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Outsourcing Is Ruining the US and Brazil's Economy PDF Print E-mail
2005 - March 2005
Written by Ricardo C. Amaral   
Monday, 28 March 2005 17:52

Here is another trend that will help speed up the impending collapse of the US dollar. Outsourcing in the United States is like a runaway train completely out of control heading to the edge of a cliff.

The American economy has been outsourcing jobs to other countries for a long time; there is nothing new about that. But lately too many things started changing at the same time at a very fast rate; at the speed of light.

I started doing research about outsourcing in August of 2003. At that time there were few articles about outsourcing, the alarm bells were not yet ringing. I was doing a lot of reading about outsourcing to figure out the impact that outsourcing would have in the US and Brazilian economies.

The article that I wanted to write was about how the new technologies - faster computers, new Internet telephony, broadband technology and so on are revolutionizing everything around us.

The book by Jeremy Rifkin The End of Work came to mind. With these new technologies companies would be able to export over 50 percent of the American jobs to the rest of the world; where costs are much lower, the populations are well educated and capable of taking these jobs from the US economy.

I had realized that something extraordinary was going on, but when I read a long article in the Financial Times in October of 2003 about IBM and outsourcing - I realized immediately that the United States economy was in big trouble.

The only people I know that have grasped the implications and importance of what is happening in the global economy and the outsourcing jobs out of the US economy are the economists from the University of California, at Berkeley, as well as the economist Stephen S. Roach - (Chief Economist and Director of Global Economic Analysis at Morgan Stanley's Global Economics Team.)

That Financial Times article felt like a sledgehammer hitting me in the forehead. The first thing that came to mind was that IBM has clout and the connections to all the major corporations in the US.

With this vast army of outsourcing consultants they could outsource at the speed of light a large amount of good paying American jobs to cheaper places such as India, and China; before the fools in Washington realized and grasped what was going on.

This particular case of "IBM and Outsourcing on Steroids" has a major implication for the US economy, because of IBM's unique position and connections to the US major corporations. The same can be said for IBM's clout and connections to corporations in Brazil.

IBM is in the position to outsource, and at a very fast rate, a large number of good paying jobs out of the United States and out of Brazil into China, India and other lower cost countries. IBM and the other major outsourcing companies can outsource American and Brazilian jobs faster than the United States and Brazilian economies can create new ones.

Today, 18 months later I know that the situation is a lot worse than I originally thought in October of 2003. Not only large corporations are outsourcing good paying American jobs, but companies of all sizes realized that they also could play the outsourcing game.

The US economy is following the same path, as the Titanic, and the American population, just like the passengers on that doomed ship, is having a good time and has no idea of the calamity that lies just ahead.

Another result of this massive outsourcing effort is that the US economy is exporting a large number of good paying jobs and replacing it with part-time jobs, with no benefits in companies such as Wal-Mart and Target.


Outsourcing - Say Goodbye to 14 million American Jobs

In October 29, 2003 a study was published by the University of California, at Berkeley saying: "A ferocious new wave of outsourcing of white-collar jobs is sweeping the United States, according to a new study published by University of California, Berkeley, researchers, who say the trend could leave as many as 14 million service jobs in the U.S. vulnerable.

'Study authors Ashok Deo Bardhan and Cynthia Kroll, both researchers at the Fisher Center for Real Estate and Urban Economics housed at UC Berkeley's Haas School of Business, advise that not all of an estimated 14 million vulnerable jobs are likely to be lost. But, they note, jobs remaining in the United States could be subject to pressures to lower wages, and the jobs that leave may slow the nation's job growth or generate losses in related activities."

The Disappearing Job - Worldwide

Another study published in October 2003 said: "Economists at Alliance Capital Management LP in New York looked at employment trends in 20 large economies and found that from 1995 to 2002, more than 22 million jobs in the manufacturing sector were eliminated, a decline of more than 11%.

