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The rich world's disappearing
jobs
By John Berthelsen and Indrajit
Basu
If the North American Free Trade Act
passes, "you will hear a giant sucking sound of jobs
going south of the border". - H Ross Perot, 1992
 In the developed world and particularly in the
United States, the scope of jobs disappearing overseas
is widening beyond all imagining, to professions that
almost nobody expected to be hit, and with far higher
incomes than anybody thought possible as globalization
bonds with the law of unintended consequences.
The catalyst is the Internet. As instant
communication becomes more ubiquitous, the developed
world's white-collar professions, from CAD/CAM
(computer-aided design/computer-aided manufacturing) to
accounting to medicine to architecture to aircraft
design to research and development to engineering to
equity research and financial management to knowledge
management to revenue-cycle management - a whole
panorama of high-income employment - are inexorably
going.
The impact on American and European
society is inevitably going to be far more profound than
almost anyone understands today. It is already
responsible for major positive changes in the living
standards of the middle class in other parts of the
world.
The United States currently accounts for
as much as 70 percent of the world's "outsourcing", as
it is called, or sometimes offshoring. McKinsey &
Co, the international consulting firm, projects that the
flight of jobs offshore to developing countries will
grow by 30-40 percent a year over the next five years.
By the highest estimates, as many as a million jobs have
disappeared overseas from the US job market since the
current economic slowdown began in 2000 and could
represent a major reason for the struggle the US economy
is undergoing to right itself.
McKinsey puts the
number lost from the United States at a much lower
400,000 today, but expects it to grow to as many as 3.3
million by 2015. The business-consulting firm A T
Kearney Inc projects that half a million jobs, or 8
percent of total employment by banks, brokerage houses
and insurance companies, will go overseas within five
years.
But to show how extensive the phenomenon
can be, consider some of the more unlikely developments
over the last three months:
India is emerging as the health-care destination of
choice for an increasing number of surgery candidates,
with more than 60,000 foreign patients from 34 countries
treated in its top-flight Apollo Hospitals chain in the
past decade. A delegation of Indian doctors was recently
invited to London to brief British Prime Minister Tony
Blair's medical advisers on flying surgery patients from
the United Kingdom to Mumbai and or New Delhi for
operative and post-operative care, allowing them to
recuperate, and flying them back to the UK far cheaper
than treating them at home. Routine cardiac surgery at
the best hospitals in India costs about US$35,000, with
a success rate of 98.5 percent, compared with about
$150,000 in the United States. For more complicated
problems that cost far more than that, cost
differentials are anywhere from 200 percent to 500
percent to off the chart. And India is not alone; breast
implants in Thailand from top-flight cosmetic surgeons
cost as little as 50,000 baht ($1,260) compared with a
median price of about $5,000 in the United States.
Fifteen global car makers, including General Motors,
Ford, DaimlerChrysler, Audi, Isuzu and Nissan, have set
up design offices in India with a combined budget of
$1.5 billion to outsource auto design. Industry
estimates are that the cost of auto design in Europe's
exclusive Pininfarina and Bertone design houses run as
high as $800 an hour, while low-cost designers in
Bangalore can do lower-level design for $60 an hour.
India's government is in the process of liberalizing
its accounting rules under continuing World Trade
Organization (WTO) negotiations on services. In a move
being closely watched by the Big Four accounting firms -
PriceWaterhouseCoopers, Ernst and Young, KMPG, and
Deloitte Touche and Tomatsu - accounting, bookkeeping
and auditing services are to be opened to overseas
competition by the end of next year. Indian firms are to
be given reciprocal market access abroad. Indian
accounting costs are a fraction of those in the United
States.
Fashion design is a fast-growing field in Vietnam
and India; 350 domestic and international buyers came to
Mumbai to look at India's fledgling clothing fashion
designs in a glitz-filled week in July. Designer Rophit
Bal is working with putative tennis star Anna
Kournikova. Ritu Beri is showing in Paris. Tarin
Tahiliani has been featured in New York's Fashion Week
and is booked for a show in Milan, the heart of Europe's
fashion industry.
The US Department of Education estimates that the
United States will need an additional 2.2 million
teachers over the next decade. The Executive Recruiters
Association, the representative body of recruitment
agencies in India, is urging the Indian government to
appeal to the WTO seeking an end to what they consider
to be restrictive trade practices in the teaching
professions and allow more Indian teachers into the US.
Indian teachers, with excellent English-language skills,
would find an annual salary of $35,000 an enormous
amount of money. There are already some school districts
from Texas said to be recruiting in India.
