Originally Posted by DRS112

Because I'm feeling lazy
USATODAY.com - Unpopular argument: Sending tech jobs abroad is good


Unpopular argument: Sending tech jobs abroad is good
Kevin Maney



Behind closed doors, many U.S. technology executives will say something that could get them flayed if repeated in public: Sending computer programming jobs to India and China is good for America.
Not just good for business, they believe, but good for everybody — part of a process that will raise the standard of living in the USA and make us more secure in the world.

This can be tougher to swallow than a low-fat wheat germ muffin. It's counterintuitive.

"The system works so amazingly well that it's a wonder anyone doubts it, and yet, of course, people do," says Marc Andreessen, chairman of tech services company Opsware (OPSW), and one of the few who will forthrightly say that the outsourcing trend should be cheered.

That belief is based on a widely accepted theory — the theory of comparative advantage — that goes back to David Ricardo, a brilliant 19th-century economist who seems not to be related to Ricky.

Though, as Ricky Ricardo might say, let me do some 'splainin.

Let's say the USA is really good at two different things, software programming and creating innovative technology. And let's say India is also good at both. Because Indians don't get paid nearly as much as Americans, India can do each job at a far lower cost compared with the USA.

A big fear is that if trade is free and open, the USA would lose both those pieces of its economy, because lower costs win. Then our standard of living would fall, while the Indians could increasingly buy Porsches and plasma TVs.

But that fear, Ricardo would say, is misplaced.

Why? India's schools churn out loads of programmers, but the country has little venture capital and other infrastructure to help drive innovation. So even though India can do both for less than we can, inside India, the cost of doing programming is relatively little while the cost of starting companies is relatively high. India is "most best" — to use the language of economists and many 3-year-olds — at programming.

In the USA, we pay programmers very well. We also have a well-oiled, technology-creating innovation machine. Inside our country, it has become relatively expensive to our society to do programming; and relatively cheap to innovate in technology. Our "most best" is innovation.

Now here's where it gets funky: Ricardo would say that the USA should innovate in technology and stop programming, and India should do the programming and stop innovating. If we each concentrate on our "most best" and then trade, more of both get produced for less — the very essence of increased productivity.

Of course, the "most bests" change over time, and that changes the equation. The genius of U.S. capitalism is that it continues to create "most bests" that are of higher value than everybody else's "most bests." Next up will be industries like biotech and nanotech.

Anyway, if productivity goes up, people have more of everything. Standards of living rise in both countries. "This is absolutely not a zero-sum game," says Stanford University economist Paul Romer.

Real life gets a lot more complicated than that, but in general the theory has been proved over hundreds of years. In the 1980s, the USA lost tens of thousands of auto and steel jobs to Japan, but because of comparative advantage, we gained those jobs and more in fields that were new "most bests," like high-tech and financial services. And though some people back then predicted we were going to become Japan's servants, and congressmen symbolically bashed a Toshiba boom box on the Capitol lawn, in the end the standard of living in Japan and the USA rocketed.

Ricardo's point shows up on a more practical level, too. If a computer company outsources programming and saves 30% in costs, some of that savings results in lower computer prices — a good thing for consumers. At the same time, the company keeps some of the savings, giving it higher profits.

That means it can hire more people. It can also invest in new products, which might result in the company doing even better, and hiring more — some, perhaps, in other countries, but some in the USA. And if profits go up, the stock price probably goes up, making millions of stockholders wealthier.

"A free movement of labor allows us to become more efficient, produce better products at lower costs, grow more profitable, pay more taxes to the government which, in turn, looks after the people who have been displaced," says Oracle (ORCL) CEO Larry Ellison.

At the same time, U.S. workers benefit when the standard of living rises in India or China or anywhere in the world. "Those people are all going to buy cars, cell phones, PCs, espresso machines, mutual funds, iPods, Nikes, Polo cologne and on and on," Andreessen says. Many of those products will be made by U.S. companies.

"We can benefit if they become more like us," Romer says.

One last note: The more this goes on, the less likely the United States will have enemies. If India's economy is booming because U.S. companies outsource there, India pretty quickly becomes our friend. Same with China and elsewhere. We'd have a lot easier time with North Korea's Kim Jong Il if a few American telemarketers could move their call centers to Pyongyang.

Not every tech executive buys all this. Intel (INTC) Chairman Andy Grove argues that the USA is in danger of losing key technology capabilities and needs to mount a counterattack. That doesn't mean he wants to close off trade. Basically, Grove is saying we need to once again become "most best" at software programming, and keep those jobs here.

A lot of people and politicians don't buy Ricardo-ism, at all. How can firing a well-paid, intelligent, contributing member of society in Chicago, then giving the position to a low-wage young hotshot in Mumbai, turn into a net gain?

Or just try telling programmers who see their whole departments vacuumed out and replaced overseas that it's all for the best. "This is a disaster for American workers and for our country," says Alva Perry in Clearwater, Fla., who says her husband's job as a programmer is at risk.

Competing economic theories argue that much has changed — like cheap broadband Internet connections that make a computer in India seem like it's next door — and Ricardo's theories no longer apply.

Ricardo isn't an easy man to believe in. But so far — 180 years after his death — he still seems right.

Originally Posted by anhailla

Adam Smith and Karl Marx (just to make it simple) had opposing ideas long before 2 world wars.

I was speaking to the basic idea that free markets alone cannot and do not govern and equalize societies...that even Adam Smith believed in some government intervention.

My whole point is that the tenants of socialism and capitalism will have to succeed together, to keep the middle class the relative ruling class.

Ideas that America was based on...
we are in the beginning of a grand experiment, don't you think we are wise to realize this?

Originally Posted by anhailla

here's the problem with this whole idea..the standard of living is not increasing for most....

I would ask the authors this
it takes two wage earners to earn what one use to? what standard of living are we comparing?

Originally Posted by DRS112

I disagree...you don't think our standard of living has increased over the last few decades?

Originally Posted by DRS112

Of course...but we don't have a true free market society...so we can't point to capitalism and say that is the problem...and nobody wants communism, so I just assume that the conversation is about what degree of either is needed. And how to create a framework for making that decision....since statistics alone do not justify any particular course of action....

Originally Posted by anhailla

no..it has not increased for most in the last 30 years and I have a decade on you.

Originally Posted by DRS112

only recently....since the economic downturn...have real wages been stagnant. Otherwise Nominal wages have increased and so have what those wages can purchase...Cars are cheaper...computers are cheaper...appliances are cheaper...Cellphones, TVs etc etc....and yet the median wage is still over $40,000....Think of how you lived in the 70's and 80's...I know, having grown up in the 80's(partly) that we are far better off than we were....yes...I can post data...but I think if you stop to think about it, that you won't make me....

Originally Posted by anhailla

No..I won't make you post data.

Not tonight anyway
night DRS

Originally Posted by anhailla

here's the problem with this whole idea..the standard of living is not increasing for most....

I would ask the authors this
it takes two wage earners to earn what one use to? what standard of living are we comparing?