Anyone Want to Play Ball With Me?

Even though it may appear that this post runs along much the same lines as my last two or three, I should warn you: appearances are sometimes deceptive. The origins of what I want to say here stretch back in time two or three days to some comments I made on an earlier post and a subsequent piece which I have entitled the ‘Pele-Ronaldo’ effect. Surprising as it may seem, the topic here is only tangentially football. The real topic is the so-called brain drain, and how our initial intuitions may mislead us. The aforementioned effect is associated with the apparent detail that all those Brazilians ‘heading the ball’ here in Europe have not notedly had a detrimental effect on the rate at which Brazilian football produces outstanding new stars. In fact quite the contrary.

Now here’s the rub: just think of all those Indian IT ‘stars’ working at NASA, Microsoft and the like, and try to imagine the consequences back home in India. Well then try to imagine the consequences of the secondary effect in India on the employment situation in the US and now increasingly in Europe, and we get to the point of all this. We are experiencing a phenomenon which some are calling ‘hollowing out’. This has been noticed in the first place in the US, but with the EU structural reforms, and the relatively high euro, this tendency is going to make itself felt more and more over here. So this is the purpose of the post. To find out what people think.

Below I am reproducing a letter Stephen Una Bandiera Seza Segni George sent me in response to the Pele-Ronaldo point (by a strange coincidence he is currently working in Brazil). Now before everyone rushes to criticise me, I am familiar with the lump of labour argument. But this isn’t what is in question here. The US and European labour market problems are increasingly structural in my opinion. On both sides of the Atlantic we are capable of creating more, many more, jobs than we do at present. But what if these jobs involve a move down the value chain? That is the question the coming ‘boomer retirement’ in the US and Europe and the arrival of ‘high-end outsourcing’ is posing, and it is the one which Stephen is asking. It think it needs answering.

You have approached in this discussion a lot of the concerns that I have about the outsourcing revolution. You’ve made it easier for me, as a non-specialist, to ask some further questions about my doubts that refuse to go away.

One of my concerns was with those left behind. My comment was that a $120k MIT education goes wanting. And I acknowledged that, actually, it probably doesn’t, but the effect probably ripples through the economy so that some guy somewhere with a $60k State Uni engineering degree can’t find a job. The marginal US engineer whose position just went to India for $15k – he’s out there, doubtless.

The number of jobs that the US economy will be short…are these jobs not just being outsourced to others? Those ‘good jobs’, as I think of them, aren’t being replaced with new economy good jobs. Maybe as the boomers retire, they just aren’t replaced, or are replaced by others offshore, at a fraction of the cost. Maybe they represented an overhang on unraveling the “productivity paradox”?

Did you see last week how the UK Network Rail was planning to outsource National Rail Enquiries? At what point does the cost savings just not justify the hollowing out of a nation’s workforce any further? These are ‘just’ call centre jobs, but I reckon every one of them would be missed. Rotating these people into other responsibilities just masks the idea that there is less work within the economy – and less work that actually serves the UK economy – for UK people to do. But I digress.

Sure, there are places for some in the hierarchy. But I suppose not all. And not for the kind of money they were earning before, most likely. We all just become ‘resource managers’ (if you have occasion to use the Amazon help system, you’ll notice replies from the likes of “Kapil Sehgal”, “Pankaj Sharma”, “Nitin Jain”, when you have a “cut and paste” answer, but when it comes to something complicated, “Karen Richardson” steps in. All real names from my correspondence with Amazon customer service, so anecdotal, of course – could just be three nice guys from Birmingham).

Next, the idea of profits coming home. Are those profits really recycling through the US economy, or only into the coffers of the “US” corporations that are benefitting from them. Then what? They aren’t employing US employees, so to what extent should they rightly be seen as US corporations from the workers’ perspective? What exactly happens to that $143 that comes back?

– dividends, to the owners? are these, generally, spent, or do they accrue sidelined in the hands of the wealthy, relatively lightly taxed by new (thankfully ‘sunset’) tax legislation. I suppose that a goodly tranche of dividends paid actually winds up in American pension system, so at least they might be captured for the present, presuming the
shares they are used to buy can maintain their growth momentum to justify the share prices. But that’s another story. And what of offshore owners? Probably a small percentage of the US equity market.

– taxes? I would suppose that this could at least ensure that they recycle into the economy, but the current US government seems not to be interested in “tax and spend” to generate economic activity.

