner. You don't know "Snow Crash"? It was a
turn-of-the-21st-century cyberpunk novel by Neal Stephenson, who
foresaw a nightmarish future in which the "Invisible Hand has taken
all those historical inequities and smeared them out into a broad
global layer of what a Pakistani brick-maker would consider to be
prosperity." And what the inexorable forces of comparative advantage
thus revealed was that the U.S. economy would evolve to the point
where Americans excelled at only four things: "music, movies,
microcode (software), high-speed pizza delivery." Well, maybe we
should scratch the microcode, since software companies have been
outsourcing programming jobs to Asia at an accelerating pace.

Nonsense, say the optimists, who include among their ranks not only
the Bush administration's top economist, N. Gregory Mankiw, but most
of his colleagues in the normally dismal science. Mankiw ruffled
feathers recently by saying that outsourcing white-collar jobs was no
big deal; after all, America has been shipping jobs overseas for
decades. True the "churn" produces permanent losses for some
individuals. But the lost jobs have always been replaced by more
productive and hence better-paying ones. Sooner or later that will
happen again. "This is a fact of life that Americans have to get used
to," said Brookings economist Barry Bosworth at a recent American
Enterprise Institute colloquium.

Easy for him to say. Getting used to it will be a lot more
comfortable for some people than for others. If you're a working
stiff, you may be looking at the layoff numbers and wondering if
you're next. Even new economy jobs are following old economy jobs out
of the country. And that could cause some churn in the presidential
race. Exit polls from last Tuesday's 10-state primaries show voters
far more concerned about jobs and the economy than about health care
and Iraq; almost four in 10 say their financial situation is worse
than four years ago. But if you're a top executive or a big
shareholder, no problem -- at least for now.

In the long run, though, the thing even execs should fear is this:
What would happen if America's once-prosperous middle class, the sine
qua non of a vibrant democracy, grew too strapped to purchase the
goods and services that businesses produce? True, as workers in
China, India and elsewhere move up the value-added chain, they should
prop up global demand. But here at home, increasing income inequality
could lead, as Sen. John Edwards (D-N.C.) warns, to a two-tier
economy, with a small but ever wealthier coterie of capital holders
and a sprawling proletariat. It's not inevitable, but worth worrying
about. Even if the future plays out according to the economists'
models, it might not be the type of society we want to live in.

Still, in the now-hot argument over outsourcing, both sides can cite
supporting evidence. That makes it tough for voters to judge who's
right -- and, after all, we're being asked to bet not only the ranch,
but the factory and office as well. On the pro side, the outsourcing
trend has certainly been good for U.S. corporations and shareholders.
Columnist James K. Glassman recently constructed a "Dobbs Rogue Fund"
(taking its name from CNN commentator Lou Dobbs, who compiled a list
of firms that have moved jobs overseas). Glassman calculates that, as
a group, these 216 companies registered a remarkable 72 percent
return over the last 12 months. "Isn't that what investors want from
companies?" asks global analyst Donald Straszheim. Meanwhile, look at
all those cheap, high-quality sneakers and cell phones and laptops
you can buy. Been to Wal-Mart lately?

And won't the fuss about jobs blow over? The Business Roundtable's
latest survey of CEOs found high hopes for sales, jobs and capital
spending in the next six months. Outplacement firm Challenger, Gray &
Christmas reported that planned layoffs fell to 77,250 in February,
not exactly heartening but better than January's 117,556. Last week,
the Institute for Supply Management reported that the factory sector
had expanded for the fourth month in a row. Finally, there is the
often-prophetic JII (journalists' insider index): With major news
outlets from Time to Business Week featuring the outsourcing dilemma
-- even the creation of a Web site for journalists covering
outsourcing -- it's a fair bet that the phenomenon is about to run
out of steam.

Grant you that, say the pessimists, but Friday's jobs number from the
Labor Department was a real downer. A measly 21,000 jobs were added
to the economy in February, about a tenth the monthly rate in recent
administration forecasts. Hiring by government, not the private
sector, accounted for all of them. If 392,000 people hadn't helpfully
given up looking for work the unemployment rate would have jumped as
well. "This is obviously going to be a disappointment for the
president," says Republican pollster and political analyst David
Winston. "We're seeing clear economic growth, but there is a
frustration that it's not translating into jobs yet."

Those are mighty weak numbers after a period in which, despite tax
cuts and rock-bottom interest rates, more than 2 million jobs have
been lost. Moreover, forecasters such as Goldman Sachs project that
several million more U.S. jobs may be offshored in the next several
years, many of them the same higher-skilled infotech jobs that, just
a few years ago, were hyped as appealing replacements for those grimy
lost factory jobs.

As Georgetown University economist Harry Holzer observed at an Urban
Institute seminar last week, the U.S. economy hasn't suffered such a
prolonged decline in payroll jobs since the 1930s Depression. More
than 4 million workers, Holzer notes, have run through their
unemployment benefits without finding jobs and, in the last 12
months, inflation-adjusted hourly wages have barely risen. There is a
"fundamental change in the political calculus," noted Doug Usher,
vice president of the Mellman Group, which polls for the Kerry
campaign. "Economic growth has become decoupled from job growth."

