Ron Hira, chair of the career and workforce policy committee for IEEE-USA, the Washington policy and lobbying unit of New York-based Institute of Electrical and Electronics Engineers Inc., was online to field questions about outsourcing and its effect on tech companies and workers in the United States.
Unlike the Information Technology Association of America and AeA tech trade groups, which have embraced the outsourcing trend as a positive for the tech sector, IEEE-USA is among those positioned against outsourcing, contending the movement of jobs to companies overseas has led to job loss and other problems for the tech sector. IEEE-USA released an issue paper on outsourcing in March, concluding that offshoring "poses a very serious, long term challenge to the nation's leadership in technology and innovation, its economic prosperity, and its military and homeland security."
Ron Hira, Chair, IEEE-USA Career & Workforce Policy Committee.
(Courtesy of the IEEE-USA)
Cynthia L. Webb, a washingtonpost.com technology reporter moderated the discussion. A transcript follows.
Editor's Note: Washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.
Cynthia L. Webb:
Good day! We are going to start our discussion on outsourcing with Ron Hira of IEEE-USA in just a few minutes. Thanks to those who have already submitted questions. Readers, I look forward to your continued participation. Thanks for your questions!
Cynthia L. Webb:
Ron, thanks again for joining us today to talk about outsourcing. Let's get started with a focus on some of the fresh economic news out today. The Labor Department today reported that jobs in the U.S. grew in March - a good sign for the economy overall. Does this weaken the argument for those who think that jobs here, particularly in the tech economy, are being hit by the trend of companies shipping work abroad to save costs?
Ron Hira: This is good news for the economy, but we still have a long ways to go before we make up for lost jobs and the number of jobs that were expected to be created. Hopefully, these numbers will be sustained for the foreseeable future.
I don't think it weakens the arguments about the concerns over outsourcing. First, we don't know what types of jobs are being created - what occupations they are and what the compensation (benefits + wages) are. My primary concern in the mid- and long-term are impacts on innovation if high technology types of jobs are not created in the US. In the short run, we still have a 'jobs problem' as one IEEE member put it to me last week at a meeting in Atlanta.
There are two predicted outcomes from outsourcing. Dislocation for US workers and a change in the mix of occupations in the US. Will we still have a large and vibrant engineering and IT labor market in the US?
Cynthia L. Webb:
There are so many studies that keep coming out on outsourcing -- recent ones from AeA and the tech trade group Information Technology Association of America have found essentially that outsourcing will actually benefit the American economy. But each study vets different parts of the tech sector and often crunches different numbers. Do you think there is a good handle on how much outsourcing is actually taking place, particularly in the tech sector?
Ron Hira: First, I think we need to take the industry sponsored studies with a grain of salt. The ITAA represents all of the major IT outsourcers, from Accenture to Tata Consultancy to Infosys and IBM Global, and Harris Miller also represent foreign IT industry associations through his presidency of WITSA. So, these folks have a very strong interest in sponsoring studies that find that it is a net benefit tot he US.
We have been arguing for a long time that we need better data so that we can have a more intelligent and rational discussion about how big and important a phenomenon outsourcing really is. The government has not stepped up to the plate, only putting $300k towards a commerce dept study and having the GAO look into it.
Contrary to what the industry folks claim, they have shown little interest in getting this data. They are more interested in using the Forrester report because it paints things the way they like it - it seems to understate the problem.
The bottom line is we don't know how much is going on now. We should also think about the potential also. Without good and objective trend data it will be hard to do that.
How can we maintain jobs as a legion of well-educated Indians and Chinese whose wage base is less than a quarter of ours and whose number is hugely more than ours take them? It is foolish to assume that only a generation or two of us will be all that will be removed from full employment and put into underemployed ranks. If you look at the trend even overseas, it is dog eat dog. One group gets the brass ring... but only for a while. Is this the way we were meant to spend the next millenium? Perhaps there is more to union power than I thought.
How can we fix this?
Ron Hira: I don't think that everything will move offshore. There is a reason why companies located in Silicon Valley, and it wasn't because of cost.
Geographic co-location is an advantage and innovative capabilities are also.
