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SAY GOODBYE TO HIGH-TECH JOBS
MANY ARE MOVING OFFSHORE
THE PROCESS OF SENDING WORK ABROAD STARTED WITH BLUE-COLLAR JOBS; NOW,
IT IS HAPPENING WITH WHITE-COLLAR JOBS AS WELL. COMPUTERS MAKE IT EASY.
By Donald L. Barlett and James B. Steele, INQUIRER STAFF WRITERS
In their relentless efforts to cut labor costs, U.S. companies aren't just bringing in foreign workers to replace better-paid Americans. They're also eliminating the jobs of Americans and shipping their tasks overseas.
This has been happening with blue-collar jobs for years. Now white-collar, even high-tech work - the very type of job that Washington officials continually say is essential to America's future - is slipping away.
In the global economy, job-shifting to the other side of the world can be done with a computer keystroke - as Patricia Yancey discovered.
Don't tell Yancey that high-tech jobs are America's future. She knows better.
Yancey, a native of Cincinnati, earned a master's degree in information science before joining a promising company in Denver called Information Handling Services (IHS).
Founded in 1959, IHS has become the world's largest provider of technical and engineering databases. The company converts reams of court records and printed materials on engineering, government procurement, and technical standards into sophisticated electronic databases for corporate and government clients.
A privately held company, IHS had 1995 sales of $257 million.
Yancey worked on IHS indexing projects, from state government documents to court briefs, for nearly 17 years. She was promoted to senior director of the Indexing Department, overseeing a staff of 70. In time, the salaries of Yancey and her senior indexers rose to $40,000 to $50,000 a year.
Then, on May 12, 1994, Yancey was called into a meeting with IHS's vice president for manufacturing and a human resources official.
"I walked into an office and I was told I was being laid off," she recalled. "I didn't have any idea. . . . Basically, my manager told me, 'As you know, we have been looking for ways to reduce costs in your area. And this is the way we have chosen to do that.' That was it."
Yancey, two senior indexers and seven others in the 70-member department lost their jobs that day.
Information Handling Services would cut costs by shedding some of its higher-paid U.S. employees and transferring part of their duties to India.
Like many companies in the United States, IHS over the years had sent some data to low-wage countries for keypunching. "But they had never done anything in the area of the kind of work we were doing, the intellectual processes," Yancey said.
The reason her department was targeted, she believes, was that "the people we had were a little more expensive than other people in the manufacturing process. Many had master's degrees. That wasn't a requirement, but it just helped in understanding some of the literature we were indexing."
Months before the 10 employees were dismissed, IHS had brought in a consultant to study their department and recommend ways that costs could be cut. The consultant was from Vetri Systems Inc.
Vetri is one of those companies that supply the U.S. market with workers or services from India. It has an office staff in Troy, Mich., a suburb of Detroit.
But the bulk of the company's 600-person staff is in Madras, India, where Vetri provides document and data-conversion services for clients in the United States, Asia and Europe.
Vetri, a private company, outlined its business philosophy on its World Wide Web site on the Internet, where it tries to interest potential customers:
"Our mission is to build partnerships with our clients by creatively applying technology, with a low-cost global workforce, to improve their competitive positions in their marketplaces. By applying the latest developments in technology and offering outstanding outsourcing services, Vetri has consistently increased our clients' profitability."
Calling itself one of the industry's "largest globally based conversion businesses," Vetri said: "Scanned document images are routed to Vetri's offshore conversion facilities in India, via a live satellite line."
Jobs shifted, in a computer keystroke.
Yancey said that in January 1994, a Vetri representative came to Denver to spend a month with her indexing group, "learning the processes and seeing if they could come up with anything to streamline the operation."
She remembered being uneasy about the visit.
"I knew they had this facility in India and I could see what their recommendation might be," she recalled. "Just that whole idea of American workers and shipping jobs overseas, I was really uncomfortable with the idea of doing that."
Little did she know it would be her job.
Vetri ultimately recommended cutting back the Indexing Department staff and farming out some of the work to its subsidiary in India, which IHS did.
An IHS spokesman, Miles Baldwin, senior director of corporate development, explained: "The reason it was downsized was that . . . we had essentially completed the development of a major engineering thesaurus, and we were reducing because the ongoing maintenance of that was going to be a lot less than the cost of building the original database."
