rosie scenario?

["Devine, James" <jdevine@xxxxxxx>]

January 29, 2004/New York TIMES

ECONOMIC SCENE
The Trend of Vanishing Tech Jobs
By VIRGINIA POSTREL [a self-styled "libertarian"]

ANY American computer programmers complain that they're losing their
jobs to lower-paid workers in India. The trend toward foreign
"outsourcing" has become a political flashpoint.

But the trend is less frightening and more promising than you'd think
from either the angry talk from unemployed programmers or the scary
estimates from consulting firms, argues Catherine L. Mann, an economist
at the Institute for International Economics in Washington.

First, the end of the technology boom, the general economic slump, and
the downturn in manufacturing - not foreign programming competition -
account for most job losses. Most estimates, Dr. Mann notes, compare the
peak of the business cycle and technology boom with today's sluggish
economy. That's not a valid comparison.

Compared with the end of 1999, which was still a good time for
programmers, December 2003 data show a 14 percent increase in business
and financial occupations, a 6 percent increase in computer and
mathematical jobs, and a 2 percent drop in architecture and engineering
jobs. New programming jobs may be springing up in India, but they aren't
canceling out job growth in the United States.

The problem for white-collar professionals, as for line workers, is that
manufacturing is still in a slump. "When the production floor doesn't
produce any more, the people in the window offices around the building
also start to lose their jobs," Dr. Mann says.

Over the long run, she argues, the globalization of software and
computer services will enhance American productivity growth and create
new higher-value, higher-paid technical jobs.

What's happening now to software and services has already happened to
hardware, with great economic results.

In the late 1980's, Asian manufacturers began turning out basic memory
chips, undercutting American chip makers' prices and inciting a fierce
policy debate. Many industry leaders argued that the United States would
lose its technological edge unless the government intervened to protect
chip makers.

In a famous 1988 Harvard Business Review article, Charles Ferguson, then
a postdoctoral associate at the Center for Technology Policy and
Industrial Development at M.I.T., summed up the conventional wisdom:
"Most experts believe that without deep changes in both industry
behavior and government policy, U.S. microelectronics will be reduced to
permanent, decisive inferiority within 10 years."

He denounced the "fragmented, chronically entrepreneurial industry" of
Silicon Valley, which was losing market share to government-aided Asian
businesses. "Only economists moved by the invisible hand," he wrote,
"have failed to apprehend the problem."

Those optimistic economists were right. The dire predictions were wrong.
American semiconductor makers shifted to higher-value microprocessors.
Computer companies bought commodity memory chips and other components,
from keyboards to disk drives, abroad. Businesses and consumers enjoyed
cheaper and cheaper prices.

Far from an economic disaster, the result was a productivity boom. As
global manufacturing helped to reduce the price of information
technology sharply, all sorts of businesses, from banks to retailers,
found new, more productive ways to use the technology.

"Globalized production and international trade made I.T. hardware some
10 to 30 percent less expensive than it otherwise would have been," Dr.
Mann estimates in an institute policy brief. (Her paper, "Globalization
of I.T. Services and White-Collar Jobs: The Next Wave of Productivity
Growth," can be downloaded at iie.com.)

As a result, she estimates, gross domestic product grew about 0.3
percentage point a year faster than it would have otherwise, adding up
to $230 billion over the seven years from 1995 to 2002. "That's real
money," she said in an interview.

By building the components for new integrated software systems
inexpensively, offshore programmers could make information technology
affordable to business sectors that haven't yet joined the productivity
boom: small and medium-size businesses, health care and construction.

"Bringing those sectors up to at least the average will raise U.S.
G.D.P. growth again," Dr. Mann notes. "And that's the second wave of
productivity growth."

In addition to the economic benefits, she argues that improved
information management could significantly improve health care, reducing
paperwork and guarding against treatment mistakes like dangerous drug
interactions.

That doesn't mean your health records will be in India, however. To the
contrary, the health care system is probably too convoluted for someone
far away to understand.

Rather, like hardware, software can be divided into components, basic
building blocks of integrated systems. While those components may be
developed abroad, integrating them into a useful system requires more
specific knowledge of the client organization or its legal environment.

As with putting together hardware, building software systems is likely
to happen locally. There will be less demand for basic programming and
more demand for higher-value, higher-paid systems integration.

These projections aren't much comfort, of course, to unemployed
programmers. While their skills may be in demand, Dr. Mann explains,
those jobs may be in new industries - a hospital, for instance, rather
than at I.B.M. - and therefore be harder to find. Or programmers may
need new training to move into systems integration jobs.

To encourage companies to invest in such training, Dr. Mann argues for a
"human capital investment tax credit," similar to the credit for
investing in physical equipment. She also believes that the federal aid
given to displaced manufacturing workers should be extended to cover
information industries. And she suggests that information technology
itself may help with job searches, crossing the old boundaries of
classified ads.

But, she argues, acknowledging individual hardships shouldn't detract
from the bigger picture.

"There is no question that the downside anecdote - the well-trained
person losing their job - is a story that people identify with," Dr.
Mann says. "They simply don't identify with the story of the person who
changed their job and does three times better."

"Most of the stories are about downside loss, not about upside gain,"
she adds, "and there is a lot of upside gain."

Virginia Postrel is the author of "The Substance of Style: How the Rise
of Aesthetic Value Is Remaking Commerce, Culture and Consciousness,"
published by HarperCollins.

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Jim Devine jdevine@xxxxxxx &  http://bellarmine.lmu.edu/~jdevine