Cynthia L. Webb:
Ron, you poised a question about outsourcing's impact on the high-tech sector, particular with the mix of jobs in the future. Can you provide any handicapping in this area -- i.e., what tech jobs do you think will still be viable here? Which jobs are most threatened? Due to your group's focus on engineers, are there steps that engineers are taking or should take to bolster their skills to stay effective or is this a moot point?
Ron Hira: This is an area which we should all focus more on. I don't think, like the industry reps and their study surrogates have said, it is just low level work that will move offshore.
Without good data, it is hard to advise people on what to do, what to retrain in and what to study and whether they are at risk. I don't put too much stock in the UC Berkeley study that says 14 million jobs are at risk.
Some work will still need to be done in the US.
I also don't think that Chairman Greenspan's comments that it is just low level work moving offshore is a very accurate picture of what is going on.
Bottom line is that I don't have good advice for folks.
The economic logic of outsourcing and the advantages of Adam Smith's specialization are self-evident.
The question is, What exactly are our high-value/high-wage 'jobs of the future' going to be, that are not limited to the strictly creative people in the economy?
Ron Hira: I agree that companies see the advantages of offshoring. They are acting very rationally in moving work offshore. We can't blame them for acting this way. I don't see any point in appealing to their morality, because we've set the rules up this way.
If we don't like the outcomes of the system, then we should think about changing the rules a bit.
I don't know what those high wage jobs will be, and no one else does either. Is it nanotech, biotech, bioinformatics? I do know that other developing and developed countries are targeting those same industries and jobs.
Cynthia L. Webb:
A lot of outsourcing proponents say that the U.S. educational system needs to do a better job of training engineers, computer scientists and other technology-centric professions. Is this the answer to concerns about outsourcing? Some outsourcing critics feel like more training or education is a lost cause, when they often can't compete with the low-wages companies can pay a worker abroad compared to a software engineer here. AOL is just the latest company hiring software engineers in India to help its operation (and this comes after the company laid off similarly focused workers in the U.S.)
Ron Hira: This is a very comfortable and convenient proposed solution because it feeds the conventional wisdom and it is hard to come out against education. I'm all for improving education - I teach at a university - but lack of education isn't the reason that companies are locating offshore. It is all about the wage differential.
The AOL case doesn't surprise me, it is happening at all of the major companies in many different industries. IT is just the first mover. Companies have consistently denied the practice of laying off here and hiring abroad.
I've heard of some people who train their replacements in India or another country and then get laid off. One woman even was told by the company she would not be laid off, then she was once the lower-paid workers were hired. How does this situation benefit employee morale?
Cynthia L. Webb:
A question to piggy-back off of this. Does IEEE offer any pointers or advice for members coping with the impacts of outsourcing in their workplace? Worker training could come with a host of hard feelings, with the scenario the reader illustrated above.
Ron Hira: I think it is a major problem. When I go to IEEE meetings, I expect that we would be talking about the latest technology. Instead we end up talking about jobs and outsourcing. It is having a real and important effect on the US technology workforce, one that no econometric study can capture.
You see companies (like IBM) coming up with strategies to deal with the internal employee backlashes. Many are using euphemisms and/or not revealing their intentions to US employees. I think this is not only bad for morale but bad for the US economy. That is why we have advocated adequate notice to employees as one step in responding to outsourcing.
Ormond Beach, FL:
We do not let foreigners emigrate to this country without a visa or work here without a permit. When some gal in India provides me 6 hours of telephone support in my office at home (its called telecommuting) why doesn't she need a work permit and visa?
Ron Hira: I don't know how to respond to this.
I think that there are many ways that we can deal with trade whether the trade is a car or a service over a telephone.
Cynthia L. Webb:
You mention changing the rules, for example, if the outcome of outsourcing isn't making workers here happy. I assume you mean items such as affecting policy mandates and changing tax incentives. What rule changes does I-EEE support or suggest? Any specific lobbying efforts on outsourcing underway right now with your group that you can give as examples?
Ron Hira: We have a set of recommendations in our policy position statement, which I would direct the readers to. The main point is that this is an issue that should be taken seriously, the status quo is not adequate (something that the companies like), and all options should be on the table - whether it is reforming the non-immigrant visa programs (H-1B or L-1) or reforming government procurement.
