Thousands of highly trained scientists and engineers still roam Silicon Valley looking for work after having been cut adrift by the same types of people who now claim that they can't find anyone to hire.  And thousands more are now working in different fields at substantially lower salaries, having given up searching for an equivalent to their previous positions.  "No one I know who has looked at the data with an open mind has been able to find any sign of a current shortage," said demographer Michael Teitelbaum in the Wall Street Journal's Nov.  16 front-page story, "Behind 'Shortage' of Engineers:  Employers Grow More Choosy."  In a column titled "A Phony Science Gap?"  (Feb.  22), the Washington Post's Robert J.  Samuelson explained in detail why "it's emphatically not true, as much of the alarmist commentary on America's 'competitiveness' implies, that the United States now faces crippling shortages in its technological elites."

Do these bogus claims of a scarcity of skilled technical workers constitute a campaign to avoid having to pay market price for white-collar labor?  Yes, but there's more to it than that.  Corporations legitimately can anticipate a shortage of such workers in the future, because their own actions are setting the stage for one.

Since the early 1980s, employers have systematically eliminated most of the traditional incentives for high-tech careers.  They pay the inventors and developers of their products a fraction of what their sales and marketing representatives make.  They have eliminated pensions, individual offices and medical benefits.  They charge vacation time for company shutdowns.  And, most significantly, they have done away with job security — a critical blunder because product-development cycles are often longer than economic cycles.

It's amazing that Horan's IBM made it through the Great Depression without laying off a single employee, but somehow couldn't survive the eight prosperous years of the Clinton administration without axing tens of thousands of workers. Parents used to tell their children to major in engineering or science in order to get a secure job.  Now children sit around the dinner table and hear about layoffs, current and anticipated.  New "York Times" reporter Louis Uchitelle's new book, "The Disposable American," documents the nationwide decrease in worker productivity that has occurred since "Neutron" Jack Welch of General Electric popularized the repeated layoff approach to economic downturns.  Not only are the displaced workers unproductive, but those who have been spared for the moment are also permanently less productive because of worrying about whether they will be next.  When the time comes for students whose parents grew up in the United States to choose a college major, they will remember those dinner-table conversations.  When the best students, being rational, start to desert science and engineering, businesses will have nobody to blame but themselves.  The solution will be the same one that existed before the Reagan administration, as Harvard economist Richard Freeman told Samuelson:  "If we want more (scientists and engineers), we have to pay them better and give them better careers."

What happens when immigrants enter the labor market?  The 1964 edition of Paul Samuelson's influential introductory economics textbook gives the common-sense answer:  "By keeping labor supply down, immigration policy tends to keep wages high.  Let us underline this basic principle:  Limitation of the supply of any grade of labor relative to all other productive factors can be expected to raise its wage rate; an increase in supply will, other things being equal, tend to depress wage rates."  Mr. Samuelson wrote this just before the 1965 policy shift that sparked the resurgence of immigration, so he emphasized that restrictions "keep wages high."  Today we are concerned with the mirror-image implication:  As immigration increases the size of a skill group (such as low-educated workers), the wage paid to that group should fall.

Despite the intuition behind Mr. Samuelson's conclusion, economists have found it surprisingly difficult to document that immigration does, in fact, lower the wage of competing workers.  In 1997, the National Academy of Sciences concluded that "the weight of the empirical evidence suggests that the impact of immigration on the wages of competing native workers is small."

Recent research has finally begun to demolish the peculiar (yet influential) notion that an influx of more than 16 million foreign-born workers, which increased the size of the workforce by nearly 15%, had little impact on wages. In part, the problem has been that economists were looking for the wage effect in all the wrong places.

National wage trends confirm the common-sense notion that immigration has labor market consequences:  A larger pool of competing workers lowers relative wages. This does not imply that immigration is a net loss for the economy.  After all, the wage losses suffered by workers show up as higher profits to employers and, eventually, as lower prices to consumers.  Immigration policy is just another redistribution program.  In the short run, it transfers wealth from one group (workers) to another (employers).  Whether or not such transfers are desirable is one of the central questions in the immigration debate.

Layoffs have disrupted the lives of millions of Americans over the last 25 years.  The cure that these displaced workers are offered — retraining and more education — is heralded as a sure path to new and better-paying careers.  But often that policy prescription does not work, as this book excerpt explains.  It is adapted from "The Disposable American:  Layoffs and Their Consequences" by Louis Uchitelle, an economics writer for The New York Times.  Knopf will publish the book on Tuesday.

The presumption — promoted by economists, educators, business executives and nearly all of the nation's political leaders, Democrats and Republicans alike — holds that in America's vibrant and flexible economy there is work, at good pay, for the educated and skilled.  The unemployed need only to get themselves educated and skilled and the work will materialize.  Education and training create the jobs, according to this way of thinking.  Or, put another way, an appropriate job at decent pay materializes for every trained or educated worker.

If the workers were already trained, as the mechanics certainly were, then what they needed was additional training and counseling as a transition into well-paying, unfilled jobs in other industries.  If the transition failed to function as advertised, well, the accepted wisdom suggested that it was the fault of the workers themselves.  Their failure to land good jobs was due to personality defects or a resistance to acquiring new skills or a reluctance to move where the good jobs were.

Saying that the country should solve the skills shortage through education and training became part of nearly every politician's stump speech, an innocuous way to address the politics of unemployment without strengthening either the bargaining leverage of workers or the federal government's role in bolstering labor markets.

But training for what?  The reality, as the aircraft mechanics discovered, is painfully different from the reigning wisdom.  Rather than having a shortage of skills, millions of American workers have more skills than their jobs require. That is particularly true of college-educated people, who make up 30 percent of the population today, up from 10 percent in the 1960's.  They often find themselves working in sales or as office administrators, or taking jobs in hotels and restaurants, or becoming carpenters, flight attendants and word processors.

The number of jobs that require a bachelor's degree has indeed been growing, but more slowly than the number of graduates, according to the Labor Department, and that trend is likely to continue through this decade.  "The average college graduate is doing very well," said Lawrence F.  Katz, a labor economist at Harvard.  "But on the margin, college graduates appear to be more vulnerable than in the past."

The Labor Department's Bureau of Labor Statistics offers a rough estimate of the imbalance in the demand for jobs as opposed to the supply.  Each month since December 2000, it has surveyed the number of job vacancies across the country and compared it with the number of unemployed job seekers.  On average, there were 2.6 job seekers for every job opening over the first 41 months of the survey.  That ratio would have been even higher, according to the bureau, if the calculation had included the millions of people who stopped looking for work because they did not believe that they could get decent jobs.

So the demand for jobs is considerably greater than the supply, and the supply is not what the reigning theory says it is.  Most of the unfilled jobs pay low wages and require relatively little skill, often less than the jobholder has. From the spring of 2003 to the spring of 2004, for example, more than 55 percent of the hiring was at wages of $13.25 an hour or less:  hotel and restaurant workers, health care employees, temporary replacements and the like.

That trend is likely to continue.  Seven of the 10 occupations expected to grow the fastest from 2002 through 2012, according to the Labor Department, pay less than $13.25 an hour, on average:  retail salesclerks, customer service representatives, food service workers, cashiers, janitors, nurse's aides and hospital orderlies.

The $13.25 threshold is important.  More than 45 percent of the nation's workers, whatever their skills, earned less than $13.25 an hour in 2004, or $27,600 a year for a full-time worker.  That is roughly the income that a family of four must have in many parts of the country to maintain a standard of living minimally above the poverty level.  Surely lack of skill and education does not hold down the wages of nearly half the work force.

Something quite different seems to be true:  the oversupply of skilled workers is driving people into jobs beneath their skills and driving down the pay of jobs equal to their skills.  Both happened to the aircraft mechanics laid off by United.

The wage loss from layoffs is now a pattern that shows up not only in individual cases, like that of the United mechanics, but in national surveys as well.  Two years after a layoff, two-thirds of the victims say they are working again, according to the Bureau of Labor Statistics.  Of those two-thirds, only 40 percent, on average, make as much as they had in their old jobs, a less drastic result than that for the aircraft mechanics, but the same general breakdown.

The rest are making less, often much less.  Out of 100 laid-off workers, then, 27 make their old salary again, or more — and 73 make less, or are not working at all.  That downward pull contributes to the wage stagnation that has persisted for most of the work force, with only occasional relief, since the 1970's.

The process was like a funnel:  wide at one end, where all the laid-off workers go in, and narrow at the other, where a limited number gradually emerge into retraining and, if they are lucky, new jobs at decent pay.  Mark A.  Crouch, a professor of labor studies at Indiana University, used another analogy to describe the recycling of laid-off workers.  He called it a "burial program."

Economists at the University of California who have looked at the current job scene and calculated which of those jobs can be done elsewhere for less suggests that nearly one in nine of all US jobs are vulnerable to being outsourced.  That's a staggering 14 million white-collar jobs.  The 2004 UC report predicts that, by 2015, approximately 3.5 million white-collar jobs representing $151 million in wages will move overseas.  By the end of this year, the report sees 830,000 jobs leaving.

Who is embracing this enticing way to save money?  American companies for whom the requirement to compete in the global marketplace virtually demands they take advantage of this option.  The jobs affected include those in information technology, call-center operators, accounting, architecture, medical and legal services, and high-level engineering design.  By 2008, an estimated 700,000 jobs in customer service and the corporate back-office will move to India.

Even the federal government and some state governments have begin to outsource public sector jobs, including welfare and food stamp service jobs.

The Internet and the ability to move information by phone anywhere in the world is the primary reason for this, but it must be said that Asian nations have been concentrating for years on high standards of education to catch up and compete with the West.  They have long-term strategic goals, while we in the West concentrate on the next quarterly report.  As a result, there is an endless supply of educated, under-employed workers in India and China.

We think we are living in a global, free-trade world of endless possibilities, but this ignores the fact that Asian governments such as China, Japan, South Korea, Singapore, and Taiwan have policies that are designed to help certain industries for the precise purpose of competing with the US.  By contrast, the US government cannot seem to stop generating an endless flow of new regulations that impede the ability of every kind and size of business enterprise to compete.  It is estimated that the cost of complying with these regulations costs Americans $800 billion a year.

One only has to look at the nation's huge trade deficits to conclude that something is very wrong with the way we do business with the world.  This is not a call for tariffs or other obstacles, but it is a call for the reduction of government mandates that make it difficult to compete.

Now add the large numbers of illegal aliens flooding the US to take jobs in the construction industry and other enterprises.  Consider the fate of countless lawn care or janitorial services companies who cannot compete with those who employ illegal aliens.  Consider the $20 billion Mexicans sent home last year, an amount larger than Mexico's revenues from oil and tourism.

While jobs at the low end of the wage scale disappear for Americans, so too are jobs held by the middle-class.  The worse part of all this is that the government is doing nothing to address either the out-sourcing losses or immigration problems.  Even now the White House keeps calling for "guest worker" programs that, for migrant labor makes sense, but not for the other jobs Americans would gladly fill.  There are already programs that allow foreign white-collar workers to come here and replace higher paid US workers.

There are some indicators that American companies have discovered that out-sourced call centers are a turn-off for many American consumers, but this is cold comfort for the countless Americans, including the 1.8 million college graduates who join the labor force each year.

The result is predictable.  Unemployed US workers will pay no taxes, nor will they be buying all those foreign-made products that fill the shelves in American malls.  They will not be contributing to retirement savings programs or pension funds that would otherwise be used to invest in new business ventures.

This is a calamity already for those who must compete for blue-collar jobs and it is going to be the same for the middle class.  The ripple effect on the American economy will be widespread and awful.

Outsource the CEO!

It's the right and reasonable solution to the outsourcing problem.

Hey, hundreds of thousands of information technology jobs have gone overseas — with millions more headed the same way.  These range from basic customer-support call-center jobs to advanced programming.  The latest news says that even top design work for Intel chips and Microsoft software are being "offshore outsourced" to other countries.

So American workers are scared.  They've lost a job, or they're afraid of losing a job, and they don't know what to tell kids who ask what jobs to prepare for.

When an American programmer makes $60K and a Ph.D.-holding, English-speaking Indian programmer $6K, that's hard for companies to resist.  Add in the pensions you can skip here by laying off older Americans in favor of young Indians.  You can also use special visas to bring some of those foreign workers here to push down wage rates for the jobs that remain in the United States.  And you can stop paying for health-care benefits because they're covered by government in many other countries.  The savings just get bigger and bigger.  And you'll move to the lower U.S. tax bracket for overseas operations.  Plus you'll pocket the tax subsidies given by other countries to attract offshoring work.

And if those Indians get uppity and start raising their rates, you'll just threaten to move the jobs to China, with even more millions desperate for work, willing to work for less and less.

Then, with the savings, you could invest in new products and create new jobs back here at home, right?  Well, assuming you still think of America as home, an idea that doesn't actually have much meaning to a multinational corporation except when it's angling for local subsidies.

And you probably will create some new jobs, though it's unlikely they'll number anything like the jobs you killed.  Just what those jobs will be in isn't clear. New fields such as "stem cells" and "nanotechnology" get talked about, but they're not substantial yet, and the same countries eating up the information technology jobs are busy educating low-cost workers for these new fields too.

But hey, the Americans who still have jobs will get to buy your product at lower prices.  Well, after stockholders get a dividend and top execs get more options and a bonus, that is.

Which brings me to the question:  Why doesn't this outsourcing analysis apply to the CEO and other top execs?

You'll see it suggested a thousand times in angry discussions about outsourcing, from information technology workers laid off in their 30s, 40s, or 50s and unable to find another job for years.

Outsource the CEO first, they say.  Then talk to me about outsourcing my job.

Talk about overpaid:  American CEOs used to make 30 times as much as the average worker.  Now they make 400 times as much.  Add in the stock options, mega-pensions, corporate jets, club memberships, loans that don't have to be paid back, and the CEO total take is even richer.

There's the fat to cut, the waste to eliminate.