Saying it was a "relatively small number of people" who lost their jobs, Baldwin said part of the indexing was "outsourced to India."
When asked how that had gone, he said: "I think it has been very successful."
A Vetri official, Bill Cox, painted a different picture. Cox, a senior vice president who conducted the study at IHS and recommended the layoffs, said that after work was sent to India, the remaining Indexing Department employees complained about the quality.
"It was sort of a pilot to see if somebody else could do [the work]," Cox said. "And the people who are there basically . . . contrived together and made it so anything which came in from India was inappropriate. . . .
"Basically what happened was, I cleaned house and there were certainly sore feelings around all that," Cox said.
India is still very much in IHS's future. The company has established its own subsidiary in New Delhi to convert data for a new division dealing with U.S. regulatory laws.
"We looked at the options," said Baldwin, the IHS spokesman. "We had never actually done much in the way of full-text databases in-house, and outsourcing seemed to be rather expensive. So we took a look at the option of building a staff up in India. Which is what we ended up doing, and it's proven to be a lot more efficient and a lot cheaper than the alternatives."
As for Patricia Yancey, she - like increasing numbers of people laid off by large corporations - went into business for herself.
"I've been doing a lot of back-of-the-book indexing and some of the larger projects, like database management," she said. "Some thesaurus development. A little bit of consulting."
But it's been hard. Starting your own business means being subject to ups and downs - work, followed by fallow periods, followed by bursts of work.
"It's a real adjustment doing this," she said, "after you've had a regular paycheck and your insurance taken care of."
THE BARON REIGNS
For many companies, the engine that is driving this all-out push to hold down costs is a Wall Street clamoring for ever-greater returns. But in the case of IHS, the pressure is coming from a different source.
Information Handling Services, the company that laid off Patricia Yancey and the others, is owned by one of the world's richest men, Baron Hans Heinrich Thyssen-Bornemisza. Heini, as his friends call him, is worth an estimated $1.5 billion, according to Forbes magazine.
The baron presides over the kind of business empire that is becoming commonplace - one that has operations in many countries but that owes allegiance to none. And unlike companies such as General Electric and Exxon, which have to answer to thousands of stockholders, the baron's company essentially answers to one man: him.
The corporation is TBG Inc. - the Thyssen-Bornemisza Group. It has operations in glass, plastics, auto parts, shipping, trading, precision metal works, agricultural machines and information systems.
As befits someone with global reach, the baron is a true citizen of the world. He was born in the Netherlands, raised in Switzerland, owes his noble title to Hungary, and is officially, for tax purposes, a resident of Monaco.
The baron prides himself on being a tough businessman and is fiercely competitive. Over the years, he has collected companies, wives (he is now married to No. 5, a Spanish beauty queen) and some of the world's finest art.
His dealmaking abilities were exhibited in the 1980s in an arrangement that still has the art world talking.The baron leased - rather than lent, as is customary - his art collection to Spain for nine years before deciding where it would be permanently housed. Museum curators around the globe cried foul.
"Collectors don't rent out their art - it's unheard of," said John Caldwell of the San Francisco Museum of Art. "It exposes every institution to the risk of having to pay for a loan of art."
A PASSAGE TO INDIA
In sending high-tech work offshore, the baron's company, IHS, was merely doing what scores of companies in the United States have done to reduce costs and improve profits.
Many software-development tasks that once would have been performed in this country are now transferred to India, where salaries are a fraction of what professionals in the United States make.
India ranks high among labor suppliers for several reasons.
The world's second most populous country, India is also the world's second largest English-speaking nation, behind the United States.
And it is one of the world's poorest, with per-capita annual income of about $350. But that number disguises the fact that India has a growing class of well-educated professionals. Indians have long excelled in engineering and mathematics, two fields that are at the heart of the revolution in information technology.
The nation has aggressively promoted technical training, and today there are more than 1,600 engineering colleges, technical institutes and polytechnic schools that train more than 55,000 people a year, many of whom work for the burgeoning Indian software industry.
"Just as the [Persian] Gulf has its natural resources in crude oil, and South Africa its diamonds, India's natural resource lies in its abundant technically skilled manpower," says an Indian report on the country's software industry. "And this natural resource easily transforms India into a software superpower."
Indeed it has.