Unfortunately, industry folks and many economists have labeled good and useful suggestions as 'protectionist', not because they are but because the industry folks don't like them.
I just got laid off and am scared witless. Doesn't outsourcing lend an extra push to a jobless recovery? Less jobs to go around. More people to try and fill them. Our own aid in increasing productivity has done us in.
Ron Hira: Well, as an engineer, I am very comfortable with pushing productivity increases, and I suspect most are. I think that outsourcing, and particularly the way it is being done in this stealthy manner, makes thing more difficult for people.
Even with the BLS report today, we still have a very soft labor market, especially in technology
The NSF stated that 80% of the Ph.D. students in physics and chemistry in the U.S. are all foreigners. Is that bad or good?
Cynthia L. Webb:
And isn't the rate of students seeking computer science degrees here declining too? What are the implications of a shifting interest in tech studies in the U.S? And do you think this drop is tied to giving tech work to overseas workers?
Ron Hira: That is neither good nor bad.
The Computer Research Association has just completed its Taulbee survey (www.cra.org) and shown that enrollees in CS have dropped by 19% in 2003. My guess is that it will drop even further next yr. I know my own university is feeling the pinch of these drops.
This is another important effect of outsourcing that isn't quantified by any economic studies.
Are salaries, benefits, and workers' rights for H-1B and L-1 holders monitored and reported? People I know in this situation earn less, have few or no benefits, and have no right to protest or criticize their work conditions. If they speak up, they go home.
Ron Hira: The proposed salaries for H-1Bs are reported, but no one checks to see if companies pay that. There is no monitoring nor disclosure of L-1 visa wages.
Both of these programs are in dire need of major reform. Industry advocates continue to insist that there is nothing wrong with the programs. I think any objective person who analyzes the program who come to the conclusion that they are broken.
When major corporations can pay a foreign worker 'chief programmer' $25,113 in Houston, and do it legally, something is wrong. Nearly 82% of all of Tata Consultancy's H-1B LCA applications (something in 10's of thousands) say that they will pay less than $40k. Who knows what they will pay the L-1s they have here. And nearly all of their employees are on H-1Bs or L-1s.
Unfortunately, the elites like the Wash Post Editorial board and George Will have obviously ignored data like this.
St. Louis MO:
I have almost 20 years experience in IT and a master's degree in physics from Georgia Tech. I can't buy a job. I don't need retraining. I've done mostly contract work so I have some experience in just about everything, but the hiring practices in IT are so screwed up I can barely get an interview (none in 6 months). My UI benefits are gone and there is no federal extension. I have a monthly income of $0.00.
What should I do? People hire paper. -Danny in St. Louis
Ron Hira: I'm sorry for your situation. You are not alone, but I know that isn't much comfort.
The problem is that the offshoring advocates want to argue that you need to be retrained - but they can't tell you in what yet. This includes Chairman Greenspan.
We need to deal at a practical level with your situation. I'm sorry to say that I don't have any silver bullet answers, but nor do the offshoring advocates.
In "The Lexus and the Olive Tree," Tom Friedman describes globalization as not an option, but a reality. Isn't it better to win (economically) in this environment by running harder and faster, rather than by trying to slow down your competition?
Ron Hira: How do we run harder and faster? Provide real and practical ideas.
I think you mischaracterize this as competition. This simply corporations substituting cheaper foreign labor for domestic labor. That doesn't have to be bad, and I think there are ways to improve US technology workers' productivity. The question is how to do that. That is an important aspect that needs to be experimented with now.
No one has good answers.
Cynthia L. Webb:
"Jobless recovery" has become a buzzword these days, though I am sure politicians and some tech companies alike will latch onto the latest job statistics out today to point to the health of the U.S. economy, despite offshore work and select layoffs (Sun Microsystems said today it is cutting 3,300 jobs). And recently, outsourcing has become more of a hot-button issue in the 2004 race for the White House. Will the issue impact the outcome of the election or prove to be too hard for politicians to get their arms around either way?
Ron Hira: I try to stay out of the politics forecasting business. I teach policy and am more interested in coming up with good policy solutions.