Other countries get fine executives for a fraction of what we pay here.  Many big European and Japanese corporations, those same outfits American companies cite when pleading that outsourcing is a necessity to stay competitive, pay the top bosses only $250K to $400K or so, and with minimal extra benefits and stock options.

And most of them already speak English.

In fact, this "outsourcing" could remain onshore, with a special immigrant-visa program to accommodate the arriving CEOs and their families.

Or, maybe, just maybe, there are some Americans able to guide large companies while being paid only $250 to $400K a year.

That means outsourcing one CEO could save as much money as killing a thousand programming jobs.  Outsource a few unnecessary VPs and directors too, and you're saving thousands more jobs.

You can plow that savings immediately back into your current workers or even into new hires.  Productivity goes up while the company still pays the U.S. taxes that allow more infrastructure and education spending.

Who knows, maybe we'll even have enough savings to reopen factories and start manufacturing more things here again.  Not everyone is interested in or cut out to be a programmer.

It's a win-win solution.

All we need is a law that says "outsourcing is OK only if you start with the highest-paid executives."

• How CEOs Get Raises
• Economic indicators...
• If There Was Justice in the World

Many jobs are trickling away now, in cuts designed to be too small to be picked up by the press.  The phenomenon is cloaked by the home-building and population boom.

But this is not just a story about Phoenix.  In November, layoffs nationwide topped 100,000 for the third month in a row.  The economy created only 112,000 jobs, not enough to keep up with the natural growth of the labor force.  This continues a pattern of weak job growth that has persisted since the recession.

Now that the election is over, will anyone in Washington admit we have a problem?  Probably not.  Nor will we hear much from business community.  I read in the newspaper that executives are optimistic about the economy in 2005.  No wonder, if they can boost profits by sending jobs offshore.

Yet if this is the future — caught in a race to the bottom where wages, benefits, retirement security and even basic worker protections are at risk — then many Americans are poorly prepared.

So far, this danger is obscured by the nation's amazing wealth, built during an era of unchallenged American economic domination and broad opportunity for the middle class.  That inheritance won't last forever.

The mantra persists that globalization is a net plus for America.  Nobel laureate Paul Samuelson is one of the few major economists to challenge what he calls this "polemical untruth."  For many Americans, the trend of the world economy is turning out to be a net loss.  Just ask the laid-off workers at Best Western.

We don't necessarily need protectionism.  We do need a serious conversation about the national interest, one that gets beyond the simple-minded slogans about "free trade."

We could hasten it by offshoring four categories of jobs:  the CEOs, politicians, economists and journalists who uncritically keep pushing the globalization bandwagon.

For the past four years, American companies have demonstrated great skill in keeping more pennies of every dollar for themselves and doling out fewer to workers.  As Isaac Shapiro and David Kamin of the Center for Budget and Policy Priorities have noted, between the first quarter of 2001 and the third quarter of 2004, the portion of GDP funneled into wages and salaries dropped from 49.5 percent to 45.4 percent.  Meanwhile, between the first quarter of 2001 and the second quarter of 2004, corporate profits as a percentage of GDP rose sharply from 7.8 percent to 10.1 percent.

Greater corporate profit margins are generally good news for stocks.  But in recent weeks, several shrewd observers have suggested that the rising profits are unsustainable if they're at the expense of wages.  Justin Lahart, the daily columnist at the Wall Street Journal wondered yesterday how much longer companies could avoid hiring and boosting wages while continuing to increase sales and profits.  "Wringing water out of a stone would be an easier feat." Noting the same data, David Merkel on TheStreet.com suggested "the only way to do better is for profits to become an even greater portion of GDP (labor unrest anyone?), or for interest rates to fall without harming profits."

But anyone who thinks American corporations are going to start shoving raises on employees is dreaming.  The notion that there will be some backlash — cultural, social, or political — against high-profit companies seeking even greater profits is either a misplaced fear or a misplaced hope, depending on where you sit.

In the last several years, labor-organized and unorganized — has been getting kicked in the teeth.  As corporate profits grew 40 percent in real terms between the first quarter of 2001 and the second quarter of 2004, wages and salaries grew by only about 0.3 percent in real terms, according to the CBPP.

In many sectors, labor is under a great deal of stress — if not outright assault — as a result of several macrotrends:  failing industrial companies with unsustainable business models, outsourcing, the threat of outsourcing, free trade, excess capacity, and a labor market that remains unaccountably slack three years after the recession ended.  Only 13 percent of the nation's workers are represented by unions, and employees have fewer advocates in Republican-dominated Washington than ever before.  Benefits like health care and guaranteed pensions are increasingly decoupled from jobs.  Just yesterday, Delta Airlines' unionized pilots voted to reduce their own salaries by almost one-third.  And yet there has been virtually no labor unrest, no pressure on corporations to stop worrying so darned much about profits.

The sluggish growth in wage and salary compensation could be partially explained by the fact that some workers — and unions in particular — accept slower wage growth in exchange for more compensation in health and retirement benefits.  And indeed, companies have found that while their wage bills have been relatively stagnant, their bills have been rising for health insurance (because medical costs have been soaring) and for pension benefits (because the slow stock market has forced companies to increase their contributions to plans).

Investors shouldn't worry too much about these rising costs, though.  For American corporations are increasingly viewing health insurance and pensions as cost items to be cut rather than as contractual obligations to be met.  And they're cutting these profit-hampering costs with abandon.  In a front-page article in yesterday's Wall Street Journal, Ellen Schultz documented the appalling trend of companies suing union retirees to slash benefits promised to them for life.  (One of the legal tactics is to "argue that contract references to 'lifetime' coverage don't mean the lifetime of the retirees, but the life of the labor contract.") Failing companies terminate health-care plans and dump retirement plans onto the federally sponsored Pension Benefit Guaranty Corp., instantly increasing their profit potential.  The passage of the Medicare prescription drug benefit has given firms an excuse to slash drug coverage.  Some large industrial firms want taxpayers to relieve them of the burden of living up to their health insurance commitments.  Or they shift costs onto employees — by increasing co-pays and offering bare-bones, high-deductible policies.  This long goodbye of welfare capitalism is far from over.

For much of the 20th century-first in the Progressive Era and then in the New Deal and its lengthy, prosperous aftermath — government acted as a countervailing force against the corporation's search for profits by imposing or raising taxes, assisting labor, or increasing regulations.  No longer.

The consulting firm Global Insight frets that in 2005, corporate tax breaks worth more than $300 billion, "representing well over one-third of the total value of all U.S. profits," are set to expire.  Relax.  In October, Congress passed a new round of corporate tax breaks.  With K Street-funded Republican majorities and a president who left his veto pen in Crawford, there's more where that came from.  And as part of the ownership society, we're likely to get legislation that will make it easier for companies to push the costs of benefits onto employees' balance sheet and off of theirs (see health savings accounts, for example).

The corporation may not be the pathological beast the eponymous documentary would have us believe it is.  But it is both ingenious and highly aggressive.  And with a permissive political environment and the persistence of long-term trends weighing in their favor, it may be too soon to call a peak in the power of American corporations to retain profits.  They could just be getting started.

For decades economists have insisted that the U.S. wins from globalization.  Now they're not so sure

Ever since Americans began fretting about globalization nearly three decades ago, economists have patiently explained why, on balance, it's a boon to the U.S. Yes, some Americans lose their jobs, either to imports or because factories move to cheap-labor countries such as China or India.  But the bulk of this work is labor-intensive and lower skilled and can be done more efficiently by countries that have an abundance of less-educated workers.  In return, those countries buy more of our higher-value goods made by skilled workers — for which the U.S. has a comparative advantage.  The lost jobs and lower wages in the U.S., economists say, are more than offset when countries specialize like this, leading to more robust exports and lower prices on imported goods.

Now this long-held consensus is beginning to crack.  True, China is emerging as a global powerhouse, realigning many economic relationships.  But in the long run a more disruptive trend may be the fast-rising tide of white-collar jobs shifting to cheap-labor countries.  The fact that programming, engineering, and other high-skilled jobs are jumping to places such as China and India seems to conflict head-on with the 200-year-old doctrine of comparative advantage.  With these countries now graduating more college students than the U.S. every year, economists are increasingly uncertain about just where the U.S. has an advantage anymore — or whether the standard framework for understanding globalization still applies in the face of so-called white-collar offshoring.  "Now we've got trade patterns that challenge the common view of trade theory, which might not be so true anymore," says Gary C. Hufbauer, a senior fellow at the Institute for International Economics (IIE), a Washington (D.C.) think tank.  A leading advocate of free-trade pacts, he still thinks white-collar job shifts are good for the U.S.

The great debate percolating among the country's top trade economists gained new prominence with a recent article by Nobel laureate Paul A. Samuelson in the Journal of Economic Perspectives (JEP).  In the piece, the 89-year-old professor emeritus at Massachusetts Institute of Technology, who largely invented much of modern-day economics, questions whether rising skills in China and India necessarily will benefit the U.S.

The reaction was swift.  Experts such as Columbia University trade economist Jagdish N. Bhagwati, who countered Samuelson in the next JEP issue, resist the notion that the new offshoring could lower U.S. wages or slow growth of gross domestic product.  After all, these economists have spent their professional lives ridiculing such conclusions as so much protectionist nonsense. Nevertheless, they aren't yet able to reconcile what's happening on the ground with the ideas they have so passionately defended.  "This is a whole unexplored question that is very controversial, and nobody has a clue about what the numbers are," says Robert C. Feenstra, a prominent trade economist at the University of California at Davis.

Global Labor Pool

The central question Samuelson and others raise is whether unfettered trade is always still as good for the U.S. as they have long believed.  Ever since British economist David Ricardo spelled out the theory of comparative advantage in the early 1800s, most economists have concluded that countries gain more than they lose when they trade with each other and specialize in what they do best.  Today, however, advances in telecommunications such as broadband and the Internet have led to a new type of trade that doesn't fit neatly into the theory.  Now that brainpower can zip around the world at low cost, a global labor market for skilled workers seems to be emerging for the first time — and has the potential to upset traditional notions of national specialization.

There are three ways this new development could disrupt the U.S. economy.  If enough cheap, high-skilled workers become available around the world, competition may drive down U.S. wages for a wide swath of white-collar workers. Even economists who still see overall net gains agree that this is a potential problem.  "For the first time, high-skilled U.S. workers are going to be exposed to international competition, though it's not clear how much it will hurt their wages," says Bhagwati.

A second concern is how much of the gains from trade will flow through to U.S. consumers.  Until now the pain of globalization has been borne by less than a quarter of the workforce, mostly lower-skilled workers, whose wage cuts outweighed the cheaper-priced goods globalization brings.  But the other three-quarters of American workers still came out ahead, since they weren't affected by foreign wage competition.  If blue- and white-collar employees alike are thrown into the global labor pool, a majority of workers could end up losing more than they gain in lower prices.  Then the benefits of increased trade would go primarily to employers.  "It's entirely possible that all workers will lose and shareholders will gain; you have to be concerned about that," says Harvard University trade economist Dani Rodrik.

Even that wouldn't be enough to completely derail comparative-advantage theory, which holds that higher profits from trade should more than offset the lower wages.  But again, for the first time, economists see another factor at play.  As skill levels improve in cheap-labor countries — for example, the new engineering class in India — competition is coming on in the very products for which the U.S. has had a global advantage, such as software.  If the new competition drives down prices too much, U.S. export earnings will suffer, and the entire U.S. economy could end up worse off.

While experts such as Hufbauer and Bhagwati doubt it will ever come to this, the fact that they're even entertaining such concepts is an intellectual sea change on a subject long considered settled.  When countries such as China can perform tasks in which the U.S. previously had a clear edge, "comparative advantage cannot be counted on to create...  net gains greater than the net losses," Samuelson asserts in his new paper.

The rethinking among economists could soon spill over into the policy arena.  No one is advocating new trade barriers, which could be a cure that's worse than the disease.  Nonetheless, the shaken views of so many prominent economists could prove to be critical.  Throughout the 1990s, Washington embraced new trade deals in large part because of the virtual unanimity among experts that trade always benefits the U.S. If they're not so sure anymore, the public consensus that was unsteady to begin with could start to unravel.

"A Right to Be Scared"

How large might the white-collar offshoring trend become?  The more jobs that go, the greater the impact on U.S. wages.  Consultant Forrester Research Inc.  (FORR) in Cambridge, Mass., was among the first to spot the white-collar job shifts and has done the most detailed projections so far.  It sees the pace of U.S. job flows abroad averaging 300,000 a year through 2015.  This is probably conservative since Forrester has also found that the number of U.S. companies among the 1,000 largest that engage in some level of white-collar offshoring will rise sharply — from 37% today to 54% by 2008.  Already, some 14 million white-collar jobs involve work that can be shipped electronically and thus in theory could be moved offshore, according to a study by economists Ashok D. Bardhan and Cynthia A.  Kroll at the University of California at Berkeley's Haas School of Business.

Another way economists gauge the potential wage impact is to look at examples of how people fare when they lose a job and extrapolate for those who might get displaced by offshoring.  Turns out that just 30% of laid-off workers earn the same or more after three years, according to a study of 22 years of BLS data by economics professor Lori G. Kletzer of the University of California at Santa Cruz.  Only 68% even hold a job at that point, while the rest are unemployed, retired, or perhaps at home with children.  On average, those reemployed earn 10% less than before, Kletzer found.  "Clearly, offshoring will be bad for U.S. wages, given what the job displacement numbers tell us," says Princeton University economics professor Henry S. Farber, who has written extensively about displaced workers.

But even if the incomes of more U.S. workers fall, won't the rest of American consumers benefit from the lower-priced goods and services globalization brings? Not necessarily, some economists now believe.  Most studies of trade's impact on pay, including Katz's, assume that factory-job losses simply shift the demand for labor from one kind of worker to another higher up the value chain.  So higher-educated workers gained much of what the less-schooled lost.

