The Economist has a decent article to supplement my last blog entry.
Most of the drop in prices for PCs, mainframes and so on was caused by the relentless advance of technology; but she still thinks that trade and globalised production—all those Dell Computer factories in China, for instance—was responsible for 10-30% of the fall in hardware prices. These lower prices led to higher American productivity growth and added $230 billion of extra GDP between 1995 and 2002, equivalent to an extra 0.3 percentage points of growth a year.
The "she" in the above quote is a reference to Catherine Mann's recent paper that shows drastically reduced PC hardware prices during the 1990's are in part due to offshoring. Note that Mann's article is referring to productivity growth due to increased use of IT: this is still growth beneath the knowledge worker productivity "plateau" I was describing in my prior entry. This plateau also should be seen as a "slow growth" plateau, not an immovable object. It also is purely a qualitative theory, intended for provoking discussion.
This productivity "plateau" also is why I think you're seeing the Does IT Matter? controversy bubbling up: IT can only bring so many advantages, we need new human techniques to increase productivity. It just so happens, however, that I think such techniques may just come out of the IT world, whose fringe has a lot of experience with high performance teams.
Unfortunately, the Economist does include a sour raspberry:
As for the Indian threat, “offshoring” is certainly having an effect on some white-collar jobs that have hitherto been safe from foreign competition. But how big is it, really? The best-known report, by Forrester Research, a consultancy, guesses that 3.3m American service-industry jobs will have gone overseas by 2015—barely noticeable when you think about the 7m-8m lost every quarter through job-churning. And the bulk of these exports will not be the high-flying jobs of IT consultants, but the mind-numbing functions of code-writing.
To think that code-writing is mind numbing shows a complete lack of respect and understanding of what goes into such knowledge work. The analogy between a coder and a factory worker is a common one, but is a perfect example about why the mainstream collectively has zero clue about how to raise knowledge worker productivity: they're still stuck in scientific management's old methods.
One cannot set up a development shop in terms of tiers of archtects, designers, and coders, with coders being nothing more than "skilled labour", and expect to get the productivity advantages of the best teams. Nor can you expect coders to be in a completely different time zone. The communication overhead is tremendous in such a team, and agility (for changing requirements) necessitates decentralized decision making. This is a major constraint on offshoring IT software development jobs: for projects that have stable, well-known requirements, it can work. Otherwise, you'll want something as co-located as possible. Requirements change, priorities are re-ordered, understanding evolves. Software developers are organized around ambiguity, whereas traditional production is organized around physical constraints.
Alas, we may be quite a ways off from getting the mainstream to understand this.
This is in response to Bob Cringley's January 22 and January 29 articles on IT outsourcing, but can be read as a general set of musings on the trend of outsourcing to India.
I do not think outsourcing actually "hurts" the economy in the long run, but it does lead to a lot of uncertainty.
Paul Krugman has a very good book called Pop Internationalism that collects articles & essays about this; the book is easy to read and quite eye-opening. Countries are not corporations. International trade is not a zero-sum game. Competitive advantage applies to corporations, not countries. Sure, governmental policy has a major effect on the climate of business, with a major impact on the competitiveness of individual businesses. Most presidential economic advisers don't even understand this. Trade between countries is about comparative advantage, the idea that two countries can produce things and trade with each other and have more resources overall -- and it has nothing to do with any "innate" quality about the country that gives it a leg-up on a particular kind of work -- that's "absolute advantage".
The real issue for the American economy is NOT trade and outsourcing. It's productivity. Wages and productivity are linked at the hip, and America (and Canada's) productivity growth since the 1970s has been poor. This is why we haven't seen (besides a spurt in the 1990's) the productivity and resulting standard-of-living growth that we saw in the post-war years, and why inequality is becoming rampant: something happened circa 1970 that depressed our productivity growth.... I'd say it was point where manufacturing started its long downwards slide in importance, lessening the role of Scientific Management in generating productivity. At this point, the service and knowledge industries began their upward climb to dominance. The trade & outsourcing trend is happening primarily because of this low productivity growth, but the impact actually quite small compared to the domestic impacts of low productivity.
We are at a transitionary state with India. They have industries with productivity levels that compete directly with ours -- but very low national productivity, and hence low wages. We can exploit this and get highly productive, cheap labour.
How could this happen? Today's work is knowledge work. Knowledge is the central resource of our economies, more so than capital, natural resources, or labour. And it's unlike other resources -- it's easily transferrable through training, it's rapidly changing and gets stale, and companies can't control their knowledge -- it can just walk out the door. The above coincides with everything you've been saying: get rid of 100 programmers in a software company, and you've gutted the company's knowledge. But this also means that knowledge can be transferred elsewhere in relatively short order, to a place like India, and be just as productive, assuming the right economic climate (i.e. education + incentives) is put in place by their government and supporting corporations.
We actually know very little about knowledge worker productivity. We've been talking about the factors surrounding knowledge worker productivity for over 30 years (since Gerry Weinberg's Psychology of Computer Programming was released) and STILL don't have mass acceptance of this pressing issue, nor a truly shared understanding. We can't compete with India because we don't know how to sustainably raise our own knowledge worker productivity.
India has a series of language and cultural barriers (especially dealing with women) that will hamper its growth, but as their national productivity rises, wages will rise, and India's productivity advantage will wear off. But this will take many years. The solution is not to prevent outsourcing - that's a stop-gap. The long-term solution is to improve American knowledge worker productivity.
When it comes to knowledge workers, we pretty much hire smart people and leave them alone. No quality measurements, no Six Sigma, no reengineering. We haven't formally examined the flow of work, we have no benchmarks, and there is no accountability for the cost and time these activities consume. As a result, we have little sense of whether they could do better (Davenport, 2003).
This isn't something the government can control, though it can provide the right conditions (such as better education), and recognition that we need a Frederick Taylor for the 21st century.
Some say "[Globalization] is inevitable so stop complaining."
The last economic system that was thought to be "inevitable" was Marxism. It's as if these neo-conservatives believing in "inevitable globalization" are framing everything in terms of their former enemy and have just reversed who should win the battle of the inevitable march of history.
If the economy must grow, companies will seek out ways to cut their costs. That means they'll go to low-cost/high-productivity suppliers, every time. American wage earners are the ones that get screwed, lest they increase their productivity.
Just got back from the Queen's School of Business Leadership Program, a week long attempt at trying to figure out how I tick, plus approaches to dealing with others.
Very good program content, and they are masters of taking care of every last detail of your stay, including excellent and virtually unlimited food. These guys are amazing.
I may have a longer post soon to talk about some about what I've learned there.