It is a political issue because people are really being affected by this and/or they know they will. Contrary to the elites' attitudes about this, the people are correct and their common sense is right on. Politicians will listen to these as well as strong lobbying from industry which loves the status quo.
Cynthia L. Webb:
Her is a link to IEEE's issue paper on outsourcing: http://www.ieeeusa.org/forum/POSITIONS/offshoring.html
Farmington Hills, MI:
In practice, are companies realizing any cost savings as a result of offshore outsourcing? If yes, what is the range of savings?
Ron Hira: Many different estimates from self-interested consulting firms. The claims are between 20-70% net savings when you add in the coordination costs.
My guess is that these numbers will improve as companies become smarter about how to manage their overseas operations better.
As a recent immigrant (as opposed to an H1 worker) to the US and a columnist and former editor in India, I have studied the outsourcing business and find that the one major negative factor, quality control, has almost never been brought up by those concerned about its effects on the US. Recently Dell had to close down a new call center in Bangalore because an operator's foul up led to their being sued by an irate customer in the US. HP, Microsoft and Citibank are all almost paranoid about their staff and offer incentives to operators who field angry calls properly. Only one US company has developed customer relation management standards as far as I know and they are not being applied to the BPO industry at all.
As far a security concerns go, the possibility of identity theft is probably much greater in the US itself than it is in the closed, small world of Indian call center operators. The fact, though, is that the biggest concern of all, service quality, is being ignored both by proponents as well as opponents of outsourcing.
Is there any further information that you could throw on this?
Ron Hira: The quality issue has been argued on both sides. With respect to software quality, I would point you to an excellent article by Chris Koch in the march issue of CIO magazine. He bursts the CMM bubble.
Cynthia L. Webb:
A comment from a reader in Washington DC. "I might have a slightly different perspective on this issue. I'm an IT professional (network admin) and have talked extensively with folks who've dealt with some of these offshore tech support centers. In a word the quality there is horrendous! One friend spent hours on the phone with an Indian tech center trying to solve a fairly simple problem with MS Outlook. He went all the way to their third level before he gave up and asked his 16 year old neighbor.The kid fixed the problems in minutes. My wife owns a medical transcription company. A couple of years ago offshoring was the rage, but the product contained so many errors that the trend reversed itself.
My experience tells me that these offshore operations are in no way comparable to domestic ones, and that the people over there who are supposed to be "experts" are, at best, minimally qualified. My two cents.
It seems to me that a lot of the drive for offshore is being driven by the stock market and stock market analysts. The dotcom bubble with its many IPO quick riches brought people that had never paid attention to the stock market or even knew that it existed into the market. Some of them made huge profits from the quick share price run ups. After the bubble burst, the new investors continued in the market with traditional companies expecting them to give the same unrealistic profits as the dotcoms. Management has developed the mindset of ?Make this quarter's numbers and worry about next quarter's number then'. As a result of this quarter-only mindset, work is being driven offshore to drive down costs to meet the stock market numbers, with no concern for the long term impact. I wish I knew and answer we need to do something to protect out national security and rebuild American business. I don't think tariffs are the answer and isolationism like we did before WWII when war was breaking out in Europe is the answer either.
Cynthia L. Webb:
Ron, any comments on this reader's input?
Ron Hira: I think the US has decided that companies exist for two major stakeholders: shareholders and upper management. It didn't used to be like that - workers were a third stakeholder, but that has diminished significantly.
I don't think this is necessarily good or bad, instead it is the current reality. People have benefitted and suffered because of it.
The question is how we deal with the current situation. It wasn't more than 10 years ago when IBM laid off its first employee. Now it is a regular occurrence. Some will argue that the process saved IBM. Perhaps they are right?
Ron, you cite the wage differential as the prime factor dictating company decisions to outsource, i.e., minimize worker wages to the lowest common denominator globally. Yet executives will also defend their ability to give huge bonuses and salaries to their executive team (who make these outsourcing decisions), citing the need to have "competitive talent." Well as a shareholder, I would benefit even more if my company spent less on top management as well. When will the pressure to narrow the wage differential affect the corporate execs making these decisions?
Ron Hira: Corporate governance is something that has been debated in the past couple of years.
I'm a little unclear about your question though.