But if white-collar offshoring swells enough, the resulting job losses could undercut a large swath of U.S. consumers.  In part, this is a question of scale. There's little doubt that globalization is likely to continue to cut into the country's 14.5 million factory hands.  Add in 57 million white-collar workers suddenly facing global competition, too, and more than half the U.S. workforce of 130 million could feel the impact.  Then, economists conclude, the benefits of globalization would flow mostly to companies and shareholders who profit from the cheaper labor, with little pass-through to workers and consumers.  "If a majority of Americans have lower wages from outsourcing, then capital would be the prime beneficiary, even if U.S. GDP goes up," says Harvard's Freeman.

Domestic Disturbance

Could the offshore phenomenon even dent America's overall GDP?  Standard theory suggests not, but it's now another question nagging economists.  Ricardo's insight that all countries come out ahead when they trade more with each other was updated in the early 1900s by two Swedish economists, Eli F.  Hecksher and Bertil Olin.  They showed that Ricardo's idea holds even if high-skilled countries such as the U.S. trade more with low-skilled ones such as India, with each country specializing in products in which they have a relative advantage. Thus, it's more efficient for the U.S., where about 60% of the workforce has some college education, to export products that use their skills and import low-end ones from cheap-labor countries.  Conversely, India, where just a fraction of its 400 million-plus workers have gone to college, should grab the low-skilled work and leave higher-end products to the U.S.

She and others argue that countries will continue to specialize in what they do best.  Sure, India or China are taking high-skilled jobs in programming, but the U.S. will still outperform them in, perhaps, drug research or nanotechnology. Instead of thinking about comparative advantage in broad strokes such as high-skilled and low-skilled, they say, it makes more sense to make finer distinctions and look at areas in which countries have industry- or occupation-specific advantages.  "There will be specialization within industries, [which will bring] a lot of demand from India for our higher skills," says Bhagwati.

Other economists, however, such as Leamer and Rodrik, believe that in the new global economy, advantages from these kind of micro-level specialties will be fleeting.  After all, if the U.S. is better at aerospace research, there's no reason why China couldn't quickly ramp up college grads in that area, too.  It's already doing that in telecom and servers.

Leamer and other trade experts say the resulting price competition from rising stars such as China and India could overpower any economywide gains companies get from global sourcing.  They point to a famous 1968 paper by, of all people, Bhagwati, who argued that a country can be made worse off if trade lowers the price of products in which it has a comparative advantage.  Bhagwati called it the "immiserating" effects of trade.  In discussing the idea with BusinessWeek, Leamer wrote a short proof showing how a downward spiral of lower labor costs leads to lower export prices, causing immiseration.  Even Bhagwati concedes that his insight could apply to the U.S. today, though he thinks the chances are slim that it will.  "Bhagwati showed back then that a country can grow and get poorer, which might be this story, though I doubt it," says Hufbauer.

Indeed, it's possible that the U.S. already has suffered immiseration.  Mann's study found that the offshore exodus of U.S. chip factories accounted for 10% to 30% of the decline in the prices of personal computers and memory chips in the early 1990s.  These savings boosted U.S. multinationals' net exports of these products, and by 2000 the companies saw a $10 billion trade surplus in them.

But did the U.S. as a whole come out ahead?  Mann's study also shows that the country's overall trade deficit in these products plunged into negative territory in 1992 and has remained there ever since.  So while large U.S. companies gained from moving chip factories abroad, the overall U.S. economy may have lost.  "This looks like immiseration to me," says Leamer.

Globalization, say most trade economists, ultimately should benefit the U.S. more than it hurts.  But they can't yet show that to be true.  Until someone comes up with a convincing explanation for what happens when the highest-skilled jobs move offshore, battles over globalization are likely to rage even hotter.

America's high-end, high-paying IT jobs are increasingly moving to India, threatening the U.S.'s predominant position in the world and setting India up to become the next superpower, according to the author of a new book, Rising Elephant.

Ashutosh Sheshabalaya, a former journalist and technology consultant who heads Allilon, an IT services firm in Europe, is issuing a warning that the offshoring of U.S. high-tech jobs marks the remaking of the American workforce, as well as the world economy.

While offshoring IT jobs has raised concerns and voices in the high-tech community, Sheshabalaya says it's a far more complex and dangerous issue than most Americans understand.  He predicts that this relocation of high-value jobs will "erode the foundations of Western supremacy."

Sheshabalaya calls this the "real weapon of mass destruction."

"Entire chunks of the Western economic system may be eroding at a faster pace than few believed possible only a few years ago," Sheshabalaya contends.  "The consequences of the relocation process remain unfathomable...  momentous."

The author points out that while U.S. workers have suffered through the offshoring of textile and manufacturing jobs, this will be the first time the economy has had to deal with the loss of high-value jobs.  This is a direct assault on the American middle and upper-middle class.  And there should be no mistake, he adds, that India has any intention of simply pulling in low-end call center and programming jobs.  High-value, high-tech jobs are equally at risk — only the timing is different.

India's focus, Sheshabalaya says, is a "full sweep of high-value white-collar services."  He calls it the Great Displacement.

According to Forrester Research, an industry analyst firm, 3.3 million American jobs will move overseas by 2015.  Sheshabalaya notes that means 800 American IT jobs will move to India every day for the next 11 years.  Another analyst firm, Gartner Group, predicts that one in 10 U.S. tech jobs might be moved out by the end of this year.

Technology employment in the southern Indian city of Bangalore has overtaken that in Silicon Valley.

In a one-on-one interview with Datamation, Sheshabalaya talks about the failings of the American government to deal with this crisis, what happens when U.S. students stop studying computer science and America's waning days as a superpower.

Q:  You say India is positioning itself to become a world power — a superpower. Is this really possible?

It is not only possible — in many senses, it's inevitable.  The question is over what time frame will it happen.  This isn't an accidental success story that India is doing well in IT.  There is a massive consensus in India that this is a good way to leapfrog over all the challenges of development of a very poor country.  What is very important about IT is that it cuts across all the major interest groups in India as being one of the most crucial possibilities for the country to become a big power and then a superpower.

Q:  You use the phrase "the real weapon of mass destruction" when talking about this job relocation.  Are you saying that India pulling in high-skill jobs is virtually a WMD for the U.S., along with many European countries?

Actually, this is a quote from the Washington Times.  But I do agree.  It seems to have numbed and paralyzed many already.

Q:  What do you see happening to the U.S. economy because of offshoring?

Never before in history have high-end jobs moved out.  The biggest risk for the U.S. is that it gets caught by surprise in being a renter economy.  The U.S. could end up doing the final branding and packaging for the world market, while the work is actually be done elsewhere.  You cannot have an economy that does not have a skills base of its own...

The worry for me is that...  nobody is clearly putting across what comes after these high skill jobs leave.  Try to explain what will replace these high-skill sets.  The U.S. has long been the place where everything happens.  It was a place for discoveries.  If these skills go someplace else...  there could be a very big snapping of elasticity of the way it held everything together.

Q:  Do you think the U.S. government could be, or should be, doing more about this situation?

Definitely.  This is one of my biggest complaints.  Someone should have been explaining what is going on so people aren't side swiped.  The government is pretending there is no problem or that they can block the problem out of existence with legislation.  Not allowing job insurance for the IT profession is a problem.  There is an absolute need for that.  If this wave is accepted as being inevitable, then it's important to try to ride the wave...  They need to give incentives to Indian companies to hire people in the U.S. and that's just not happening.

Q:  In your book, you say U.S. students will stop majoring in computer science when they see that there are fewer jobs available to them here.  Is the U.S. moving toward a time when offshoring isn't a choice but a necessity because we no longer have trained people who can do the job here?

If students stop studying IT, there will be no choice but to go even faster into India.  It becomes a self-fulfilling prophecy.  Students should not be looking just at jobs here in the U.S. Why don't they look beyond the U.S.?  There are a lot of jobs — they just might not be here.

Q:  It sounds like you're predicting that the United States is moving into what will be a difficult time.

Oh, definitely.  There is no question about that...  Somebody needs to start talking about what is in the next stage.  There obviously is a kind of numbing about what is happening here.  There is a profound structural crisis coming.  What must be figured out is how this can be proactively handled.

A B-school professors' letter flunks the President on economic smarts.  An added sting:  It began at Harvard, his alma mater

George Bush, America's first President with an MBA, has been slapped on the knuckles by 169 concerned business-school professors.  In an open letter sent on Oct.  4, the senior business and economics professors say Bush's economic policies are taking the country in the wrong direction.  The academics, including two Nobel laureates, are especially critical of the budget deficit, which this year is projected to come in at more than $400 billion.

The unkindest cut of all:  The idea for the letter began in the faculty offices of Harvard Business School, where Bush earned his diploma in 1975.  The architects were Harvard professors of a required, first-year MBA course called Business, Government and the International Economy, which teaches the ins and outs of responsible fiscal and monetary policies and the ways in which politicians' decisions can impact society.

"WRONG DIRECTION."  "The data make clear that your policy of slashing taxes — primarily for those at the upper reaches of the income distribution — has not worked," the letter says.  "Nearly every major economic indicator has deteriorated since you took office in January, 2001... [and] if your economic advisers are telling you that these deficits can be defeated through further reductions in tax rates, then you need new advisers."

"Politically desirable policies can have negative economic effects," says Debora Spar, professor of business administration at Harvard, and one of the early signatories.  "If you look at [the U.S. economy] in a purely analytical way, just at numbers, they're all heading in the wrong direction."

All the professors who signed the letter — and more signatures are expected next week — are tenured or emeritus, and 50 hail from Harvard.  (Harvard Business School says the views are of faculty members who chose to sign the document, not of the institution.)  Two signers are Nobel laureates — Harvard's Robert Merton and William Sharpe, an emeritus professor from Stanford — and two have won Pulitzer prizes.

What should Bush do?  The letter doesn't spell it out exactly, but the signers point to the basic economics textbooks Bush would have read in the 1970s:  Reduce the budget deficit before it starts to act as a dead weight on the economy and forces interest rates higher.  That means spending cuts and tax increases.  "You can't have long-term tax cuts and have spending continue to grow," Wells adds. Or as the letter says, "from a policy standpoint, the clear message is that more of the same won't work."

CHICAGO SKEPTIC. The professors' letter also expresses concern for the widening gap between the haves and have-nots in America:  "Some degree of inequality is inherent in any free-market economy, creating positive incentives for economic and technological advancement.  But when inequality becomes extreme, it can be socially corrosive and economically dysfunctional...  With all due respect, we believe your tax policy has exacerbated the problem of inequality in the United States, which has worrisome implications for the economy as a whole."

GRADE. Yet others say the letter could have gone further.  What about job losses to overseas outsourcing and record levels of consumer debt, asks Daniel Smith, interim dean at Indiana University's Kelley School of Business?

Bush hasn't responded to the criticism.  But one thing is clear:  If the President were to visit his alma mater and present his case for spending and cutting taxes, many professors "wouldn't give a stellar grade by any stretch of the imagination," says Spar.  For a school known for its apolitical approach to business issues, this Harvard experiment is one that Bush may want to take to heart.

NEW YORK (CNN/Money) - The CEO's at the nation's largest companies saw their raises more than doubled in 2003 as the median raise handed out by S&P 500 companies to their top executives was 22.18 percent, according to a study by The Corporate Library.

The watchdog group said that stock options and awards of restricted stock drove the larger pay hikes.  But most elements of the pay — base salary, annual bonuses, restricted stock, long-term incentive payout, value realized from stock options and total compensation — showed increases.  The only type of compensation not to show a gain was the value of stock option grants during the year.

"This double-digit rise in pay shows that calls for pay restraint appear to be being ignored," said the statement from the group.

It said four S&P 500 companies — Apple Computer (AAPL:  Research, Estimates), Oracle (ORCL:  Research, Estimates), Yahoo! (YHOO:  Research, Estimates) and Colgate-Palmolive (CL:  Research, Estimates), upped their CEO pay by well over 1,000 percent.

The compensation for all CEOs, a total sample of 1,429 companies, show median pay increases of 15 percent, up from 9 percent increases in 2002.  The median is the pay increase at which there are the same number of pay increases that are greater and that are less.

• How CEOs Get Raises
• Economic indicators...
• If There Was Justice in the World

Setting boundaries

It's a story that could come from a Tom Clancy book — a terrorist cell looking for an advantage against the powerful U.S. military trains a group to be software programmers, who then infiltrate companies that have sent their software development work overseas.  Working for those companies, the programmers surreptitiously put vulnerabilities in software.

The concept may seem far-fetched, but so did using planes as weapons prior to Sept. 11, 2001.  And given the importance of networks in the nation's day-to-day activities and in military operations, information security is even more critical now than it used to be.

As more technology work — specifically code writing — is outsourced to cheaper labor overseas, lawmakers and industry insiders are becoming increasingly concerned with what could amount to a large hole in the Defense Department's vaunted security.

For various reasons, DOD officials have made a concerted effort in recent years to purchase commercial off-the-shelf (COTS) software rather than develop it in-house.

The problem they face, however, is that the vendors on which the military has become dependent are sending much of their software development work overseas to cut costs.  Offshoring may make economic sense for the companies, but the security ramifications are starting to raise red flags for Congress, the Pentagon and some vendors.

At a meeting of the House Armed Services Committee last year, Eugene Spafford, a professor of computer sciences at Purdue University, said that anyone with an Internet connection can get the information necessary to launch a successful cyberattack on virtually any computer network.

"With bulletin boards and discussion lists...  anyone can learn sophisticated attack methodologies," he said.  "There is a virtual worldwide training camp going on on a continual basis."

"But there are some downsides to the department's increased dependence on COTS," he added.

Namely, much of the commercial software that DOD agencies use was never intended to be subjected to the significant threat level of the department's networks. Spafford noted the inability to determine the code's authors or their intentions or politics.

Using foreign labor "has been wonderful for the economy," he said, "but it has introduced tremendous vulnerability to our software."

