Outsourcing roundtable

Corporate America can't evade its responsibilities

Some corporate officials say technology jobs are going abroad because workers overseas are highly motivated and more skilled than their U.S. counterparts. While foreign workers cost far less than domestic workers, corporate leaders are attempting to frame this issue in terms of education and training.

Everyone can agree that education and training are important, but studies show that corporations don't want to make the investment in their current employees. A WashTech national survey of more than 400 high-technology professionals earlier this year found that 64 percent of information technology workers said their employers don't offer adequate training on the latest technologies and programming languages. What's more, 87 percent said they had neither the time nor the money to upgrade their education and skills independently.

It takes investment to train a world-class work force. If U.S. corporations really are interested in making sure American workers are the best in the world, they would pay their fair share in taxes, insisting on cutting their tax breaks so that the state could redirect that money to create smaller class sizes, increase teacher pay and make university tuition more affordable. They would invest in the skills of their current employees, making sure they were up-to-date. These are all key ingredients for a healthy, innovative economy. But, of course, they don't do this.

In order to ensure a healthy domestic economy for the long term, we need to make sure the best-skilled workers available are American workers. Keep in mind that research firm Gartner recently predicted that one U.S. information technology job in four will move to countries such as India and China by 2010. That's just six years away.

Outsourcing America--Where is my high-paying job headed?

If the popular rhetoric is anything to go by, the American high-end job is about to disappear. We are all going to become waiters, bus drivers or doormen, while Shanghai and Bangalore turn into the new service hubs.

An engaging story--but it's not likely.

Work that involves making decisions based on a repository of knowledge, which can be meaningfully monitored in real time and where the quality of execution can be precisely measured, can--and will be--offshored. In sell-side equity research, for instance, such work can range from low-end transaction processing to highly analytical research work.

But work that requires judgment and inference in ambiguous contexts, or where communication and grasp of linguistic nuances are important, is not likely to be offshored easily. It is the nature of the work--and not the industry--that determines what can or cannot be moved offshore.

Expertise that is required for diagnosing a problem and formulating its solution will require analytical abilities and the ability to deal with ambiguity and uncertainty. The premium placed on dealing with complex ideas--which means applying abstract frameworks to real-life problems and reducing complex, poorly understood business problems to combinations of well-understood and solvable problems--is not about to go away any time soon.

Rather than worry about what industries and sectors of the economy to train for, we should ask a different question: What is the best knowledge edifice on which industry-specific skills can be constructed? That edifice is not very different from what it looks like now--language, analytical skills, creative expression and communication skills. Yes, that does look a lot like getting back to basics.

Facilitate change--don't stop it

Far from being a zero-sum game, offshoring is a story of mutual economic gain.

For every dollar of corporate spending the United States outsources to India, our domestic economy captures more than three-fourths of the benefit and gains as much as $1.14 in return.

But this global wealth creation comes with a price: continuous change for the economy and higher turnover for workers. What can we do about the pain wrought by globalization? Rather than resort to protectionism, we must help workers cope more easily with change. That transition can be eased with continuous on-the-job learning, retraining programs, generous severance packages, and a broader commitment to increase the portability of health care and pension plans.

Wage insurance would also help. For a small percentage of the savings from offshoring, companies could purchase insurance to cover the wage losses of displaced workers. Building upon an insurance proposal that economists Lori Kletzer and Robert Litan developed for workers displaced by trade in manufacturing, I estimate that for as little as 4 percent to 5 percent of the savings from offshoring, companies could insure most full-time workers for wage losses.

The program would compensate those workers for 70 percent of the difference between the wage rate they received on the job they lost and the wage rate they received on the new job, as well as offer health care subsidies for up to two years.

These measures would help make the U.S. labor force more flexible. They also would enable global economic integration to proceed and benefit consumers through lower prices and higher-quality goods and services. While protectionism might save a few jobs in the short run, it would stifle innovation and job creation in the long term.

If U.S. companies fail to take advantage of lower-cost sourcing abroad, they face great risks from global competition in the developed countries, and increasingly, the developing world. Facilitating change, not stopping it, must be the goal.

Choose to lead

The predictable desire of pundits and politicians to reduce this complex issue to sound bites and simple answers is unfortunate, and it disserves Americans.

Those who suggest that offshoring is entirely good aren't using their hearts. They fail to recognize the human toll--the lost dignity, retraining and relocation costs, family hardship--of global economics. Creative destruction may work great at the macroeconomic level, but the price is high, if it's your job that's destroyed.

Those who believe that offshoring is entirely bad aren't using their heads. They fail to see the 6.4 million jobs offshored to the United States from abroad, the consumer benefits and the increased competitiveness of our more flexible firms and economy.

The reality is that offshoring is another form of trade, and trade brings both opportunities and challenges. Benefits have always exceeded costs, however, and our great imperative is to maximize the former while minimizing the latter. Specifically, we must do the following:

• Open more markets to American goods and services.
  • Enforce current and future trade agreements.
  • Enable global flows of goods, services, capital and people.
• Improve effectiveness of retraining offered by government and employers.
  • Promote lifelong learning environments, efforts and skills.
  • Identify ways to encourage saving and to maintain health coverage during work force transitions, but ways that don't restrain future hiring.
• Promote innovation and innovative capacity.
  • Ensure our business climate encourages entrepreneurship (access to capital, employer flexibility, and more rational regulations and torts).
  • Improve our infrastructure to maximize companies' and workers' productivity.
• Introduce measurement and accountability into elementary and secondary schools.
  • Ensure adequate resources for educational innovations that work.
  • Improve math and science achievement by U.S. students.

America must never compete in the battle to see who can pay their workers the least. But we can only compete and win in the global economy, if we choose to lead.