‘Offshoring’ Can Create Jobs, Too

As a hot-button political issue, “offshoring” is off the charts.

White House economic advisor Gregory Mankiw sparked more than a little controversy when he proclaimed that outsourcing jobs to other countries was “just a new way of doing international trade” and “a plus for the economy in the long run.”

Roundly criticized by members of both parties in Congress, Mankiw later retreated, saying he was misinterpreted and that “concerns about job losses in the United States are important.”

Meanwhile, Democratic presidential candidates have piled on. Sen. John F. Kerry has criticized corporate executives who have moved jobs abroad as Benedict Arnolds. But Kerry, too, has softened his position lately. In the candidates’ debate in Los Angeles on Thursday night, the Massachusetts lawmaker acknowledged that, inevitably, “some jobs are going to go overseas.”

No wonder so many Americans feel threatened -- and confused.

So, what’s the truth about offshoring?

For starters, it’s important to recognize that one reason the trend has become a flash point is that it has gone from affecting mainly the manufacturing sector, which has long watched jobs flee to cheaper locales abroad, to touching many white-collar workers as well.

Indeed, new legions of skilled workers are rising in every corner of the globe, thanks in part to the spread of computer software and Internet-related technologies. This new world order represents major competition for U.S. employees -- and they’re going to have to get used to it. There’s simply no turning back the tide.

Ananta Mukerji, who came to the U.S. from India in 1994 and founded Diamond Bar-based software firm Aviana Global Technologies Inc., doesn’t see much difference in the work performed in the two countries -- save for the price.

Aviana, which sells analytical software to major car companies and others, last year acquired a firm in India. The operation there, where software developers earn only 35% to 50% as much as their U.S. counterparts, allows Aviana to keep its prices down -- a key factor in a cutthroat field.

“The customer,” “demands that we get our costs low,” Mukerji says.

But even though the loss of jobs overseas is difficult for many to swallow, there are undeniable dividends for America -- big dividends.

McKinsey & Co., the management consulting firm, says the gains come in several forms.

First off, the lower costs enjoyed by U.S.-based businesses such as Aviana help boost profits back at home. And those profits, in turn, can be used to lift the wages of American workers or passed on to investors.

Second, overseas production typically leads to more overseas sales, helping fatten a company’s top line.

And finally, there is what McKinsey calls redeployed labor: redirecting U.S. workers into more valuable positions as their old jobs go abroad.

Many U.S. workers, especially those being handed pink slips, are naturally skeptical of the claim that better jobs are being created in the wake of those that are lost.

But they shouldn’t be. Catherine Mann of the Institute for International Economics in Washington points to government data showing that even as the U.S. economy shed 71,000 software programmer jobs from 1999 through 2002 that paid an average of $55,000 a year, it created 125,000 jobs at the software engineering level, which paid $74,000 annually.

The reality is inescapable: Just because other countries are now able to take away high-skill jobs because their own economies have leaped ahead, it doesn’t mean the U.S. is standing still.

Consider Apriso Corp., a Long Beach software firm with 160 employees. It now farms out some of its basic programming work to its offices in Krakow, Poland. That’s the native land of Apriso’s chief executive, Adam Bartkowski, who explains that such relatively simple jobs “are more portable.”

But higher-end tasks, such as when Apriso must analyze its clients’ software applications needs, don’t lend themselves so easily to outsourcing. “We do that work here,” Bartkowski says.

Robert Reich, who served as Labor secretary in the Clinton administration and teaches at UC Berkeley, is among those who marvel at the adaptability of the U.S. economy.

“One quarter of the jobs we have today did not exist 25 years ago,” he notes.

Of course, getting from here to there is not always so easy.

With that in mind, the government needs to do much more to help those displaced by offshoring. Reich and the consultants at McKinsey recommend wage insurance for workers whose lives are upended by global competition. Under such a system, a worker whose job heads overseas would be paid by private or government insurance half his salary for a year or two, easing the transition to new work.

Most important of all, though, is improving the education system on every level. If the U.S. is to continue generating cutting-edge jobs to replace those moving abroad, we can no longer afford to let our public schools languish, especially when it comes to teaching math and science. Nor can we tolerate a job retraining system that is anything but first-rate.

Because this much is clear: The rest of the world isn’t going to stop charging ahead. The renowned Indian Institute of Technology, with seven campuses, graduates tens of thousands of eager scientists and engineers every year.

Meanwhile, companies large and small see the entire planet as a place to do business. As long as they have enough expertise, every human being on every continent is a potential employee. Borders are virtually irrelevant.

In such a world, U.S. workers will surely feel some pain. Yet they also stand to do quite well in the end, assuming that our leaders get beyond the campaign rhetoric and give workers the required tools to stay ahead.

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James Flanigan can be reached at [email protected]. Previous columns can be read at latimes.com/flanigan