Mounting evidence

Yet a July 2003 Gartner Inc.  report states that corporate spending for offshore information technology services will increase from $1.8 billion in 2003 to $26 billion in 2007, and work going to India will account for about half of that $26 billion figure.

A June 2 Congressional Research Service report addresses outsourcing concerns and warns that they could be an issue that Congress must face in coming years.

"An increase in offshore outsourcing of high-tech jobs, including computer programming and chip manufacturing, may enable a transfer of knowledge and technology that may eventually threaten U.S. global technical superiority and undermine current [network-centric warfare] advantages," the report states. "Contracting for national defense is reportedly among the most heavily outsourced of activities in the federal government."

"DOD acquisition and software security policies do not fully address the risk of using foreign suppliers to develop weapon system software," according to GAO's report, titled "Defense Acquisitions:  Knowledge of Software Suppliers Needed to Manage Risks."

"The current acquisition guidance allows program officials discretion in managing foreign involvement in software development, without requiring them to identify and mitigate such risks," the report continues.

"Moreover, other policies intended to mitigate information system vulnerabilities focus mostly on operational software security threats, such as external hacking and unauthorized access to information systems, but not on insider threats, such as the insertion of malicious code by software developers," the report states.

A quick fix?

Executives at some companies have already recognized the business opportunities associated with plugging security holes and are working to capitalize in that narrow field, especially with government agencies.

Code review is typically a laborious and expensive process, often requiring experts to spend days poring over lines of code, looking for mistakes or flaws.

"We founded the company to identify where security vulnerabilities exist inside applications," Danahy said.  "Our tool doesn't just look at the code itself, but looks at it in context.  It looks at the code in a different way and can expose more potential security flaws."

He said companies need to be held to a higher standard than they are now when it comes to providing software that keeps the federal government running.

Linux worries

Another potential hole comes with the introduction of open-source software, such as Linux.  Linux writers and advocates attest to its security, but others say that software written and examined by the masses cannot be truly secure.

Dan O'Dowd, president and CEO of Green Hills Software Inc.  in Santa Barbara, Calif., said Linux advocates argue that a "many eyes" approach to security is as good as any test DOD officials could create.

"It's false security, pure and simple," O'Dowd said.  "The argument that nobody could possibly slip by subversive code simply because a lot of people get to examine the code makes no sense."

He argued that many Linux programmers are not U.S. citizens, and someone with malicious intent could easily develop a Trojan horse, a back door into the application or a time bomb.

"We have to recognize who we've been up against so far," O'Dowd said.

"It's been script kiddies in high school and college and pranksters.  The people we need to worry about — and haven't been — are the professionals," he added.

What comes next?

Michael Rasmussen, an information security analyst with the Massachusetts-based firm Forrester Research Inc., said the key to code security is oversight from the beginning.

"What is needed is software assurance in the development of the contracts, whether the contracts come directly from DOD or from one of its business partners," Rasmussen said.  "Commercial software might have a back door, and DOD needs to work with vendors to put in contract language that gives a level of assurance through code audits and reviews."

Rasmussen said government agencies also should demand certain warranties that would include appropriate damages levied against offending vendors if they don't follow through with security measures.

"For too long, customers have been willing to accept software in whatever condition they receive it," Kelly said.  Then, they take the time to fix and patch it.  "But [public- and private-sector officials] have begun to say, 'Enough.' Vendors are going to be held accountable to meet a minimum in quality."

But on the other side of the globe, it is a different story.  As the BPO juggernaut rolls across India, empowering the young techie, the US techie is paying the cost.  Cost cutting and constant layoffs in the IT sector have weighed down on techies' morale to a great extent in that country.  According to a study done by Meta Group, low IT-worker-morale is a major concern for tech firms.

IT pros in the United States are learning to adjust to austere lifestyles and trying to get into or hold on to a tech job that pays around a fifth of what it paid five years ago.

Others are left cursing their underemployed status.  Strange as it may seem, as the IT sector bounces back, the US techie is untouched by all the boom.  And these are the pioneers of the dot-com boom and the Internet economy!

Of course, there is no greater lie than the suggestion that economic globalization done along corporate-friendly lines has been good for the world's poor.

Just as this form of globalization has robbed American communities of factories and service jobs and has impoverished farmers in the United States, so it has deprived the poor of developing countries of traditional livelihoods and hope for a better life.

It has to be that way because, for multinational corporations to reap the excessive profits their shareholders demand, they must squeeze the last penny out of even the poorest of the poor.

Yet, while that much should be obvious, you will still see the dupes and stooges of corporate capital pitching for free trade, market reforms and privatization. Unfortunately, while they are consistently wrong, the dupes and stooges continue to occupy stations of great influence in both major political parties and most of the major media in the United States.  As a result, the lie that says globalization leads to prosperity for the poor continues to be spread.

But it is going to be harder to sell the lie, now that the results are in from India's national elections.

India has been held up in recent years as a globalization success story.  The country's high-tech economy and its much-talked-about "call centers" — where so many U.S. companies service their accounts - have become symbols of the sort of globalization that is, at the least, good for the poor.  Critics of outsourcing point to India as the place where U.S. jobs are being shipped, with some accuracy.  But supporters of globalization respond with the claim that India's rapid growth rate is creating a better future for historically dispossessed people.

Last week, the people of India got a chance to weigh in.  And guess what?

Supporters of corporate globalization were voted out of office in the most stunning political upset in the country's history.

The ruling Bharatiya Janata Party had embraced the corporate model of globalization, willingly accepting the dictates of the World Bank, selling off even profitable state-owned firms to foreign investors, and dramatically cutting business tax rates.  A small sector of the India economy did boom, and the BJP sought a new term with a campaign that celebrated that growth.  Its slogan was: "India shining."

Pollsters, pundits and business analysts predicted an easy victory for the BJP.

But the voters had a different view.  They recognized that India's so-called "boom" has not shined on most Indians.  As one opposition party slogan asked, "What did the common man get?"  The answer was "nothing."  And in India, where poor people vote at the same or sometimes higher rates than the rich, anger over the elitist nature of the boom proved to be decisive.

This already has the backers of corporate globalization grumbling.  The New York Times editorial page, long the champion of "free trade" and "market reforms," got busy urging the new leadership of India to maintain the economic policies of the BJP.

But the Times was forced to acknowledge a little bit of reality:  In "a country where poor people vote in large numbers, most of them remain unimpressed" with those policies.

The poor don't usually get a voice in economic decision-making.  But when they are given a chance to vote, and when they take that chance, the corporate model for economic globalization invariably loses.  That's because the poor, unlike the editorial writers for the New York Times, have learned to recognize — and reject — the lies.

CAMBRIDGE, Mass. — Few people know it, but the invention of the microwave oven can be traced back to an inquisitive engineer's sweet tooth.

It happened one day in 1946, the story goes, when Percy Spencer noticed that a candy bar had melted in his pocket while he was testing a new magnetron vacuum tube for Raytheon, as part of its radar research that began during World War II. Intrigued, he placed some popcorn kernels near the tube, and an egg, the next morning—and discovered that the intense heat had similar effects.

"Scientists familiar with magnetrons knew the tubes generated heat at the same time they radiated the microwave energy that made radar possible," reads the official history of the company, which was founded more than 80 years ago here near Harvard University, the Massachusetts Institute of Technology and other crucibles of advanced research.  "Spencer was the first, however, to discover that one could cook food using microwave radio signals."

History is full of accidental inventions like this, especially in the United States:  Teflon, Coca-Cola and nylon all emerged as serendipitous offshoots of unrelated research.  And that is exactly why many U.S. corporate and political leaders believe that it is imperative for the nation to maintain its emphasis on advanced research and innovative science.  With more resources and policies concentrated on research and development, they argue, the better the chances are for the United States to make more important scientific discoveries.

By luck or design, American technological breakthroughs have resulted from a combination of industrial research, government-funded academic work and commercial competition.  Such "disruptive" technologies are needed today more than ever to lead the next industrial cycle — otherwise, U.S. companies risk being eclipsed by other nations, as more high-level R&D work is done offshore in an increasingly global marketplace.

The goal, R&D proponents say, is for U.S. researchers to leapfrog the competition with breakthrough products, thereby lessening the significance of innovation by other countries working on existing technologies.

"Much of America's technological preeminence in the 1990s was attributable to R&D investments made by the federal government in the 1960s, 1970s and 1980s. Past technology advancements stimulated by federal R&D include integrated circuits, the Internet, personal computers, jet aircrafts and supercomputers," the American Electronics Association said in a recent report on offshoring and related issues.  "University-based R&D in the physical sciences MUST be increased.  Many U.S. trading partners and developing countries have more generous and permanent R&D tax incentives than the United States."

In addition to investing in these cutting-edge areas, mainstream computing companies continue to spend money and resources on new, more-efficient tools for building key infrastructure, such as software, microprocessors and networking components.  But even in areas where U.S. industry has been long established, it could prove difficult for companies to maintain preeminence, as offshoring helps build greater skill levels in other countries.

Although much attention has focused on Asia, Eastern Europe could provide a far more formidable challenge to the United States in high-level research because of its deep roots in sophisticated technology.  The former Soviet Union consistently produced some of world's most prominent scientists, especially during its massive defense buildup to counter the Pentagon's "Star Wars" satellite program and other high-tech initiatives during the Cold War.

Tech Update Outsourcing Toolkit "Now, engineers with Ph.D.s and recent college graduates alike are hearing that they are too expensive, that their job can be done more cheaply abroad," Paul Almeida, president of the Department of Professional Employees at the AFL-CIO, said in testimony at congressional hearings on offshoring.  "If an advanced degree, years of experience and excellent work habits are not enough to land a job, and the U.S. comparative advantage in services and high tech has seriously eroded, what does the future of work look like for the United States?"

A 2000 study from the nonprofit National Research Council found financial disincentives to pursuing advanced degrees in computer science.  Factoring in school costs, the study concluded that someone taking a year to earn a master's degree in computer science would need about 10 years to achieve the same total earnings as someone who goes to work immediately with a bachelor's degree in the field.  Someone taking five years to earn a doctorate in computer science would need about 50 years to make an equal amount of money.

In April, 2003, Kevin Flanagan, a computer programmer with Bank of America, was fired from his job after being forced to train his replacement, an Indian worker who was taking over Flanagan's job as part of Bank of America's effort to replace its American workforce with foreign labor.

Flanagan walked outside into his office parking lot and shot himself to death.

A year later, it's no surprise that the impact of foreign labor on American workers has become a potent political issue this campaign season.  What Americans need to understand is how complicit the U.S. government has been in helping large corporations secure cheap foreign labor, and the impact that has had not just on American workers, but on the foreign laborers doing their jobs for a fraction of their wages.

And while some members of Congress, fresh from depositing their campaign contribution checks, were justifying their pro-industry votes with the industry line that Americans — the people who invented computers — were just too lacking in skills to program them, story after story emerged of middle-aged American IT workers fired and replaced with 25-year-old foreign nationals.

As a final indignity, these American workers — many with families, American mortgages to pay, and college tuitions to save — are often required to train their own replacements in order to receive their desperately needed severance packages.

Remarkably, in spite of the number of Americans devastated by the employment visa programs, and despite the fact that the injustices would seem to make scrapping them an easy moral call, some of those in Congress continue to work aggressively to import even higher numbers of both skilled and unskilled foreign workers.

Rep.  Chris Cannon, R-Utah, has in many ways taken the leadership role in increasing immigration (a role he took from former Michigan Sen.  Spencer Abraham, whose immigration policies played a major role in his 2000 defeat.)  The Washington Post has called Cannon the "point man" in Congress for Bush administration efforts to push for an illegal aliens amnesty

As the impact on Americans grows more severe, however, a political backlash becomes increasingly likely.  Even cynical veterans of the anti-H-1b wars, who for years have been resigned to the influence of corporate interests in American politics, are beginning to talk about real signs of a major shift.

Meanwhile, a disgruntled former IT worker has gathered compelling evidence of what appears to be questionable financial arrangements between Cannon and those who profit by his cheap labor votes in Congress.  Salt Lake City's Deseret News printed a letter from the worker detailing the evidence, which was picked up by the RescueAmericanJobs Web site.  On Monday, the former IT worker filed a formal ethics complaint.

Nevertheless, it remains to be seen whether any of this will result in change in Washington.

Yet somewhere in America, a middle-aged American will be training his replacement how to do his job at half the cost, and wondering what will happen to his family once the severance money runs out.  As he cleans out his desk, another group of smart, young lobbyists in thousand-dollar suits will be telling some member of Congress how their client, an IT giant, has really, really tried to find an American who can program computers.

Sending jobs offshore to countries like India seemed like a sure bet.  Now, some firms are having second thoughts.

Offshore for sure?  Businesses are thinking twice about taking the outsourcing plunge

Newsweek April 19 issue — Wesley Bertch admits he fell for offshore outsourcing "hook, line and sinker."  So when Bertch, chief techie for Minneapolis-based Life Time Fitness, a health club chain, needed software to evaluate potential new locations for gyms late last year, he looked overseas where he could pay $6 an hour instead of $60 for programmers.  He hired a large, reputable Indian outsourcing firm a few months ago, then sat back and watched his troubles mount. Not only did the offshore team produce code that was full of bugs, they ran up big bills working overtime to fix their mistakes.  Bertch finally canned the offshore contractors, hired several local programmers and started preaching to industry colleagues that managing such projects across oceans is doomed to failure.  His biggest surprise?  "I've since talked to scores of my peers, and we are all singing from the same hymn book," Bertch says.