In 1985, when the Information Age was beginning to take off in the United States, India exported a negligible amount of computer software, less than $10 million a year. By 1995, India's software exports had soared to $485 million - nearly 60 percent of which went to the United States.
More significant, sales by India's software industry are now growing at an annual rate of more than 45 percent - or double the growth rate in the United States.
That dramatic increase is directly attributable to a decision made by the Indian government in 1986, when it identified "information technology" as a high-priority industry with tremendous growth potential.
To encourage its development, the government enacted a broad program of incentives to foster training, foreign investment and industrial development to "enable the software industries to commence their operation with a minimum gestation period," as an Indian government report put it.
In 1990, India went a step further, establishing what were called Software Technology Parks and setting them up in seven cities. Much like traditional industrial parks, they are geared to attract companies to produce software for export.
The Indian government provides office space, electrical power, satellite hookups to the West, streamlined procedures for importing and exporting, and tax exemptions for software companies.
Poor countries, such as Honduras or the Dominican Republic, have their export zones, too. But there is one big difference: The jobs created in those Latin American nations replace labor-intensive, low-wage U.S. jobs in industries such as apparel and shoes. The high-tech jobs created in India have taken work away from computer programmers, software engineers and information specialists in the United States - all high-paying jobs.
India's emphasis on technology has attracted many of America's largest multinational corporations, which have set up operations in India to take advantage of its vast pool of low-cost skilled labor.
From the standpoint of an American employer, why pay a computer specialist $50,000 to $70,000 when you can hire someone in India with a master's degree for $5,000 or $6,000?
Most major U.S. computer- or software-related companies now have operations in India - under their own name, through an Indian partner or by contract with an Indian company.
Hewlett-Packard, Digital Equipment, Motorola, Novell, Texas Instruments, Oracle, IBM, Zenith, Microsoft and Apple, to name a few, have a large presence there.
The southern Indian city of Bangalore has become known as the Silicon Valley of India for its heavy concentration of information-technology companies.
Using high-speed satellite links, programmers in India can be in constant communication with a client in the United States. Notes the annual review of the National Association of Software and Service Companies in New Delhi:
"Even if the client is situated 10,000 miles away from the software company in India, the client is still able to monitor the software development on a minute-by-minute basis, ensure quality checks, communicate with the programmers as if they were just next door and get efficient software developed."
That's what the General Electric Co. did.
GE decided to begin using Indian programmers after a trip to that country in 1989 by Jack Welch, the company's chief executive officer. That's the same Jack Welch, you may recall, who has terminated GE employees by the tens of thousands on his way to becoming one of corporate America's most revered cost-cutters and highest-paid bosses. As the decision was explained in a report to GE employees:
"The outsourcing of information systems work is not an uncommon practice at GE. . . . The cost of living in India, about one-sixth that of the United States, provides capability for extremely cost-effective solutions."
The report continued:
"To evaluate the feasibility of working with Indian firms, pilot activities were conducted during 1990 at several GE businesses [in the United States]. Approximately 50 person-years of work was outsourced to five firms in order to assess their ability. . . . By year end, there were more than 37 contractors at eight GE businesses."
The report noted that about 30 percent of the work was completed on-site, and "the project is then moved to India. . . . The cost savings were impressive. Even with the mix of onsite and offshore labor, project savings ranged from 50-66 percent. The average development cost per work year of effort was $41,000 [over 60 percent less than typical GE costs]."
Translation: Indians work for considerably less money than Americans.
As for managing a computer project in both the United States and India, it "was not a major issue," the GE report said. "In most cases, work was monitored through weekly project reports faxed to the United States. All firms have individuals located in the United States to facilitate handling of questions or problems."
GE is but one U.S. company. Multiply that experience by the dozens and you begin to understand why exports of software and information services from India to the United States are booming. They are expected to easily top $1 billion by the turn of the century.
IRELAND WINS THE JOBS
The white-collar jobs that are being shipped overseas don't just involve computer work. And they aren't going only to India.
Just ask the women who once processed medical, disability and life insurance claims at the New York Life Insurance Co. office in Gretna, La., across the Mississippi River from New Orleans.
Most of the women were in their 30s or 40s. For some, the job provided a second paycheck in the family; for others, it was the only paycheck. On average, they earned $15,000 to $25,000 a year.