– growth? Where? Not domestic, I would argue. Hearing Intel’s Andrew Grove speak out about the threat to the economy posed by outsourcing is a little ironic, don’t you think? I don’t know, but I don’t suspect Intel is investing much in the US these days. Probably most of their mfg for years has been built in Asia. “We did it, but you should wake up before everyone else does it!”

The coming wave of boomer retirements interests me enormously. As a person in my mid-30s, I am wondering about opportunities this demographic might create. My father suggests becoming an estate lawyer, which is a pretty good idea, actually. What about a surge in purchase of retirement property? What will the US, or Japan, or W. Europe look like when this comes to pass? “Neutron” cities, where these enormous prices can no longer be sustained? I reckon my own neighbourhood in London is starting to turn over in earnest, judging from some of the places I looked at when we moved there.

I am all for competition and creative destruction. I just argue that the US isn’t thinking very strategically here, and that the government is almost intentionally letting this happen as a backdoor way of cutting costs and globalising the workforce – avoiding paying their share of the costs. The idea of the jobless recovery rings true, but it has to come from somewhere, no? I hate to indulge in conspiracy thinking, but a part of me can be persuaded that the Bush administration really does have at heart the idea of letting their cronies and financiers rake in as much as they can now, then letting the whole mess crater while they live on within their gated communities. Then “hoi polloi” can vote Democrat and let them put up the taxes so everyone feels the pain all the more. The suggestion that the Bush Administration tax cuts are actually good for the economy only helps to fuel these speculations in my mind.

What happens to the Social Security deficit when the “good jobs” migrate and there aren’t enough other jobs left in the economy to prop it up? How many “bad jobs” will it take to fund one “good” retirement? How many “bad jobs” will just slip off-radar into the informal economy?

My other question: what happens to the structure of American education when those who pay for it find themselves unemployed at the other end? Some kind of expectations compression? Those of us on the other side, who have no debt, can treat education like a sunk cost. I can work for peanuts if I want to, or if I have to, or if I can find a job. Those coming up to prop up the system – will they have such a luxury? Will the system itself survive in anything like its present form?

I never had a problem with the influx of talent, if the market will bear it. The likes of Ronaldo are actually good for Brazilian football the way any overseas worker is good for the folks at home in the low-wage country. All the better that he is not being exploited, and brings up Brazil’s street cred in the world. Where the Ronaldo analogy breaks down to me is in what happens when the talent goes home and takes the ball with them. In the analogy this
doesn’t happen, exactly. Pele just came home and became an advertising icon. Maybe a better analogy here is relegation – what happens to a Premiership League team when they fall from the League? My own “home team”, Wimbledon, may serve as an example. Revenues fall. Gate receipts fall. Salaries *must* fall. In the case of Wimbledon, oh, where are they now?

I think of the US workforce as relatively inflexible in their expectations; the American university system that raises them relatively unable to “retool” to produce less-costly, lower-trained, more specialised workers. Isn’t that what this argument of a structural effect comes down to: the whole economy must react to the loss of this sector of employment?

I would argue that this is where Americans should be most concerned. Do (we) want to surrender our standard of living, our education system, our state benefits (however meagre they may be by European standards)? Does this kind of growth improve our economy? Is it, in fact “domestic” product at all?

I think the visa programme is a red herring and that the two phenomena are only tangentially related. White collar job flight – it’s the opposite of brain drain. The brains are still here, earning less, standing around wondering what they’re s’posed to do now. Milton Keynes, anyone?

From Brazil, where as a Yank working for a UK company under contract to a Brazilian one, I no doubt occupy a very hypocritical desk of my own.

24 thoughts on “Anyone Want to Play Ball With Me?

  1. Well I stopped reading at about the time the author made a point about ppl with funny names being incompotent, and some with an anglo-saxon name being, of course, compotent.

    Personally I think the trend of outsourcing overseas is a good thing, it moves money from rich countries to poorer ones. But alas it suffers from the same problems as outsourcing in general, that is, the outsourcers tend to get very good at sucking money from the client, and the loss of control in projects done by outsourcing can be quite harmful.

  2. The point the author was making was not IMO that brown people are less competent than Anglo-Saxons, but the fairly self-evident observation that in any service industry outsourcing can provide generic assistance just fine, but if more personalized or specific the assistance is required, someone directly familiar with the customers can offer better service.

  3. To get to the actual subject at hand, I’m not sure what exactly is being addressed. So I’m going to write about what I *think* is being addressed, and if the following verbiage is way off the mark, please ignore it 🙂

    “Creative destruction” as the economists like to say, provides long term general benefits, but in the short term specific groups always get screwed. It’s cold comfort to laid-off coal miners or steel workers that the collapse of their industry is a boon for the economy as a whole.