The villain -- and hero -- of this saga is fast-rising productivity.
Since 2000, labor productivity has grown at a 3.7 percent annual
rate, high even for a recovery period. Offshore outsourcing
contributes to the trend, since hours put in by foreign workers are
both cheaper and uncounted in traditional productivity measures.
Home-shore outsourcing helps, too, by replacing full-timers with
on-call piece workers who earn no benefits or overtime pay. In the
past, higher productivity has translated into higher wages and more
jobs as employers share the gains with workers. But this time that
hasn't happened yet. Instead, the returns from higher productivity
are going into higher profits and lower prices. Using official Bureau
of Labor statistics, Johns Hopkins University economist Arnold Packer
calculates that employees' share of the value added in the U.S.
economy has fallen to its lowest point since records were first kept
in 1947 -- and the rate of decline is accelerating. "The real damage
is not the number of jobs, but their pay and quality," Packer says.

Former U.S. trade representative Charlene Barshefsky, an ardent free
trader, says that "the U.S. hasn't begun to appreciate that we are in
a tumultuous period." She notes that "the rise of China and India
with 2.3 billion people represents a particular challenge not only to
manufacturing but also high-end intellectual applications." In other
words, those countries are fast gaining what is known in trade
circles as "above the neck" capability.

How much all this matters depends on what happens next. "For that
simple model of trade and comparative advantage to work," says
Institute for International Economics productivity expert Martin
Baily, people displaced by outsourcing "have to move into other jobs
that are at least productive enough to pay for those cheap imports."
After all, asks Alan Tonelson of the U.S. Business and Industry
Council, if higher productivity is all that matters, "why stop with a
jobless recovery? Why don't we actually strive for a jobless economy?"

Aside from the social costs of such an outcome, there is the more
pressing matter of paying our offshore bills. Thanks to our
insatiable appetite for the world's bounty, foreign investors now
hold some $1.5 trillion in U.S. public and private debt. Much of that
debt is held by members of OPEC and by the central banks of the big
exporting nations of Asia -- notably China and Japan. Someday those
offshore investors may tire of financing our greedy habits, at which
point the already weakened dollar could plummet, inflation spike,
interest rates rise and a nasty and enduring economic downturn ensue.

So, short of crass protectionism, what remedies might we pursue? The
panacea promoted by both political parties is job retraining for
displaced workers. While economist Holzer points to evidence that
well-designed training programs can be cost-effective, the
decades-long record of such programs is dismal. Better education is
another favorite prescription, though the Urban Institute's Robert
Lerman notes that education levels among workers have already risen
notably since 1992.

The Bush administration sees gains from bilateral trade agreements --
last week it signed its third this year, with Morocco. But unless we
get serious about pressuring our trading partners to raise labor and
environmental standards, the benefits of such pacts are debatable.
(At least we might try to keep big U.S. retailers from strong-arming
Chinese manufacturers into actually cutting their already paltry
worker compensation, as major newspapers have reported.)

But the White House is right that tort reform could reduce incentives
for lawsuit-ridden employers to flee. Even more potent: detaching
health care coverage from payrolls -- a move, pollster Usher notes,
that would also reduce worker anxiety about job loss. And, as long as
government can't stop the income gap from widening, it's absurd to
pile ever more burden onto paychecks and lighten the load on
investment income by cutting tax rates on dividends and capital
gains. Finally, it would be healthy both for our fiscal situation and
our public discourse if more of our leaders took honest note of the
many things -- from safe neighborhoods, good schools, open spaces,
clean air and pure water to national security itself -- that you
still can't buy at Wal-Mart.

Still, the U.S. economy is not about to implode. Some firms are
rethinking the wisdom of shifting all those engineers and programmers
to India and other places. And many service jobs -- not just the
grave-digging, trash-collecting ilk -- can't be outsourced. U.S. News
& World Report's latest career guide highlights some expanding
occupations with "staying power" including: 3-D animator (but not
traditional cartoonist); contract nurse (be prepared to travel);
maintenance electrician (best to know "programmable logic control");
software designer (you may have to get your entry-level programming
experience overseas); and auditor (to collect evidence on all those
CEOs in handcuffs). Also intelligence gatherer.

Which brings us back to "Snow Crash" and its aptly named main
character, Hiro Protagonist. Hiro, in the globally corporatized world
of tomorrow, has lost his prized pizza delivery job -- "the only
pointless dead-end job he really enjoys." His last resort?
Freelancing as a stringer for the CIC, the Central Intelligence Corp.
of Langley, Va. Oh, but that would never happen here, would it?

Author's e-mail:[hidden email]

Jodie Allen is managing editor of U.S. News & World Report and was
editor of Outlook from 1990 to 1996.

Archives at: <http://Wireless.Com/Dewayne-Net>
Weblog at: <http://weblog.warpspeed.com>

[Roger Critchlow-2]

Randy Burge wrote:

>Maybe We Could All Deliver Pizza . . .
>
Does this article ever take a turn for the better?  Seems like I'm
80% through and there's not a glimmer of a silver lining to be seen.

I'd heard that the February job report was bad, but I hadn't heard
that all 21000 jobs added were government jobs.

I did see an analysis which noticed that the bulk of the computer/
network equipment recovery appeared to be fueled by government
procurements.

-- rec --