Outsourcing America

Bal Harbour, Fla.

After two decades of devastation of the U.S. manufacturing sector and the permanent loss of millions of high-wage, good benefit, middle-class jobs, America is now threatened with a similar hollowing out of its service sector. Among the millions of service jobs threatened, now high paying, professional and technical career opportunities are also at serious risk due to the growing off-shoring trend. These losses are already contributing significantly to the current jobs crisis and further decline of the middle class, even as the Bush Administration endorses the exodus of so many American jobs as a “good thing,” as the administration stated in a report by the Council of Economic Advisors signed by the president.

The labor movement has fought the flawed trade and tax policies of the 1970s, 1980s and 1990s that rewarded companies for shipping American manufacturing jobs overseas. Today, we stand united in opposition to outsourcing away our best service-sector jobs as well. Like Americans everywhere, we believe that American corporations have a moral obligation to create and to keep good jobs in America. We support raising living standards around the world, but we steadfastly reject and resist any notion that improving living standards elsewhere requires sacrificing good jobs and living standards for American workers and their families.

When manufacturing jobs started moving overseas in larger numbers, American workers were told by free trade ideologues not to worry, that the U.S. comparative advantage was in services—especially high-tech and other knowledge-based industries. We were assured that the new global division of labor was both natural and benign: we would keep the high-paying, high-skilled jobs, while the workers in developing countries would do the actual work of making things. Displaced workers were smugly told to simply acquire new and better skills and more education in order to succeed in the changing American economy. Many workers did, but now they find that knowledge and talent can’t compete against the chase for higher profits and cheaper labor in the new global marketplace.

Current trends in exporting these jobs and projections of its rapid acceleration threaten millions of highly skilled, well-educated workers. In the never-ending pursuit of the lowest cost labor and the most exploitative working conditions, each month corporations are laying off tens of thousands of workers in the U.S. and shifting work in high tech, accounting, engineering, financial services, marketing, research, architecture, insurance, health care, telecommunications, the entertainment industry and other areas to offshore locations. The export of these professional and technical jobs affects both back office and front office occupations and operations. Even state and local governments are outsourcing taxpayer-supported public contracts—sometimes underwritten with federal grants—to firms that send the work overseas. Communities around the nation are seeing their best and brightest—once presumed to be insulated from the ravages of “free trade”—devastated as they find themselves out of work, out of luck, and on the unemployment lines.

Recent studies and analyses predict dire consequences should current trends continue unabated. What these reports make clear is that any work that can be digitized and transmitted through cyber-space is a target for export:

• Forrester Research Inc. predicts that American employers will move about 3.3 million white-collar service jobs and $136 billion in wages overseas in the next 15 years, up from $4 billion in 2000.
• Gartner Inc., a high-tech forcasting firm, estimates that 10 percent of computer services and software jobs will be moved overseas by the end of this year. 
• A survey by Deloitte Research found that the world’s 100 largest financial services firms expect to shift $356 billion worth of operations and about two million jobs to low-wage countries over the next five years. The study also revealed that one-third of all major financial institutions in the world are already utilizing offshore outsourcing, with 75 percent reporting that they would be doing so within the next 24 months. 
• A recent study by INPUT Research, a market research firm in Reston, VA, projects that outsourcing of state and local government technology contracts will grow from $10 billion last year to $23 billion in 2008. 
• A report published by the University of California at Berkeley projects that some 14 million jobs are at risk of being outsourced overseas, and that job losses will likely exceed what the Forrester study reports. Forrester, the Berkeley study says, “translates to a little over 250,000 [lost jobs] per year, a number that seems conservative, based on the rate of outsourcing over the last few years, the experience of outsourcing in manufacturing, the increasing ability of an increasing number of countries to compete for these jobs, the higher tradability of services due to better communications, increasing use of English and U.S. standards in business and commerce.” To support this contention, tabulations by the authors of the Berkeley report of Indian newspapers and business journals for just the month of July 2003 estimated that 25,000 to 30,000 new outsourcing-related jobs were announced by U.S. firms. In the same month, there were 2,087 mass layoffs carried out by U.S. employers resulting in a loss of 226,435 jobs.