This
article concentrates mainly on India and is only a small
specific sample of the developed-world jobs and services
that are in the process of disappearing overseas.
Canada, Ireland and Israel, with large English-speaking
populations, are also particularly attractive to Western
firms, primarily because English is widely spoken, and
well. But in other countries such as India, the
Philippines, South Africa, Ghana and Sri Lanka, English
is also widely spoken, and well, and costs are
minuscule. Russia, with its well-educated tech
professions, is also a destination.
"Anywhere
you have social and economic growth, any of the Third
World countries are wonderful opportunities to set up
services platforms. You can pretty much follow where the
British Empire went," Marc Liebman, president of Everest
Group, an outsource consulting firm in Dallas, told Asia
Times Online. "They left strong business and physical
infrastructure behind them."
In a stunningly
prophetic article, Frances Cairncross, a senior editor
at The Economist, wrote in 1993 that the communications
revolution had wrought what she called "the death of
distance". In that article, she posited that there had
been three profound transport revolutions since the 19th
century, the first when the arrival of steam initiated a
steep fall in the cost of moving goods. The second came
in the 20th century, when the cost of transporting
people fell to the point where vast migrations across
borders brought tens of millions of immigrants from old
Europe to the Americas, and since has resulted in
massive movements of economic refugees from the poor
countries to the rich ones.
The third
revolution, Cairncross wrote, would dominate the first
half of the current century. It is the diminishing cost
of transporting information. Her vision has come true
even faster than she thought. Because of fiber-optic
cable, satellites and digital compression, the transport
of information can be basically free. The enormous
charges for personal calls on telephone lines across the
Atlantic or the Pacific are virtually all gravy. Once
the satellite or the cable is in place and the capital
expenses are paid, there is no expense. Companies with
their own transponders on satellites have lowered their
costs dramatically.
Thus it is possible, for
instance, for Fidelity Investments to put its call
centers in Ireland. It is increasingly probable that a
call to any repair service or help line will be routed
not to the Midwestern United States but overseas to the
Philippines, Ireland, India or any one of a half-dozen
other locations. Indian schools are training prospective
employees to speak in American accents. Back-office
processing such as accounts receivable and payable,
claims processing, revenue collection and passenger
management are not going to be done in the United States
anymore.
JP Morgan Chase, the investment-banking
firm, said it plans to move some of the work of
preparing stock-market research reports to India. The
Financial Times of London has more than 100 such
analysts in Manila, entering data from company reports
all over Asia into computers, so the information can be
sold as databases for investment banks at a fraction of
the cost the banks would have to pay their own people.
"What we went through 10-15 years ago with
manufacturing and blue-collar jobs, we are now about to
go through with white-collar jobs," said Michel Jenssen,
president of supplier solutions for the Dallas-based
Everest offshore consulting group. "It still takes three
to six months to ship manufacturing components offshore,
less if you can send by air. But with services, with
telecommunications technology, movement is now measured
in milliseconds. You can move the work around, you can
scan images, you can move workflow to India with no more
difficulty than you move it from the San Francisco Bay
Area to Texas."
It is possible, as Vivek
Agrawal, who led a McKinsey team studying the issue of
offshoring and wrote a report titled "Offshoring: Is It
a Win-Win Game?" said in an interview recently with Asia
Times Online, that the departure of these jobs is
healthy for American society. It frees up capital and
labor for more rewarding, or productive, or effective
jobs, Agrawal says. A JP Morgan Chase spokesman told
reporters recently that moving market research
preparation to India would get rid of number-crunching,
freeing its US staff to focus on higher-level financial
analysis and spending more time with customers. But it
is hard to figure out what jobs are more rewarding or
productive or high-end, for instance, than thoracic
surgery or architectural design, or what jobs can
replace them in the developed world.
Agrawal
describes most of the information-technology (IT) jobs
headed offshore as relatively low-skilled. If Indians or
Pakistanis or other nationalities can do the really
high-skilled jobs, he says, it is much more likely that
they would obtain visas to move to the United States and
do the jobs here - although the US government, on
October 1, cut the quota for so-called H1-B visas for
skilled workers from 195,000 to 65,000. The effect of
that cut is most likely to be that US employers, unable
to find people to do the jobs here, will take the jobs
to where the workers are - and pay them lots less, thus
losing the multiplier effect of their paychecks in the
United States (see H1-B visas: US gets it wrong again
).
The loss of these jobs overseas
is also probably going to affect developed-world
inflation. The investment bank ABN-AMRO, in an October 3
analysis of the US economy, wrote that while a cyclical
rebound in economic activity is forecast for late 2003,
"this rebound will not produce the typical firming in
underlying inflation that influenced monetary-policy
decisions and the interest-rate outlook in previous
recoveries".