    In this case we are witnessing the fact that certain white collar service industries (IT, call centers) are undergoing “creative destruction”. On the one hand this is a relatively new phenomenon; on the other hand the service industry has grown from a negligible percentage of the economy fifty years ago, to the largest sector, so it’s unavoidable that the scythe would sweep through it sooner or later.

    It’s certainly tragic for those involved, no doubt, but I don’t see that it fundamentally differs from similar events in blue-collar industries.

    As for the brain-drain effects, I would note that the electronic industries suffered much the same problems in the 70’s and 80’s, and the semi-conductor industry in the 90’s. I seem to recall much doomsday predictions in the West by people worried that the rise of high-tech industries in the Far East would decimate the West’s intellectual capital. I recall American tales of hard-working Japanese taking over the world while US youth frittered away their nation’s Great Innovative Past with en-masse liberal arts studies.

    So far the technological rise of the East hasn’t proven to be a zero-sum game to the net detriment of the WEst, although workers laid off from print-plate assembly lines may think otherwise.
    I think this will be no exception in the long run, although those personally affected may not be so enthusiastic about the net benefits.

  4. With a collection of examples that emphasise English-speakingness, and a correspondent who apparently thinks protectionist legislation is a viable alternative to the future for America, this is pretty marginal for an allegedly European blog: I’m willing to bet amazon.fr’s customer support isn’t going to move out to India any time soon.

    Stuff that can be done cheaper abroad will be, and the Internet increases the range of things that can. Happily, I couldn’t care less what people think about this, but I can fearlessly announce that the long term implications of it are not clear to me.

  5. “thinks protectionist legislation is a viable alternative to the future”

    Are you talking about me, I hope not, I’m a convinced free trader, and I want to see the rise and rise of the third world. I just want to know how people are thinking of addressing this problem, which new sectors are we thinking of getting into, for example?

    “I’m willing to bet amazon.fr’s customer support isn’t going to move out to India any time soon”

    No they’ll probably be off to Bulgaria or Rumania.

    “it moves money from rich countries to poorer ones”

    I’m absolutely with this.

    “service industry has grown from a negligible percentage of the economy fifty years ago”

    Yep, but we’re not talking about most of the service industry here, just the high value end. The service industry in labour intensive work like care of the aged, cleaning homes will certainly grow etc, probably to be done by unskilled immigrants coming in. The point is this is not luddite machine breaking, the machines are moving leaving the handloom weavers. This is what is different.

    The next move seems to be biotechnology, and, of course, don’t forget Bollywood. I’m not against, I’m only saying our societies are going to see important structural changes: Europe as much as the US.

    The US was thinking of patents and the protection of intellectual property (I guess that’s one type of protectionist legislation). But look at Huawei and Cisco, they settled out of court to what appears to be Huawei’s advantage. Copy protection doesn’t seem too effective, so I’m asking: where’s the leverage?

    I’m putting Stephen’s point because I have the impression that a lot of readers here work in IT, and I think it’s interesting to get some discussion going.

  6. Just to point out, pedantically, that in order for your effect to catch on, you will have to change its name. Pele spent all the most productive years of his career playing for the same team, Santos, in Brazil, never played for a European team. In later years he went to play in the US for a couple of years, but only after being lured out of retirement.

  7. Martin, you’re absolutely right, on both counts. Pele did stay in Brazil and only later go to the US. And you are (I’m sorry) being a bit pedantic. He did start the ball rolling, now we have Ronaldo, soon we will have……..

    To make a more serious point of this: people have conventionally named this property the ‘star system’ effect in ‘increasing returns’ processes – you only get one Amazon, Microsoft etc. The fact that there is a kind of ‘power law’ (fat tail) distribution to many of these things (like blog visits!) entails a another property that few have actually thought about – that many are called and few are chosen (the second Mathew effect?).

    This means that when there is a grid failure (using the power blackout analogy to describe the Nasdaq failure) the multitudinous nodes do not remain switched off, but start to move on their own account, and in so doing generate a new structure. That is ‘what just happened’ in India. I don’t know if people realise this in Europe yet, but as of August half a million less people were working in the IT and computer network industries compared with August 2,000.

    Maybe people are ‘laid back’ because this is still ‘next years problem’ here in Europe: maybe it is, but it will come.

  8. “made a point about ppl with funny names being incompotent, and some with an anglo-saxon name being, of course, compotent.”