You mention increased productivity several times. I have heard that increased productivity is actually part of the problem: higher productivity means fewer engineers needed to do the job. Has this actually been substantiated by any studies?
Ron Hira: Productivity is a difficult thing to measure - there are two forms at the aggregate level, labor productivity and total factor productivity. Both of these measures at the aggregate level require a lot of guesswork for the statisticians.
We should take them with a grain of salt. In fact some economists are now speculating that we're overestimating the output side of productivity, GDP.
We have a global marketplace for labor, that's an undeniable fact. Jobs that can be done cheaper overseas will ultimately migrate there. So what does IEEE-USA propose to help technology workers who lose their jobs to India or the Philippines? I'm more interested in how you want to mobilize these unemployed workers than in any hand-wringing over the irreversible facts of globalization.
Ron Hira: We have grassroots activities encouraging our members to meet and write to their legislators to tell them what they think. IEEE-USA has 235,000 US members who are engineers and tech professionals.
IEEE-USA needs to do more on the policy front, but also in helping to come up with creative solutions to respond to the phenomenon.
I recently learned that IBM considers WIPRO, a company based in India, to be a future major competitor in the world market, and especially in Asia. Do larger international firms see any advantage to purchasing US-based consulting firms to bid in the host country? Direct foreign investment through joint venture is a very popular way of entering new foreign markets for US companies.
Ron Hira: I have actually written about this a little. WIPRO bought out one of Fairfax, VA based AMS' business lines in utilities last year.
If you look at the market caps of the major indian IT firms, they are higher than almost all of their US based competitors. E.g., EDS has a market cap of about $9bn on $21bn in sales, whereas, Infosys has a market cap of about $11bn with only $1bn in sales.
The question is why Infosys would want to buy an american based IT firm? The only reason is to capture customers and more market share, not to get the employees.
Cynthia L. Webb:
Readers, IEEE-USA has a career help site for unemployed or at-risk U.S. IEEE members. Some of the info is for members only, but there is some general information as well on the site: http://www.ieeeusa.org/careers/help/
Cynthia L. Webb:
Outsourcing sparks a lot of emotional debate. How do you suggest that the debate move beyond finger-pointing and a woe-is-me-attitude to solutions that take into account the global economy and the needs of U.S. workers? Or is this a Catch 22?
Ron Hira: I think that we collect objective data and have an open dialogue about this. I don't see any point in calling someone a Benedict Arnold. What we need to do is to recognize that this is an important phenomenon that needs to be addressed. Many are arguing that it is not.
It will take time before we get there and there are powerful interests that want to derail that process.
I am an electrical engineer (I was once, in fact, the president of the student chapter of the IEEE at Stanford) who has for many years worked as a freelance consultant. Of late, the flow of assignments has dried up, and I've been forced to make a living by shifting my efforts to other fields, including -- of all things -- real estate investing and management. A friend's youngster, who is fascinated with technology, asked what the life of an engineer was like and what course of study he should pursue. How can I, in good conscience, tell him that it's worth studying engineering when American employers are so reluctant to create jobs in these fields and so eager to "offshore" them? (I cannot even recommend that he work his way up through the ranks from tech support, since it seems that every time I pick up the phone to call for support, I'm transferred to an offshore call center as well. The bottom rung of the ladder has, apparently been cut off.) What opportunities will be left for students who are fascinated by science and engineering and want to turn their creative energies toward those fields?
Ron Hira: This is what we need to deal with, something that offshoring advocates are ignoring.
I disagree that it will only be the bottom rung of the career ladder that can move offshore, many rungs will.
This is important because, offshoring advocates like Dr. Catherine Mann at IIE, have argued that the bottom rung is the only problem and can be solved easily. I disagree with this diagnosis and therefore think the prescription is wrong.
Cynthia L. Webb:
Ron will be able to stay online with us until about 12:05 PT to take as many more questions as possible. Thanks, Ron. And readers, thanks for your interest in this discussion!
Could you estimate how much money is not going to Social Security or federal taxes because the people employed at foreign plants do not pay into the U.S. system? There are more than 216 U.S. companies with plants or facilities offshore. And what is your opinion of getting rid of tax code that allows foreign tax credits against U.S. taxes? That would bring the jobs home.
