What happened to the "Giant Sucking Sound" of Outsourcing?

By: Ian Ippolito

The conventional wisdom is that outsourcing has been very bad
for the U.S. Information Technology workforce. After all, now
that a company can transfer the work of a $50/hour U.S.
programmer to an equally skilled programmer in India or Romania
and pay only $5/hour for the same job, what are U.S. workers to
do? Ross Perot once famously described the result of job loss as
the “Giant Sucking Sound”…from the movement of the jobs
overseas. Virtually every newsgroup, blog and magazine editorial
quotes anecdotal evidence of someone who has lost a job in the
recent down turn as validation of this theory. Almost all make
dire predictions of the end of U.S. I.T. dominance .

It’s too bad that none of these people took the time to notice
that the U.S. Bureau of Labor and Statistics survey last month
showed the number of jobs in U.S. IT has rebounded to the highs
of 2001. (see “Reliving the summer of 2001” in InformationWeek)
If they had, we would have heard a completely different type of
“Giant Sucking Sound”… a whole lot of people holding their
breaths while forced to ask themsleves “If outsourcing is the
awful bogey man I believe it to be…then WHY ARE THE JOBS STILL
HERE?”

U.S. IT moves in cycles. 2001 was the height of the excesses of
the dot com bubble (remember when people wouldn’t take a new job
unless they got a 50% raise AND could bring their pet in to
work?). And what goes up unfortunately must always come down.
But when people lose jobs, the pain is real, and human nature is
such that we need to blame something or someone for the
injustice. And who is a more convenient and defenseless
scapegoat than foreigners who can’t speak for themselves or
defend themselves?

You’d think we’d know better about foreigner scape-goating.
Remember when the Japanese were buying up marquis U.S.
properties in the 1990s like Rockefeller Center? Everyone
predicted they were going to own the country. That never
happened. Their real-estate bubble busted, they had to leave
town and haven’t been sighted since. And you’d think we’d know
better from history about making simple assumption. In the
1700’s, the English gave themselves premature coronaries,
because they obsessed over the fact that they couldn’t grow
enough trees to power the wood power plants. The invention of
the coal based steam engine propelled England into the
industrial age, and reduced the dreaded “wood shortage” to a
historical footnote.

Outsourcing HAS had an effect on U.S. I.T. but it has NOT been
what the convention wisdom predicted. And understanding it is
the key to having a real understanding of outsourcing.

The survey data shows that there are about 16% less programming
jobs than in 2001. Everyone knew that heads-down coders would be
affected by outsourcing (although that isn't exactly true
either...something we'll examine further in another blog). On
the other side of the ledger, I.T. management jobs have
skyrocketed about 20% (70,000). Almost no one realized that
those jobs would explode and practically offset the loss in
programmers. And a person managing work tends to be paid higher
than the people actually doing the work.

Where did these management jobs come from? I call it
“Affordability Magnification”. Say you’re a typical IT manager
in a small to midsize company with a budget of $1,000,000 for
programming. Before outsourcing you ran 4-5 projects a year. Now
those projects are just 1/10th the cost. If you still run 4-5
projects, you are going to have a ton of money unspent at the
end of the year. The CFO would be more than happy to take it
from you and give it to some other department next year…so you
can’t do that. Instead, you’ll of course spend every last dime.
And you’ll run 40 projects and hire a bunch of new project
managers to manage them. And that is what we are seeing.

To those who think this is a surprising idea…I recommend a trip
to library (or Wikiopedia) and a quick read of economics 101.
Outsourcing is based on free-trade, and free trade predicts that
when 2 countries trade…BOTH benefit, not just one. This is
counter intuitive for all the reasons mentioned earlier. But
free-trade predicts that people in each country will realign
from jobs that the country can do less efficiently, to jobs the
country can do more efficiently. And that makes both countries
stronger. And that is what we’re seeing.

Yes, this does mean pain and problems for those affected…some
of whom have invested years of training. And as a society we
should be helping those people with benefits and retraining. But
we also need perspective as well. Just like the economic cycle
we talked about earlier…this is a cycle and not a novel thing at
all. Disruptive technology is constantly displacing old
industries as it creates newer and better ones. How many 8-track
cassette engineers do you know of? Are any groups pushing for a
ban on CDs to protect this specialized profession? And this
cycle isn’t even unique to our century. For centuries, scribes
(people who could write) were prestigious and highly paid for
their advanced skills. But when the printing press was invented
and took off in the 15th century, the scribe felt the pain of
sudden unemployment. The cost of books dropped by a factor of
300, scribes made the shift to other professions, and society as
a whole is more literate and better off than it was before.
Today, there is no “scribe in America” program that advocates
the banning of printing presses to protect the health of U.S.
scribes.

So anyone that says that outsourcing has caused some
unemployment is correct…and some heads-down coding jobs have
left the U.S. for good. But anyone who says that outsourcing
hasn't also created new jobs, and is somehow unpatriotic because
of it...is simply uninformed.

Ian Ippolito:
Ian Ippolito is the the creator of http://www.RentACoder.com ,
an open marketplace for computer programming where 2/3rd of the
parties choose to outsource internationally. It has been studied
by universities such as American University to learn more about
outsourcing.