December 10th, 2009
12:29 PM ET

Outsourcing the American dream

Editor's Note: This article continues our series excerpted from AC360°'s contributor David Gewirtz's upcoming book, How To Save Jobs, which will be available in December. Over the next few months, we'll be excerpting the first section of the book, which answers the question, "How did we get here?" Last time, we looked at the failure of the H-1B visa program. This time,we look at how outsourcing is becoming a growing problem for American employees. To learn more about the book, follow David on Twitter @DavidGewirtz.

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David Gewirtz | BIO
AC360° Contributor
Editor-in-Chief, ZATZ Publishing

Back in the dot-com boom, the dot-coms had a lot of work to be done, and not enough Americans were available to do it all. Many of the dot-com firms began to outsource much of their work to make up for the lack of available U.S. workers.

At about the same time, many companies were concerned about the so-called Y2K crisis. If you recall, this was the worry that many computer programs were built with only two-digit date codes, but once the year went from 1999 to 2000, all the date calculations in all those programs would fail.

American companies started to send work offshore.

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The Internet, of course, made this much easier to do. Email and the Web, along with the rise in instant messaging, made communication across previously daunting distances virtually instantaneous (and dirt cheap). With the availability of high-speed broadband Internet and VOIP (Voice-over-IP), a telephone call from New York City to Bangalore often costs less than a call over the plain ol' copper telephone system from New York City to Albany.

And that's why, when your computer fails, you're probably going to wind up talking to someone in India instead of someone in Indiana. When you call a U.S. number for support, your call is routed over the Internet (for free) to a call center located across the ocean. Call centers no longer have to absorb extreme telephony charges.

Your rant about your inability to get your computer to work so that you can order that fancy new $200 pair of shoes is likely to be responded to by someone in India who, if she's lucky, might own one pair of 10-year old shoes and makes less than $200 for an entire month's work.

The information technology research firm Forrester estimates that 400,000 jobs were lost in the first four years of the new century and up to 3.3 million jobs will be of-fhored by 2015. A McKinsey report published in 2004 predicted that up to 4 million IT worker and back-office jobs would be outsourced to India alone by 2008 - and that prediction was made well before the 2008/2009 financial crisis.

I think it'll be a lot worse. A lot worse. As you'll see in the coming chapters, there are a lot of people outside the United States willing to work for a very small fraction of what Americans need (and that's before our cost of health care). With dwindling profits, I think it's going to be almost irresistible for larger American companies - and an almost unimaginable numbers of jobs will be sent to where the labor is dirt cheap. Unless, of course, we do something.

American firms got their feet wet sending work overseas during the dot-com boom, got comfortable with the idea, and when they suddenly needed to save a lot of money, decided that off-shoring would be a key business strategy.

And that's where off-shoring becomes compelling to companies in today's economy. A U.S. International Trade Commission report estimates that outsourcing to India can save American companies 30 to 70 percent on labor costs.

Off-shoring also allows U.S. companies to avoid paying ever-increasing health benefits. And off-shoring allows U.S. companies to convert a payroll expense into a fixed cost, making it far easier to budget and analyze production expenses.

Consider IBM. The global technology company began American layoffs in early 2009, dropping more than 5,000 workers. To make up the slack, according to the Wall Street Journal, many of those jobs were created in India. "IBM can pay an engineer in the U.S. $120,000 or an engineer in India $25,000, like the Indian providers do," says Ben Pring, research vice president at Gartner.

Next week: why outsourcing is a national security risk.

Follow David on Twitter at http://www.Twitter.com/DavidGewirtz.

Editor’s note: David Gewirtz is Editor-in-Chief, ZATZ Magazines, including OutlookPower Magazine. He is a leading Presidential scholar specializing in White House email. He is a member of FBI InfraGard, the Cyberterrorism Advisor for the International Association for Counterterrorism & Security Professionals, a columnist for The Journal of Counterterrorism and Homeland Security, and has been a guest commentator for the Nieman Watchdog of the Nieman Foundation for Journalism at Harvard University. He is a faculty member at the University of California, Berkeley extension, a recipient of the Sigma Xi Research Award in Engineering and was a candidate for the 2008 Pulitzer Prize in Letters.

soundoff (4 Responses)
  1. Tim Gibson

    There is an excellent place in dine here North Park, a portion of San Diego, called the linkery. Farm to table, local beers and wines and worth the visit. It all comes down to satisfaction to keep it in the red.

    December 10, 2009 at 2:29 pm |
  2. John Smith

    Eventually there will come a day when the dirt cheap production won't matter, because the companies will discover that there isn't anyone around to buy their expensive phones, video game consoles, and other items.

    john Kerry (remember that guy?) had a good plan on this issue that was unfortunately overshadowed by trifles during the 2004 election: Penalize employers who move jobs overseas, and reward employers who employ in the U.S with tax breaks.

    December 10, 2009 at 1:40 pm |
  3. Fabian Bustamante

    Watching the 30 second pitch, shows you how we became a product, people promoting themselves technically for sale. The system made us evolve from persons with feelings and problems into obedient breathing machines to fullfill their needs.
    Is that what the American dream is all about, what the corporations want.
    Wake up the American dream is just that, a dream...

    December 10, 2009 at 1:26 pm |
  4. Festerfree

    As long as Americans want to buy everything for $1 at the Dollar General and Wal Mart, we will continue to erode our own wages as our costs of living spirals upward. The only things that are cheap come from Asia and Americans refuse to, or cannot, pay for quality goods produced domestically. Also, I wonder what is the rent a person in India who makes $200 a month pay? How much is food? What are the government benefits available? It's all relative.

    There was a story on NPR recently of a Silicon Valley company bringing its outsourced jobs BACK to the U.S. because the economies of scale just weren't there for them. I think there will be a backlash from outsourcing. After all, these employees cannot be monitored and trained in the same way that domestic employees are, and the level of customer satisfaction is near zero, as many Americans cannot communicate with Asians, even those who speak English.

    December 10, 2009 at 11:15 am |