    I’m not of course endorsing everything Stephen says or the way he says it. I just think his concerns are legit, and that people should be thinking. I just got some feedback from my son in the UK:

    “Incidentally I know you are interested in India at the moment so I was having a chat with some of my bengali mates and an interesting note cropped up. The best example i can give is the call centre.

    In england when you call your Bank, or IBM computer customer services departement, or insurance company etc etc what you are now likely to experience is a re-routed call (via broadband) to the Indian Subcontinent where there is a building full of Indians sitting up through the night taking your calls (all fluent in English of course and probably getting good money for it.. but of the income side I can’t be sure). Now they are doing pretty mundane jobs that over here would be done by your average jo-bloggs high school drop-out (more often than not). plus these jobs are infact considered very stressful over here. However back in India the average employee in one of these centres is fluent in English and requires a university degree course of some sort. I thought that this was pretty interesting as even though these (highly educated) people aren’t leaving India to go overseas they are still doing pretty shit jobs for british multinationals (and british customers)..? The effects that this will have on the indian economy and labour market I don’t know (although obviously I have ideas) and the thing works two ways as the idea is that by having these call centres over-seas you transfer savings to the customers (which of course puts more money in their pockets… but lets not forget about the moronic high school dropouts who are now job-less… or whether any of that is infact true). I’m not sure if this will all turn out to be a lose lose situation a win win or a win lose? and I’m certainly not saying the development of the Indian economy depends on the ephemeral call centre (but then again….. ha ha)

    One more little point is that all these Indians have to use different english names while on the phone line… so while at work Sachin Singh lives out the life Of Steve Irwin the mild mannered English Gentleman helping out his fellow global citizens!”

    So be careful, Karen Richardson may well be the one in India, and Kapil Sehgal, Pankaj Sharma, Nitin Jain etc may be the UK high school dropouts who don’t want to be recognised by their mates doing the routine cut and paste. Stereotypes normally lead to blindness.

  9. Edward,

    “Stereotypes normally lead to blindness.”

    Quite so. I know just what you mean. Unfortunately, much of the social sciences, advertising, marketing, psephology, politics and government policy only work with stereotyping at their core.

    Remember the “rational agent” or “skilled versus unskilled workers” in economic models or segmentation in maketing or targeting “floating voters” or “affluent consumers”, and then we get to the proletariat or the bourgeoisie, class enemies and the Soviet policy, introduced in 1929, of “eliminating kulaks as a class”. Affirmative action policies depend on treating people as members of a category, not as individuals. Financial markets distinguish between Blue Chip stocks and the rest, between “junk” and other bonds and more.

    Arguably, we are unable to make sense of the world without stereotyping and the issue comes down to what constitutes fruitful stereotyping and what doesn’t. The only clear guidance is the Chicago line – the validity of a theory depends on its predictions or explanatory power, not its assumptions.

    It happens I think stereotyping people by race and class is particularly crass because the variations around means are much to wide to make such distinctions useful tools of analysis. But it is the case that susceptibility to sickle-cell anaemia does relate to race so it is foolish to deny that. I could name two district councils in England which regularly feature near the bottom of the education authority league table based on school-leaving exam results where the 2001 Census reports the local populations to be at least 97% white, which is significantly below the national average and far below the percentage for London. In the local elections in May, the BNP candidate came second in the poll in our Home Secretary’s own constituency, ahead of the LibDem, Conservative and Socialist candidates, in that order: evidently, voters with “nationalist” sentiments there outnumber by a margin those with any residual “socialist” aspirations.

    On the substantive questions about the downstream economic consequences of migration and outsourcing, we are threading deep waters. A flurry of high-powered research papers in the mid 1990s sought to unravel whether and how international trade liberalisation affected income distribution in America – a useful brief on that debate is here: http://mail.tku.edu.tw/113922/DL/Cline1999.pdf

    On outsourcing we can note and puzzle about two contrasting facts: (1) Dell are back on top as the market leader in selling PCs, Dell famously having gained its standing by the vertical integration of distribution; (2) in the research into the competitive edge of the Japanese motor manufacturers, it emerged that the leading companies were significantly less vertically integrated than the leading American motor manufacturers. On a superficial take, there is evidently no simple rule that either vertical integration or outsourcing are necessarily commercially advantageous. Plainly, it all depends – but on what?

  10. I didn’t know that Dell made it’s own harddisk, mobo’s cases, software, processors, laptops etc. ?

  11. I can’t make Factory out. A couple of weeks back s/he was complaining about posts in French, now references to accents turn him/her off. I think I’ve already made it plain that I don’t have problems either with accents or with skin colour, but I still try to listen to what is being said.

