Outsourced tea-time

Many of my friends bitch and moan about the onlslaught of outsourcing in the IT industry, the reason it is happening should be obvious to anyone. The connection between IT outsourcing labour to India, and corporations like Wal-Mart cutting local labor costs to the bone and importing the majority of its stock from overseas, is glaringly obvious. Both are consequences of multi-national companies exploiting differences in the cost of commodities (be they goods or labour) across a global playingfield to make a profit. In the finance world its called arbitrage.

Believe me, if there was a way for Wal-Mart to have cheap overseas labour operating its stores as well as producing the goods to supply them, it would. I'm imagining some kind of robot wandering around their stores stocking shelves, operated remotely by telepresence from some offshore location. Until that is a reality (remember you heard it first here) they will have to make do with just outsourcing its supplychains overseas.

Unfortunately for my IT friends there is no need for a fancy robot to outsource their jobs. The smart ones have been predicting this problem for years - if you lived through the dot com era you could not help but notice the influx of H1-B visa workers. The economics of it were that a person with three or four years experience out of college could command $150 per hour or more. At those prices consultancies could start up, ship visa holders over, pay them a fraction of that and make a tidy profit on the difference. I even knew of one person working for such a company that was taking a one hour taxi ride to and from work each day. The $100 a day that cost him was worth it because he paid for it after just one hour of work. Imagine how you would feel if you were a minimum wage worker at Wal-Mart - that could be as much as a half a weeks salary. Well such crazy times are over now and IT contract rates are for most part back to well under $100/hr and often as low as $75/hr or less. Furthermore the government slashed H1-B visa allocations and the market is so full of unemployed workers its almost impossible for a company to satisfy the labour department's requirements to actually get anyone into the country on an H1-B visa.

Anyway, there's an interesting article over on Alternet.org that discusses the flip side of the outsourcing coin. It reminds us for every unhappy, unemployed IT worker in the USA there's also a human being in the other country working away, often through the night hours, to compensate. Of course I'm not saying its inherently bad that this global labour market arbitrage is creating jobs in countries like India or China. Its just that most of the profits don't stay in the country where those labourers are. They are instead syphoned off into global corporations to enhance the bottom line and line the pockets of highly compensated executives and the wealthy corporate plutocrats that are running this country, and arguable much of the western world now. So you end up with mega-corps like Wal-Mart with a market cap of $240 billion and making $8 billion in profit a year. That's enough to give every one of their 900,000 employees a $9,000 a year raise and perhaps throw in free health care to boot. That would take them all off food stamps and make a huge difference to living standards of their poorest employees. But of course that doesn't happen.

To see how Wal-Mart is also exploiting overseas suppliers note that last year they generated $246 billion in total revenue to yield a $54 billion gross profit - enough to invade a small country. When 85% of Wal-Marts products are imported from overseas that means its its likely most of that $54 billion gross profit came from buying low overseas and selling high in the USA. One can imagine that given Wal-Marts supply chain squeezing practices in the USA, the overseas suppliers also saw very little profit to give their workers a decent living wage. In the mean time there's $8 billion in net profits left on the table at the end of the day. Imagine if Wal-Mart had a million workers overseas supplying them, they could give them all a $1,000 a year raise and still have $7 billion a year in profits left over. To someone working in a sweat shop in Vietnam $1,000 a year would be a fortune, probably doubling or tripling their annual salary - remember that over 50% of the worlds population lives in poverty earning $2 or less a day.

Anyway, I'll leave you with the closing quote cited in the Alternet article. It could almost have been written by me ;-)

What we are seeing is capitalism working in a totally uneven playing field and it will carry on until the playing field is evened out. That is going to be a long and painful process and the world simply isn't going to be able to support its entire population at the standard of living we would like to continue to enjoy.