Sunday, October 12, 2003

Offshoring and Wiping Baby Boomers Bedridden Asses

I finally broke down and read the McKinsey report on offshoring. This is the report that everyone references when they don't know the facts about the effects of offshoring on the U.S. economy, the U.S. corporation or the U.S. citizen. Instead, people just say stuff like... "well, offshoring is natural. Didn't you read the McKinsey report? It actually benefits everyone!" Normally you need an MBA to make such an asinine statement. I can say, "Yes, I read the report"

Now, I'd like to hold a made-up, virtual conversation between Senator Adam Smith and myself:

Jeff responds, "Yes, I did read the McKinsey report. Well... as I'm sure you know, it isn't actually a "report" - it is a 'perspective' that was published preceding the release of any factual data. Senator, the thing that got me was that McKinsey decided to have a person from India write the report. Now, I'm sure that the author Vivek Agrawal didn't have any conflicts of interest - nor did McKinsey - even though their entire customer base is mostly globalized corporations that get short-term benefits from laying off American workers and replacing them with cheap offshore labor. But, I’m sure that when they put out their final report it will be under FULL DISCLOSURE.

The report was a good read. I really liked the part where they referred to laid off workers as being, "freed up to take other jobs" - holy shit, Senator - that Vivek really has a way with words!

Senator Smith comments back..."Come on Jeff. You're being critical. What Vivek was saying is that by reducing labor costs we are able to produce goods at a lower cost. This will have an immediate positive margin effect on the business owner and investor, allowing them to reinvest, which would lead to hiring new workers."

Jeff comments, "Come on Senator, new jobs? Doing what? These people can't fight the Asian pay scales. They're screwed. "

Senator Smith quips, "Now Jeff, they're not screwed. You saw the report. America is aging. The baby boomers will be retiring soon. This will deplete the workforce and create a new burden to take care of the elderly."

"So what you're saying is that for the sake of corporate profits, American lawmakers will tell well educated software professionals to move into health care? Sir, with all due respect, many of these guys have masters degrees in computer science, 10 years of experience and more importantly - THIS IS WHAT THEY LOVE DOING". You can't just tell them to start wiping baby boomers bed ridden asses as a new career, can you?"

Now Senator Smith is agitated. "You know I'm not recommending all software people start wiping asses for a living. I'm just saying that in order to remain competitive, we do.... well, what we have to. And you saw the McKinsey recommendation. They recommend that we offer a new insurance to those that groups most affected by offshoring. Thus, the employee will get 70% any difference in wage losses."

Jeff smiles. "Great, now I get to wipe asses and get sympathy insurance.... and I'm still not making as much as I used to. This makes me feel great!! But wait... if the employer gets stuck picking up the tab for ‘offshore insurance’ of 'freed-up workers' and the 'freed up' worker can't get a job then won't this lead to higher insurance premiums. And won't those premiums negate most of the benefits of going offshore in the first place?"

Senator - "Yes! Now you're getting it. The insurance package will have a payment system that penalizes corporations for laying off workers when the talent pool is high. Thus, if a corporation is only laying off people because they want cheap labor and there are lots of 'freed-up' American workers, then they should have to pay higher premiums."

"But Senator, when the economy is poor we usually see two things, 1. people getting laid off and 2. corporations trying to figure out how to make a margin. What you are telling me is that when corporations really need to squeeze out margins they won't be able to move work offshore because it will be cost prohibitive due to insurance premiums. That doesn't make sense.

On that note, why would I hire American workers at all - knowing that I'm going to get stuck paying for offshore insurance? So, let's say that I start a new company with some of that money I saved by laying off my American employees. Now, why would I hire Americans? Not only are they more expensive, but now they have a offshore tax that is associated with them."

Senator, "Well, Jeff... maybe you wouldn't. Maybe you'd just go offshore and take the higher margins the whole way. Then again, maybe you would hire locally because the job was better suited for proximity-based labor," commented the Senator.

Jeff sighs. "Gee Senator - I sure wish that I could believe the McKinsey report. I wish I could believe you. But for some reason, it just doesn't make sense. It is rare to find occasion where it is a true 'win-win' - I've found that usually one party wins, the other party wins, or it is a zero-sum-gain. I clearly see how the Indian government wins. I clearly see how the Indian corporation wins. I clearly see how the Indian employee wins. Conversely, I clearly see how the American employee (ass wiper) loses. What is less clear is the fate of the U.S. government and the U.S. corporation. I could see where the U.S. corporation could take short-term gains by 'freeing-up' labor. But 'freed-up labor' makes less money, has less purchasing power and ultimately buys less from those same corporations - which means that the U.S. government is collecting less sales and income tax. Senator, if I could make one suggestion?"

"Sure Jeff, what is it?", says the Senator.

"Senator, read the McKinsey report. I mean actually study it. Keep track of who wins and who loses (US government versus offshore government), (short term versus long term), (employee versus employer). My gut tells me that you're not going to like the outcome of your matrix. McKinsey has a great reputation - but I got a feeling that this one could end up being a real embarrassment for them. "

"Jeff, that sounds like solid advice. Can I get you another glass of wine... I think it's French!"

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