In May 1993, the company told them the office would close that summer. "They said there weren't enough claims, enough work to keep the office open," recalled Claudette Green, who had worked there 10 years.
She also remembered that a company official told them not to mention the change to policyholders. "They told us not to tell the insureds - just carry on the business as usual," she said.
When the office closed, she said, many women broke down and cried. "They did not have a job, and they did not know what to do."
The final weeks were made all the more unpleasant because they were instructed to pack boxes of files for shipment to other New York Life offices.
In the beginning, the women couldn't understand why the office was closing - there were still plenty of claims to process. Then they realized what was happening. Sheryl Washington, a 13-year veteran, explained:
"After a couple of weeks into it, you started putting labels on boxes and they were going to Ireland. Booklets, claims, whatever they want to ship - to Ireland."
In 1989, New York Life had opened a claims-processing office in the rural village of Castleisland, in southwestern Ireland. In recent years, Ireland, with its educated, English-speaking, low-wage workforce, has become a favorite offshore site for big U.S. insurers and other corporations that process large volumes of paper and data.
Sheryl Washington went back to school, enrolling in a computer course to learn word processing and accounting skills on a computer. When she couldn't find a job in New Orleans, she relocated to Jacksonville, Fla., where she now is a receptionist for a large company.
Like a number of other women interviewed, she said the change, in some respects, was good for her personally. It spurred her to learn new skills, and ultimately pointed her life in a new direction. But Washington and others added that the positive personal aspects were offset by their losing ground financially.
"I'll never be exactly where I was when New York Life closed," Washington said.
Washington asked a question that was posed time and again by people who were interviewed:
"You wonder why the smaller jobs are being transferred, instead of the bigger jobs. Why are [we] putting our own people out of work?"
A GLIMPSE OF THE FUTURE?
The challenge of labor competition from places like Ireland and India is a relatively recent phenomenon. Its low-tech counterpart, under way for years, is a steady drain of blue-collar jobs out of the United States into Mexico.
This, too, is a direct result of U.S. policy.
It began in 1965 when, with the encouragement of the U.S. government, Mexico adopted something called the Border Industrialization Program. Its aim was to create work for impoverished Mexicans in the region closest to the United States.
As with the erroneous National Science Foundation report that predicted a U.S. engineer shortage, leading to thousands of foreign computer engineers pouring into the United States, a faulty premise was used to sell the Mexican program to the American public. It went like this:
If Washington helped create jobs in Mexico, it would reduce unemployment there and stem the tide of illegal immigrants seeking work in the U.S.
Best of all, Washington said, not a single American company would be hurt.
Adding tax breaks to the promise of cheap labor, the U.S. government encouraged American companies to establish subsidiary Mexican operations called maquiladoras.
Under the program, a U.S. corporation could set up an assembly plant in Mexico, for electronics, apparel, appliances, automobile components, toys, etc. Parts would be shipped into Mexico for assembly, then the finished goods would be sent back to this country for sale.
At the time, of course, many American multinationals were increasing their presence in other countries. Colgate-Palmolive, for example, was beginning to step up production of household goods abroad while scaling it back in the United States.
But the Mexico program offered something new: Machinery and other products that required assembly could be put together just across the border - and cheaply.
An obscure provision in U.S. tariff law, which allowed companies to bring the finished product back to the United States virtually duty-free, made it all possible. The section had been on the books for years and a few companies had built plants in the Far East to make use of it. But Mexico would elevate the practice to another level.
The primary attraction: an inexpensive labor pool. At the time, the minimum wage for unskilled work in the border city of Juarez, Mexico, was 30 cents an hour. Trainees received 15 cents an hour.
The U.S. minimum wage then was $1.25 an hour.
Needless to say, the maquiladora idea sounded pretty good to corporate America. By the late 1960s, so many companies had set up shop across the border that the Nixon administration, pressed by organized labor and political leaders in industrial states, called for a review of tariff policy to determine if the program should be scaled back.
A succession of witnesses appeared before the U.S. Tariff Commission in the spring of 1970 to testify that the program was relieving Mexican poverty. If it were abolished, they warned, a flood of poor Mexicans surely would sweep into the United States.
