The Betrayal of the American Dream (13 page)

Wrong again. By 2006, even that illusion couldn’t be maintained. When the number of jobs fell to 435,000—130,000 fewer than in 1990—the Labor Department finally acknowledged that jobs in computer programming were “expected to decline slowly.” It was a telling confession of a huge miscalculation: computer programming and the kind of work it represented—skilled work that usually required a bachelor’s or higher degree—had been assumed to be beyond the capabilities of competitors from abroad with their less vaunted educational systems and lack of English language skills. They couldn’t take that away from Americans, could they? But they did.

The reason? While some in Congress are simply ignorant about trade matters, a lot of free trade legislation is passed because people with money want it and make sure the money gets to those who vote. In spite of strong evidence put forth at the time of NAFTA about what would happen to jobs—which ultimately turned out to be accurate—Congress ignored it. From 1990, when Labor made its rosy prediction that programming jobs would increase at a faster rate than other jobs over the next fifteen years, the U.S. workforce grew by 24 percent. If the number of programmers had increased at just the pace of the overall workforce—let alone at the optimistic rate that Labor had once projected—at least 700,000 programmers would have been employed by 2006. Instead, there were only 435,000. The job opportunities have continued to decline: in 2008, the last year for which figures are available, the number had dropped to 427,000. Even that number masks the magnitude of the domestic job losses. For among those 427,000 programmers were thousands of H-1B guest workers—foreign nationals brought in by U.S. companies, as allowed by immigration law, to do programming, usually at much lower pay and benefits. Like the guest worker who took Kevin Flanagan’s job.

Washington attributes the unexpected U-turn on programming jobs to numerous factors, but the most telling cause was not even on its radar screen in 1990, even though it was already etched into the DNA of corporate America—offshoring. “Because they can transmit their programs digitally,” the Labor Department belatedly admitted in 2006, “computer programmers can perform their job function from anywhere in the world, allowing companies to employ workers in countries that have lower prevailing wages.”

In place of well-paid programming jobs in the U.S., the growth fields in the two decades after 1990 were for home health aides, retail clerks, customer service agents, truck drivers, security guards, and child care workers—low-paying jobs with few opportunities for advancement or better pay.

Domestic programmers, like millions of workers in other fields, are casualties of a Congress long indifferent to the plight of American workers. Rather than create a level economic playing field, lawmakers and presidents, both Democrat and Republican, have permitted foreign governments to set American job policies by eroding this country’s basic industries. While free-traders in the United States have been busy honking their horns against any form of government intervention in the market, they have turned a blind eye to what has been going on in the globalized world they are so proud of having created. Many foreign governments ignore such theories and subsidize industries that they believe will help their people. In the 1980s, the government of India began supporting its nascent software industry in order to encourage companies to produce software for export. India’s software exports totaled a mere $10 million in 1985; by 2010 they had reached an estimated $55
billion.

That dramatic increase came about because the Indian government in 1986 designated information technology as a high-priority industry with tremendous growth potential. The government then enacted incentives for attracting foreign investment and spurring industrial development to “enable the software industries to commence their operation with a minimum gestation period,” as an Indian government report put it.

In 1991 the Indian government went a step further and created software technology “parks” throughout the country where the government provided space, electrical power, satellite hookups, streamlined procedures for export, and tax exemptions. In other words, the Indian government did what the U.S. government almost never does—it targeted a crucial industry for major government support. And it picked a winner: just ask unemployed U.S. computer programmers.

In what will spell even more trouble for America’s remaining programmers, the Chinese are rapidly trying to catch up to India and are taking the competition to a new level. Like the Indian government, the Chinese government is providing incentives to foster a software development industry and has selected cities to pursue the software export strategy. In a sign of how aggressively they are marketing this industry, the Chinese have dispensed with the term “software parks.” They are tactlessly but honestly calling the new centers what they truly are: outsourcing hubs. According to a study by Duke University’s Offshoring Research Network, China has “mounted a vigorous challenge to India’s software development outsourcing industry. More and more U.S. and European companies are outsourcing software and I.T. services directly to Chinese service providers.”

The U.S. government is still very interested in creating programmer jobs—just not in this country. In 2010 the U.S. Agency for International Development (USAID) put up $10 million to help Sri Lanka develop an outsourcing industry. U.S. taxpayer dollars are aimed at training Sri Lankans in advanced IT skills like Enterprise Java, as well as in business process outsourcing and call center support. The goal is to create three thousand jobs.

According to
Information Week,
a similar program is being funded by USAID in Armenia to train Armenians. Perhaps even more countries are slated to get U.S. taxpayer money to develop their software industries. By then there may be no need to help U.S. programmers. There won’t be any.

Service jobs in fields such as programming once were thought of as a key to America’s future. As factory jobs were decimated by the imports encouraged by federal policies, service jobs were to take their place. America was in transition, we were told—the brawny factories with their bellowing forges and thunderous stamping machines were simply giving way to entirely new workplaces with sleek workstations housed in office towers.

Sure, it was sad about all those people losing their factory jobs to imports, but foreign competition would make our remaining plants more competitive, and the upheaval would be just a pit stop on the way to a bright postindustrial America. The future might seem bleak to anyone who worked in a factory that made cars or shoes, but the nation as a whole would adjust and move on to greater things. America always adapts, we were told. Isn’t that what makes America great?