    One interesting link from the US someone sent me is here:

    http://edstrong.blog-city.com/read/323700.htm

    I have already commented at length (you can imagine!) there. But one detail is worthy of note, and it relates to the notorious Singapore issues. One ‘hot topic’ was opening procurement. Well, if you look at what is happening in the US (and I’m sorry this is NOT a US-only issue, it is an OECD issue) you will see that ‘procurement’ is becoming an ‘issue du jour’. Take Shirley Turner, eg:

    “After Shirley Turner, a Democratic state senator from New Jersey discovered that a program from her state, Families First, which provides welfare recipients with grocery debit cards had been outsourced to Mumbai, India, she proposed bill No. 1349.

    Her bill, which was approved unanimously by the New Jersey Senate in December 2002, would require all state contracts to be performed by either US citizens or foreign citizens who work legally in the United States.

    Following her lead, Connecticut, Maryland, Missouri, and Wisconsin all have similar bills under consideration.”

    Equally, to understand just what crossroads the US is standing before right now, I strongly recommend this piece from Niall Ferguson (which was in the NYT) and which I posted in-full on Bonobo:

    http://www.bonoboathome.blogspot.com/2003_04_13_bonoboathome_archive.html

  12. Following up and pushing, Dutch free-trader and China blogger Fons Tuinstra is going for this like I am. He is in a position to know something , he is in Shanghai. He gives this link on the US, and believe it or not, palm:

    http://www.washtech.org/wt/news/legislative/display.php?ID_Content=4624

    He also has a couple of nice pieces on China itself:

    “Yet another signal that China will be hitting the services in a hard way. McDonalds asked Leo Burnett China to do the commercial of their new slogan in a host of languages, writes the Far Eastern Economic Review today. (not for free available).The paper writes: “In McDonald’s history, all of our creative direction was led by America. But we now said: “Let the best ideas win’,” says Larry Light, the global chief marketing officer of McDonald’s. And in a competition for pitches from ad firms from around the world, China came top with half a dozen ideas. The competitors even voted the China team the most imaginative of McDonald’s global network.”

    “It’s the services, you stupid!

    While the US manufacturers keep on complaining about unfair competition from China, the real battle for jobs is taking place in the service sector, today again the HSBC shows. An article in the Wall Street Journal says that the banking conglomerate will shed 4,000 jobs in the UK over the next three years, because work is going to India, China and Malaysia. No low-end jobs, but data processing and call centers, mainly backoffice work.

    I have visited in the past one of the HSBC data processing centers here in Shanghai. While the work in itself is very repetitive and even boring after say, ten minutes, you do need rather good English skills to grasp the meaning of the forms and letters you have to deduct the data from.
    Calling centers seems more a thing for India, although I have heard stories that also neighboring Hangzhou has some of them.”

    Fons blog is here:

    http://jobdebate.blogspot.com/

  13. “I stopped reading”

    I’m sorry to keep coming back to you factory, but I think you’re being intolerant. Stephen hasn’t come in to defenc himself, but if you had gone over to his blog, you’d have found him saying this on 12 september:

    “Via Slashdot I came across a pretty frightening series of articles about IT outsourcing. The Slashdot discussion featured one Daniel Soong, who found himself out of work and his job being outsourced to India.

    I wouldn’t care to get into the India issue, as so many of the Slashdot respondents were so eager to do (it got pretty ugly at times, actually). Why pick on one country that’s doing something well; taking advantage of the opening in the global labour market. If not India, someone else will step into the fray…Russia, Bangladesh, Brazil.

    No, rather, I would like to think about what’s wrong with this picture from the American establishment’s perspective. Companies seem to be in a “Friedman”ing frenzy to outsource jobs in order to improve profitability. In fact, the more I thought about it the more it made my head spin.”

    The rest of the post makes good reading.

    http://www.bandiera.org.uk/2003_09_01_blogarch.htm#106339502926065587

    BTW Stephen lives and works in Brazil, where I guess you can also find quite a few “funny sounding” names.

  14. Edward – But it is not any or all high-end service jobs which could be moved out to lower-cost countries (like India?), only those where the output can be produced remotely and delivered online and where (IMO) it is feasible at relatively small cost to supervise the quality and timeliness of the output. It won’t be advantageous or feasible to transfer jobs where a personal presence is necessary and/or where personal contacts or local specialist supply points are complementary. For example, while semiconductor chip design or software development could be outsourced to lower cost countries with under-employed and lower-cost but high quality professional skills, many medical and expert culinary services could not be.

    I think the fruitful lines of discussion are in: (1) what particular services presently supplied in-house by companies could be outsourced, and (2) which of that sub-set could be supplied remotely for delivery online.