Until recently, sending jobs overseas seemed like a bulletproof business strategy.  By outsourcing routine tech and customer-service jobs to educated, eager workers in countries like India and the Philippines, companies sharply cut costs — savings that outweighed the inevitable negative publicity.  The movement has gained such momentum that it's become a big election issue, with candidates sparring over "Benedict Arnold CEOs" and how best to keep jobs in the United States.  But many American companies are discovering that sending work to low-wage countries is not as easy or as inexpensive as advertised.  In hotspots like Bangalore, wages and real-estate prices are soaring to record levels — though still generally a fraction of U.S. costs — which cuts into potential savings.  As U.S. companies move from exporting call centers to outsourcing more complex work like software development, they're finding overseas workers are often ill-equipped to deliver consistent, quality work.  The bad experiences are creating a boomerang effect — the return of jobs to the United States — which some have dubbed "onshoring."  Analysts at research firm Gartner have declared 2004 the start of the "trough of disillusionment" with offshoring.

In recent months, some big-name companies have lent credence to those concerns. In December investment bank Lehman Brothers yanked back a 20-person help desk set up to solve computer problems for its U.S. workers, citing the need for quick, on-site responses.  Last month credit-card firm Capital One pulled out of a contract with a 250-person call center in New Delhi, after workers were caught promising unauthorized lines of credit to potential customers to boost sales. Dell, hearing complaints of thick accents and poor service from customers who were patched through to one Indian tech-support center, has also relocated that office to the United States.  The firms each say they are committed to keeping other operations overseas, though.

G.V. Dasarthi, a mechanical engineer in India, says that developing new technologies is not yet his country's specialty.  He recently wrote an online article arguing that there isn't much support for innovation or creative thinking in India.  Its genuine technology prowess, he says, "is being drowned out in the hype that surrounds the outsourcing industry."  The hype in the U.S. may die down as more companies figure out what work they can send overseas, and how to manage it from afar.  In the meantime, the real innovation seems to be in finding new ways to sell it to an uneasy public.  The latest term making its way through corporate America:  "right-shoring."

As the political backlash over the wholesale movement of IT services and business process outsourcing jobs to cheaper labor markets gathers pace, those with the most to gain from offshoring are keeping very quiet.  Many companies considering an offshore strategy are very reticent to reveal their plans because they are wary of a backlash from consumers and their soon-to-be-redundant workforce...

One BPO vendor recently said at a conference that as these companies go to ground, they are leaving the vendors to take the flak.  But now vendors have joined them in a virtual vow of silence, and are trying to deny that moving work to lower cost countries should be called offshore at all.  For example, an IBM spokesperson recently said that IBM does not do "offshoring" because it is a global company and has always had operations in places such as India.

Such doublespeak is already rife in the industry, and the use of the word "offshore" is often replaced.  Cap Gemini Ernst & Young calls it "Rightshore," Computer Horizons and EDS both use "Bestshore," and BearingPoint calls it "Anyshore," for example.

We've heard managers speak of how Indian employees "love doing repetitive tasks," how cutting 1,000 jobs in Ohio gave one call-centre manager a "fantastic opportunity to move up the value chain to project management," and how touched one executive was by the maturity of his staff training up Indian counterparts to replace them for a third of their wages.  No one mentions Kevin Flanagan, the Bank of America employee who shot himself after he lost his job in an outsourcing initiative.

Arguments for and against

Occasionally the infamous McKinsey report gets wheeled out, which claims that for every US $1 spent on offshore jobs, the US economy gets $1.12 back, but everyone knows the benefits of the $1.12 don't go to the same people that benefited from the $1 in the first place.

A consequence of all this cowardice is that much of the great outsourcing debate is never aired — such as the behaviour the public can expect from multinationals, the rights of less powerful nations to utilise free trade to their own advantages for once, and the alleviation of poverty through the economic investment and jobs brought to developing nations.  Minor points, we know, especially when $0.01 earnings per share is at stake, but it would make the debate a bit more interesting if Nasscom and outsourcing vendors would at least stand up and fight.

Suddenly this job drain is a central issue of the presidential campaign, prompting calls for new protectionism and providing fodder for the pulpits of cable news and the front pages of newspapers.

America is at war with itself.  Firms here need the latitude to compress costs by shipping labor and production to ever-cheaper markets offshore.  Yet American workers need to protect their livelihoods.  Caught in the middle — and exploiting the hell out of it — are outsourcing firms in bootstrap markets, eager to serve U.S. companies and their customers.  In the ensuing outcry, Senator John Kerry calls offshoring U.S. firms "Benedict Arnolds," while CNN anchor Lou Dobbs hammers job-exporting "offenders" nightly.  Thirty-one states have proposed antioutsourcing legislation, and the U.S. Senate has voted to ban the practice for federal contracts.

Whatever the economic wisdom of such legislation, it seems unlikely to stop a powerful trend that makes many kinds of service jobs as readily exportable as factory work.  "What we are really seeing is the unintended consequences of globalization," says Nandan Nilekani, chief executive of Infosys, one of India's outsourcing giants.  Some benefits are clear-cut:  a better bottom line for businesses, higher returns for investors, cheaper services and $80 DVD players for Americans.

In the U.S. some casualties of the offshore wave remain bitter and financially devastated.  "I could understand if this was benefiting us, but people are losing their homes," laments Odell Williams, who has applied for 300 jobs, unsuccessfully, since EDS laid him off in July 2002.  At Milpitas, Calif.-based PalmOne, manager Natasha Humphries spent two weeks in India training workers in software testing — then got laid off in August, replaced by one of her trainees.  (PalmOne says Humphries' work is still being done in Milpitas.)  "They used us and then discarded us," she says angrily.

And now India has to watch its back.  With Indian tech salaries on the rise, says Infosys Chief Nilekani, the country must build on its reputation for quality, not just price, to keep the jobs that have flooded in from the U.S. and Europe. Salaries in China are lower than in India, and Chinese companies have sent teams to India to learn how to set up their own offshoring companies to serve Western clients.

Meanwhile, what should workers in America do?  Nilekani recommends pursuing careers in specialties that cannot be delivered over a wire.  "If someone is a cardiac surgeon, he will not be displaced.  But if you are a radiologist, somebody from Bangalore is liable to check X rays."  That is cold comfort to a laid-off engineer in Silicon Valley; retraining to become a surgeon would take another nine years.

Outsourcing, offshoring ...  whatever you call it, shipping American jobs overseas is big news.  It's a juicy campaign issue that has Democrats salivating and Republicans bleating, "Hey, what's the big deal?"

Since offshoring could never happen to ME, I can take a dispassionate, ivory tower view of it all.  After analyzing it for half an hour or so, I've found some aspects of the subject that haven't been talked about.

First, we need to think more about our children.  Some jobs are more likely to be offshored than others, and we need to steer our children toward safe occupations they can do only here in the United States.

Any work that involves shuffling paper can easily be done in India or China.  So Junior and Sis should be nudged toward work that requires physical presence, such as making funnel cakes or doing nails.

The reason everyone's worked up about offshoring now is that it's no longer clear where this could end.  If a quasi-white-collar job such as working in a call center can go to India, what's next?  Computer programming?

Oh, right ...  that's happening already.

It's worrisome, but we shouldn't have a knee-jerk reaction.  Offshoring, as President Bush's economic adviser famously said, can be good.  Once you start thinking outside the box, all sorts of attractive possibilities come to mind.

How about lawyers?  Most of them work in offices writing long, boring briefs.  Why couldn't some smart, educated Indian do that?  We could get legal services for $20 a day instead of $200 an hour.

How about education?

Most of the higher-education establishment could be shipped overseas, too. Professors could give their lectures on video monitors.  Heck, at some big universities they've been doing that for years.

Come to think of it, we could ship the student body abroad as well.  After all, what would be the point of having Indian professors teach American students to do jobs that are going to be taken over by Indians anyway?

Offshoring is so appealing that some of us might volunteer for it.  I'd happily see my job shifted to some low-cost Caribbean island where it would pay half as much, so long as they'd ship me there to do it.

Corporate CEOs take note

If you work in a big company, you've probably noticed that a lot of people you work with are never there.  Some are bosses whose offices are always dark. Presumably, they're doing something useful somewhere, like meeting with bean-counters or buttering up their own bosses.

If they're not needed to run things day-to-day, send those jobs to Calcutta.

When's the last time you actually laid eyes on the top executives who run your company?  Never?  In lots of cases, they work in headquarters that are thousands of miles away.  Couldn't memos saying "cut costs" or "raise profit margins" be sent just as easily from New Delhi as New York?

Sure they could.  There are millions of talented, educated, hard-working Indians just chafing for a chance to run big American corporations.

And they wouldn't demand all those stock options, corporate jets and country club memberships that Americans do.  Offshoring management could save companies fortunes.  That would stoke profits and make stock prices skyrocket.

APRIL 05, 2004 (COMPUTERWORLD) — Here's a comforting bedtime story:  Offshoring won't just save companies money.  It will also create jobs.  And reduce inflation. And grow the economy.  Those are the top-line conclusions of a new report from the Information Technology Association of America, the IT vendors' lobbying group.

Just don't read very far past that top line — at least, not if you want to get any sleep tonight.

See, the report says those new jobs won't be IT jobs.  And that reduced inflation will come in part from lower pay — "wage compression," as it's charmingly dubbed by the report's principal author, Global Insight Inc. chief economist Nariman Behravesh.

And that economic growth depends on the willingness of the foreign employees who get our offshored jobs to spend their paychecks on U.S.-made exports.

Don't take my word for it.  It's all in the report, brought to you by the people who, just a few years ago, were saying that the U.S. desperately needed to increase its IT workforce.  Yes, really.  Since early 2000, the ITAA has predicted the creation of more than 4 million new U.S. IT jobs — 1.8 million of which would go begging because there just wouldn't be enough IT people to fill them.

How many new U.S. IT jobs have actually been created since 2000?  According to the ITAA's own annual jobs report, maybe 400,000.

But wait — according to this new report, since the dot-com bubble burst in 2000, a total of 372,000 software and IT services jobs have been lost in the U.S. (Only 104,000 were lost to offshoring; the rest went because of the recession, productivity gains and an end to what the report calls "overhiring.")

The new report also predicts that "in the software and services area, the economy will create 516,000 jobs over the next five years in an environment with global sourcing but only 490,000 without it.  Of these 516,000 new jobs, 272,000 will go offshore and 244,000 will remain onshore.  Thus the U.S. IT workforce will continue to grow."

So, let's do the math:  Without offshoring, the U.S. gets 490,000 new IT jobs in the next five years, a net increase since 2000 of 118,000 U.S. IT jobs.  With offshoring, the U.S. gets 244,000 new IT jobs — a net loss since 2000 of 128,000 U.S. IT jobs.  Some growth, eh?

Yes, there will be new jobs — in education, health services, transportation, utilities and construction, all areas where the work can't easily be shipped overseas.  They just won't be jobs in IT.

At least that's what the ITAA's offshoring report says.  Is it true?  Well, remember that this report is driven by politics every bit as much as the ITAA's wildly optimistic job-growth estimates of a few years ago.

Back then, the ITAA was lobbying for more H-1B visas, and its jobs survey miraculously showed a spectacular increase in the number of U.S. IT job openings about to be created.  Now the ITAA is lobbying against restrictions on offshoring.  And, amazingly, its new report concludes that offshoring will do everything but whiten teeth and freshen breath.

So if you're a techie, you may be able to sleep a little easier.  After all, you already know what you need to do in order to dodge the offshoring bullet:  build up your business skills, increase your face time with users and generally become the kind of IT person whose job can't easily be shipped overseas.

And if you're an IT manager or CIO?  Then it's not so easy.  See, some people will take this report seriously.  Like your best techies, who may decide to bail out of a shrinking IT job market.  Or the brightest students, who may conclude that IT is a dead end and opt for business or law or medicine instead.

That could leave you with the loss of your best people and not enough new kids coming in to replace them — a staffing nightmare, courtesy of the ITAA's fumbled efforts to hype the benefits of offshoring.

Pleasant dreams.

Outsourcing refers to work done by people other than a corporation's full-time employees; the outsourcing we will refer to henceforward is that in which a corporation divests itself of those elements in the process of production which bring in modest or little profit in terms of the capital invested.  These less-profitable or peripheral activities can be performed, supposedly more efficiently, by other, usually smaller, corporations, which gain efficiency by concentrating on the activity itself, honing the productive process so that it can create new efficiencies, making profits which the larger corporation would not be attentive enough to generate.

With the 1994 US acceptance of the General Agreement on Trade and Tariffs (now subsumed into the World Trade Organisation), a new aspect of outsourcing emerged.  Since a worker in Mexico would do for a dollar an hour what a worker in the USA did for $25 an hour, corporations laid off millions of US workers and sent their jobs to Mexico.  But then it transpired that Mexican labour at $1 an hour was a lot more expensive than labour in China, where production workers work for of a fifth or a quarter of the Mexican wage.

In 1817, British economist David Ricardo propounded a principle that he said governed capitalist production.  "The natural price of labour is that price which is necessary to enable the labourers to subsist and to perpetuate their race, without either increase or diminution.  When the number of labourers is increased, wages again fall to their natural price, and indeed from a reaction sometimes fall below it." Ricardo's Law was true then, and is true now:  unless there is a scarcity of labour, wages tend to drop lower and lower, till they reach a point where they equal the minimum amount required to keep a worker alive.  On an international scale, which is clearly in operation today, Ricardo's Law is the dynamic behind the phenomenon known as "the race to the bottom." Everywhere, MNCs seek lower and lower wages.  If Mexico pays more than China, send the jobs to China.  If China begins to pay more than Vietnam, send the jobs to Vietnam.  And pay the Vietnamese worker only what is required for him or her to have sufficient strength to show up at the factory gate tomorrow.

The only way to counteract Ricardo's Law within a domestic economy that has more workers than jobs is when workers organise labour unions, and use their collective strength to provide a counterforce to the race to the bottom in their place of work.  (Strong labour unions in middle third of the 20th century is the reason US manufacturing jobs paid as well as they did, $20–25 an hour.)  The only way to counteract Ricardo's Law in a global economy where there are more workers than jobs, is by putting protections in place, nationally and internationally, which recognise the right of labour to organise unions, and which establish fair labour practices to abet the rights of workers in every country.