That is at least partly because,
while US Federal Reserve chairman Alan Greenspan has
been given credit for keeping inflation in check in the
United States over the past decade, it is equally likely
that it has been due to outsourcing and offshoring.
Inflation classically starts to pick up as households
increase consumption spending and firms increase
investment spending. That tightens the labor market,
which in turn means that labor can pick and choose
between jobs, and for many jobs there aren't enough
workers. Workers had the luxury of going on strike to
demand higher pay.
But since manufacturing jobs
first began to go offshore with the assembly of consumer
products in the 1950s, workers from auto plants to steel
mills to the panoply of America's rust-belt industries
discovered that going on strike to demand higher pay
meant their jobs could disappear, first to Japan, then
to South Korea and Taiwan, then to the Southeast Asian
countries, and then all over the world.
Now,
ominously, that is beginning to happen to the middle
class as Cairncross's thesis on the death of distance
starts to prove out. What happens if, for instance, US
health-insurance providers cotton to the fact that an
unwilling Joe Bloggs could be flown to Honduras, say, to
have his gall-bladder surgery, and that his airplane
fare (charter, of course, to take a planeload of surgery
patients at a time) and lodging could cost half or a
tenth what it costs at Sinai Mercy Omni-Surgery in
Middletown, USA? The insurance company, like the British
National Healthcare Service, would contemplate that the
out-of-control cost of medical care in the United States
is going to stabilize, no matter how much Mr Bloggs
would prefer to have his gall bladder incised at home -
especially if their pharmaceutical costs descend as
well.
And they well could. In August, the
multinational pharmaceutical companies struck a deal
with the WTO to create a loophole that allows the
neediest countries to override patents on expensive
drugs and order cheaper copies from generic
manufacturers in exchange for a small payment. A
combination of AIDS drugs that in the United States
costs $14,000 per patient per year can be delivered for
a small fraction of that amount.
Indian
pharmaceutical companies, for instance, are producing
generics for many pharmaceuticals at pennies on the
dollar compared with the cost in the United States. Even
today, hordes of US consumers go to the Mexican and
Canadian borders to buy their prescription drugs.
Americans, and later Europeans, watched with
equanimity starting in the 1950s when manufacturing jobs
started to disappear into low-cost factories in Asia.
Only the workers who had filled these emptying factories
and the labor unions who represented them railed against
the loss of jobs. Nonetheless, while in 1950 about 35
percent of America's labor force were engaged in
manufacturing, that figure has fallen to about 12.5
percent today.
McKinsey analyst Agrawal and the
team that wrote the study argue that offshoring is not
particularly bad for the United States because at least
70 percent of US jobs are in services that are produced
and consumed locally.
"We would argue that not
only is the US fully capable of withstanding these
changes, as it will be able to create jobs faster than
offshoring eliminates them, but that the current debate
misses the point entirely." The point is, McKinsey says,
that offshoring creates wealth for US companies and
consumers and therefore for the US as a whole and is
"just one more example of the innovation that keeps US
companies at the leading edge of competitiveness across
multiple sectors".
Indeed. It's great for
companies. McKinsey estimates that management jobs
moving offshore will rise from zero in 2000 to 288,281
by 2015. Business jobs will rise from 10,787 to 328,281.
Computer jobs going offshore will rise from 27,171 in
2000 to 472,632 in 2015. Office jobs - the back-shop
data-entry jobs that consist of keying in data - already
projected at nearly 590,000 by 2005, will skyrocket to
1.66 million by 2015.
Ironically, many of the
disappearing jobs owe their departure to H Ross Perot,
the failed US presidential candidate whose "giant
sucking sound" quote started this article and which
continues to reverberate across the United States today.
The five biggest outsourcing consulting
companies in the US today are in Dallas, Texas. Asked
why, Marc Liebman of Everest said, "Because Ross Perot
was here." Perot, first with his company EDS and later
with Perot Systems Corp, pioneered data transfer and
became a worldwide provider of outsourced IT services.
According to BusinessWorld, an Indian
publication, Perot Systems in 1999 entered a 50 percent
joint venture with HCL Technologies of India to create
HCL Perot Systems to handle billing and claims for
health care companies in the United States. It is a
pioneer in outsourcing data overseas to cheaper labor
for major corporations.
(Copyright 2003 Asia
Times Online Co, Ltd. All rights reserved. Please
contact content@atimes.com for
information on our sales and syndication
policies.)
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