THE GLOBAL OUTSOURCING OF TECHNICAL AND PROFESSIONAL JOBS AND ITS IMPACT ON THE LONG TERM OUTLOOK FOR THE U.S. ECONOMY.

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The U.S. Is Falling Asleep on the Job
Jobs have left before, but this time America's place in the global economy is at stake.
FORTUNE
Tuesday, August 12, 2003
By Geoffrey Colvin

The issue du jour is being framed as "jobs," which is a shame because that sounds like a movie we've seen before, and it isn't.

Yes, American companies are firing U.S. workers in rising numbers while hiring more foreign workers, and unions are yelping about heartless bosses, and politicians are solemnizing—all that does sound familiar. But the surprising fact is that while CEOs are happy to be saving money by hiring good accountants for $6,000 a year in New Delhi, those CEOs are actually as worried about the trend as anybody, and they should be.

The issue isn't just jobs but America's place in the global economy. The difference this time, as we keep reading, is that the outflowing jobs are higher paying and have more intellectual content. That's a difference not just of degree but of kind. Until now, smart, educated people in the U.S. have thought up ways to create wealth and then paid others to do the labor, often in foreign countries. Americans design Dell's latest laptops; Malaysians build them. Americans design Nike shoes; Pakistanis make them. The emigration of such factory jobs was Ross Perot's populist issue in 1992, but it lost its appeal above the middle of the organization chart. Our universities continued to produce the engineers, designers, and managers who fashioned the labor to be done. Their educations were the world's best, and these graduates remained pretty much ours because companies from the developing world couldn't outbid U.S. firms to hire them, or at least not many of them. No more. Those developing countries, which obviously have always had people just as smart as ours, are now turning out people just as educated. They can design the work, too, and, because educational and living costs are a fraction of ours, companies in those countries can afford to hire those people.

That is a profound change: Designing the work is the essence of business, management, competitiveness. Example: An electrical engineer doesn't make things. He designs things that people in factories make. Used to be that the world's best electrical engineers graduated from U.S. universities and worked in the developed world earning $80,000 a year designing things to be made in factories that were probably overseas. But now an engineer from an Indian university is just as good as the U.S.-educated one, and he'll work in New Delhi—for an American or an Indian company—for $18,000 a year.

Multiply that example across many different jobs and then ask, Where does the U.S. company find its competitive advantage? This is a case of the innovator's dilemma as described by Clayton Christensen, but on a national scale. The U.S. is the big, successful incumbent, the market leader that can't imagine it's in danger. The upstart competitors—not just India but also China, the Philippines, and others—at first seem unworthy of our concern. They want to manufacture shoes? Let 'em. Now they're making steel? Well, that's not the future. They've started writing software? Hey, they're welcome to it; a lot of code writing is pure drudgery. You say they're designing CAT scanners? Uh-oh. What makes anyone think that progression is suddenly going to stop? The next rungs on the ladder are product innovation, brand building, and overall management. We're looking at three billion people getting better by the day at the things that make us the world's leading economy. What's our hope? T

he good news is that our system's agility and flexibility will help us out again. Our markets—labor, product, and capital—adjust to change more quickly than virtually any other country's, and that fact has been crucial to our prosperity. We move on from failure better than any other system, and that's critical too. The bad news is that this time more than our markets need to adjust. So do our schools—and talking about agility and flexibility in the same sentence as our schools is a punch line, not a boast. We've been losing that race for a long time.

For years, whenever I've talked to kids who've transferred to U.S. high schools from abroad, I've heard the same thing: School here is so much easier. Ask executives about U.S. business schools, and they'll usually tell you the curriculums are five years behind the times. But isn't our university system still the world's best? Maybe. That's what they used to say about their steel at Bethlehem, right up until it wasn't. Then it was too late. We don't have to lose out in this historic shift. But nothing says we're destined to win either. We've never seen this movie before. Which is why it's a mistake to cast the latest outflow of U.S. jobs in the familiar terms of labor vs. management and the plight of the worker. It's that—but it's much more.