On Outsourcing, Protectionism and Education

Things are often more complicated than they seem. Certainly in the worlds of economics and nationalism. It’s no wonder that as the largest economy in the world, America wants to protect that place and Americans are sensitive to any efforts to move jobs elsewhere. Certainly that is true today, with unemployment currently at 9.1%.

In my own field of software development, the concern is that jobs will go to markets in Asia, like China and India. Chad Fowler’s first edition of The Passionate Programmer was even titled My Job Went to India: 52 Ways to Save Your Job. And at first, it seemed strange that this would happen in software. After all, when all the manufacturing jobs started leaving the country, the prevailing argument behind those who accepted this, was that the labor force would be retrained for higher tech jobs, and ultimately a higher potential wage. So how could it happen that the new jobs start getting outsourced?

I’ve followed Dr. Michio Kaku since I read his book Physics of the Impossible, and he has some interesting ideas around this:

Well, is he right? Based on what I observe, I would say he is. When jobs were leaving the auto industry, there was already downward pressure on the wages (signalling low demand). But software developers make a lot of money. It’s not unheard of for developers without a college degree to make 6 figure salaries, even in Midwestern states. By the way, I’m not equating a college degree with skill, but it’s a fact that when demand and supply are near an equilibrium in mature fields, a degree is usually expected. For example, accounting work was not always done by those with a college degree or certifications, but now that is a normal expectation. So I would say that when there are software developers with little to no formal education past the age of 18 making more than some attorneys and doctors with 8+ years of school (and associated student loans), that software development is a field in high demand, and it sounds like Dr. Kaku is right.

There are areas of development that are more prone to offshoring than others. Consulting style services for large corporations have a higher communication threshold and so cultural barriers and communications barriers can be an issue. So these jobs are not typically easy to outsource. However, small projects, and product creation and maintenance (ISV work) is a little easier to move.

So what does all this mean? What if we did try to protect those jobs? Short term, Software Developers would be happy. Supply would plummet and the demand for the best talent would help salaries skyrocket. But Dr. Kaku is right, it would do severe damage economically. Take the regular IT work of companies, and software / web startups, and double the cost. So much work would not be done, because the ROI would no longer justify the increased cost.

To me, the real way to help keep Americans employed is the fix education. If technology is a high demand industry with a lot of promise, why not supply as many educated Americans as we can do fill those jobs. Dr. Kaku seems to be suggesting that. And if you think that’s a soft sounding idealistic answer to the question, consider who else is making the same point to Congress. Not too many people accuse Bill Gates of being a hippie.

I recently watched Waiting for Superman. It’s full of opinion and outright bias, but there are some really clear points that are hard to argue with. In particular, I thought it made an excellent point about schools being designed in an era when the bottom 50% of students went into manufacturing & agriculture, with the next 30% or so headed into non-degree jobs (office administration, clerical, low-level business, sales), and the top 10-20% going to college for professional jobs (law, medicine). According to those requirements, schools aren’t doing that bad, but that reality isn’t true anymore. College is necessary for many more career paths. Producing those same ratios without manufacturing and agriculture simply floods the service sector. It’s why pay is so low in restaurants and call centers.

To support a higher standard of living, our education system has to support technology and innovation. Technology can be taught, but innovation is harder. I think innovation takes 2 parts technology, 1 part business-savy, 1 part liberal arts, and some God-given natural talent (think Steve Jobs). What do you think?