Abandoning America: The Outsourcing Infection

Ginger Rey

Professor Flynn

English 135

21 February 2005

Rey

Ginger Rey

Professor Flynn

English 135

21 February 2005

Abandoning America: The Outsourcing Infection

John Doe loses his job. Jane Doe is a victim of identity theft. The United States economy

is in the red. The common denominator of all is the upshot of outsourcing in America today. The

festering of this infectious outsourcing is increasing job loss for Americans, it is increasing

security threats for citizens, and it is increasing the national trade deficit in the World Market.

Joblessness due to outsourcing is much more widespread than projected. Companies that

outsource are not replenishing job sources within the United States. Scores of companies are

outsourcing to foreign countries promoting more import buying than selling of exports lending to

the deficit problem. Personal data that is processed in foreign lands initiates potential theft and

terrorist risk. Policies need to be set in motion and imposed that will protect American jobs,

prevent financial and terrorist related activities posed by identity theft, and restrict the

exploitations of the Free Trade Agreement.

Outsourcing is a word that tastes gritty to many Americans. The mere mention of this

word draws a distinguishing line between employers and employees and between large and small

businesses. A good look at outsourcing can determine whether the way outsourcing is conducted

is beneficial for Americans—or just a bad tasting residue left from a spoiled economy.

Defined by the dictionary; outsourcing is the “practice of subcontracting manufacturing

work to outside and especially foreign or nonunion companies” (Merriam-Webster Online).

Outsourcing was implemented to help redistribute employment for service workers, hold down

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consumer prices, and make businesses in America more viable. Outsourcing is not something

new and has been practiced by corporate America for decades. Concerning current events of

outsourcing; this definition barely begins to elucidate the magnitude of repercussions this

“disease-like” contagion is spreading in the business arena today.

In the 1990s outsourcing became more concentrated when America faced a recession.

Corporations began restructuring how they operated and economic growth returned near the end

of the 1990s, helping American companies regain their competitive strength as they cut costs by

widening the sectors of outsourcing (Corbett, qtd. in Amazon). Moving into 2000 has shown that

the previous good results produced by outsourcing have now ultimately backfired; the evidence

that outsourcing is flinging the economy into a recession—as ordinary people flounder to find or

keep a job and pay bills—is emerging. Forrester Research notes that in 2005, 830,000 jobs will

be given to foreign workers. In addition, two economists from University of California

investigated employment at risk finding stunning consequences concerning outsourcing; results

show 14 million Americans may lose their jobs if outsourcing is continued (“Outsourcing: A

Brief Timeline”). These statistics indicate poor job conditions for Americans directly linked to

outsourcing. That is a lot of John Doe job loss.

One glowering security issue of outsourcing is identity theft. Typically, many call-center

jobs that are now outsourced to foreign countries have access to personal information such as

credit cards, social security numbers, bank numbers, addresses, and phone numbers. The New

York Times best captures the problem.

A leading bank regulator, the Federal Deposit Insurance Corporation, warned in

June [2004] that increased corporate outsourcing of call-center tasks and other

jobs overseas had heightened the risk of identity theft.…During those 12 months,

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the report said, businesses and financial institutions suffered about $48 billion in

losses because of identity theft, and victimized consumers paid more than $5

billion in out-of-pocket expenses to regain their financial identities (“Can Identity

Theft Epidemic Be Stopped?”).

These statistics indicate expensive security problems related to outsourcing. That is a lot of Jane

Doe victims of identity theft.

Regarding trade, outsourcing can be good for economies; it utilizes another nation’s

resources, but if the trading is disproportionate, not enough exports or too many imports, that

country will suffer economically. For the past twenty-five years America has been buying more

from other countries than it has been selling. This has placed a strain on America’s economy and

pushed her into a trade deficit. Outsourcing has further compounded this problem. As the various

sectors of outsourcing increasingly move their businesses into other countries, fewer products are

being made in America to sell to other countries, reducing the amount of exports that help

maintain a trade surplus. Cheap labor in foreign countries generates products that can be

purchased by consumers in America at reduced prices, and then these products become an

overabundance of imports made by foreign workers and purchased from other countries. This

breach between imports and exports has caused the United States to borrow from other countries

and sell them more American assets to finance this underperformance. The foreign debt in 2001

reached 22% of Gross Domestic Product (GDP) with a trajectory of 40% GDP within five years

according to Jeff Faux, Political Economist and Founder of Economic Policy Institute (EPI).