Lost employment due to off-shoring across many industries has already had a severe impact on the U.S. labor market, stalled economic recovery and left policymakers alarmed about long-term prospects for job restoration. The August issue of a Federal Reserve Bank publication, “Current Issues in Economics and Finances,” determined that in the most recent downturn (beginning in March of 2001 and ending in November of 2001), 79 percent of the job losses were reported to be structural (permanent) and only 21 percent were cyclical (temporary). This compares to 49 percent and 51 percent, respectively, during the economic downturns of the mid-1970s and early 1980s. Over time, much of this shift has been directly attributable to manufacturing jobs lost overseas that aren’t coming back.

Despite the ongoing and permanent loss of good jobs, President Bush’s Council of Economic Advisors (CEA) recently opined that "when a good or service is produced more cheaply abroad, it makes more sense to import it than make or provide it domestically." The CEA chairman, Greg Mankiw, went on to say "Outsourcing is just a new way of doing international trade … More things are tradable than were tradable in the past and that's a good thing."

In other words, sending high paying U.S. jobs overseas is a centerpiece of Bush Administration economic policy.

The off-shoring tidal wave also portends disastrous consequences for the U.S. trade deficit—which, at 5 percent of GDP already has global financial markets apprehensive. For 2003, the U.S. merchandise trade deficit hit more than half-a-trillion dollars—an all-time record. While this deficit has grown steadily since the early 1990s, our surplus in services has traditionally offset some of the goods deficit explosion. But the services surplus—at $88 billion just six years ago—began to decline in 2000 and in 2003 was only $60 billion. This downward slide is largely due to growth in imports of private services, which almost certainly reflects the white-collar outsourcing that has already been taking place.

President Bush insults America’s professionals—many of whom are among the best educated in the world—by insisting that the rush to ship more jobs off-shore is spurred by a lack of domestic skills or education. To the contrary, in June 2003, significantly more degrees were conferred in all categories than in the mid-1980s, as young people heeded advice to acquire more education. The trend toward increased qualification will continue: the Department of Education projects a steady and substantial annual increase in the number of associate’s, bachelor’s, master’s, doctoral and first professional degrees conferred between 2004 and 2012, amounting to a total of 23,584,000 new degrees. Similarly, off-shoring jobs is not spurred by a lack of qualified workers, as there are more than enough. The unemployment rate for electrical, electronic, computer hardware and computer software engineers rose to 7 percent in the first quarter of 2003. Contrast this with the 1980s, when the unemployment rate for all workers reached 9.5 percent but fewer than 2 percent of electrical engineers were unemployed. Meanwhile unemployment among tech workers stands at a staggering 9 percent.

The corporate drive to take advantage of workers with few rights and limited opportunities not only harms American workers, it drags workers everywhere into a race to the bottom. In India, services exporters are already setting up shop in rural areas rather than Bangalore to save money, and Indian firms are already setting up centers in China, where labor costs are a fraction of those at home. This perverse competition—based on the employer’s ability to keep wages artificially low by violating workers’ rights rather than the workforce’s skills and productivity—puts workers everywhere at risk and threatens the long-term health of the global economy.

While off-shoring by companies wanting to exploit workers in other countries instead of hiring U.S. workers and graduates will be difficult to deter, public policies that aid and abet runaway corporations must change, and the U.S. must proactively develop a coherent and comprehensive employment policy:

• Tax policies—Federal tax policies that encourage shipping U.S. jobs overseas must be replaced by tax incentives focused on job creation here. State and local corporate tax relief to “create jobs” often represents nothing more than tax giveaways for little, if any, job creation. Where they exist, these tax inducements should be targeted to companies that support their own communities with jobs that pay good wages and benefits and denied to companies that cause economic harm through off-shoring. 
• Procurement—Federal, state and local contracts for services worth hundreds of billions of dollars should assure that American taxpayers are not subsidizing the flight of U.S. jobs.
• Economic Development—Taxpayer-funded economic incentives to corporations, often provided through direct grants designed to spur local job creation, must be carefully monitored by state and local governments to ensure that these subsidies are not awarded to businesses that export job opportunities. Given the off-shoring threat, it is now more important than ever to amend these programs to assure that they: 1) create family wage jobs with adequate benefits and provide solid protections for workers’ rights, including the right to organize into unions; 2) include effective disclosure requirements and oversight mechanisms; and 3) guarantee that government entities can “clawback” funds from a company that fails to meet its jobs targets. 
• Research and Development—Government R&D funds should be denied to companies that transfer the technology, intellectual property and other by-products of this investment overseas. Tax dollars that pay for this research should be invested in strengthening the national economy and creating domestic employment.
• Trade Agreements—Trade agreements must be fundamentally reformed to include enforceable protections for the rights of all workers—whether in manufacturing, agriculture, or services—to form independent unions, bargain with their employers, and reject child labor, forced labor and discrimination. Trade agreements should also allow appropriate space for countries to implement legitimate tax and procurement policies that support job creation in domestically oriented production, and for countries to implement safeguards and other trade remedies in response to import surges and unfair trade practices in the services sector.
• Guest worker visa programs—Visa programs like H-1B and L-1 are in effect technology transfer pipelines that enable foreign professionals to gain knowledge and core competencies here and then take them, along with American jobs, when they return home. Employers take advantage of these programs to exploit foreign workers during their time in the U.S., and then to facilitate shipping jobs overseas. These programs—a major culprit behind the off-shoring epidemic—need major reform.
• Security—Export control laws need to be assessed and, if necessary, revised to assure that they can prevent the transfer of highly sensitive technology and other resources that could be adapted for purposes contrary to U.S. security or economic interests.
• Privacy—Privacy laws must assure that consumers’ highly sensitive, personal financial, medical, tax and other information is protected. At a minimum, companies trafficking in such data should be required to secure written authorization from the consumer before it is launched into cyberspace.
• Transparency—For services, consumers have the right to demand the same level of protection as they have under product disclosure laws. Customers dealing with help desks, call centers, reservation systems, etc. have the right to know with whom they are talking, which country they are calling, and have the right to have their call rerouted back to the U.S. if they so desire.
• Data collection— More extensive federally funded research must be conducted on an ongoing basis to better understand the full scope of the off-shoring problem, and the federal government must put in place adequate data collection programs on jobs that move off-shore. This research should, among other things, include precise analysis of the economic costs of off-shoring, such as the loss of federal, state and local taxes and the increased burden to other taxpayers, the decline in purchasing power and its ripple effects on communities, as well as the social expenditures necessary to help unemployed workers and their families.
• Institutional Research—Tax-funded government and university research should not advance off-shoring strategies that export jobs. If work is done that promotes off-shoring, it should be funded by corporations, not taxpayers.
• Trade Adjustment Assistance—Currently, displaced service-sector workers are not eligible for Trade Adjustment Assistance benefits, which only cover workers producing a tangible good. The TAA program needs to be expanded to include service-sector workers, while also improved and fully funded, so that all displaced workers, in manufacturing and services, can receive the income support and training they are entitled to. Moreover, given funding shortfalls even under the program as limited to goods-producing workers, funding should be boosted significantly, so that every eligible worker is guaranteed to receive assistance and training benefits under the program.

Other issues also need to be addressed. Our health care system adds significantly to the cost of doing business and makes U.S. products and services uncompetitive, even with the economies of developed nations. Health care reform is long overdue and, if we are to compete effectively in the global economy, it is imperative that the problem of sky-high health care costs be fixed. The WARN Act should be simplified and its coverage should be broadened. It should also be amended to require companies that lay off 15 or more workers to send their jobs overseas provide at least three months’ notice of the shutdown to appropriate federal, state and local agencies responsible for helping dislocated workers. Advance notice helps workers and policymakers understand where potential intervention strategies may be useful and provides essential information about off-shore trends. Finally, education and training programs need to be fully funded—not slashed—as is proposed under President Bush’s current budget, and new approaches must be developed to help highly educated professionals who are made jobless because their jobs have been off-shored.

America’s workers now know that the Bush Administration will do nothing to stop the off-shoring tidal wave. It’s up to the Congress, as well as state and local governments, to take immediate action on those policy initiatives to dissuade corporations from pursuing business strategies that will further weaken the already fragile U.S. economy. Inaction means that millions of other workers and their families will pay the ultimate economic price of losing their job, their dignity and their way of life. Inaction means the continued wreckage of the American middle class, and inaction means continued distortion of the global economy to benefit corporations at the expense of workers everywhere.

Our professional and technical workers have made enormous personal sacrifices to gain the education and training necessary to achieve well-compensated and secure jobs. They have contributed substantially to the nation’s economy and our standard of living. They deserve better than to be cast aside by corporations in the global chase for more easily exploited labor. They deserve effective and timely action by their government to confront the off-shoring crisis.