Archive for Wednesday, July 6, 2005

U.S. job losses spur debate

July 6, 2005


When it comes to the offshoring of jobs to countries such as China, India and the Philippines, the response generally falls into two camps.

There is "the sky is falling" crowd. They are consumed by the dark fear that jobs, and along with them living standards, are being snatched away forever by rapacious foreigners.

Then there are the "what me worry?" types. The problem of job loss is exaggerated and whatever jobs do go offshore will soon be replaced, they say.

Reality lies somewhere in between these two dangerously simple views. Increasingly, however, the public dialogue is dominated by these two ends of the debate.

The sense of foreboding about the future shapes the response to the latest news about China National Offshore Oil Corp.'s audacious bid to take over the U.S. oil and gas company, Unocal. That comes on top of a bid by China's leading appliance maker to buy Maytag and the completed purchase of IBM's laptop computer business by China's Lenovo.

But this is a trickle compared to the massive flow of capital in the other direction. U.S. companies almost doubled their overseas investment in 2004, jumping to $252 billion, according to the Organization for Economic Cooperation and Development. China topped the list for foreign direct investment from firms in wealthy countries - a record $55 billion - eagerly searching for lower cost production and an expanding markets for their goods.

That investment only feeds alarm over the shift of economic power east. And the rise of China is the talk of Paris as well as Silicon Valley. The resounding rejection of a European constitution by French voters was driven by a perceived threat of unemployment from the admission of the 10 new members to the European Union, mostly from the former Soviet bloc, where wages and living standards are much lower than in France or Germany.

"The sense of fear is reinforced by the outsourcing of French jobs and businesses to Eastern Europe and Asia," former French foreign minister, and member of the French Senate, Jean Andre Francois-Poncet, told a recent gathering of former world leaders at Stanford.

The argument at the other end of the debate is that those fears are enormously overblown. A case in point is a new report issued by business consultants, the McKinsey Global Institute, reassuringly predicting that service industry jobs will not follow manufacturing employment out the door. Based largely on interviews with industry "experts," it concludes that the vast majority of service jobs cannot be moved offshore and that only a tiny percentage - 1.2 percent - will have done so by 2008.

But at a Stanford conference in June on globalization of services, the message from companies active in this field was decidedly different.

"Anything that does not require face to face interaction with the customer can be done anywhere on the globe," said VN "Tiger" Tyagarajan, the executive vice president of GE Capital International Services, the firm that pioneered the explosion of offshoring to India, and now to Eastern Europe and China. "The horizon just keeps moving," he said.

Rafiq Dossani, a Stanford scholar who has done extensive studies of this subject, puts very little confidence in the McKinsey numbers. What can move offshore is constantly changing, he pointed out to me. For example, stockbroking was considered a business that could only be done face to face. Now a major Wall Street firm has begun to move its research to India where analysts interact with clients by voice or email. Once every few months, the analyst flies to the U.S. for meetings. The Indian analyst costs the firm $100,000 a year, Dossani said, a third of what the same person would get in the United States.

At the conference, firms reported their experience in moving increasingly sophisticated work to India. Jobs are not so much being moved as created from the start - something that statistics on job loss simply don't capture.

No wall can be erected to stop a movement our own firms propel. That is a point made by Tom Friedman in his recent book - and by former trade official Clyde Prestowitz in his excellent new book, "Three Billion New Capitalists: The Great Shift of Wealth and Power to the East."

But both men also argue persuasively that the United States - and Europe and Japan - cannot afford to take the "what me worry" approach. If we don't act to restore competitiveness, eventually the sky will fall.

Daniel Sneider is foreign affairs columnist for the San Jose Mercury News.


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