Here are some remarkable statistics.  In the past three years, the USA has lost 2.7 million jobs, some to automation and productive efficiency, but many to job flight to low-wage China.  In that number were 15 per cent of the USA's manufacturing jobs — 15 per cent!

But for a variety of reasons the haemorrhaging of jobs was not of immediate public concern in the USA.  Those reasons are worth listing.  First, of course, there are huge financial benefits to the owning class who outsource jobs.  The owning class, the USA's wealthiest citizens, along with the large corporations, pour huge amounts of money into funding political campaigns, with the result that most elected officials pay more attention to undergirding the corporate drive for profit than to the needs of "ordinary" US workers.  Along similar lines, the US media choose to focus on small scandals, individual acts of violence, and gossip, since handful of giant corporations which own the media have no interest, literally no interest, in bringing corporate downsizing and offshoring to the attention of the public.

Theoretically, outsourcing could be a net negative to the American economy, but we have a self-correcting mechanism.  It happens when a threat moves from the bottom of the corporate ladder to the top.

And outsourcing to India will come into its own equilibrium.

Gregory Mankiw, chairman of President Bush's Council of Economic Advisers, got himself and the Indians into political hot water for saying outsourcing is a good thing, and from his perspective it is.

The budget for the CEA is $4 million a year.  Surely there are talented Indian economists who would do the job for, say, $500,000 a year?  How difficult can it be to give economic advice to a president who has only one economic idea — tax cuts?

Richard Grasso was head of the New York Stock Exchange and, by all accounts, a very good one.  He should have been.  He was paid $10 million a year and $190 million when he left.  India has a population of over 1 billion, and surely somewhere in that number is a person who could have done as good a job or better and done it for — let's be generous — $500,000 a year and a $1 million golden handshake.

CEOs' pay has notoriously gone way out of proportion to that of the foot soldiers, the ones whose jobs are being shipped to India.  According to one recent survey of 57 companies, the average CEO's salary was $818,000; annual bonus, $1.06 million; value of exercisable stock options, $8.3 million.

Once again, we could turn to the 1 billion Indians for CEOs who would be happy to have half the pay, half the bonus and forget the options.  And thanks to instantaneous telecommunications, they could do it from New Delhi, thus eliminating the need for costly corporate perks.

Infosys Technologies, an India-based software development company with its U.S. headquarters in Fremont, asked the state for more than a million dollars in tax relief, saying the standard tax formula fails to reflect that two-thirds of its U.S. work is done offshore.

In its petition to the California Franchise Tax Board, Infosys argues that it pays its engineers in California nine times more than those in India and that difference inflates its California tax liabilities.

State tax officials rejected the claim last week.  But the request for a lower tax burden by the company — which derives about 75 percent of its $1 billion a year in revenue from U.S. companies — left some observers dumbfounded.

"They're asking for a tax break on the grounds their payroll costs one-ninth in India," said Lenny Goldberg, director of the California Tax Reform Association. "It takes a lot of nerve to ask that, considering the context in which they operate."

The state's rejection of the company's claim comes as widespread loss of white-collar jobs across U.S. service industries has sparked a political furor in the presidential campaign.  Critics complain that American jobs are being sent to low-wage labor markets in India and China.

"Infosys represents the extreme of the outsourcing problem," said Sen.  Joseph Dunn, D-Garden Grove, who is one of several lawmakers who have submitted legislation to regulate outsourcing.  "They not only want to steal California jobs, they'd also steal the taxpayers' dollars.  That's unfair not only to California workers, but to businesses as well."

Specifically, Infosys asked the board if it could recalculate its California taxes for the fiscal years that ended March 31, 2001, and March 31, 2002.  That would give it a tax liability of $180,505 over the two years — compared with the $1.3 million it owed for the same period using the standard method.

Infosys asked for a tax reduction of $1.1 million, with expectations it would continue to get similar tax savings in future years.

Infosys, founded in 1981 in Bangalore, became a public limited company in India in 1992 and was listed on Nasdaq in 1999.  It has more than 23,000 employees worldwide, and its clients include Microsoft, Cisco Systems, JDS Uniphase and the LexisNexis Group.

But, first, Marc Andreessen is an Internet pioneer.  He co-founded a Silicon Valley firm that helps companies outsource work overseas.  He's the chairman of the company Opsware.  He also, of course, co-founded Netscape.

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.  And I think, in the next 10 years, we're going to destroy another 400 million, create another 430, 450 million new jobs, and those jobs will be better.  I think it's blue skies.

DOBBS:  Mark, I quite appreciate job destruction, job creation and the net effect.  And that argument is advanced considerably.  But that argument doesn't really work if the net result is not a higher value job and that has not occurred in this country now for three years, and perhaps more, actually.  That being the case, why should we accept it as a matter of faith that we can destroy lives — and it is looking as though — some estimates range as high as three million jobs have been outsourced now to cheap overseas labor markets.

ANDREESEN:  Right.

DOBBS:  Why should we take it as an article of faith that that kind of pain results in better jobs, when we're not seeing it demonstrated in any of the data anywhere?

ANDREESEN:  Cars are now being manufactured in the United States by Japanese car companies like Toyota.  They're outsourcing to us all over the place.  There's all kinds of jobs.  Siemens is manufacturing new jobs to the United States. (CROSSTALK)

DOBBS:  Are they doing that, Marc, to produce products for this market?

ANDREESEN:  Sure, absolutely, they are doing that.

DOBBS:  That's right.  And that's the distinction.  And that's the distinction here.  The service jobs, the high-value jobs that are being exported to various countries around the world are not being exported so — for entry to those markets of those countries, but rather for the return of those services and products to this market.  That is the distinction in outsourcing, Marc.

ANDREESEN:  They're buying Levi's jeans.  They're buying Nike shoes.  They're buying Apple iPods.  They're buying Merrill Lynch financial services.  We are creating new markets all over the world as a process in doing this.

DOBBS:  It's — that is absolutely true.  Markets are being created.  Middle-class jobs are being created in India, as you suggest.

ANDREESEN:  Yes.

DOBBS:  There is just one problem with that.

ANDREESEN:  And those — and those people are consuming American products and services.

DOBBS:  They are assuming about half what we're buying from them right now.

ANDREESEN:  Actually that's not true.

DOBBS:  Actually it is exactly true.  The deficit with India is — for this instance is precisely twice.

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.

NEW YORK: About 50 U.S. House of Representatives members plan to introduce a bill, that would deny U.S. companies federal financing and loan guarantees if they shift U.S. jobs overseas.

The proposed Defending American Jobs Act was written by Rep.  Bernard Sanders, Independent of Vermont, and will be co-sponsored by about 50 other representatives, including Republicans Ron Paul of Texas and Virgil Goode of Virginia.

Warren Gunnels, Sanders' legislative aide, said it's the first national attempt to deal with the issue of "offshoring," or sending U.S. manufacturing and service jobs to lower-cost venues abroad.

The Defending American Jobs Act would target corporate assistance offered by agencies like the U.S. Export-Import Bank, a 70-year-old unit that provides trade financing and other help to U.S. companies that conduct business abroad.

Sanders singled out Motorola Inc., for receiving $190 million in Ex-Im Bank assistance to build its China operation while firing 42,900 workers in the United States, and General Electric Co.  for receiving $2.5 billion to finance China expansion while firing 260,000 U.S. workers.  He did not say when the layoffs took place or when the Ex-Im Bank loans were made.

The bill would require a loan applicant to specify the number of employees in the United States and abroad as well as a general wage scale.  If the number of non-U.S. workers increases while U.S. worker numbers fall, the loan would be canceled.

"If the companies don't create jobs in the U.S., we don't believe the Ex-Im Bank should be in existence," Gunnels said.

Roland Carrillo did it the American Way.

Work hard, society told him.

He did.

Generate results.

He produced.

Be loyal.

He was.

Carrillo gave Johns Manville a quarter-century of effort and excellence.

Johns Manville gave Carrillo's information technology job to a company in India.

The company does use some foreign contractors as "low-cost solutions for ongoing information technology support," Manville spokeswoman Melody Dunbar said.

Johns Manville is hardly alone in a mind-set that treats employees like widgets. Some researchers expect outsourcing to claim 2 million U.S. white collar jobs by 2008.

Carrillo, 56, was powerless against the juggernaut of cheaper labor.

For his kids, whom he will soon leave, Carrillo has this advice:

"First, be loyal to yourself.  I don't think there is loyalty anymore in corporate America.  It's come down to the almighty dollar."

Carrillo says that without a hint of bitterness.  Bitterness is not his way, any more than slacking off the job.

Men and women like Carrillo are what's right about this country's economy. What's happened to them is what's wrong.

So when Bush and his boys tell you outsourcing is good for the country, beg the president's pardon and tell the truth:

Outsourcing may help already overpaid executives.  It might help stockholders.

Everybody else gets to wonder how the American Way took such an ugly turn.

The number of students majoring in computer science is falling, even at the elite universities.  So Mr.  Gates went stumping at the University of Illinois at Urbana-Champaign, Carnegie Mellon, Cornell, M.I.T.  and Harvard, telling students that they could still make a good living in America, even as the nation's industry is sending some jobs, like software programming, abroad.

Enrollments are down at the best computer science schools, where the potential stars of technology's future are groomed.  Professors say there is less enthusiasm for the discipline among students, and they worry it may be more than a lingering disenchantment after the dot-com bubble burst.

In an effort to counter the trend, Mr.  Gates, who personifies technological optimism and the potential payoff, sought to reassure students that their futures were no less bright in an era of outsourcing.  The effect of computer technology, he told them, is just beginning and opportunity abounds.  Computing, he added, is an ideal field for fine minds to make a difference in society.

Nationally, there is a similar trend.  The Computing Research Association's annual survey of more than 200 universities in the United States and Canada found that undergraduate enrollments in computer science and computer engineering programs were down 23 percent this year.

In October, researchers at the University of California Berkeley predicted that as many as 14 million white-collar U.S. jobs could be outsourced to foreign countries in the next 10 years.  Among the outsourcing leaders:  3Com, Aetna, AT&T, Citigroup, Earthlink, Gateway, Sprint, Verizon and Yahoo.

And earlier this month, the Reuters financial news agency announced plans to hire a reporting team to work alongside its existing data-entry operation in India.  Initially, the Indian journalists will report on 3,000 small and medium-sized companies in the United States.

Don't blame the US pro for being worried about losing his job to an Indian.

Although economists have been saying that more jobs will be created in the US than are shipped to India — and that the pain will only be temporary as new jobs are created — the stats reveal a more scary picture than we'd like to see.

As the numbers crunched by Time magazine in its cover story suggest, close to 11 per cent — 14 million — jobs in the US are under the threat of offshoring.

Many high-paying IT jobs are getting outsourced to low-pay alternatives — as are manufacturing and retail jobs.  This is likely to continue till 2015, by which time 3.13 million jobs are supposed to be offshored.

At just 2.5% of the total jobs, this may not sound like much, but with the Bush Administration already disowning its earlier prediction of creating 2.6 million jobs this summer, it's unlikely that the loss of 3.13 million jobs to countries like India will not hurt.

Put this against the 2.3 million jobs that have vanished already since George Bush became the President of the US, and you begin to realize why people are panicking.

Especially when you consider the reasons for jobs fleeing.  The Americans may hate it, but the truth is here, in black & white:  The wages are much lower out there.

The annual pay given to programmers in the US is $80,000 per annum, whereas, for the same job, programmers in India are paid up to $11,000 annually.

The salaries for the same job is still lower in countries like Philippines, Malaysia, China, Russia and Poland.  Which also means that India's edge may be short-lived.

One of the great achievements of the United States has been the high standard of living of the average American worker.  This was the result of many long years of struggle to obtain higher wages, shorter work weeks, health and pension benefits, paid vacations, safe working conditions, a measure of job security and so on.

It is not an advance to move to a situation in which all of that can vanish with the flick of a computerized switch.  High-quality employment is the cornerstone of the economic well-being of America's vast middle class.

Among the questions we should be asking about the real-world effects of unrestrained trade is what happens to the U.S. economy after we've shipped so many jobs from so many sectors overseas that American families no longer have the disposable income to buy all the products and services they need to buy to keep the consumer economy going.

That's not supposed to happen.  In theory.  But American workers are filled with anxiety because they understand that disaster can result when theory comes face to face with reality.  One of the things that sank with the Titanic was the theory that it was unsinkable.

The classic story of the American economy is a saga about an ever-expanding middle class that systematically absorbs the responsible, hard-working families from the lower economic groups.  It's about the young people of each successive generation doing better than their parents' generation.  The plotline is supposed to be a proud model for the rest of the world.

The middle class is in trouble.  Globalization and outsourcing are hot topics in this election season because so many middle-class Americans, instead of having the luxury of looking ahead to a brighter future for the next generation, are worried about slipping into a lower economic segment themselves.

This is happening in the middle of an economic expansion, which should tell us that the terrain has changed.  In terms of job creation, it's the weakest expansion on record.  The multinationals and the stock market are doing just fine.  But American workers are caught in a cruel squeeze between corporations bent on extracting every last ounce of productivity from their U.S.  employees and a vast new globalized work force that is eager and well able to do the jobs of American workers at a fraction of the pay.

The knee-jerk advocates of unrestrained trade always insist that it will result in new, more sophisticated and ever more highly paid employment in the U.S.  We can ship all these nasty jobs (like computer programming) overseas so Americans can concentrate on the more important, more creative tasks.  That great day is always just over the horizon.  And those great jobs are never described in detail.

Staff at call centres in India are being bribed by organised crime and industrial spies to them help hack into the computer systems of British firms.

In at least two recent cases, local IT staff working on the sub-continent for UK institutions were involved in what industry sources say were "security issues" in what is described as the tiniest fraction of a far larger problem.

In one case, sensitive financial information and credit card details were apparently illegally taken from a leading British financial institution.