A typical comment came from Mark T. Miles, director of plans and programs for the Chamber of Commerce in El Paso, Texas, across the border from Juarez:
"The location of large numbers of diversified manufacturing operations, and the relatively high wages paid in these operations within the border zone of the Republic of Mexico, is beneficial for the United States in relieving conditions of poverty and unemployment in that zone, thereby reducing the pressure for legal and illegal immigration in the U.S."
The mayor of El Paso, Peter De Wetter, echoed this view. "The poverty problem of U.S. cities on the Mexican border is further complicated by tremendous pressures for immigration to the United States from Mexico," he said. "Economic opportunity must be provided on both sides of the border if we are to ease the immigration situation and improve the lot of our own . . .residents."
Other witnesses disputed contentions that the program was putting Americans out of work. Ignacio Garcia Batista of the Commission of the Californias testified: "Not one United States factory has been known to close its doors as a consequence of the program."
With such assurances, and backing from major U.S. corporations that had begun moving operations to Mexico, the tariff commission decided to let stand the duty-free provision of the Border Industrialization Program.
Twenty-three years later, Congress debated the North American Free Trade Agreement (NAFTA), which essentially made permanent the border program - and expanded it to all of Mexico.
By then, immigration from Mexico into the United States - legal and illegal - was running at record levels. As for the factories in the United States that would never close - they closed in record numbers.
Nevertheless, the arguments for NAFTA in 1993 sounded eerily like those advanced on behalf of the Border Industrialization Program in 1970. NAFTA would create jobs, raise incomes, and reduce illegal immigration.
President Clinton in June 1993: "If you have more growth on both sides, then you'll have less illegal immigration from Mexico, more people will be able to get jobs at home and stay with their families, their incomes will rise, and they'll buy more American products."
Sen. Max Baucus (D., Mont.), in October 1993: "Creating jobs in Mexico will help the Mexican economy and will decrease the likelihood of illegal immigration from Mexico to the United States."
Rep. Joan Kelly Horn (D., Mo.), in September 1993: "Turn down NAFTA and there will not only be thousands more illegal immigrants every night, there might well be tens of thousands every night."
Sen. George J. Mitchell (D., Maine), in November 1993: "NAFTA provides the United States with significant new opportunities for the future: expanded markets for American products in this hemisphere, more American jobs from higher export levels, and the growth of prosperity in the hemisphere, which will ultimately reduce illegal immigration as a problem."
They were as wrong in 1993 as their predecessors had been in 1970.
Mexicans continue to stream across the border. Mexico, with a population of 92 million, remains a poor, agrarian country with a high birthrate - almost double that of the United States. It is a nation that cannot create enough jobs to sustain its people.
And, with the collapse of the Mexican peso in late 1994, the situation for Mexican workers has grown even worse.
But what's bad for Mexico is good for corporate America:
Since the peso's collapse, scores of American companies have built plants in Mexico.
With wages paid in devalued pesos, Mexico's cheap labor has become even cheaper.
EL PASO: TWO-CLASS SOCIETY
Without fundamental changes in U.S. policy, what's on the horizon for the American worker?
Make a visit to El Paso, a brisk walk across the bridge from Juarez. Because of its long experience with having a low-wage workforce next door, El Paso offers a glimpse into the future of America's emerging two-class society - from job prospects and wages to housing opportunities and living standards.
In this city of 515,000, the middle class is disappearing. In its place are a few very rich people and a lot of poor.
Thousands of Mexicans come across the border each day, legally, to work in low-wage jobs - convenience store clerks, manual labor, whatever they can get. Wages generally are so low that comparatively few people have enough money to buy houses. That's why El Paso ranks near the bottom on the annual lists of American cities in terms of affordable housing.
For the last quarter of 1995, the National Association of Home Builders ranked El Paso 185th out of 192 cities on housing affordability. The median selling price of houses was $88,000. By the home builders' calculations, people with the average El Paso household's income could afford to buy only 37.5 percent of the homes.
Median family income in El Paso in 1993 was $27,793 (compared with a national median of $39,500), meaning that half of all households earned more, half earned less.
At the other end of the economic scale, growing enclaves of homes - many enclosed behind walls and gates - sell for a half-million dollars and up.
Duane Sanders, who works for the Salvation Army in El Paso, has watched these changes occur, including a decline in contributions to his and other social-service agencies.
