April 5, 2006
Outsourcing at Both Sides
In the outsourcing debate, there are always emotions that carry a lot of baggage. After all, everyone knows someone who’s been laid off, and almost everyone has a friend whose job moved overseas. Whether it’s manufacturing, IT, or any number of other industries, jobs are liquid things, and when someone loses one due to cost-cutting, outsourcing is an easy scapegoat. After all, when someone “over there” is doing the job you once did, it doesn’t do a lot for your feeling of self-worth. And when you start seeing people in your own industry getting the axe for cheaper labor elsewhere, you start to worry about your own job security.
Despite all that, I’m a firm believer in the idea that free markets must be allowed to work. Of course, people look at an engineer and say, “Just you wait: One of these days, they’re going to start outsourcing your job. Then you’ll feel differently.”
Those people are wrong. I’ve spent a mere 5 1/2 years in the job market, and I’ve seen outsourcing from both sides. When I first began working, I was up in Silicon Valley at the peak of the technology boom. Which is to say, when I started, I had no experience, no seniority, and the job market was falling apart all around me. My job was an “Applications Engineer”. Basically at the time, it was an advanced technical support role. Without going into who my employer was, my job consisted of working with engineers who were using our products, and helping them to work through the design issues they faced. 8-12 hours a week, this consisted of answering phones on a hotline, and the rest of the week was spent supporting more in-depth inquiries and our field engineers.
And I was outsourced. Not overseas, mind you. But still outsourced. After surviving a hiring freeze 2 months after I started, and surviving the first round of layoffs, our department at the time was about 50 people. Only those of us with little experience with the company were still on the hotline. To be fair, the hotline portion of our job didn’t really require the services of someone with a 4-year Electrical Engineering degree. And the company understood that. They axed 17 people that day (about 12 of the low-experience folks like me, and 5 others). Part of what they were doing was streamlining simply to cut costs, but they entirely closed the hotline at that location. Instead, they hired people with 2-year associates degrees down in San Diego to staff the hotline full-time. Those folks were available for about half the cost of a full-time engineer in San Jose, so they could hire enough to keep the hotline fully staffed, even counting transition and training costs, and still improve the bottom line. While it wasn’t seeing my job go to China or India, it hurt me just as much.
That began the rough time in my life, when I had to find another job. I spent a few more months in San Jose, then moved southward with my wife (who had at the time just become my fiancee, with the help of my 401k funds!). She was having trouble, having survived a few layoffs, an office move, and the general insanity of Silicon Valley at that time was causing her to have anxiety attacks. Eventually I found a job, so did she, we got married, and it’s been looking up ever since. (FYI, if you’re ever unemployed, having a motorcycle definitely makes it a little more pleasant!)
But here’s where it gets ironic. The job I found was with a company based in Asia. No longer was my job outsourced, my whole industry was outsourced and I became an Applications Engineer here for a company there, and now I’m in the business of helping replace American-designed products with those designed and built in Taiwan and China. In my industry, that’s just the way things go. The computer motherboard market is mature enough that it’s so much cheaper to have the work done there, there’s no point to doing it here. The only domestic competition we face are in custom products, where having local design engineers is enough of a boon to American-based competitors where we only win a majority of designs, instead of a crushing majority. The shoe is on the other hand now!
We’re in a global market, folks. But let’s be honest. We’re not all fighting for a slice of a small pie. The pie keeps getting bigger and bigger. Taiwanese engineers aren’t replacing American engineers. In this world, more engineers (unlike lawyers!) are a good thing. The more scientists and engineers we have in this world, the faster the rate of technological progress will occur. And that’s what makes the great pie get bigger. When engineers get laid off, they don’t go start flipping burgers. John Kerry might talk about how jobs are being replaced by worse jobs, but people don’t simply give up. They become consultants. Or they find a new job.
Or, they create a whole new company. During the bad days when I was unemployed, I read a story about engineers in San Francisco who had all gotten laid off, and had actually been living in a shelter. In that shelter they created an idea for a brand new startup! I never saw a follow up, and I don’t know whether the company succeeded, but the negative effects of outsourcing are purely temporary. It’s tough to tell that to someone who has been laid off, but it’s no less true.
America should take one lesson away from this, however. It is a good thing to slow down outsourcing at the margins. Reforming our tax system and regulatory bureaucracy (and fixing our public schooling system) will go a long way to slowing down outsourcing, and to enticing companies in other high-standard-of-living countries to set up shop here. But we need to understand that some outsourcing will never be stopped, and that it shouldn’t be stopped. What makes America great is people, and freeing up people from jobs who can be done more efficiently elsewhere gives them freedom to focus on other things. Computers are now becoming mature technology. It wouldn’t be smart for the US to have remained an agrarian society after the industrial revolution, and we won’t survive as a manufacturing power after the information revolution. Yet nanotechnology, medical research, advances in bioengineering and genetics are all occurring here on our shores, because America is still the leader of the industrial world. We have stability, we have wonderful universities, and compared to most of Europe, we have a favorable business climate. As long as we keep those things, America will always be a formidable world competitor.
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Carnival of the Capitalists
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