    There is nothing especially novel about remote outsourcing. From when I used to work on motor industry issues, motor manufacturers have moved to outsource not just transport of newly produced vehicles to points of sale but also very-high end vehicle design work, previously produced in-house.

    There have been cases, at least as far back as the early and mid ’90s, where hugely successful Japanese motor manufacturers commissioned vehicle design work from specialist design companies located in Britain. Indeed, one of the many paradoxes of Britain’s motor industry is that it seems to be much better at vehicle and engine design than vehicle assembly. OTOH Britain does have a strong competitive edge in both the design and making of grand prix racing cars to the extent where leading motor companies have transferred their “racing stables” to Britain to tap into local specialist suppliers of services and components. All that is jeopardised by the impending ban of motor racing sponsorship by the tobacco companies – which is why the Blair government postponed application of the ban.

    There is also a well-trodden path of Hollywood movie producers contracting out computer special effects to specialist suppliers in Britain – although that was from times of the strong Dollar.

    Notoriously, many companies have hived off PR and lobby work, in addition to advertising, to specialist suppliers but I can’t see much of that being transferred overseas, except perhaps to Brussels, of course!

    Btw the outsourcing issue can be traced back at least as far as Coase’s paper in 1937 on: The Nature of the Firm, if not to Adam Smith (1776): “the division of labour is limited by the extent of market,” via external economies in supply-chains in Marshall’s Principles.

    c – “I didn’t know that Dell made it’s own harddisk, mobo’s cases, software, processors, laptops etc. ?

    As best I know, Dell doesn’t and I wasn’t claiming that. Apart from being market leader as a supplier of PCs, Dell is famous for having virtually pioneered the forward integration of distribution with PC assembly, thereby capturing the retail margin by cutting out the vendor middle-man between the producer and end buyers – and recall Dell now supplies more PCs to the corporate market than to home users.

    There seem to be several additional factors contributing to the company’s competitive edge, including just-in-time manufacturing to order with the capability that creates for maintaining low inventories, as well as spending relatively little on R&D for a leading “technology company” – the R&D work is mainly done by Dell suppliers, like Intel or the hard-disk manufacturers. Dell is often upheld as a model of how a manufacturing company can best exploit IT to gain competitive edge, which seems to me the genuinely newish and altogether more frutiful issue here than outsourcing online to low-wage countries.
    Exploitation of IT has been crucial in gaining competitive edge in grocery retailing – eg Tesco in Britain and Wal-Mart in the US: “Wal-Mart is the biggest purchaser of China’s goods, buying so much that if the Arkansas-based retailer were a country, its $US12 billion in purchases from China would have made it the Asian nation’s eighth-largest trading partner last year, ahead of Russia and the UK. . . Wal-Mart’s trade with China is a one-way street, making it responsible for about 10 per cent of the US trade deficit with China.” – at: http://afr.com/articles/2003/07/08/1057430201039.html

    Question: If Dell could gain competitive edge by integrating distribution with PC assembly, why haven’t motor manufacturers similarly integrated point-of-sale distribution with motor manufacturing?

  15. Dell isn’t a technology company but a distributor and if you look it in that way then it isn’t that pioneering

  16. C – Dell assembles many of the desktop PCs it sells and the business press makes the points about Dell being a “technology company” despite being a low spender on R&D.

  17. It is a bit long ago but if i remember correctly nothing in the definition of distributor says that it can’t do some simple assembly. In fact i think it says that a distributor can do some simple assembly and assembling a computer is dead simple so Dell is absoluty a distibutor and not a manufactorer.

    Technology company just expresses in which field of business the company works, not were it expertise lies

  18. “But it is not any or all high-end service jobs which could be moved out”

    Obviously not Bob. But in an evolutionary sense we are moving towards information. This was the point of all the ‘weightless economy” stuff that was so popular in the late 90’s – every year the US GDP weighs less. The labour intensive part of services stays. This is my point. But since this labour becomes relatively expensive, there is a pressure to find tech solutions to outsource.

    Take medicine. Soon we are told we will all have a card with our genome data. Question is, do we need to sit face to face with a doctor to get it read? The NHS is already getting into this slowly. My son tells me in Manchester some aspect of blood sample analysis is already done in India. All the radiography analysis work can go. He even makes the point that the NHS have been discussing outsourcing waiting lists to France: a much better bet might be to Eastern Europe. Invest in hospitals, fly the patentients in an out, and give them the op for a fraction of the cost. I’m only half joking. The Indians are trying to interest US health insurers in doing this.