A spokesman for the National Outsourcing Association (NOA) in Britain said: "This shows that there are some things that you really should not send overseas. For organised criminals, this is a godsend.

"If you are using people in a low wage area, organised crime can afford to pay a lifetime's wages for data."

Richard Hollis, managing director of Orthus, an information security solutions company in London, claims the problem is growing because Indian staff have access to increasingly sensitive customer information.

He said:  "We're seeing a significant increase in security problems associated with this type of outsourcing.  Given that the majority of hacking originates from within organisations, outsourcing administrative responsibilities to an engineer making around œ4,000 annually is asking for problems.

"The engineers employed by these firms are extremely skilled technicians and since they already possess the passwords and unrestricted access to the networks they service, they have quickly become targets for organised crime and private investigative firms looking to buy their way into a network."

Indian executives see the backlash as more than a little ironic. The rise of India's high-technology sector, they point out, is a direct result of the country's economic liberalization in 1991, a program launched with U.S. government support. In recent years, India's deep pool of low-wage, highly skilled, English-speaking "knowledge workers" has proven irresistible for U.S. companies looking to cut costs.

The Internet and other communication advances have made the shift possible. And as Indians take on more valuable work such as product design and research, technology executives there are certain they can compete worldwide with the likes of IBM Corp. and Accenture.

Indian companies are reinventing the way programming is done, said Arvind Thakur, president of NIIT Technologies in Delhi. By breaking what is widely considered a highly intuitive creative process into repeatable steps that can be done by less-skilled engineers, India is trying to create high-quality software factories, not unlike what the Japanese did with the assembly line.

India, Thakur said, has the opportunity to "assume the mantle of global leadership" in software services.

It's an unrelenting parade.  Oracle plans to shift 175 jobs from Rocklin to India.  EarthLink is closing a 450-person call center in Roseville, with some of those jobs reportedly heading overseas.

IBM expects to send 3,000 jobs from the United States to other countries this year.

Nearly weekly comes news of large corporations — ranging from Intel to Delta Air Lines to Google shifting services jobs from the United States to emerging nations, such as India, China and the Philippines.

Much of the recent attention goes to the large number of computer programming and call-center jobs that have been shipped offshore.

But American companies are making use of other specialists, too.  Radiologists in India, for instance, read X-rays and other scans for U.S. hospitals.  Even some companies that prepare U.S. income tax returns use Indian accountants to crunch the numbers.

For companies like Intel and HP, the potential savings are compelling.

The Wall Street Journal reported recently that internal IBM documents show that a Chinese programmer would cost $12.50 an hour, compared with $56 an hour for a U.S. programmer.

"In the last 20 years, we in the United States have accepted that the most important job a corporation does is to satisfy its shareholders," said Martin Kenney, a professor of human and community development at the University of California, Davis.

Under that philosophy, a firm would feel compelled to jettison a $75,000-a-year accountant in the United States for an Indian with equivalent skills who would earn $12,000 a year, especially when competitors are doing the same thing, he said.

Wipro has won big deals from AT&T, Kodak, and Aviva, while existing business from Microsoft and General Motors have also ramped up considerably.

Infosys has romped home with mega outsourcing deals from companies such as Kodak and ING.

Satyam has also seen some substantial business flow from clients like top-drawer international financial institutions Bear Sterns and Merrill Lynch, as well as Fortune 500 members BP and Cigna, among others.

One hundred and fifty years ago, the corporation was a relatively insignificant entity.  Today, it is a vivid, dramatic and pervasive presence in all our lives. Like the Church, the Monarchy and the Communist Party in other times and places, the corporation is today's dominant institution.  But history humbles dominant institutions.  All have been crushed, belittled or absorbed into some new order.

A LEGAL "PERSON"

In the mid-1800s the corporation emerged as a legal "person."  Imbued with a "personality" of pure self-interest, the next 100 years saw the corporation's rise to dominance.  The corporation created unprecedented wealth.  But at what cost?  The remorseless rationale of "externalities" — as Milton Friedman explains: the unintended consequences of a transaction between two parties on a third — is responsible for countless cases of illness, death, poverty, pollution, exploitation and lies.

THE PATHOLOGY OF COMMERCE:  CASE HISTORIES

To more precisely assess the "personality" of the corporate "person," a checklist is employed, using actual diagnostic criteria of the World Health Organization and the DSM-IV, the standard diagnostic tool of psychiatrists and psychologists.  The operational principles of the corporation give it a highly anti-social "personality":  It is self-interested, inherently amoral, callous and deceitful; it breaches social and legal standards to get its way; it does not suffer from guilt, yet it can mimic the human qualities of empathy, caring and altruism.  Four case studies, drawn from a universe of corporate activity, clearly demonstrate harm to workers, human health, animals and the biosphere. Concluding this point-by-point analysis, a disturbing diagnosis is delivered: the institutional embodiment of laissez-faire capitalism fully meets the diagnostic criteria of a "psychopath."

MINDSET

But what is the ethical mindset of corporate players?  Should the institution or the individuals within it be held responsible?

The people who work for corporations may be good people, upstanding citizens in their communities — but none of that matters when they enter the corporation's world.  As Sam Gibara, Chairman of Goodyear Tire, explains, "If you really had a free hand, if you really did what you wanted to do that suited your personal thoughts and your personal priorities, you'd act differently."

Ray Anderson, CEO of Interface, the world's largest commercial carpet manufacturer, had an environmental epiphany and re-organized his $1.4 billion company on sustainable principles.  His company may be a beacon of corporate hope, but is it an exception to the rule?

MONSTROUS OBLIGATIONS

A case in point:  Sir Mark Moody-Stuart recounts an exchange between himself (at the time Chairman of Royal Dutch Shell), his wife and a motley crew of Earth First activists who arrived on the doorstep of their country home.  The protesters chanted and stretched a banner over their roof that read, "MURDERERS."  The response of the surprised couple was not to call the police, but to engage their uninvited guests in a civil dialogue, share concerns about human rights and the environment and eventually serve them tea on their front lawn.  Yet, as the Moody-Stuarts apologize for not being able to provide soy milk for their vegan critics' tea, Shell Nigeria is flaring unrivaled amounts of gas, making it one of the world's single worst sources of pollution.  And all the professed concerns about the environment do not spare Ken Saro Wiwa and eight other activists from being hanged for opposing Shell's environmental practices in the Niger Delta.

The Corporation exists to create wealth, and even world disasters can be profit centers.  Carlton Brown, a commodities trader, recounts with unabashed honesty the mindset of gold traders while the twin towers crushed their occupants.  The first thing that came to their minds, he tells us, was:  "How much is gold up?"

PLANET INC.

You'd think that things like disasters, or the purity of childhood, or even milk, let alone water or air, would be sacred.  But no.  Corporations have no built-in limits on what, who or how much they can exploit for profit.  In the fifteenth century, the enclosure movement began to put fences around public grazing lands so that they might be privately owned and exploited.  Today, every molecule on the planet is up for grabs.  In a bid to own it all, corporations are patenting animals, plants, even your DNA.

Around things too precious, vulnerable, sacred or important to the public interest, governments have, in the past, drawn protective boundaries against corporate exploitation.  Today, governments are inviting corporations into domains from which they were previously barred.

PERCEPTION MANAGEMENT

The Initiative Corporation spends $22 billion worldwide placing its clients' advertising in every imaginable — and some unimaginable — media.  One new medium: very young children.  Their "Nag Factor" study dropped jaws in the world of child psychiatry.  It was designed not to help parents cope with their children's nagging, but to help corporations design their ads and promotions so that children would nag for their products more effectively.  Initiative Vice President Lucy Hughes elaborates:  "You can manipulate consumers into wanting, and therefore buying your products.  It's a game."

Today people can become brands.  And brands can build cities.  And university students can pay for their educations by shilling on national television for a credit card company.  And a corporation even owns the rights to the popular song "Happy Birthday."  Do you ever get the feeling it's all a bit much?

Corporations have invested billions to shape public and political opinion.  When they own everything, who will stand for the public good?

THE PRICE OF WHISTLEBLOWING

It turns out that standing for the public good is an expensive proposition.  Ask Jane Akre and Steve Wilson, two investigative reporters fired by Fox News after they refused to water down a story on rBGH, a synthetic hormone widely used in the United States (but banned in Europe and Canada) to rev up cows' metabolism and boost their milk production.  Because of the increased production, the cows suffer from mastitis, a painful infection of the udders.  Antibiotics must then be injected, which find their way into the milk, and ultimately reduce people's resistance to disease.

Fox demanded that they rewrite the story, and ultimately fired Akre and Wilson. Akre and Wilson subsequently sued Fox under Florida's whistle-blower statute. They proved to a jury that the version of the story Fox would have had them put on the air was false, distorted or slanted.  Akre was awarded $425,000.  Then Fox appealed, the verdict was overturned on a technicality, and Akre lost her award.

DEMOCRACY LTD.

Democracy is a value that the corporation just doesn't understand.  In fact, corporations have often tried to undo democracy if it is an obstacle to their single-minded drive for profit.  From a 1934 business-backed plot to install a military dictator in the White House (undone by the integrity of one U.S. Marine Corps General, Smedley Darlington Butler) to present-day law-drafting, corporations have bought military might, political muscle and public opinion.

And corporations do not hesitate to take advantage of democracy's absence either.  One of the most shocking stories of the twentieth century is Edwin Black's recounting IBM's strategic alliance with Nazi Germany — one that began in 1933 in the first weeks that Hitler came to power and continued well into World War II.

FISSURES

The corporation may be trying to render governments impotent, but since the landmark WTO protest in Seattle, a rising wave of networked individuals and groups have decided to make their voices heard.  Movements to challenge the very foundations of the corporation are afoot:  The charter revocation movement tried to bring down oil giant Unocal; a groundbreaking ballot initiative in Arcata, California, put a corporate agenda in the public spotlight in a series of town hall meetings; in Bolivia, the population fought and won a battle against a huge transnational corporation brought in by their government to privatize the water system; in India nearly 99% of the basmati patent of RiceTek was overturned; and W.R.  Grace and the U.S. government's patent on Neem was revoked.

As global individuals take back local power, a growing re-invigoration of the concept of citizenship is taking root.  It has the power to not only strip the corporation of its seeming omnipotence, but to create a feeling and an ideology of democracy that is much more than its mere institutional version.

In October, chairman of the US Congress Small Business Committee, Don Manzullo, said that the US government should stop buying foreign products and the US Congress should enact other policies encouraging US IT and other companies to stop sending jobs offshore.

Nydia Vel zquez, a New York Democrat, has called on the Congress to adopt new tax laws encouraging US companies to keep their jobs at home and to rethink its free trade agreements.

Job outsourcing is no longer a question of a few low-end IT jobs that no American worth his salt wants, going to the Reddys and Wangs of the world.  As thousands of jobs migrate to the eastern hemisphere, many of them bona fide white-collared ones, the US administration seems to have woken up to a public relations nightmare as election looms.

As the BPO backlash starts in the US, some companies are already retracting. Thus, we have Dell moving some call centre jobs back to the US and Lehman Brothers has stopped outsourcing tech help job to Wipro.

Although the Bush administration for itself has no plans to block companies from moving IT jobs to India.  Instead, it plans to focus on developing an economic climate that helps create jobs in the US, says an administration official.

Judging by an editorial comic strip that's doing the e-mail rounds, outsourcing is high up there on the list.  Here's the latest scenario.  An Indian based in United States — sitting cozy at home in front of a fire-place — calls up the White House Customer Service Line to complain about how National Holidays are selected.  A smartly-attired executive on the other end picks up the call.

The caller:  "Diwali and the first day of Ramadan just passed, but nobody got time off.  That's like having to work on Christmas!  Can't we consolidate Memorial Day and Veteran Day to make room for us?  Or get rid of boring holidays like Flag Day?"

"And having President's Day plus separate holidays for Lincoln and Washington just makes no sense.  Half the time nobody knows why we got the day off anyway!"

The caller wonders whether White House can afford to neglect the feeling of millions of Hindus and Muslim (in United States)?

The visibly relaxed customer service executive responds:  "I'm sorry, but I can't help you.  I just started this job and don't know a thing about American holidays."

The caller:  "What do you mean?"

Customer executive:  "The supervisor at the call center here in Bangalore just quit, so I haven't been briefed on American holidays, accents, or small talk.  Sorry, Yaar"

The caller:  "What?  The President outsources the White House Customer Service line to India?"

Customer service executive:  "Yes, he says our cheap labor will help him pay for his $87 billion mess in Iraq."

The caller:  "Well, at least you got to celebrate Diwali.  How were the festivals in India this year?"

Customer service executive:  "Actually, I don't know.  They White House didn't give us the day off..."

There's no shortage of yins and yangs in our economy.

Yin: New York Stock Exchange chief Dick Grasso resigns after disclosure of his outsized $140-million pay package rubs a CEOs-are-too-greedy public the wrong way.

Yang: U.S. workers earning the federal minimum wage of $5.15 an hour must work the equivalent of nearly three full-time jobs to afford the typical two-bedroom apartment.

Yin: The combined net worth in Forbes magazine's annual list of the wealthiest 400 U.S. citizens climbed 10 percent in the past year to $955-billion - bigger than Canada's economy - thanks largely to a recovering stock market and recent federal tax cuts.

Yang: More than one quarter of Florida's workers are "working poor" because they earn less than $8 an hour, well below the poverty level for a family of four.

Yin: The wealthiest 1 percent of U.S. households controls 38 percent of national wealth.

Yang: The bottom 80 percent of households possess a shrinking portion of U.S. wealth, now only 17 percent.

Nearly 30 years ago, in April 1974, a now-famous essay entitled "The Hard Road to World Order" appeared in the CFR journal Foreign Affairs. It was penned by Columbia University professor and veteran State Department official Richard N. Gardner, who most recently served in the Clinton administration.