Contrary to conventional U.S. beliefs, the research found that American manufacturing workers weren't the biggest losers. The U.S. lost about two million manufacturing jobs in the 1995-2002 period, an 11% drop. But Brazil had a 20% decline. Japan's factory work force shed 16% of its jobs, while China's was down 15%.

Joseph Carson, director of global economic research at Alliance, says the reasons for the declines are similar across the globe: Gains in technology and competitive pressure have forced factories to become more efficient, allowing them to boost output with far fewer workers. Indeed, even as manufacturing employment declined, says Mr. Carson, global industrial output rose more than 30%."

IBM - Big Blue

After reading the Financial Times article I was trying to remember what the letters IBM stand for, then suddenly I realized that this new reorganized "IBM" maybe have a different meaning for the new millennium - IBM: International Bastards and Mercenaries?

In August of 2003, I started doing some research about the impact that outsource and offshoring would have in the United States economy, and how Brazil could try to profit from this new business environment, and bring some new business to Brazil

But after reading an article in The Financial Times of London on October 10, 2003 I understood that something big was under way that would have a major impact in the American economy and in other economies all around the world. The article said: "Big Blue reinvents itself again: can Palmisano create value in a new era of outsourced business processes?"

The article said: "IBM's new chief executive is betting that the company's future lies in the acquisition of a consulting arm and on-demand computing services....Under Sam Palmisano, chairman and chief executive, IBM is investing billions of dollars in research and acquisitions under the banner of "e-business on demand."

... The future of information technology can be found in central Cincinnati, Ohio, where Procter & Gamble has its headquarters. The 166-year-old maker of soaps and snacks has this year outsourced not only management of its IT infrastructure but also business processes including relocation services and employee benefits administration.

The scope of Big Blue's ambition is breathtaking. Executives admit that IBM now sees itself as competing not only for the $ 1 trillion that companies spend each year on IT but also for the billions spent on processes of the kind outsourced by P&G - which last month signed a $ 400 million, 10-year contract with IBM.

 "IBM made a big bet on the 360 series (of mainframe computers) in the 1960's and by the end of it people were talking about 'IBM and the seven dwarfs'. If they get this right, we could have the same thing all over again."

...When Mr Palmisano took the top job last year from Lou Gerstner, he wasted no time in putting his stamp on the company he had joined in 1973. He disbanded the 12-strong management committee that had ruled IBM for close to 100 years....Early in his tenure, however, it was unclear in which direction the 51-year old insider would take the company. The answer came a year ago with two high-profile moves.

IBM - The Outsourcer

First, Mr. Palmisano paid US$ 3.5 billion for the management consulting business of PwC,  the professional services firm. The deal brought 30,000 consultants on to IBM's payroll and took it into the nascent market for "business process outsourcing."

Second, in a speech given razzmatazz billing as The Sam Palmisano Event, he laid out his vision for computer systems that are self-healing or "autonomic", linked in giant "grids" and available "on demand", like water or electric utilities. This, he declared, was IBM's future.

At first blush, the two events seemed barely related. But IBM-ers say the combination of consulting skills and technology leadership is the essence of Mr. Palmisano's strategy.

...Mr. Palmisano is out to repeat the success as he pushes into management consulting and business process outsourcing. He must outflank competitors, convince customers and mobilize IBM's own resources.

As a result of its huge scope, IBM now competes against almost every company of note in the technology sector. In services it competes not only against outsourcers such as Electronic Data Systems and Computer Sciences Corporation but now also against IT consultants Accenture and Cap Gemini Ernst & Young.

Even if a significant proportion of customers is ready to embrace the "on-demand" agenda, and Mr. Palmisano can compete effectively against everyone from Intel to Accenture, a further challenge remains: how to mobilize IBM's 315,000 employees in common cause."

I don't know why the American mainstream media didn't follow up on The Financial Times article and stress the impact that IBM would have in the American economy in the future, because of this massive exporting of American jobs to the rest of the world.

