Washington Post, November 2, 2003
There's good news and not-so-good news in the American workplace. The good newsis that the economy is growing and businesses are spending once again, on high technology. The Commerce Department reported last Thursday a sharp pickup in spending on equipment and software in the third quarter. Not so good is the news that high-tech jobs have not come back, at least not so far.
Jobs in America's sprawling information-technology (or IT, as it known in the info world) sector -- including everything from software research, design and development to computer engineering -- are down 20 percent from late 2000. Salaries are down, too. In 2000, senior software engineers earned $130,000. Thesame job now pays no more than $100,000. Meanwhile, a lot of high-tech jobs aremoving offshore. Is that a cause for concern?
When I was labor secretary, I fought to preserve U.S. jobs. So you might well assume that I would see the number of high-tech jobs moving offshore as a troubling trend. And yet, I do not. I'll explain why in a moment.
But lots of people are worried about it. Indeed, those anxieties seem to be increasing:
. On Sept. 30, Congress let the cap on H-1B visas issued to foreign high-tech workers to shrink from 195,000 to its old level of 65,000. The ostensible reason: to make sure more high-tech jobs go to Americans.
. Bills are pending in several state legislatures barring state government projects from using offshore high-tech workers.
. High-tech workers are organizing against foreign outsourcing. One group of them -- the Organization for the Rights of American Workers -- has demonstratedoutside conferences on "strategic outsourcing" in New York andBoston.
The fear is understandable.
More than half of all Fortune 500 companies say they're outsourcing software development or expanding their own development centers outside the United States. Sixty-eight percent of more than 100 IT executives who responded to a survey last spring by CIO magazine said their offshore contracts will increase this year. By the end of 2004, 10 percent of all information-technology jobs atAmerican IT companies and 5 percent in non-IT companies will move offshore, according to Gartner Co., a research and analysis firm that specializes inhigh-technology trends. And by 2015, according to a study by Forrester Research in Cambridge, an estimated 3.3 million more American white-collar jobs will shift to low-cost countries, mostly to India.
The trend isn't surprising. American companies are under intense pressure to reduce costs, and foreigners can do a lot of high-tech jobs more cheaply than they can be done here. Already India has more than half a million IT professionals. It's adding 2 million college graduates a year, many of whom areattracted to the burgeoning IT sector. The starting salary of a software engineer in India is around $5,000. Experienced engineers get between $10,000 to $15,000. Top IT professionals there might earn up to $20,000.
Meanwhile, it's become far easier to coordinate such work from headquarters back in America. Overseas cable costs have fallen as much as 80 percent since 1999. With digitization and high-speed data networks, an Indian office park canseem right next door. Matthew Slaughter, associate professor of business administration at Dartmouth College, says information-technology work "willmove faster [than manufacturing] because it's easier to ship work across phone lines and put consultants on airplanes than it is to ship bulky raw materials across borders and build factories and deal with tariffs andtransportation."
With such ease of communicating, the squeeze on H1-B visas will do little to keep IT jobs out of the hands of non-Americans. "It doesn't make adifference for firms whose business model has people largely working offshore," MokshaTechnologies Chairman Pawan Kumar told the Press Trust of India. "It . . .will make firms drive business where the technology workers are." Guatam Sinha,head of the Indian human-resource firm TVA Infotech, agrees. "In fact, lots of techies are coming back to India." India exported $9.6 billion worth of software last year. Such exports are expected to grow 26 percent this fiscal year.
So why don't I believe the outsourcing of high-tech work is something to lose sleep over?
First, the number of high-tech jobs outsourced abroad still accounts for a tinyproportion of America's 10-million-strong IT workforce. When the U.S. economy fully bounces back from recession (as it almost surely will within the next 18 months), a large portion of high-tech jobs that were lost after 2000 will come back in some form.
Second, even as the number of outsourced jobs increases, the overall percent ofhigh-tech jobs going abroad is likely to remain relatively small. That's because outsourcing increases the possibilities of loss or theft of intellectual property, as well as sabotage, cyberterrorism, abuse by hackers, and organized crime. Granted, not much of this has happened yet. But as more ITis shipped abroad, the risks escalate. Smart companies will continue to keep their core IT functions in-house, and at home.
Outsourcing also poses quality-control problems. The more complex the job orderand specs, the more difficult it is to get it exactly right over large distances with subcontractors from a different culture. In a Gartner survey of 900 big U.S. companies that outsource IT work offshore, a majority complained of difficulty in communicating and meeting deadlines. So it's unlikely that very complex engineering and design can be done more efficiently abroad.
As smart U.S. companies outsource their more standard high-tech work, they're simultaneously shifting their in-house IT employees to more innovative, higher value-added functions, such as invention, creation, integration, key R&D andbasic architecture. These core creative activities are at the heart of these companies' competitive futures. They know they have to nourish them.
The third and most basic reason why high-tech work won't shift abroad is that high technology isn't a sector like manufacturing or an industry like telecommunications. High-tech work entails the process of innovating. It's about discovering and solving problems. There's no necessary limit to the number of high-tech jobs around the world because there's no finite limit to the ingenuity of the human mind. And there's no limit to human needs that can be satisfied.
Hence, even as the supply of workers around the world capable of high-tech innovation increases, the demand for innovative people is increasing at an evenfaster pace. Recessions temporarily slow such demand, of course, but the long-term trend is toward greater rewards to people who are at or near the frontiersof information technology -- as well as biotechnology, nanotechnology and new-materials technologies. Bigger pay packages are also in store for the professionals (lawyers, bankers, venture capitalists, advertisers, marketers and managers) who cluster around high-tech workers and who support innovative enterprises.
In the future, some of America's high-tech workers will be found in laboratories but many more will act like management consultants, strategists and troubleshooters. They'll have intimate understandings of particular businesses so they can devise new solutions that meet those businesses' needs. They'll help decide which high-tech work can most efficiently be outsourced, and they'll coordinate work that goes offshore with work done in-house.
Don't get me wrong. None of this is an argument for complacency. It's crucial that America continues to be the world's leader in innovation. Our universitiesare the best in the world, but they can't remain that way when so many are starved for cash. Federal and state support for higher education must keep up with rising demand for people who are creative and adaptive.
Federal government investments in basic research and development are also vital. We need to guard against what is already a drift away from basic research toward applied research and development -- that is, from the creation of new knowledge that can be put to many different uses versus R&D that's related to the commercialization of specific products, especially military-related aerospace, telecommunications and weapons.
And just as with laid-off manufacturing workers, we need to ensure that high-tech workers are adaptive and flexible. They should be able to move quickly andget the retraining they need. Pensions and health insurance should be more portable across jobs. High-tech workers who want to polish their skills or gainnew ones should have access to tax credits that make it easy for them to go back to college for a time.
But it makes no sense for us to try to protect or preserve high-tech jobs in America or block efforts by American companies to outsource. Our economic future is wedded to technological change, and most of the jobs of the future are still ours to invent.