Gardner told his fellow one-worlders that "instant world government" is an illusion because Americans would not accept an open assault on their constitutional system. The globalists, he said, must continue to labor for the piecemeal creation of an all-powerful superstate. It must be built gradually, piece by piece, brick by brick, he said:

"In short, the 'house of world order' will have to be built from the bottom up rather than from the top down. It will look like a great 'booming, buzzing confusion,' to use William James' famous description of reality, but an end run around national sovereignty, eroding it piece by piece, will accomplish much more than the old-fashioned frontal assault."

Gardner suggested luring all nations into a variety of technological, economic, and political entanglements which would gradually be strengthened until they formed a genuine world government.

When Kevin Flanagan, 41-year-old software programmer with the Bank of America, stepped out into the parking lot of his office and shot himself, he probably didn't realise that his suicide would become the rallying point of the anti-outsourcing movement in the US.  Kevin did not accuse anybody before killing himself after being handed the termination notice.  But his father did.  In an interview to a local newspaper, Flanagan Sr. said that his son killed himself because he was forced to train his replacement — an Indian engineer — before he was terminated.  And that Kevin and several of his colleagues had to lose their jobs because the bank had outsourced so many of its jobs to India.

In America, business guides politics, and not the other way around.  Senators are at best lobbyists for big companies, if big companies like GE and American Express want business with India, they will hire 10 supporting senators.

For a rich fee, companies called "body shops" supply waves of unwitting immigrants to the nation's computer industry

It's an effort that has given birth to a multimillion-dollar industry, shuttling high-tech workers for a lucrative fee from continent to continent.  Critics call the companies that find the workers "body shops."  They say the program, known as H-1B, stems from a patchwork of immigration laws and policies triggered by special interests and fueled by a vast pool of unwitting immigrants in pursuit of the American dream.

"Since I was treated like a bonded slave, I didn't have any other alternative except leaving the company," Narayanasamy Sekar wrote in a personal plea to a Montgomery County Circuit Court judge to explain why he left the company that brought him here.

An investigation by The Sun, in which hundreds of court records and government documents were reviewed and dozens of recruits interviewed, shows that for many foreigners, the promises they hear on the streets of Bombay and New Delhi soon give way to harsh reality.  Many who came in pursuit of a dream now find themselves indentured servants.

The investigation found:

In violation of federal law, visa holders often collect a small fraction of the salaries they've been promised while doing make-work projects and refining computer skills.

If workers quit, they are frequently sued by employers claiming damages of $30,000 or more.

Workers who challenge employers are routinely threatened with being sent back to their homeland.

Body shop operators regularly bill U.S. companies at rates three to four times the salary being paid to their foreign workers.

U.S. workers have been displaced by less costly foreign labor contracted out to H-1B visa holders.

Court records show the visa holders are recruited by contractors, then brought to the United States for assignment.  If no job is waiting, the worker may be placed by another body shop, which gets a percentage of the fee.

Revenues have soared for visa vending companies created to bring in temporary foreign workers.  Mastech Corp. and Syntel Inc. reported combined revenue of well over a half-billion dollars in 1998, according to filings with the Securities and Exchange Commission.

Immigration lawyers collect fees of $2,000 to $2,500 for each H-1B application. With a limit of 115,000 H-1B visas per year, that represents some $230 million a year in potential legal fees.  "It's the bread and butter for a lot of people," said Kenneth Rinzler, an immigration lawyer in Washington, who said he advises his clients against using H-1B visas.

The program that brought these workers to the United States was created by Congress in 1990 in response to pleas that there weren't enough American workers to fill certain high-skill jobs.  The category was included in the 1990 law that reshaped the country's immigration policies.

Despite repeated warnings of a critical shortage of high-tech workers, some immigration experts say that there is no crisis and never was one.

"The evidence is just not there," said Mark Krikorian, executive director of the Center for Immigration Studies in Washington.  He said the program lets employers short-circuit the usual rules of a free-market economy, in which wages are driven by demand.

Krikorian said the program enables companies to obtain high-tech workers at a discount.  Companies are willing to pay fees and lawyers, he said, because in the long term, foreign workers save them money on salaries and benefits.

In effect, Krikorian said, the U.S. government provides a subsidy in the form of visas.

Powerful allies

The industry groups and the companies employing H-1B workers have a powerful ally in the American Immigration Lawyers Association.  AILA members have thrown their financial muscle and support behind the congressmen who play a key role in determining the fate of the program.

Sen.  Spencer Abraham, chairman of the Senate Immigration Committee, has been a speaker at AILA's national conferences and held a series of fund-raisers in tandem with AILA events.

Serving on Abraham's staff is Stuart B.  Anderson, a former official at the Cato Institute, a conservative Washington think tank, who while there wrote a controversial study frequently cited by supporters of the H-1B program as justification of the need for foreign high-tech workers.

Abraham's role in boosting the H-1B program earned him the Cyber Champion Award last year from the Business Software Alliance, a group representing some of the nation's largest software firms.  The annual award is given to a member of Congress "for tireless efforts" on issues critical to the high-tech industry.

'It was my dream'

"USA or your money back," reads one ad in a Bombay paper.  "State of the art facility," reads another.  Others guarantee top salaries, medical insurance and challenging assignments.

Recruiters for the body shops "promise you everything under the sun," said a 27-year-old computer programmer who answered an ad in a Bombay newspaper three years ago.

When he spotted the advertisement promising a challenging assignment and a top salary, he saw the chance he had been waiting for — a chance for the American dream.

"I was learning things in India but there was no way I could use them.  There's too much talent there.  For me there was no possibility of growth.  I was earning $250 a month," he said.  "In India, that's real good money."

After a 10-minute interview at a Bombay hotel, he was told that he had the job with an American high-technology consulting firm.

On arrival in November 1997, he found himself in cramped quarters in a single-family home with 14 other programmers.  He found that his initial salary would be $500 a month — not the $1,000 a week he was promised — and that $200 would be paid as rent.

He learned that his resume, the one officially submitted to U.S. officials as part of his visa application, listed training in several areas that he never had received.

"I saw this resume only after coming to the United States.  When I saw it I was shocked for a minute, as it contained stuff that I never worked on.  I was told not to worry about it, he said, "as it was done 'to get me here.'"

'On the bench'

Later, he complained to his boss about being "put on the bench," when a project in the Midwest came to a sudden end.  A worker on the bench gets a reduced salary or none at all.  Instead of performing a challenging job, the worker spends the day doing busy work, honing programming skills or trying to find a new assignment.

When the programmer complained, his boss was not happy.

"He said, 'I'll send you back to India.  If you talk about this, I'll send you back,' " the worker said in a recent interview.

"The alien software professional is viewed by the body shop owner as the goose that lays golden eggs," the programmer said, "and you don't have to feed the goose."

He also was required to sign a contract.  "They don't give it to you till the last minute.  They tell you your flight is leaving in a half-hour.  You don't even have a chance to read it.

"They put an advertisement in the paper.  They'll promise to pay you, no matter what.  It's all lies.  You really don't know who you are going to work for."

Asked why he didn't hire a lawyer, he replied:  "How can you hire a lawyer when you can't even pay for basic living expenses."

'No big deal'

Among those Mastech sued was Roy Mani, who came to the United States in late 1997 after being recruited in India.

"They made me an offer but then kept me waiting for six months," he said.  When he got the call that a job was waiting, he was told he had to leave immediately. He was handed a document to sign, but had no time to read it.

The document was an employment contract under which he agreed to pay Mastech $10,000 in damages if he failed to stay with the company for at least 18 months and to give the firm at least six weeks' notice of quitting.

He was surprised by the agreement, he said, because in India, there are no restrictions on leaving a job.  "They never said that if you sign this and leave, then we will sue you.  They just told us we had to sign it.  They said it was 'no big deal.' "

Mani said recruits have no idea what they are agreeing to, and that a disclosure requirement is needed.

Mani said he hired a lawyer, but the attorney told him it would be best to settle the lawsuit.  He expects to have to pay $10,000 and the lawyer fees.

"It has happened to a lot of people.  They [Mastech] don't care what your experience is."

He said H-1Bs feel helpless.  "We cannot do anything."

Mani said his assignment for Mastech was in Omaha, Neb., where he worked for a communications firm at an annual salary of $48,000.  He said he earned a little over $20 an hour, while Mastech was charging the firm $70 to $80 an hour.

He said he left because they kept playing games with his pay.  "I'd send them a time slip and they'd pretend they didn't get it.  I'd send it again and they still wouldn't pay," he said.  "I faxed it again and I still didn't get paid.  I got angry and they started threatening me."

It was only after moving to Milwaukee and settling into his new job that he found out that he had been sued and that Mastech had obtained a default judgment for $10,000 against him in Pittsburgh, though he had never lived or worked there.

"I never got any notice" of the lawsuit or a hearing, he said.  "I don't know how they can do this."

Gap in billing and pay

In a case heard in June, a Mastech official testified that the company was billing a Nebraska firm $110 an hour for the services of an employee being paid $26 an hour.  Mastech sued the employee, Som Partha Pratim, when he left for another firm.

Mastech sought about $50,000 to recover what it said it had spent on Pratim, and income lost because of his departure.

Pratim's attorney, Kimberly J.  Kisner, filed a counterclaim against Mastech, seeking back wages.  The case was settled out of court.  Terms were not disclosed.

In another Mastech lawsuit, a former employee said company officials "tailored and tampered" with his resume to get him an assignment at an accounting firm. Srinath Nagabhirava said he was placed in "a totally new environment in which I haven't had any skills or experience."

Nagabhirava said he and other H-1B visa holders were threatened and discriminated against when they initiated efforts to become permanent U.S. residents.

Mastech denied both charges.

Another Mastech employee, Guromurthy Thanukunoori, said he was forced to work 50 to 55 hours a week, sometimes 13 or 14 hours a day while on an assignment with Wal-Mart.

"I had a supervisor who was always harassing and threatening us.  He said, 'If you don't work the 12 hours, I'll throw you out of this country,' " Thanukunoori said.  "I had just gotten married, and I didn't want to work those hours."

He said Mastech, after promising to underwrite the cost of health insurance, later began charging him $95 a month for it.

Thanukunoori said he waited until the Wal-Mart project ended, then submitted his resignation in May 1997, so the company could not claim it had lost revenue because of his departure.

Weeks later, Mastech filed suit, alleging that Thanukunoori breached the contract he had signed in India in 1996.  The company sought $10,000 in damages, repayment for training and travel expenses, and $15,000 for lost billing.

Maternity discouraged

For women who have signed with Tata, having a family can be a problem.

Court records show that part of Tata's agreement with former employee Veena Achar states:  "Tata Consultancy Services will not incur any expenses arising due to pregnancy.  Maternity is not encouraged due to the high cost of insurance and other related expenses."

Tata sued Achar, who had been assigned to work for IBM in Bethesda and Gaithersburg.  According to court records, the case was settled with Achar agreeing to pay the firm $7,500 in damages for breaking her employment agreement.  Her attorneys had argued that she was "a person of limited financial means whose limited income is needed to support her family in India."

Because of the "huge investment" Tata makes in training, Patton said, workers are told when they are hired about the possibility of foreign assignment and the provisions of the employment agreement.

"They tell them right up front they may be posted overseas," Patton said.  "They tell them before they are even hired.  They also tell them that they are expected to return to India at the end of their deputation."  He said recruits are told that Tata may sue if they leave assignments prematurely.

Booming revenues

Syntel, an H-1B firm based in Troy, Mich., has seen its revenues grow along with the program.  Annual revenue has climbed from $70 million in 1994 to $92 million in 1995 to $124 million in 1997 and to $160 million in 1998.  Two-thirds of its workers hold H-1B visas.

Clients include Ford, DaimlerChrysler, Kmart and the state of New Mexico.

When Syntel took over data processing for American International Group, the insurance giant fired the 250 U.S. workers who had been doing that job.

'Within our borders'

The restrictions require so-called H-1B dependent firms to prove that they first made efforts to fill jobs with American workers before turning to an H-1B.

"Our view has been that these standards were inadequate," Fraser said.

Former Labor Secretary Robert B. Reich, who fought expansion of the H-1B program, said that even if there were a proven need for high-tech workers, the answer should be "within our own borders."

"You can teach people these skills," Reich said, adding that the H-1B program should be limited to the extremely high-skilled, "like nuclear physicists."

"Even if there is a shortage," he said, "there are people within our borders who can be trained.  All we are doing is undercutting our own work force."

"The real appeal" for employers, said Krikorian of the Center for Immigration Studies, "is that the employee can't job hunt.  It really is an indentured servant program.  In practice, the H-1Bs are indentured to that company.

"They are making decent money, but they can't go across the street.  They are stuck.  If the employers really wanted more workers, they would just put in for more green cards.  They want folks who can't leave."

Referring to body shops, he added:  "It's really just a gimmick.  This whole concept of renting out H-1Bs is outrageous.  It's the equivalent of renting out your slave to the next plantation."

Former Rep.  Bruce A.  Morrison, who chaired the House immigration subcommittee in 1990 when H-1B was created is equally critical.

"Our system is based on the power of people to look out for themselves," he said.  "That's all destroyed by indenturing our workers."

Claim and counterclaim

Rajesh, the H-1B worker with kidney stones, couldn't just take time off to see a doctor.

He worked as a systems analyst for GE Information Systems in Rockville, a unit of General Electric Co., under assignment from Tata.

Though doctors urged him to seek medical care the next day, he reported to work instead and again on Saturday to make up the time lost at the hospital.

He quit his job with Tata in August 1997.  But his involvement with the firm didn't end there.  On May 28, 1998, Tata filed suit, accusing him of violating an employment agreement, and seeking $30,000 in damages.

Rajesh filed a counterclaim, accusing Tata of violating the Family Medical Leave Act in denying him time off for his illness and, later, his wife's.  He also alleged that Tata took his federal income tax refund.

According to the counterclaim, Tata filed Rajesh's federal tax return, then cashed his refund check.  "When employees complain about Tata retaining the income tax refund checks, employees are immediately ordered returned to India," the counterclaim states.