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Tue Oct 9, 2012, 09:30 PM

Marc Andreesen, from 2004, about Free Trade and Job Offshoring . . .


DOBBS: There are very few issues right now that are more difficult for corporate America to deal with than the issue of outsourcing. You support it. You support it vigorously. Why?

ANDREESEN: Yes. I think it's purely good for the American company and it's good for American workers. It's part of the natural process of creating new jobs. I think job destruction and job creation go hand in hand. In the last 10 years, this economy has destroyed 325 million jobs and created 342 million new jobs. And, in general, those news jobs are better jobs than the ones that were destroyed.


DOBBS: Marc, we can sit here and not really edify anyone including ourselves by trading statistics. The fact is it is 2004, the fact is in the most event report on trade we show for the first time negative numbers in the area in which you live, that is technology which is supposed to be bringing us all of these wonderful jobs that so far are not materializing.

ANDREESEN: Look, technology took a big hit in the last four years due to recession. When I was involved in creating the first Internet browser in 1993, I can tell how many Internet jobs there were, there were 200. I can tell you how many there are now, there's two million now. We created new jobs in the next 10 years. I'll tell you what, we're going to create a huge number of new jobs in the next 10 years.

DOBBS: I expect you to do so. What I don't expect you to understand is that there is no one listening to us that should take -- has any reason to take as you an article of faith that by moving jobs overseas simply to acquire cheap labor that in any way adds to innovation to this country.

ANDREESEN: Absolutely it does. It compounds innovation, allows American companies to invest both overseas and the U.S. It allows American companies to hire more people in the U.S. It allows American companies to sell their products and services into a larger global market. I tell you another thing, it encourages peace and stability worldwide. The best thing that can happen to us from a national security standpoint we determine to develop the middle classes in India and China. And in fact the really best thing we could do is to start offshoring to the Middle East. If you want to systematicly go after global security and peace, figure out how to bring everybody into this world of increasing returns from economic, increasing returns from trade...

DOBBS: Marc, you surely not suggesting that we create a middle class anywhere in the world at the expense of our own?

ANDREESEN: Of course not. It's not at the expense of our own.

DOBBS: That's precisely the effect of what is happening.

ANDREESEN: No it's not.

DOBBS: No, sir, it is.

ANDREESEN: Trade has been win-win for 200 years.

DOBBS: Win-win. Marc, you are too smart for this. You are absolutely too smart for this. When you hear win-win, what do you think of, a software salesman, right?

Yeah . . . those 10 years are almost up . . . . where was that influx of jobs? How's that "not zero-sum" issue working out for the workers?

Lying liars will keep on lying, even when they're being interviewed by fellow right-wingers.

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Reply Marc Andreesen, from 2004, about Free Trade and Job Offshoring . . . (Original post)
HughBeaumont Oct 2012 OP
Spider Jerusalem Oct 2012 #1
Zalatix Oct 2012 #2

Response to HughBeaumont (Original post)

Tue Oct 9, 2012, 09:46 PM

1. ...


- Wages are determined in a national labor market: The basic Ricardian model envisages a single factor, labor, which can move freely between industries. When one tries to talk about trade with laymen, however, one at least sometimes realizes that they do not think about things that way at all. They think about steelworkers, textile workers, and so on; there is no such thing as a national labor market. It does not occur to them that the wages earned in one industry are largely determined by the wages similar workers are earning in other industries. This has several consequences. First, unless it is carefully explained, the standard demonstration of the gains from trade in a Ricardian model -- workers can earn more by moving into the industries in which you have a comparative advantage -- simply fails to register with lay intellectuals. Their picture is of aircraft workers gaining and textile workers losing, and the idea that it is useful even for the sake of argument to imagine that workers can move from one industry to the other is foreign to them. Second, the link between productivity and wages is thoroughly misunderstood. Non-economists typically think that wages should reflect productivity at the level of the individual company. So if Xerox manages to increase its productivity 20 percent, it should raise the wages it pays by the same amount; if overall manufacturing productivity has risen 30 percent, the real wages of manufacturing workers should have risen 30 percent, even if service productivity has been stagnant; if this doesn't happen, it is a sign that something has gone wrong. In other words, my criticism of Michael Lind would baffle many non-economists.

Associated with this problem is the misunderstanding of what international trade should do to wage rates. It is a fact that some Bangladeshi apparel factories manage to achieve labor productivity close to half those of comparable installations in the United States, although overall Bangladeshi manufacturing productivity is probably only about 5 percent of the US level. Non-economists find it extremely disturbing and puzzling that wages in those productive factories are only 10 percent of US standards.

Finally, and most importantly, it is not obvious to non-economists that wages are endogenous. Someone like Goldsmith looks at Vietnam and asks, "what would happen if people who work for such low wages manage to achieve Western productivity?" The economist's answer is, "if they achieve Western productivity, they will be paid Western wages" -- as has in fact happened in Japan. But to the non-economist this conclusion is neither natural nor plausible. (And he is likely to offer those Bangladeshi factories as a counterexample, missing the distinction between factory-level and national-level productivity).


Andreesen is actually right here, sorry.

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Response to HughBeaumont (Original post)

Tue Oct 9, 2012, 09:54 PM

2. Global Labor Arbitrage Resets Wages



Global labor arbitrage -- the practice of constantly replacing expensive labor in one location with cheaper labor in another -- has been a cornerstone of corporate strategy for more than a century. This strategy matured over the past decade as technology and higher levels of development in the low-wage nations enabled their workers to take on service jobs and knowledge work; no longer is the practice limited to low-level production jobs. As developing countries provide an increasingly skilled workforce, developed nations' ability to differentiate themselves is dissolving, and the companies operating in those countries no longer need to pay their workers a premium. The most widespread and lasting impact of the maturation of global labor arbitrage is the decline in real wages in the developed nations. CFOs of U.S. companies can prepare now for a permanent resetting of wages for many workers in the upper salary ranges.

Increased global competition and low pricing power are driving the more aggressive forms of arbitrage: overseas sourcing, offshoring and foreign direct investment. In the IT industry, these practices are already moving into their second generation; Indian companies that took work from the United States and Europe are now offshoring less-skilled jobs to lower-cost locations such as China and Malaysia. IT wages in the United States dropped by an average of 3 percent in 2004.

Although corporations around the world increasingly practice labor arbitrage, most are still reluctant to call it what it is. TeleTech Holdings Inc. is one of few companies that use that term. The Englewood, Colo.-based company operates 66 customer management centers (CMCs) staffed with 33,000 employees spread over 16 countries, including 10,000 in the low-wage regions of Asia and Latin America. "TeleTech was one of the first customer management providers to successfully implement a labor arbitrage strategy more than 7 years ago," says Dennis Lacey, executive vice president and CFO. "Since then, we have expanded our labor arbitrage strategy globally, providing our clients high-quality, lower-cost customer management solutions in various languages and from many countries, including India, Argentina, Canada, Mexico and the Philippines."

Call-center workers in low-wage regions make 10 percent to 12 percent of what U.S. call-center workers earn, according to Datamonitor. That firm predicts wage inflation in the offshore markets and wage deflation in the United States as more call-center jobs move abroad. "Labor-arbitrage customer management centers have a lower cost profile than comparable CMCs in the United States, which lowers the overall cost to serve," Lacey says. Although wages in the United States have flattened, wages in India and the Philippines are rising rapidly. "Wage inflation is a natural component of a growing and evolving industry, particularly in developing countries," he notes.

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