    Another point: the non-EU part of Eastern Europe is absolutely crawling with underworked scientists. The Indian president’s visit to Bulgaria last week is an indication of this. They are anticipating so much work that they may find bottlenecks in some areas, so they are looking to ‘secondary outsource’ themselves.

    Now, even if it seems so, this is not meant to be an alarmist rant. It is a wake up call. I am not advocating protectionism. I am not saying everyone’s jobs are going tomorrow. But there will be important consequences. The reason for the move is price. The reason for the price differential: they have been so desperately poor, and the world so extremely unequal. Now the proverbial s*** is finally hitting the fan. There is going to be a correction.

    Why can’t people see this? I have a feeling it’s because of a collective ‘soft racism’. The third world countries tend not to believe it, because they’re so accustomed to the OECD crowd being better. The have a kind of inferiority feeling. The left can’t see it, because capitalism HAS to condemn these countries to being poor, that’s the reason for being on the left, someone needs your help. If they could do it alone this wouldn’t work. And the right can’t see it because they’re patriotic (or worse outright racist) and can’t believe that all these yellow, brown and black people can ever present a threat. So there you are. Nobody sees it coming.

    I’m not getting involved in this too much, but the Dell argument does have a point: EU and US companies can ‘hollow down’ to being Nike-style branding outfits. And don’t forget, with the artwork and image coming from China. Until Fons brought it home to me I’d entirely forgotten, but hasn’t anyone else noticed: Chinese art seems to be the ‘next big thing’.

    Finally, don’t be complacent on the ‘US only’ factor. The US may well have employment problems internally, but their corporations will be lean, mean and hungry. So just watch this space. I may not be working here next week!

  19. “Soon we are told we will all have a card with our genome data. Question is, do we need to sit face to face with a doctor to get it read? The NHS is already getting into this slowly. . .”

    You’re absolutely right, Edward, about medical support services going online but after reflecting, the potential was there with the Royal Flying Doctor Service in Australia, started back in 1928.

    Patients in the outback would radio in to discuss symptoms with the doctor over the air and he would fly out to a local airstrip if the symptoms sounded sufficiently serious and incapacitating for him to make a home visit. Otherwise, it was advice by radio and prescriptions dispensed by post. Lower cost and more dependable telecommunications means that more diagnostic services can be performed remotely and patients can now fly out to see the doctor instead of the other way round. From what I’ve read, a few are now suggesting the possibility of remote surgery to avoid all the flying about. A patient could visit a local clinic and go on the operating table there for a robot guided by a remotely located specialist surgeon to do the difficult bits of an operation. A step further on and the robots would have artificial intelligence thereby reducing the need for expert human intervention . . .

    Since clever computers can now beat even the best grand masters at chess that looks to be technically feasible and I suppose would represent an ultimate realisation of that adage for the Info Age: Think Global, Act Local.

    The fundamental is that reducing barriers to trade and capital mobility, coupled with declining transport and communications costs, are changing market opportunities and we need to think through the implications pretty sharply and soon. Some high-end services can be readily sourced online from remote, lower-cost suppliers and part of that sub-set will be. What’s more, I can’t think of anyway of stopping that absent governmental controls on Internet traffic, a thought which has already occurred to some with power.

    As you know, I’m none too inclined to award laurels to Tony Blair – and still less to IDS – but Blair was right about the priority of: Education, Education, Education. In the last resort, the value and quality of the services we can individually put on the job market depends on the skills and knowledge we have individually gained and can apply. The jobs most vulnerable to online transfer will tend to be those routine, low-skill jobs in all the call centres set up with government assistance in areas of high unemployment. The irony is that on the October official unemployment stats, London now has the highest unemployment rate of all the standard UK regions. Mind you, those campaigning to move some of the remaining 20% of civil service jobs out of London won’t mention that – nor that London taxpayers are contributing about ?20bn more a year to government reveneus over government spending in London.

    Britain’s first census was held in 1801 – the year Pitt resigned as prime minister in the middle of the Napoleonic Wars. Suppose some outstanding demographer had said then that Britain’s population would treble over the next hundred years, as it did. A likely question in the Commons would have been: But what employment will there be for all those extra souls? That would have been difficult to answer – there were no railways then, nor steam ships made of iron and steel, hardly a chemicals industry and certainly no gas, electricity, telephones, motor cars or aeroplanes – and there wasn’t much effective medicine either beyond vaccination and a few herbal remedies, like foxglove leaves for digitalis. Doubtless, some loon would have called for a National Plan.

