Sunday, March 29, 2009

Obama Town Hall: Partial Sanity on Offshoring

I'm still traveling in India (more on that in another post), so I'm running a bit behind.

An interesting development in President Obama's on-line townhall meeting. A woman named Harriet, from Georgia, asked the following question (all quotes from the NYT transcript ):

When can we expect that jobs that have been outsourced to other countries to come back and be made available to the unemployed workers here in the United States?

president gave a surprisingly coherent response -- at least for a liberal democrat. Here it is:

Now, a lot of the outsourcing that was referred to in the question really has to do with the fact that our economy -- if it's dependent on low-wage, low-skill labor, it's very hard to hang on to those jobs because there's always a country out there that pays lower wages than the U.S. And so we've got to go after the high-skill, high-wage jobs of the future. That's why it's so important to train our folks more effectively and that's why it's so important for us to find new industries -- building solar panels or wind turbines or the new biofuel -- that involve these higher-value, higher-skill, higher-paying jobs.

So I guess the answer to the question is, not all of these jobs are going to come back. And it probably wouldn't be good for our economy for a bunch of these jobs to come back because, frankly, there's no way that people could be getting paid a living wage on some of these jobs -- at least in order to be competitive in an international setting.

So what we've got to do is create new jobs that can't be outsourced.

[He then went on to talk about "Green jobs" and having union workers building a smart grid, making $80,000-90,ooo. In the interest of space, I am leaving that out because it's very long and kind of wandering]

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I offer a few thoughts:

  1. First, he didn't take the bait and make references to "our jobs" or "American jobs." That's progress.

  2. He didn't roll out the "no tax breaks for companies that export jobs" line that nativists seem to like so much. There are no such tax breaks for "exporting jobs," and if the people who use such lines think they can take away other breaks for companies they don't like, they will run into the problem of identification and designing a program that actually works (discussed below Offshoring and Public Policy -- a Conundrum )

  3. He seems to be somewhat mistaken about the nature of the work going offshore. From 10 to 5 years ago (as BPO gained steam) much of work was medium skilled -- things like call center jobs, accounting and finance, and claims processing.

What the president misses is that software jobs (in India, a bit more than half the total) are fairly high skill, certainly much more so than the union construction and electrical positions he talks about. Furthermore, the fastest growth today is in high skilled KPO (knowledge sector offshoring) work. Things like engineering services, business analytics, product design, teleradiology, and others.

My overall position is that, while disruptive in the short run, this is ultimately beneficial in the long run.

Bottom line: The president gets a B+. He didn't fall into the typical political trap of mischaracterizing the trade as win-lose (or zero sum). That puts him ahead of 75% of politicians, and 95% of democrats in Congress.

On the other hand, he doesn't understand (or at least communicate) the real nature of what's going on. It will be interesting to see what actions he takes going forward. One of the first tests will be how his administration treats the auto companies. Will they force them to cut back on software offshore outsourcing (GM does huge amounts of work offshore), or on back office stuff (Ford is ramping up its business analytics unit in India). Time will tell.

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