The Cost Of Cheap Labor

[Dave Farber <dave () farber net>]

------ Forwarded Message
From: TruChaos () aol com
Date: Tue, 20 May 2003 20:06:48 -0400 (EDT)
To: dave () farber net
Subject: The Cost Of Cheap Labor

Cheap labor at America's expense
3.3 million U.S. jobs predicted to be transferred offshore by 2015

Posted: May 20, 2003
5:00 p.m. Eastern

"Hey, it's good work if you can get it," says New Jersey state Sen. Shirley
Turner about the outsourcing of the Garden State's welfare-processing
contract. But neither New Jerseyans nor any other Americans are getting the
work, so she has introduced legislation that she believes will keep those
jobs at home. 

Turner, a Democrat, filed her proposal after learning that the New Jersey
Department of Human Services had contracted with an Arizona-based company to
service paperwork for the state's welfare recipients at the "cost-saving"
price of $326,000 a month. The Arizona company had established a call center
in Green Bay, Wis., but once the New Jersey contract came through, the call
center was relocated to Bombay, India.

"It seems like a race to the bottom," says Turner. "All these jobs are
leaving the state and the country, and our unemployment rate continues to
climb. We're in a recession and you have to wonder where it ends. The point
of the contract was to save money - assuming that these people overseas can
do it cheaper and more efficiently. But this is a ruse because we're
supposed to help provide jobs to these [unemployed] people here."

The irate Turner continues, "Neither the people in India who have the jobs,
nor the people who are unemployed here in the U.S., are giving anything back
in the way of taxes or buying and consuming U.S. goods and services, which
is what stimulates our economy. By outsourcing these jobs to other countries
we're helping the poor remain poor in this country. We have a $5 billion
deficit in New Jersey and outsourcing these jobs to foreign countries only
adds to the burden that the state must pick up when our citizens need
[welfare] services. When people lose their jobs, and their unemployment
benefits run out, the state must step in and take up the burden to provide
the services. That's not cost savings and it really just snowballs when jobs
are taken offshore."

Turner's bill has made it through the New Jersey Senate but has run into
stiff opposition in the General Assembly from lobbies representing companies
taking advantage of the cheap offshore labor. And no wonder: Outsourcing to
countries that exploit cheap labor appears to be the corporate wave of the
future. Kishore Mirchandani, president of Outsource Partners International,
a U.S.-based company specializing in outsourcing finance and accounting
services, tells Insight, "There are a lot of companies in India handling the
accounting and finance of major corporations. General Electric, American
Express and Citibank all do business in India."

Mirchandani's company, although U.S.-based, handles the tax-return
preparation for the business clients of the accounting firm Ernst & Young at
Outsource Partners' facilities in India. "We get business from CPA
[certified public accountant] firms in the U.S.," explains Mirchandani, "who
then contract with us to get the processing of returns in India. We have
about 700 people working for us between India and the United States. A lot
of people have raised concerns about the privacy of information, but we have
taken steps to ensure that all information is secure."

According to Mirchandani, "the cost savings are tremendous." He says, "The
cost to process these returns is anywhere between $100 to $200, whereas in
the U.S. the processing would cost $400 to $600. If they outsource it to us
the CPA firm saves $300. We hire accountants at about 25 percent of what it
costs here in the U.S. A lot of major corporations have already done the
outsourcing on their own and our company is an alternative to the companies
who don't want to handle the outsourcing directly. General Electric has
12,000 people in its office in India to do its processing of financial
information, and these are mostly Indians working there."

To get a better idea of just how many corporations are exporting jobs to
take advantage of cheap labor overseas, this magazine followed up on those
Mirchandani leads. General Electric did not return Insight's calls. Ken
Kerrigan, a spokesman for Ernst & Young, confirmed that his company
outsources tax-return processing to India.

"Ernst & Young," explained Kerrigan, has "an office in India and we send
[tax] information through our networks so there is no physical paper that
goes there. The people who work in our offices in India are locals but are
trained by Americans who know tax law."