Ron Hira: No, but I will note that the offshoring advocacy studies from ITAA/Global Insight, McKinsey, etc, never account for this.
On the subject of students seeking degrees in engineering, about how many degrees will IIT, the India Institute of Technology, award this year at all locations?
My feeling is that there should be a U.S. work visa waiting for each IIT graduate that wants one, so we'll always have room for the best and the brightest in America.
Ron Hira: IIT produces about 2,000-3,000 graduates. They have 7 campuses which are independent of one another. The next tier of colleges is called Regional Engineering Colleges, which is also very good.
Also, those 2-3,000 are in all engineering fields.
The consensus is that we should bring in the best and brightest and keep them here. I don't think we should have exemptions for particular colleges - it isn't a good way to write policy. The problem is that the H-1B system is broken and needs to be fixed.
Ron, where are the jobs? That is, of the over 360K jobs, how many are hi-tech? Thanks, Jerry
Ron Hira: I haven't had time to read the report in detail. But I believe many are in construction and retail sectors. I don't think they break things down by occupation in the monthly reports.
In response to a previous question, as a long time IEEE volunteer, I suspect that most unemployed engineers would prefer increasing their monthly wage above $0.00 to being 'mobilized' by a largely volunteer organization like IEEE!; I have also heard that off-shoring works both ways and that non-US companies actually off-shore jobs to the US on occasion. Have studies been made to determine the extent of THAT practice?
Ron Hira: Yes, I'm sure in some cases companies have survived and/or created new jobs in the US because of offshoring. I'm also sure that many jobs have been destroyed. No one has good numbers on either effect.
My sense is that right now the latter is outweighing the former.
Clearly, study after study has shown outsourcing and free trade increase prosperity and job growth for all countries involved. If restrictions are imposed this would be just another case of government attempting to fix something that doesn't need fixing and end up making it worse. Do you agree with this? How do you correct the general perception that outsourcing is "bad"?
Ron Hira: Outsourcing has both good and bad effects on the US. The question isn't how to stop it, but how to mitigate the bad effects - unemployment, security, innovation. That's the key to this discussion. We need to acknowledge those negative effects _and_ do something about that.
The fact that it saves companies money is not in dispute.
The idea that it is all good and/or the negative effects are minimal is what the offshoring advocates are arguing.
Los Angeles, CA:
This entire dilemma is very upsetting to a lot of people. We all went to school, studied hard, worked hard, and for many of us the rewards are being shifted to low-cost workers in far away places. Even if we realize that this practice has been going on forever--it was one of the primary economic drivers of the colonization of the Americas in the first place--it isn't happy happening to us. The problem is: This time it is not just one employment group at stake. Today the programmers are being outsourced, tomorrow it will be the accountants, then the engineers, then what? As long as we can communicate over the Internet this "fad" is going to grow and grow. My question is, what kinds of UNIQUE things can we do here, now or in the immediate future that will differentiate us from our competitors overseas? Lower our salary (a bad idea)? Improve our productivity (how)? Be more innovative? What?
Ron Hira: This is a key set of questions that no one has an answer to.
Harris Miller has said publicly that the downward wage pressure on US IT workers is the 'silver lining' of the outsourcing cloud. The argument being that if US IT workers lower their salary demands, they become more competitive with foreign IT workers.
People have to decide whether that is a good answer or not.
Cynthia L. Webb:
Readers, we are out of time for today. Thanks for all of your questions and participation. Ron, thanks for your time and insight today. We will have to do this again soon -- there is a lot of interest in outsourcing and its impact on the economy overall and the high-tech sector. In closing, what do you think is the most important factor to take a look at when American workers, politicians and companies weigh outsourcing?
Ron Hira: I think we need to be comfortable with the uncertainty that we just don't know what effects this structural economic change will have on the US. No single study can explain all aspects of the outsourcing. There are both good and bade effects and we should keep our options on the table. The most important thing is not to dismiss this as just an inevitable phenomenon that we have no control over. We do have control over it and should be doing something about it.
Thanks to all the questioners and thanks to Washingtonpost.com for the opportunity to discuss the issue. I look forward to doing it again.