Faux further compares the rate of Argentina at 50% GDP when their economy collapsed because

of their external debt. Faux goes on to say that the handwriting is on the wall and the United

States cannot keep expecting to buy more products than it sells without catastrophic results.

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Dan Griswold, Director of Center for Trade Policy Studies at Cato Institute, disputes that

the trade disparity means our economic growth is slower, that our manufacturing output has

fallen, or that unemployment is down (“Bad News on the Trade Deficit Often Means Good News

on the Economy”). He “tries” to equate past times when the GDP, manufacturing, and

employment grew during times the deficit was shrinking. This argument is difficult to support

when he blatantly includes statistics in a separate article he wrote from the U.S. Bureau of the

Census report on the true situation. “For the calendar year [2002], imports of goods into the

United States exceeded exports by $484.4 billion. When that figure is combined with an overall

surplus in services of $49.1 billion, the 2002 deficit in goods and services was $435.2 billion, the

largest in U.S. history” (“The U.S. Trade Deficit and Jobs: The Real Story”).

The rate our trade deficit is escalating with the inclusion of outsourcing is an indication

something is terribly wrong. According to Trade Economist Josh Bivens (also from EPI) the debt

reached $665 billion at the end of 2004. That is a lot of increased foreign debt.

It is understandable that conveniences do contribute to the desire for companies to want

to outsource. Businesses are interested in outsourcing because it provides a reduction in cost,

improvement in efficiency, and expertise sources (“Outsourcing”). Although each offer

intelligent reasons for this practice, the effect still causes distress on the working American and

on the economic standing of the United States on a global scale.

Reflections on the following give insight into the need for policy reform, policy

enforcement, and new policies that protect both the residents and their motherland from the

devastating infection caused by outsourcing.

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1). A business perspective will say the reduction in cost for corporations simply cannot

be argued. The “average wages for employees [in India] are 20-35% of that of their American

counterpart” (“Brains Abroad – India Job Outsourcing”). American workers cannot compete

with the meager salary an Indian worker receives of $500 dollars a year (“Outsourcing: A Brief

Timeline”). Auto insurance alone typically costs triple that in America per year and residents

must meet the cost of living. The sad facts are that the more outsourcing is continued, the more

workers are forced into taking lower wages as they are replaced by foreign workers or their

institutions ship overseas.

Forbes magazine repudiates that outsourcing is hurting American jobs and that jobs are

created from outsourcing. “Forbes touts a recent study commissioned by the Information

Technology Association of America that found that the off-shoring of IT services and software

led to the creation of 90,000 U.S. jobs last year.” However, the same Newsmax.com article of

April 14, 2004, listed RadioShack as adding only 300 jobs in Texas and Juniper Networks

adding only 45 jobs in California for the year while Veritas was to hire 175 workers (Limbacher

and et al.). These figures indicate very “little” new job growth from outsourcing.

After the North American Free Trade Agreement (NAFTA) took effect on January 1,

1994 trade deficits exploded from $30 billion deficits in 1993 to $85 billion in 2002, increasing

the deficit 281%. The result was job loss in all 50 states and the District of Columbia. Jobs

gained by NAFTA exports amounted to 794,174 and jobs destroyed by NAFTA imports

amounted to 1,673,453—twice as many jobs were lost (Scott). None of this is “very efficient” for

the American worker. These job conditions exemplify the trade inequality in full force.

Strategies need to be developed that can protect the American paycheck from disappearing.

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2). The pressure to keep shareholders happy and to keep business competition matched

during the Internet-economic boom of the late 1900s was the driving force that pushed

companies to find more workers for less pay to maintain higher efficiency in product output.