    C – Thank you for your explanation about Dell, all of which must account for how a company, founded only in 1984, came to have the leading share of the global PC market by 2001 and is currently ranked 33 by market capitalisation in the BusinessWeek Global 1000 for 2003: http://www.businessweek.com/pdfs/2003/0328_global1000.pdf

  20. “But what employment will there be for all those extra souls?”

    Bob, a parrallel does occur to me here with the energy depletion debate. We don’t have to run out of energy, there is nothing pre-determined. There may be a new technology just about to come on line (BTW the Chinese may be working quite seriously on alternative energies, they have a direct interest) there may be, but we have no guarantee.

    The same goes for the jobs market. There may be relief in sight, just around the corner – there are a lot of technological factors we can’t forsee, but we don’t know, and there is no guarantee.

    BTW II: in 1801 Britain had a major population explosion lying just out in front. Today we face declining and ageing populations. It is the confluence of these two, high-end outsourcing and ageing, which get me scratching my head. This, I think, is the unravelling K should be worring about.

  21. Dell has a very large market share in very big market and you would expect a company to have a big marketshare in a product that is so uniform and this also leeds to a big market capatalisation.

  22. “..left can’t see it, because capitalism HAS to condemn these countries to being poor, that’s the reason for being on the left, someone needs your help….. And the right can’t see it because they’re patriotic… So there you are. Nobody sees it coming.”
    I think Edward hits the mark (again): there is too much ideology in politics. (In Europe I blame the parties especially; in general is the media too).
    On the main topic -concern about but not opposing the shift of wealth and employment to poorer countries- I am with him too.
    I realised that the growth of foreign investments is a very important development but not the size of it until last week I read an article in the magazine of the scientific bureau of the Dutch social democrats: the writers cite the National Bank describing that between 1980 en 2000 exports rose from about ? to 2/3 of the GDP while foreign investments rose from 27 to 82% in the same years. It’s a very interesting article so now I am writing a review of it the net few days. A very interesting feature in relation to this discussion is the reference to Baumol’s disease. IMO it’s very sad that this phenomenon is called a disease; I owe it to the support (still) for Hayek’s concept of “road to serfdom”.

  23. Edward – Was up in central London yesterday, amongst other things to look around the big specialist bookshops, including the one next to your alma mater. I’ll swear the economics section there has got smaller, with a thinner selection, and the political theory section much bigger. Went in another bookstore in Charing X Road to find the economics section had been recently relegated to the back of the store where it had shrunk. In the place where Economics used to be is a huge Psychology section.

    It’s all a sign of the times, I fear. After all, economics really isn’t much use for political spin but psychology and political theory are. How long will it be before one of the newer universities includes a module on: Lying effectively, in the political studies vocational course intended for aspiring politicians? Dr Goebbels was a philosopher, not an economist. I really believe there are politicians in high places now who think that if they decide the political case for the Euro or burgeoning fiscal deficits or whatever is all that counts then that is the end of the matter as downstream economic implications are merely incidental. “All that matters is victory or defeat. If we conquer, the business world will be fully indemnified. We must not reckon profit and loss according to the book, but only according to political needs. There must be no calculation of cost. I require that you do all that you can and to prove that part of the national fortune is in your hands. Whether new investment can be written off in every case is a matter of indifference.” – quoted in John Hiden: Republican and Fascist Germany (1996), p. 128, from speech in 1936 by Goering, economics minister in the Third Reich.

    Psychology and political theory aren’t much use to companies when it comes to “Make or Buy” decisions or anticipating the outcomes from reducing/increasing barriers to trade and capital mobility coupled with declining/increasing costs of transport and communications. Nor on the commercial merits in corporate strategies of concentrating on core competences versus spreading risk – think Marconi.

    Not sure I’ve much to add to what’s been said on the implications of population ageing in Europe. There are the debates on the fiscal sustainability of state pay-as-you-go pensions versus funded pensions. I go along with the official rhetoric about extending opportunities for retirees to work longer. The trouble is that with some exceptions new EU employment rights tend to discourage employers from offering part-time jobs. Indeed, I suspect that was one of the undisclosed intentions wished on governments by trade unions, which don’t really like part-timers. In the “west” – unlike the “east” – we also have an increasingly youth-focused culture. As Kenneth Clarke likes to remind anyone who listens, Konrad Adenauer first became Chancellor in West Germany in 1949 when he was 73 and continued in that capacity until he was 87. As his term in office coincided with the German economic miracle, perhaps there is something to be said for age over inexperience.

    I think I can hear the very distant sound of chickens clucking on their way home.

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