According to Kerrigan, just "2 percent of all U.S. tax returns done by Ernst
& Young are processed in India. It's a tiny percentage that allows us to
work faster and better. The labor is cheaper, but that's not an issue for
anybody. For us it's more of a time factor."

Tim Connolly, a spokesman for the accounting firm KPMG, tells Insight that
"we are not currently outsourcing returns to India. However, if we did
proceed, we would ensure that it was a joint decision and that each client
was consulted beforehand. Any firm involved in tax-preparation business is
continuously seeking to provide the highest-quality service in the most
efficient manner. As technological advances progress, we're considering all
options to serving our clients."

Rob Black, a spokesman for the International Brotherhood of Teamsters, sees
the current tidal wave of American jobs floating boats to foreign shores
much in the same way as state Sen. Turner. "Essentially what you've got,"
says Black, "is a race to the bottom for the cheapest wages." Black
explains: "First we saw corporations in the Northeast move to the Southern
states where there were no strong unions. Then, in the 1990s with the unfair
trade deals like the North American Free Trade Agreement [NAFTA], we saw
corporations move to Mexico. Now these companies have been in Mexico awhile
and the workers' standards are rising a little so, sure enough, the jobs are
being moved to Guatemala, China and India. So really, these corporations are
just chasing the globe for the cheapest labor rates possible."

According to the Teamsters spokesman, "The people with big business that are
on the side of unfair trade love to talk about the markets this allegedly
will open for U.S. products, but the fact is workers in Bangladesh aren't
buying our personal computers and video games. And any cost benefits that
are gained by shipping jobs overseas clearly are going to the top
executives, not the consumers. It's hard to accept salary reductions and
layoffs when the executives of these corporations aren't feeling the same
pain. Slash and burn may be the overnight cure for shareholders' woes, but
if you invest in workers you will build a stable citizenry that will buy
your products." 

The U.S. Department of Labor released figures for the last week in April
that revealed U.S. employers had cut jobs for the third straight month.
Unemployment rose to 6 percent, meaning that 448,000 people filed new claims
for unemployment benefits the last week of April, which was only slightly
down from the previous week's 461,000 claims. This is not good, even without
outsourcing American jobs to India and elsewhere.

But, Insight found, trying to get solid figures about the level of
outsourcing is about as difficult as finding Iraq's weapons of mass
destruction. Corporations such as American Express, rather than identify the
number of jobs that are being handled outside the United States either by
Americans or foreigners, tells Insight that "we've built flexibility into
our business model to better withstand external fluctuations in the
marketplace. This includes outsourcing some work." Such as the IBM deal.

According to Susan Korchak, a spokeswoman for American Express, the "IBM
deal" is a $4 billion, seven-year contract awarded to IBM to provide
American Express with utilitylike access to its vast computing resources.
Whether IBM is outsourcing any of those services to foreign countries is
"unknown" to Korchak. However, IBM has acknowledged having such service
centers in India, Mexico, Argentina, Brazil, Venezuela, Canada and China.

According to market-research firms Gartner Inc. and Forrester Research, as
reported by Ed Frauenheim of CNET News, "More than 300 of the Fortune 500
firms do business with Indian information-technology-services companies."
And it is predicted that "by 2004, more than 80 percent of U.S. companies
will have considered using offshore IT services." Furthermore, Frauenheim
reports that according to Forrester Research, "by 2015, some 3.3 million
U.S. jobs and $136 billion in wages will transfer offshore to countries such
as India, Russia, China and the Philippines."

These figures represent only outsourced information-technology services such
as credit-card and bank financial transactions that are contracted by U.S.
companies to be performed for miniscule wages by foreign citizens. The
figures do not account for the $500 billion trade deficit the United States
now is facing with its trading partners.

http://www.worldnetdaily.com/news/article.asp?ARTICLE_ID=32673



------ End of Forwarded Message

-------------------------------------
You are subscribed as interesting-people () lists elistx com
To manage your subscription, go to
  http://v2.listbox.com/member/?listname=ip

Archives at: http://www.interesting-people.org/archives/interesting-people/