Offshoring is Good for America
David Coursey has a thoughtful, well written piece Offshoring is Bad for America.
Too bad he is wrong. There are several faulty premises at work here.
One would only worry about "lost" jobs to cheap foreign labor markets if one believed that those markets had an advantage in developing software. I do not believe this is true, or at least remains to be seen.
Martin Fowler summarizes a presentation given by the Standish Group.
SACWIS is a child welfare system that all the states in the US must implement. He stated that Florida began its SACWIS system in 1990 with an original cost estimate of $32 million for delivery in 1998 with a development team of around a 100 people. When they last looked the new cost was $170 million due to ship in 2005. He pointed out the state of Minnesota has to build the same capability with pretty much the same demographic issues as Florida - leading to very much the same broad system requirements. Minnesota started work in 1999, finished in 2000 with eight people costing $1.1 million.
This is a staggering example of the variation in productivity: A 200 to 1 cost differential between two nearly identical projects. To put this in the context of outsourcing, Minnesota could have paid each of the developers on their project $10 million per year and STILL developed a system sooner and cheaper than Florida. Labor cost is only one variable is a complex equation.
Do jobs in projects like Florida's deserve legislative protection? Do jobs in projects like Minnesota's need it?
I've seen the arguments of outsourcing doom sayers a decade ago in The Decline and Fall of the American Programmer, which were followed later by the embarrassing retraction of The Rise and Resurrection of the American Programmer.
Coursey does admit one positive of outsourcing:
On one level, I support creating more jobs in underdeveloped countries. Economic injustice and underdevelopment was one of the key motivators for World War II as well as the current turmoil in the Arab world. It is in our best interest to spread the wealth, at least enough to keep the peace.
But he fails to draw the counter intuitive conclusions of the economic theory of comparative advantage. That is higher wages in underdeveloped countries mean larger markets for American goods, and thus more jobs here in America.
Self professed liberal Coursey thinks that higher prices is worth the higher costs of protectionism:
customers should be willing to pay a bit more not to purchase offshored products and services
But, trade protection is a regressive tax. It hurts the poor more than it hurts the rich. Increased buying power for America's poor is a frequently overlooked benefit of the lower costs due to offshore outsourcing.
Additionally, any protective legislation would amount to corporate welfare, much like the sugar industry protection has turned into a corporate welfare gold mine for ADM. Shielded from competition, American software development would be unable to compete overseas and jobs would be lost. Protectionism is a boon for lobbyists and corruption. Think of the shady accounting that Coursey's tax scheme would encourage.
Worse, holding people in jobs for which they have no relative advantage is an inefficiency that slows the growth of the entire economy. I don't accept that the United States cannot compete in the world software development market. But, if that were so, there would be opportunity costs for holding workers in dead end jobs, instead of allowing them to shift to the jobs that the theory of comparative advantage suggests will be available.
Easing the plight of workers caught in any such shift is a laudable goal and has the advantage of being temporary, while protectionism is notoriously difficult to remove. If this is a problem that requires government action, let the government give money to the workers in the form of training, education and small business grants and loans. Do not give money to corporations in the form of industry protections.
Interestingly the presumably conservative CEO of Intel and the liberal David Coursey can agree on one aspect of the outsourcing debate: The need for education reform.