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October 12, 2005
Offshoring -- changing the story line to make it look better
Apparently, the Commerce Department's big study of offshoring has come up as a bust. According to Business Week, the recently released report is nothing like the original staff drafts - Just The Bright Side, Thanks
After holding off for more than a year, the Commerce Dept. has quietly released a study of offshoring - the movement of white-collar jobs to low-wage countries. But it's not the even-handed assessment completed by staff analysts in June, 2004, after six months of research. The staff report was largely ditched, say outside experts who heard the staffers' views. Instead, these critics charge, Commerce political appointees put out a 12-page report that portrays offshoring as an unconditional boon to the U.S. economy. After BusinessWeek's print edition went to press on Oct. 5, the Commerce Dept. responded by saying: "In carefully developing the report, we sought to ensure that it was thorough, objective and that the competitive environment was properly assessed and supported by hard data."
Commerce has only released its final report to Rep. Frank Wolf (R-Va.) who ordered it up, but BusinessWeek has obtained a copy, as well as a slide show tied to the original research, presented by staffers at a conference last December.
The staff researchers' presentation gave both the pros and cons, comparing factors that favor U.S. high-tech job growth with those that favor offshoring. The official version dispenses with most of the disadvantages. Instead it points to pro-offshoring studies done by McKinsey Global Institute and uncritically cites data from a lobbying group that represents the U.S. subsidiaries of foreign companies. "No objective analysts, even if they were in favor of outsourcing, would write a report like this," says Ron Hira, a professor at Rochester Institute of Technology, who saw the December presentation. To see the slide show and official report, go to www.businessweek.com/extras
As part of the story, Business Week has a copy of the report, as finally given to Congressman Wolf, online and of the original staff presentation.
I found it especially interesting that the sanitized version of the report cites the McKinsey Global Institute study on offshoring, which notes the US trade surplus in services. However, as regular readers of this blog will note, last month I posted an analysis that showed the surplus in intangibles (royalties, license fees and business services) is actually declining (see July Trade in Intangibles)! Any study published today that lauds our wonderful trade in services is at best out of date and at worst laughable.
What makes this exercise especially sad is the Commerce Department's deliberate choice to ignore a high quality analysis, as indicated in the staff briefing slides. The staff presentation seems to be a good foundation for addressing the issue. The US retains many advantages as a location for IT work. Those advantages include a stable nation, no cultural issues with US clients, strong data security and privacy protection, strong IPR, reliable telecom infrastructure, strong skills and market proximity.
But, the analysts were not at all sanguine about the problem. The implications of the current trends in the industry of rapid diffusion, improved education and training delivery systems, improved knowledge capture and sharing systems are that technical skills are becoming a commodity ripe for faster offshoring. This reduces the number of US jobs resulting from US innovations as those innovations mature and diffuse.
I was especially interested in the slides discussing the US advantages and the characteristics of the work that would favor keeping it in the US or favor offshoring (more on this later). Such a discussion is exactly the type of analysis we need if we are to confront the issue.
Too bad the Commerce Department has apparently decided to take the "make-happy-and-hope-it-goes-away" approach. Just when we could use some leadership on the issue . . .
Posted by Ken Jarboe at October 12, 2005 8:24 AM
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Comments
See also the editorial in the San Jose Mercury News - We can't hide from downside of offshoring jobs:
"The Bush administration's practice of shelving sound research and discarding science that doesn't suit its political goals has been well-documented. Now it seems that Bush's people have taken this approach to the debate over overseas outsourcing of white-collar jobs to low-cost countries."
Posted by: Ken Jarboe at October 13, 2005 12:09 PM
the slides actually showed that offshoring has had little impact on most IT jobs...see my blog below ...not sure why the Commerce department chose to sanitize
http://dealarchitect.typepad.com/deal_architect/2005/10/offshoring_spin.html#
Posted by: Vinnie Mirchandani at October 17, 2005 11:46 AM