IBM alone has an army of consultants ready to help American companies export millions of American jobs to other lands. Remember you need only a hand full of consultants to export jobs by the thousands.

Then you add on top of that all the other consulting companies operating in the United States today; all of them trying to export American jobs by the thousands.

Companies such as, Electronic Data Systems, Computer Sciences Corporation, Cap Gemini Ernst & Young, Infosys Technologies, Wipro Technologies, Deloitte Consulting Offshore Technology Group, and Accenture to just mention a few of the major players; are jumping on the band wagon.

It will be easier for IBM and for the other outsourcing companies to outsource a massive number of jobs from the United States than to outsource the jobs from the Brazilian economy, because of the English language.

India, China, and many other countries from around the world, countries that have lower costs, can communicate very well in English, and that alone simplify the outsourcing process of jobs out of the US economy. 

One result of this outsourcing business is a net reduction of salaries for US workers at all levels, which in turn will result in lower taxes paid to the states and federal government.

Salaries and wages in the United States are under attack in at least two ways. First, the United States is exporting good paying jobs to other countries via outsourcing. Second, by the permanent replacement of jobs by new technologies; in this case jobs disappear forever.

The goods and services that are made for selling in the US market are putting further downward pressure on costs in the US market, and it is driving a lot of manufacturing and service capacity out of business; since they can't compete with products made with very low wages, and with no benefits.

As these businesses close its doors in the US, the result is further downward pressure on costs including salaries and wages in the US economy. It is a race to the bottom.

As people's wages and salaries decline by 40 percent, 50 percent, or even more, the tax revenue of the federal government and of the states also decline accordingly. In turn, helping create even larger federal government deficits for the US economy.

At a time when the US government and the states are running deficits and borrowing lots of money and are selling any assets that they still have, outsourcing of US jobs at this amazing rate it will only make matters even worse for their finances - in turn putting further pressure for a US dollar decline against the other major currencies.

The value of the US dollar has only one direction to go: down, down, and down; making it a reality the impending collapse of the US dollar.

Ricardo C. Amaral is an author and economist. He can be reached at brazilamaral@yahoo.com.

Comments (7)Add Comment
Ricardo C. Amaral
written by Guest, March 29, 2005
Further info about the above article:

Stephen S. Roach – (Chief Economist and Director of Global Economic Analysis at Morgan Stanley’s Global Economics Team) understands and he has grasped the real impact of outsourcing today in the global economy. Jeremy Rifkin the author of “The End of Work” also has a deep understanding of what I am trying to say related to outsourcing.

I know that we have had outsourcing for a long time. But “IBM” is not betting the future of its corporation on what most people perceive outsourcing is all about. The people at IBM knows that we had a revolution in technology, and today we can do things that were not viable only two years ago. In the late 1990’s a few corporations including Global Crossing connected the entire world with fiber optics, combine that to the advances we had in Broadband technology, and in internet telephony technology, plus all the latest developments related to computer technology, storage capability, faster computers, powerful computer chips, and you have a new cheap communications system around the world like we never seen before.

Outsourcing has been around for a long time, but now for the first time in the history of the world, because the price of communications is so low (You can transfer data, and use the telephone 7/24 for a very low price). Until recently the costs of international telephony, for talking of transferring data was very expensive and did not make economic sense to transfer overseas a lot of functions. Because of this technological revolution only in the last year or so started making economic sense to outsource everything in sight.

With the current technology, we can outsource probably 50 percent of American jobs to a cheaper country such as India, China, and a zillion other places around the globe.

The US is not outsourcing only jobs that Americans don’t want to do. The US today is exporting hi-tech jobs as fast as they can. China, and India are moving to the future and they will develop the state-of-art new software, and future electronic anything. Today, there is something revolutionary and new regarding outsourcing, and it moves at the speed of light.