This is analogous to the cause of working conditions in the “sweat system” of the late 1800s and

early 1900s. The return of subcontracting work out by outsourcing depicts similar patterns of

oppression and abuse on workers. The very conditions Americans fought so hard to eradicate are

in jeopardy. The organizations that outsource work to foreigners abate the workplace rights,

reducing wages and benefits by shifting the control from employees to executives. It makes the

common worker easily exploited because he or she is expendable and weakens his or her

bargaining position. Outsourcing creates ambiguity which allows the institute to evade

employment and labor laws driving down standards for all workers. This obfuscation of liability

reflects upon the worker and produces low moral. Moreover, the organizations of unions to

protect the worker are diminishing because there are many loopholes in this “sweat system” type

of higher efficiency (“Living Wage Policy in an Era of Outsourcing”). Policies need to be

revisited to ensure the rights and work conditions of employees are sheltered.

Section 482 of the Internal Revenue code levies taxes (in theory) on every transaction

between American operations and foreign ancillary aspects, but more often than not these

outsourced companies are not paying taxes to the United States or to the countries they have

moved into. Conglomerates find ways of inflating the prices paid to their foreign subsidiaries

making the foreign profits look bigger and thus they evade taxes on both sides of the border

(Dobbs, p 61). This puts the burden on the purse strings of hard working Americans to pay taxes

for hospitals, roads, and schools. Certainly this is the drawback of a flimsy outsourcing rule and

stiff enforcement should be mandated on corporations come tax time.

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3). As for expertise, India is now producing 300,000 college graduates with engineering

degrees per year which is about six times that of American graduates (“Outsourcing: A Brief

Timeline”). Granted foreign workers are intelligent, but using them to replace American

graduates reduces the ambition of students to pursue a college education, weakening the strength

of the nation. Employment rates for young college graduates age 25-35 declined 3.4 percent from

1989 to 2003, clearly marking a feeble labor demand for newly sprouted workers (Bernstein).

Additionally, a “new discrimination” for Americans to brood over has appeared with the

anomaly of insourcing jobs from other countries. Senior News Editor, Kate Evans-Correia, wrote

in May 2002 that Guy Rich, Senior Systems Engineer at Integrated Digital Systems said he knew

of numerous colleagues having difficult times finding work because of H1-B visa workers. These

foreign workers are granted visas taking the scarce American jobs available. Purportedly

powerful lobbying groups are manipulating lawmakers with false employment statistics that

benefit the key players of the IT world, like Microsoft and Sun. Rich faced this problem himself

when bidding a contract in Nebraska. The hiring manager told him if he could not decide a good

rate he could get an East Indian to do the same job cheaper. This has the odor of discrimination

toward the American workforce. American workers need policies that prevent job displacement

by foreigners.

A worse scenario is the threat created by these “expert” foreign workers who are not held

accountable for the same work ethics that American workers are. In an article from “Offshoring

Medical Work Saves Lives” the shortage of radiologists and the extreme need for sophisticated

scans for prompt diagnosis brought doctors at Altoona Hospital in Pennsylvania to utilize

outsourcing as a method of solving problems. Saving lives is indeed critical, but what about the

security of those files sent with personal data to medical transcribers in other countries? How

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qualified are the technicians to review those medical records? There is no guarantee on the

security of these files or on the use of qualified consultants, “But even when the spotlight was on

medical transcription, there were concerns regarding the security of transfer of patients' vital

medical data, and the quality of service delivered by offshore consultants” (Offshore

Outsourcing World). Perhaps this seemingly positive information on outsourcing is not so

affirmative.

Further security matters brought to light are the mounting costs worldwide to consumers,

businesses, and government organizations costing $221 billion in losses for 2003 and escalating

at a 300 percent velocity, which may reach $2 trillion by the end of 2005 (Gonsalves). As far as

security evils this points to less beneficial factors where the pocket is concerned: unreliable

accountability of foreign experts and unfair bias toward Americans as they get pushed aside for

“cheaper expertise”. A course of action that eliminates this type of outsourcing is called for not

only to protect the properties of Americans, but the very well-being of the state. Access to

American identities by terrorists has already proven deadly given the recent 9/11 horror.

