Sunday, November 07, 2004

Outsourcing vs technological innovation

Imagine a new software product. A super-version of TurboTax, the software asks detailed questions via the Web and can prepare sophisticated returns - not just for individuals, but even for large corporations. The cost is a fraction of what U.S. accounting firms would charge for the service. Sounds great, right? Artificial Intelligence lowers the cost of doing business. Companies can pass the savings on to consumers. Some accountants lose their jobs, but that is the inevitable price of technological progress.

Now suppose you find out the guts of the software isn't an AI engine, but rather an office full of Indian chartered accountants in Bangalore. The cost saving is still real, and the fees now go to stimulate the developing Indian economy, rather than into the pocket of a software entrepreneur.

Why is this second outsourcing scenario any worse than the first scenario?
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7 comments:

Carson C. Chow said...

I've always felt that obsolescence of labour was an inevitable consequence of technology and capitalism. What will we do when say a third of the people can produce more than enough to support the other two thirds? My father the idealist thinks that everyone should work one third as much but be paid the same. In the days when the economy mattered to people, politicians ran on job creation platforms. But that will just delay an unavoidable crisis. We as a society must face the time when there could be the end of work as we know it. Will we choose a Blade Runner-like world with the haves in their enclaves and everyone else fighting it out in ghettos. I for one do not mind living in a complete welfare state where I am either a worker that supports the rest or am a recipient. Presumably in this new world, the remaining jobs would be the more interesting ones, the knowledge based, creativity based one, although eventually they too could be replaced too. The utopian endpoint is a hobby society where we live like landed gentry. The more realistic version will probably involve massive unrest, anti-technology sentiment and an attempt to cling to the old industrial revolution world model. It will likely get very ugly before it gets better, if we make it that far.

2:22 PM
Anonymous said...

Carson Chow wrote, I've always felt that obsolescence of labour was an inevitable consequence of technology and capitalism.People have been saying this for the past 200 years, and it hasn't happened yet. Economists call it the "lump of labor fallacy" (that there's only so much work to be done).

--SJF

6:31 AM
Carson C. Chow said...

Well, I suppose Fromm's point is somewhat true. The way capitalism adapts is that more and more ``useless'' jobs are invented. Fifty years ago, there weren't many drug reps, the ``greeter'' at a car dealership didn't exist, and political consultants were barely on the radar screen.

It will be inevitable that manufacturing jobs will disappear. Computers will start to write software. Even critical jobs like air traffic controller, train operators, and so forth would be highly reduced. So maybe jobs will still exist but certainly the ones we have now will disappear. I guess the argument is that these new jobs which may seem frivalous to us now will become acceptable and even seem indispensible in the future. In some sense, nonessential jobs could be thought of as a form of welfare.

10:35 AM
Steve Hsu said...

I guess I was really trying to address the negative feelings people in developed countries tend to have about outsourcing, but don't usually seem to have for technological progress that may have the same effect of eliminating certain jobs.

In other words, why not think of Indian programmers as a "black box" that writes software more cheaply than Americans can? You would certainly buy the black box if it were based on AI...

It is fair for Americans to say they prefer it if their neighbor has a good job, rather than someone in Bangalore. But valuing the former more than the latter to an extreme degree is probably not ethically defensible, at least to me.

12:15 PM
Carson C. Chow said...

I think there is worry about technical progress eliminating jobs as well although it's harder to find a cluprit. The problem is exactly the same but I think people feel they have control over outsourcing. Also, the recent outsourcing targets white collar jobs and those people are whinier. The bottom line is that if there is a cheaper way to do your job, then it will be done. Either through outsourcing and technology, I think we're heading for a crisis. In terms of the ethics point of view, I think that if we believe in social and economic equity then it must be applicable globally. So I agree with you that an American job is not more important than a job in any other nation. I would venture that this is not a popular view.

1:47 PM
Anonymous said...

Carson Chow wrote, The bottom line is that if there is a cheaper way to do your job, then it will be done.But a big part of the problem is that this isn't true.

That is, competition from Indian IT workers or from advances in AI is OK, but competition for doctors and lawyers isn't OK.

From what I've read, the AMA has made it harder in recent years for foreign MDs to get certified to work in the US. As for lawyering, I can't imagine that the ABA doesn't prevent Indian lawyers---who I presume have the same English common law system we do---from bidding down their incomes.

So ultimately, the question boils down to "who gets to collect economic rents." Which leads us to the great grand-daddy question of them all: why should both workers and capitalists have to compete for their incomes, yet landlords be able to collect Ricardian rents? The big problem for US workers isn't so much that their wages are being bid down; it's that they're being big down, yet they still have to pay blackmail to holders of natural resources, rather than remitting those rents to the government. Cf
Are you a Real Libertarian, or a ROYAL Libertarian?, and
A Geolibertarian FAQ

6:32 AM
Anonymous said...

Outsourcing software development has become such a vogue and a full time vocation that today you have companies catering specifically to this aspect of the IT world. Outsourcing software development concept has attained full blossom within years of its birth. While the IT world is ever expanding and has become almost inevitable to mankind there were worries regarding the high prices of the IT services? In the modern times this issue has been somewhat resolved by hiring a offshore development team from a software company based in nations which provide the same services at much cheaper prices.

5:25 AM

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