American workers should get used to getting a job at Wal-Mart with no benefits – instead of working for the “American Dream,” these workers will be working for the “American nightmare.”

It is a very hard task for any government to create strategies for creating new jobs in the economy, and no country can afford to lose the jobs that they already have. Any job is worth saving, because not everyone in the country will become a rocket scientist, or a software engineer. The country needs to create jobs also for the illiterate people.

Job creation is a very important function and a responsibility that most governments from around the world have to fight for.

Multinational corporations don’t have national loyalties, they are in business to make money, and the bottom line is what matters most. I don’t know why some people here in the USA believe that corporations have to be patriotic and have to act as – “US citizen.” But the stock of these public companies, are traded in the various stock exchanges, and a lot of foreigners are part owners of these corporations. These multinational corporations have plants and businesses all over the world, and their shareholders are scattered all over the place as well.

A growing number of major American companies are planning to reincorporate in Bermuda, a move that will save them millions of dollars in taxes. Among these companies is Connecticut-based tool manufacturer Stanley Works - the move would shave about $30 million off Stanley Works' annual tax bill.

Americans went nuts about Stanley Works’ move to Bermuda. But for how long Americans will be able to stop Stanley Works’ from reincorporating in Bermuda to save $ 30 million dollars in taxes? Do you know how many tools Stanley Works’ has to sell to the world to get that extra profit for the shareholders of that corporation?

In five years we are talking about $ 150 million dollars in extra profits. It is a lot of money, and that story applies to most multinational corporations. With the profit cannibalization that is going on in business because of Wal-Mart, it is just a matter of time for us to see an exodus for these corporations from the United States.
.

Ricardo C. Amaral
written by Guest, March 29, 2005
The above article about "outsourcing" was also published by "ArabNews" the most influential newspaper in the Arab world.

In terms of influence, ArabNews is "The New York Times" of the Middle East.
.
What\'s so New about Outsourcing?
written by Guest, March 29, 2005
It's been going on since at least the 1960s in the US. The jobs were primarily factory type blue collar jobs so no big fuss was made about outsourcing until it started affecting the white collar segment of society.

America is totally controlled by capitalism so of course the businesses are going to go where they can get the work done as cheaply as possible. Unlike socialist Europe America could care less about it's citizens or workers. All corporations care about is making a buck. As long as they can find people outside the US to work for less and do a better job than Americans the jobs will continue to go overseas.
That's just the way it is in America.
Here is what so new about Outsourcing!!!
written by Guest, March 30, 2005
.
The new technologies such as internet telephony, Broadband, Fiber optics cable connecting the entire globe, ever faster computation, hard disk capabilities, and all the new technologies that are becoming available on a daily basis has opened new possibilities for outsourcing that were not viable just one or two years ago.
.
This is wishful thinking for anti-americ
written by Guest, April 15, 2005
I would like to know the reason for our explosion in illegal immigration as well as continued growth in income, GDP, and demand for US products. I would like to know when the middle east became a center for economic progress or a leader in economic opinion? This is doom scenerio of outsourcing is nothing less than wishful thinking among anti-american/anti-capitalist fools that somehow fail to notice the socialist prosperity of their own nations let alone their Cuban neighbor.
Hmmm....
written by Guest, August 03, 2005
So why are American jobs more important than, say, Indian jobs? Also, the majority of US IT workers are actually from overseas, anyway. So the jobs have, themselves, been outsourced--TO the US! In a Just world, they would simply return!
Discover the Best Places of Outsoucing Directory
written by Nick Pragmaticus, October 06, 2010
Wow! its nice to hear that through outsourcing the economy of both country are running well.Because of this technological revolution only in the last year or so started making economic sense to outsource everything in sight.outsourcing directoryWith the current technology, we can outsource probably 50 percent of American jobs to a cheaper country such as India, China, and a zillion other places around the globe. The survey's respondents also said that 67.6% of their company's outsourced work was going to other locations in the U.S.

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