job migration - a topic at Davos

[Belinda Wong-Swanson]

Overseas Job Outsourcing
Worries Globalization Fans

By Bob Davis

>From The Wall Street Journal Online

DAVOS, Switzerland -- Many of the business, government and academic leaders
who came here for the annual meeting of the World Economic Forum,
traditionally a gathering of advocates of globalization, have voiced doubts
over the past few days about one of the central tenets of global economic
integration.

They question whether the increasingly global economy will produce as many
high-wage jobs in rich countries as once was expected.

Their concern stems from the free-trade axiom that when a rich country sends
blue-collar jobs overseas, it creates opportunities back home for workers to
move up the skill ladder. The more recent corollary was that sending service
jobs overseas would do the same for white-collar workers back home.

But the rising number of skilled, white-collar jobs migrating from rich
nations to developing countries is raising fears that, in fact, well-paid
workers in developed countries will have trouble finding equally well-paid
computer, design and medical jobs at home. Many of the true believers in
globalization at the Davos forum, which ended Sunday, worry that outsourcing
also could erode political support for free trade internationally.

"When auto-manufacturing jobs went to Mexico, we said we'd push the bar up
and create better jobs," said William Daley, who guided the North American
Free Trade Agreement through Congress for former President Clinton and is
president of SBC Communications Inc., a San Antonio, Texas,
telecommunications operator. "Can you keep going up the job chain?"

Zhu Min, general manager of the state-owned Bank of China, suggested that
the U.S. does need "to reposition itself. Manufacturing is gone; services
are going. Research and development is still there. [The U.S.] needs to move
up the [development] chain."

Others noted that there are substantial differences between how trade
affects workers in manufacturing and services. In developed countries, lofty
tariff barriers to imported goods had to be whittled away before many
manufacturing jobs were at risk, a process that took decades. Governments
could limit the losses by reimposing tariffs. High import tariffs eliminate
some of the economic argument for using lower-cost labor abroad to make
goods that will be more costly as U.S. imports under those tariffs.

But service trade isn't affected much by tariffs, and can move as rapidly as
the improvements in computers and communications allow. Therefore, the job
loss can be more sudden.

Alarm Is Sounded

So long as manufacturing jobs were at stake, opinion leaders didn't take
much note, said Dani Rodrik, a Harvard University economist. The alarm is
being sounded now, he said, because "the opinion leaders are seeing their
neighbors being displaced."

Many economists at Davos said the fears over outsourcing were overblown. If
Indian programmers, for instance, produce software at lower prices than
Americans can, that would reduce costs for the many users of information
technology. As that lower-price software permeates U.S. and European
companies, those companies would become more productive and more able to
hire new workers. At the same time, as India and China develop economically,
they would become more-lucrative markets for U.S. exports.

While the number of U.S. service workers whose jobs have been outsourced is
small -- estimates range from 250,000 to 500,000 during the past three
years -- the potential for further job loss is immense, all sides at Davos
agreed. Brendan Barber, secretary-general of Trade Union Congress, a British
labor confederation, estimated that two million service jobs could be
outsourced from wealthy nations in the next five years.

In the U.S., outsourcing is increasingly becoming a political issue. Sen.
John Kerry of Massachusetts, a Democratic presidential contender, is looking
at tax-law changes to discourage shifting jobs abroad and requiring workers
in call centers to identify the nation in which they are located. About a
dozen states also are looking at putting curbs on the use of outsourcing in
government contracts.

Democratic Rep. Barney Frank of Massachusetts, among several U.S.
politicians at Davos this year, said the issue could hurt President Bush in
Ohio and other Midwestern states. Mr. Bush's commerce secretary, Donald
Evans, challenged that, saying the jobs lost so far involve "pretty small
numbers."

Some of the beneficiaries of outsourcing outside the U.S. keep a wary eye on
Washington. A provision in the massive spending bill Congress passed last
week, though little-noticed in the U.S. media, is stirring up a storm in
India, where it is seen as evidence of a backlash that will slow
outsourcing. The law says that when the federal government decides to allow
private companies to do work now being done by government employees, the
private companies can't do the work outside the U.S. (The provision doesn't
apply to work the government employees themselves were doing outside the
country.)

For the past few decades, U.S. presidents have sold free trade and global
integration as an economic-development strategy. Although the U.S. would
lose some manufacturing jobs to developing nations where labor costs are
lower, the argument went, the U.S. would gain higher-paying, higher-skilled
jobs that poor nations were unable to master. Outsourcing makes that
argument less compelling.

Through technology that makes communication quicker and less expensive and
education that is creating pools of skilled workers in some developing
countries, U.S. companies now do work abroad that once had been reserved for
the U.S., Western Europe and Japan.

Software programming has been outsourced for years to India. Low-paying jobs
in call centers also have been shifted to English-speaking countries around
the globe. Now high-end computer-systems integration is leaving the U.S.,
too, as is architectural and design work.

As reported last week, International Business Machines Corp., Armonk, N.Y.,
plans to shift about 3,000 high-paying programming jobs to China, India and
Brazil from the U.S.

Lower-Priced Research Talent

An official at Davos from an Indian company boasted that the company could
develop drugs for far less than the U.S. and Europe could -- because of
lower-priced research talent and bargain rates to run large-scale drug
tests.

"We cannot protect the American people from reality," said Hewlett-Packard
Co. Chief Executive Carly Fiorina, speaking at Davos. "There are many, many
qualified engineers around the world who want to participate" in advanced
research.

Catherine Mann, an analyst at the Institute of International Economics in
Washington, has estimated that U.S. companies were able to reduce the cost
of computers and communications equipment by about 10% to 30% by making the
equipment in factories around the world. That lifted U.S. economic growth by
about 0.3 percentage point a year between 1995 and 2002, as more companies
made use of information technology. She expects similar economic gains if
computer software is produced in an internationally efficient fashion.



Belinda Wong-Swanson, Principal
Innov8 LLC, 624 Agua Fria, Santa Fe, NM 87501
www.innov8llc.com
email: [hidden email]
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