October 24, 2014

Editor's Page

Two-Way Street

Mark R. Howard | 6/1/2004
Nearly three years ago Florida Trend's Barbara Miracle wrote an excellent story for the magazine that anticipated the recent surge of concern over the outsourcing of technical jobs to India, the Philippines and Ireland. Among other examples, her story pointed out how Precision Response Corp., a Florida-based call center operator, was hiring skilled workers in Ahmedabad, India, for 40% of what it cost the company to hire less-educated workers in the U.S.

Barbara also pointed out the inevitability of the trend, given the growing demand for technology workers, and also a program in Florida called the Critical Jobs Initiative that trains workers in tech skills that aren't as easy to duplicate abroad.

In recent months, fueled in part by rhetoric from various presidential candidates, the coverage of outsourcing has reached near-crescendo. The media have ignored certain facts -- only 2% of 10 million computer-related jobs have gone overseas, acording to the Information Technologies Association -- and frequently make it sound as if the very economic vitality of the U.S. were on a fast boat to New Delhi.

I'm relating this not to pat Barbara and the magazine on the back for being ahead of the curve and more balanced, but because it's important to remember, amid the outsourcing hysteria, that there's a flow as well as an ebb when it comes to jobs in the global economy. The jobs aren't going just one way.

The Organization for International Investment, a Washington, D.C.-based business group that represents U.S. subsidiaries of foreign companies, tried to inject a little perspective into the issue with a release pointing out that foreign companies already employ many U.S. workers and continue to hire. In Florida, the organization claims, U.S. divisions of companies like ABB Inc., Essilor International SA and Siemens employ some 300,000 workers.

Florida ranks fifth in the country in "insourced" jobs overall and 18th in the number of insourced manufacturing jobs, according to the international investment group, which says insourced jobs in Florida have grown by 63,500 over five years, an increase of 26%.

I'm a little suspicious of how the international organization tallies its numbers, but even if the group's figures are only about two-thirds accurate, they're an important part of keeping the outsourcing issue in perspective.

More perspective comes from Peter Drucker, the 95-year-old management sage who still consults with some of America's biggest companies.

Drucker told Fortune magazine (in its January issue) that the "structure of the U.S. economy is remarkably different from what everybody thinks. Nobody seems to realize that we import twice or three times as many jobs as we export. I'm talking about the jobs created by foreign companies coming into the U.S. Siemens alone has 60,000 employees in the U.S. We are exporting low-skill, low-paying jobs but are importing high-skill, high-paying jobs."

As for the oft-cited factor of cheaper foreign labor, Drucker says it's confined to the segment of industry where labor amounts to more than 20% of the total cost of the product. "The industries that are moving jobs out of the U.S. are the more backward industries," Drucker told Fortune. "The U.S. remains the cheapest place in the world to produce for many of the more advanced industries."

He went on to cite the less rigid structure of wage and benefit systems in the U.S. and the flexibility of American workers themselves as key advantages that will continue to attract jobs. Drucker pointed out that in Europe and Japan, for example, it's rare for workers to change divisions in a company -- moving from engineering to accounting, for example -- and even rarer for them to move geographically as happens every day in the U.S.

In Germany, he says, the wage and benefits structure is so unwieldy that "it's cheaper to allow someone to remain unemployed in the Ruhr than to move him to Stuttgart for a real job. The same thing is true in Japan."

Drucker's words of comfort and perspective don't do much for the software engineer or tech call center worker whose company sent their jobs to Bombay. But they ought to help keep all of us focused on the right response to worker dislocation -- short-term assistance and a long-term commitment to education and training -- rather than attempting to meddle with the evolving structure of a global trading system that continues to serve this country well.

Whether it's President Bush's ill-advised 20-month implementation of steel tariffs or rumblings from the Kerry campaign about some kind of protectionist initiative to "protect American jobs," our political leaders continue to disappoint when it comes to telling economic truths.

The real threat to American jobs is the gigantic deficits being run up by the current administration in Washington, the looming crisis in Social Security and the failure to invest sufficiently in our schools and universities. It's worth remembering that for all the success of Indian universities in cranking out skilled engineers and technicians, the U.S. still runs a trade surplus in supplying technical and other kinds of education to the world.

Ultimately, there's nothing either Florida or the U.S. can do to stop the flow of capital toward its highest return, except to make sure that Floridians have the right skills to compete and a business climate that doesn't suppress entrepreneurs.

The time to worry is when we are neither creating nor attracting the best jobs.

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