"People don't have the money they used to," he said. "In my church, we're constantly having to ask people to fill up the food pantry. . . . For every job [opening in El Paso], there are 100 applicants. . . . This town is northern Juarez."
At the same time, Sanders said, there are "157 millionaires in this county. There are million-dollar homes on the west side of town. A lot of half-million-dollar homes and quarter-million-dollar homes. I was in one the other day; the bathroom was bigger than this office."
The homes that poor people do buy often are purchased from wealthy families, who own large tracts of desert land. Michael R. Wyatt, an attorney with Texas Rural Legal Aid, says that two types of colonias, or poor developments, have grown up around El Paso.
The first type of colonia has existed for years, Wyatt said. In it, the landowner subdivided fields and sold off lots without plotting roads or providing standard services.
One water meter may service 30 houses. A one-inch pipeline runs off the meter and eventually branches into garden hoses that serve the individual houses.
For their small plot of land, "they pay the owner $25 a month," Wyatt said. "In El Paso County, that's a pretty good deal. There's no sewerage. They run off septic systems."
And then there's the other colonia.
"The second type of colonia is more desperate," Wyatt said. "These people are living in the middle of the desert in shanties, tar-paper houses. They are never going to get water. There's no realistic way for them to get water."
Wyatt said the lots are sold on land contracts. Legal safeguards often are lacking. Many people buying on these contracts are not permitted to record them, as you would record a deed at your county courthouse. If they do so, they can lose the land.
"If after 30 years you make all the payments and if you are never late, you will get the land," Wyatt said. "If you're late, even though you paid faithfully for 20 years, they can forfeit the contract and kick you off. There are people buying this land for $5,995 for about one acre. They pay $30 a month for 30 years."
A provision from one agreement, in a case that Wyatt handled, reads: "This contract shall not be filed for record and to do so shall be a breach on Purchaser's part for which Seller may terminate."
So where do people work who buy lots without running water or sewer systems? One place is El Paso's garment industry, which turns out clothing bearing well-known labels - from Levis to Calvin Klein.
But workers don't share much in the big profits from the designer labels.
Hilda Mata was a sewing-machine operator at Sonia's Apparel. Her pay rate: $4.25 an hour. She quit, she said, because "I did not want to work without getting paid anymore." She and her co-workers were owed a total of $25,000 in back pay, according to Gutberto Martinez of the U.S. Labor Department.
Anita Gasca was a sewing-machine operator at Generation Apparel, which produced clothing carrying the Calvin Klein label. She went to work at the factory on May 18, 1994, and was making $4.25 an hour when she left in October of that year. Why did she leave?
"Because we were not paid for three weeks," Gasca said.
The man behind Generation Apparel was Jose C. Salas. He was not available to be interviewed. But let Martinez, a Labor Department investigator, tell you about him. Martinez described the Salas operation during a court proceeding.
He said that Salas has operated several garment factories - Jose Salas Sportswear, Montview, El Dorado and Romie's. At El Dorado, "we found that Mr. Salas owed 77 employees about $20,000 in unpaid wages."
Martinez was asked about another factory, Salas Sportswear: "We did an investigation in 1985, where we found that 20 employees were due about $3,000."
And still another: "Montview was an investigation we conducted in 1988 which revealed that about 44 employees were owed about $8,000."
Then Martinez was asked whether the Department of Labor ever had attempted to take legal action against Jose Salas, other than trying to recover the back wages.
Said Martinez: "We attempted to take him to litigation," after the last investigation in 1990. "But we've never found him to serve him."
The losers, once again, were working people.
Most Americans, of course, don't live on the border, in a city like El Paso. But that doesn't mean they're not in competition with Mexicans - and Indians and Brazilians and Hondurans.
Because the U.S. government has failed to cushion the impact of global competition through its import and immigration policies, an increasing number of American workers are seeing their livelihoods at risk.
Foreigners flood in, jobs flood out.
In the global economy, all Americans live next door to a low-wage country.
Research help was provided by Bill Allison. Also contributing to the research were John Brumfield, Harold Brubaker and Tirdad Derakhshani, as well as Inquirer library staffers Denise Boal, Frank Donahue, Joe Daley, Alletta Bowers, Sandra Simmons and Ed Voves.
Copyright 1996 PHILADELPHIA NEWSPAPERS INC.
May not be reprinted without permission.
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