But there were fatal flaws in this theory. The first was that America’s corporate leaders—executives and their boards—saw quickly that they could make enormous profits producing goods offshore rather than reinvesting at home. Labor was cheap abroad, and the developing countries would do anything to get the jobs. And as Apple discovered in China, none of these other countries were subject to the regulations that U.S. companies had to adhere to: fair labor standards, workplace safety rules, environmental standards—all rules that most Americans supported to make the nation a more livable place. As a bonus, thanks to corporate lobbying, whatever these U.S. companies made abroad under primitive conditions using slave labor they could bring back to the United States paying little or no import tax.

The other flaw in the theory, and the one that will be causing grief for working Americans for years to come, is that while China and India may be poor countries, each has millions of very bright, talented people eager to work at a fraction of what bright, talented people need in the United States to maintain a middle-class lifestyle here.

The first of the service jobs to be outsourced in great numbers were the back-office operations of banks, investment houses, insurance companies, and any business that processed huge amounts of paper, from credit card charges to procurement manifests to legal exhibits. Most of this work went to India, and as the industry grew, American corporations began sending more work there. Soon programmers in India were writing code and shipping it back to the United States. Other companies established call centers to field customer inquiries from the United States, and soon they too began to take on more complex tasks. Most large American health insurers now have call centers in India where workers answer questions following a highly detailed script on a computer screen. It is a multibillion-dollar-a-year industry that employs millions—in India. No one knows how many jobs this strategy has cost Americans, but who’s counting? We still have those smart jobs, the creative ones—don’t we?

Even the jobs requiring ingenuity and brain power are going too. The earlier phase of outsourcing was known as business process outsourcing (BPO). The latest is called knowledge process outsourcing (KPO). The corporate focus has expanded to the highly sophisticated operations that represent, in the words of one management consultant, the “very heart of the business . . . involving complex analytics.” Where an earlier generation in India might have been reconciling credit card balances, today they perform statistical analyses, run growth projections, and do all the other things that number crunchers back home do—or once did.

The global consulting firm KPMG explained the appeal of KPO in a 2008 report: “Knowledge process outsourcing (KPO) enables clients to
unlock their top line growth by outsourcing their core work to locations that have a highly skilled and relatively cheap talent pool
” (our italics). This phrase should send a shudder down any economist’s spine because it says out loud, albeit with a bit of jargon, the truth that cannot be spoken if you believe in a growing economy and shared prosperity: companies can get richer by moving the essence of what they do to cheaper countries. Why be located in the United States at all?

Advances in technology, along with rising education levels in India and other low-wage countries, have eased the reservations that many corporations once had about outsourcing and offshoring, according to KPMG. In its view, KPO is unstoppable.

An ever-greater share of sophisticated analytics as well as creative jobs that were once done by middle-class Americans are being shipped offshore. Indian vendors create advertising copy, high-end photography, marketing brochures, graphic art, original illustration, and even music videos for the U.S. market—all at a fraction of what that work would cost in the States.

“Outsource your creative design services . . . and see your ideas taking form,” says Outsource2india, a Bangalore-based firm. “Outsource2india offers a wide array of creative design services which include Graphic Design Services, Cover Design Services, Artwork Services, Illustration Services and Photography Services. Our professional graphic designers, creative illustrators and skilled photographers can meet all your design needs, be it a cover design for your music DVD, professional wildlife photographs, illustrated characters for your book, conversions of your rough sketches and much more.

“At Outsource2india, we provide high-quality and creative design services at a low cost. By outsourcing design services to India, you not only benefit from low costs but also benefit from our professional and creative design services.”

Outsourcing is beloved by management consultants, and none more so than Accenture. The world’s largest consulting firm, Accenture is a $25 billion a year global enterprise and a far cry from its days as a modest unit within the Arthur Andersen accounting empire in the United States.

Since branching out on its own, Accenture has reaped untold riches helping U.S. companies send work out of the country. Far and away the most successful outsourcer, the company is referred to on Wall Street as the “outsourcing giant.” Accenture doesn’t dispute the claim. The company says its “outsourcing services touch every industry and business process.” Every year Accenture is voted the “top outsourcing service provider globally” by professionals in the industry, a distinction that a spokesman says the company earns by taking “outsourcing deeper” than others.

Deep into its own ranks, it turns out. Petitions are on file with the Labor Department by onetime Accenture employees in Atlanta, Georgia; Birmingham, Alabama; Chicago, Illinois; Dayton, Ohio; Morristown, New Jersey; Richfield, Minnesota; Wilmington, Delaware; and other cities. Their jobs as software developers, global management consultants, accountants, and financial agents were eliminated by Accenture in the United States and shipped to Argentina, Brazil, India, the Philippines, and other countries.

Whatever you say about Accenture, the company practices what it preaches.

THE EPICENTER OF IT

It was one of the best places to work in Tampa. The salaries were good. The benefits were excellent. Turnover was rare. And every year the company hosted a lavish holiday party. In a city with a large high-technology presence, PricewaterhouseCoopers (PwC) always ranked high in ratings compiled by the local press on the best places to work in the area. That’s what made the events of July 29, 2010, so shocking.

The word had come down that day that everyone in information technology was to attend a company webcast that afternoon. Webcasts were broadcast every so often, and employees often skipped them. But this time the message was firm: everybody had to attend. Even members of the skeleton crew who manned the help line 24/7 when others were in staff meetings had to attend.
Shut down the phones. Be there.
One manager thought to herself,
This can’t be good news.

The webcast opened with a PwC official giving details about the company’s financial picture, its revenue and profits. Then, a few minutes into his talk, he suddenly switched topics. The subject was the company’s strategic plan. PwC had decided to outsource the work of its information technology division to India. It occurred so fast, and with so little warning, that it took people a few seconds to realize what had happened: they were all losing their jobs.