While the negative possibilities surely exist, there is also a positive side the report’s findings. The BusinessWeek online article quoted Frank Peng, a professor at Tongji University’s School of Economics and Management in Shanghai as saying, “(the report) shows the resolution and confidence of the central government to fight corruption.” The author of this review was surprised by the level of openness of Jinhua’s report and was further surprised that the findings were allowed to be exposed to the public. Such openness goes a long way in showing China’s commitment to moving away from its strong-armed Communist Party controlled politics to a more open and fair market-based economy.
Article Review #2 – More Finance Firms Move Jobs to India by Anupama Chandrasekaran of Reuters (article date – 6/28/2004)
In a recent article, Reuters cited a Deloitte & Touche survey of 43 global financial companies in seven countries that said that financial companies moved information technology and customer service workers to lower-wage countries at a pace that was 38% higher than last year. Since it has a large English-speaking population, 80% of the off-shored jobs went to India.
Deloitte & Touche’s report indicated that, in 2005, among the world’s top 100 global financial companies with market caps of $10 billion or more, it expects more than $210 billion worth of off-shoring to occur to offset operating costs. They anticipate that the off-shoring efforts could result in net operating costs savings of up to $700 million per company. Deloitte’s report further predicted that by 2010, global financial institutions will have moved 20% of their operating costs to low-wage countries.
This job off-shoring trend is one that is troublesome to me as an IT professional, but one that I clearly understand from the perspective of management. The negative implications of off-shoring seem obvious: increased unemployment, job demotion, and/or lack of advancement for IT workers whose jobs are being replaced, and political and media backlash, but off-shoring has its positive sides as well as its negatives. Companies that off-shore jobs to low-wage countries benefit from the resulting operating cost savings. The costs savings can generally be applied directly to the company’s bottom line, which results in higher net profits to the shareholders.
The real question here is not whether or not off-shoring is “worth it” financially, because it clearly is. The question is whether or not off-shoring is ethically “worth-it”. If U.S. based companies continue to send IT and CS jobs to low-wage countries at the rate they currently maintain, the unemployment rate in the US will trend upward and the displaced workers will be forced into a position where they must change accepts lower paying jobs in order to remain employed in the industry. In some cases, accepting a lower-paying job may mean that the spouse must also seek work, or if already working, more hours to supplement the lost income. This situation will lead to greater stress in the home and will ultimately contribute to a higher divorce rate, and will cause economic slowdown in the face of rising corporate profit margins.
I certainly do not advocate government mandated job quotas. Rather, I think that corporate board members and CEO’s should evaluate the potential down-sides of off-shoring more carefully rather than succumb to the immediate possibility of greater short-term profits.
Article Review #3 – Latin America Lags Behind by Scott Johnson of Newsweek International Edition (7/5/2004 edition)
According to a July 5th article by Scott Johnson of Newsweek International Edition, Latin America is headed for another decade of stagnating GDP growth and political turmoil. In fact, the situation has gotten so bad that a poll taken by the UN in April of this year indicates that 53% of Latin American would rather have an “autocratic” government if it improved economic conditions! This is in stark contrast to the 1980’s when autocratic regimes were targeted for their lack of performance and replaced with privatization of state-run industries and democratic governments.
The problem was described as a failure of privatization in Latin America has largely due to poor implementation. During the years from the early 1980’s to the early 1990’s, what seemed at the time to be serious privatization efforts were occurring all over Latin America. By the late 1990’s Latin American privatization revenues were several times higher than Southeast Asian privatization revenues and accounted for nearly 55% of such revenues worldwide. However, those very same privatization efforts now seem largely illusionary. Yes, trade barriers fell and state-run government enterprises were sold, but the power and capital was not dispersed. The majority of it was simply transferred to a group of private bourgeois that continued to broker power with the state. So, what had looked like more than 10 years of privatization was not because there was still no real public enterprise ownership.
The article goes on the describe how the ratio of IPO to population in Latin America is 10 times smaller than the world average and the ratio of private companies to population is more than 3 times less than the world average. Johnson also writes that Brazil and Columbia have the world’s most highly concentrated business capital ownership.
Among the many problems in Latin America is its economic dependence on commodities for more than 50% of its exports. Johnson states that “…commodity driven economies are politically explosive: they tend to reproduce plantation societies and mining towns, not create an expanding and increasingly well-educated middle class, and they make Latin America more vulnerable than most to highly cyclical demand in richer nations.”
In spite of all the troubles, most Latin American politicians know what needs to be done. There needs to be another wave of reform to create a real working private sector. Regulations in Latin America need to be eased and the ineffective court system needs to be over-hauled. Knowing what needs to be done, and doing it, though are two different things.
If the economic and political turmoil in Latin America continues, the world could see a rash of governments topple and new wave of dictatorships in place in many countries including Bolivia, Ecuador, Peru, and others. The newly created totalitarian governments will more than likely not be on friendly terms with the US and will probably tighten trade regulations and raise import tariffs to unacceptable levels thereby essentially shutting out foreign goods and capital. While this may increase local jobs in the short-term, history has proven these methods will fail in the long term (Russia, China, North Korea, North Vietnam, etc…).
Latin America needs strong-willed and strong-voiced leaders to step up and implement true economic reform and win back the trust of their various peoples.