Witnessing family, friends, and fellow employees being reduced to part-time status,

suffering lay offs, or losing a job themselves is heartbreaking for Americans. As big corporate

giants take up outsourcing Mom and Pop businesses are failing at an alarming rate and people

are dazed that their long-term, secure jobs are evaporating. Educated, qualified professionals are

scrambling to get hired—anywhere. Outsourcing shows no signs of adding jobs to the American

portfolio. But it does show great profits for Business Process Outsourcing (BPO).

Michael F. Corbett’s book, The Outsourcing Revolution: Why It Makes Sense and How

to Do It Right, remarks that BPO is a $6 trillion global industry involving thousands of

companies. Corbett elaborates that outsourcing is one of the fastest growing industries. The

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reason for this, he points out, is that formerly uncompetitive companies are now in the competing

arena because outsourcing is at the center of rapid commoditization, knowledge-driven

operations, competitive advantage, and outside specialist activities that create this new ground of

competition in the global marketplace. Corbett says, “Far from being bad for businesses or their

workers, outsourcing is one of the most important and powerful forces available for building

successful companies, creating economic growth, and generating and enhancing jobs” (Corbett,

qtd. in Amazon). According to 2004 figures, company success, economic growth, and job

enhancement may not include anything on American soil. There were staggering profits from

foreign countries’ yearly services to American companies who outsource to them. India is

leading at $9.5 billion profit margins, Ireland at $6 billion, Israel at $2.6 billion, the Philippines

at $1 billion, and Russia at $800 million (“Outsourcing: A Brief Timeline”). Profits of other

countries soar. Abandoned America’s trade debt ratio enlarges and her people remain in jobless,

underpaid, and/or exploited situations while awaiting the time bomb of identity theft terror.

Conditions of job growth are bleak on native soil. Lay offs and company closures besiege

the poor and middle class because of outsourcing. This matter has so agitated Americans that

vigilantes are speaking out. Renowned receiver of The Man of the Year Award 2004 from The

Organization for the Rights of American Workers, Lou Dobbs explores the impact of

outsourcing on American workers in his book, Exporting America: Why Corporate Greed Is

Shipping American Jobs Overseas. He lists over 800 major American companies either sending

American jobs overseas or choosing to employ cheap overseas labor instead of American

workers (167-96). In four months that figure rose from February 2004 at 150 companies equating

to 162.2 companies a month abandoning America (“Lou Dobbs Lists Outsourcing Giants”).

Dobbs shares examples of job loss in the past few years; a) New York – 10,000 jobs gone,

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Carrier plant closes, b) Pennsylvania – 132, 000 jobs vanished, evaporation of manufacturing and

high tech positions, c) New Jersey – 7,000 jobs moved out, embroidery outsourced to foreign

countries, and d) 96 % of clothing production is no longer done in America. If that is not taking

the shirts off American backs think about the figures Dobbs mentions from Forrester Research,

“$151 billion in wages will be shifted from the Unites States to lower-wage countries by the year

2015” (Dobbs, 8-34). That is a lot of lost American wages going to foreign workers.

The odium of outsourcing can best be demonstrated by out-of-work Americans—

themselves. In Spokane, Washington Terry Luding explains results of outsourcing on his

retirement plan after working for his company 27 years. His former company filed bankruptcy

after he was forced into early retirement; the government took over the pensions making him

lose his healthcare benefits. Nancy Stockton of Springfield, Missouri (Fasco employee, 32 years)

now gets paid half of what she used to earn after her job was shipped out to Mexico in 2002

(Rescue American Jobs).

In The New American, January 26, 2004, an article called “Losing America’s

Livelihood” sums up in one sentence the malignancy of outsourcing on America if left untreated,

“The U.S. is headed for Third World status unless we change government policies that are

driving U.S. businesses offshore, destroying jobs and putting entrepreneurs out of business”

(Jasper).

The outsourcing infection grows and America “is” getting abandoned. The cure resides

within the authority of her people to honor and defend her by promoting reformation policies—

immediately.

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