The American Dilemma and How We Can Fix It

Posts tagged ‘Outsourcing’

THE HYPOCRISY SURROUNDING OUTSOURCING

When I first moved to Las Vegas I learned some things.

The first was that without having to drive twenty minutes to get to the Strip should I want to risk a few dollars on a game of chance, I had several options which were far more convenient.  These were casinos that were more interested in attracting the regular business of “locals” rather than the mob of weekend visitors this city sees every Friday night and who go home on Sunday.

When I first started coming to town as one of those “weekend warriors” back in the ‘70’s I was bedazzled by what was then the Vegas scene.  As I drove down the Strip, billboard after billboard headlined the star who was appearing at that hotel.  The biggest people in show business were always in town, and if I planned the trip right I could see several of my favorites.  Even the real Elvis.

And as you walked in any of the casinos you could view the vast array of table games that were going to allow the gambler the opportunity to part with some of the hard-earned money he had brought with him.  All this excitement, and always in the background was the sound of coins spilling into the trays of the slot and video poker machines which held, at that time, a far smaller share of each casino’s space than did the craps and blackjack and baccarat tables.

Over several trips and a number of years I began to notice something different happening in Sin City.  The number of table games began shrinking and the number of slots began increasing.  And several years after I moved here I noticed yet another change.

The machines which vended the lucky winner his coins were slowly but surely being replaced by newer models which attempted to emulate the sound of coins clanking in the metal trays with synthetic replication, and which, rather than giving the winner his payout in quarters or dimes or nickels, handed him a printed ticket for the money he had won (or still had left).

From the slot player’s standpoint, this was a nice improvement.  No longer did the player have to scoop up his money and put it in one of the plastic containers that the casinos provided.  No longer did he have to look for a moist towelette to clean up after collecting his coins which inevitably left his hands filthy.  No longer did he have to stand in line at the Casino Cashier in order to have them run those coins through their counting machine and pay him off.  Now he merely had a ticket which he could insert in any of the ATM-like machines which would read its value and dispense the amount he was due quickly and conveniently.

This was progress – this was improvement – unless you were Mary or Bill.

Who are they?  Well Mary was a “change girl” at one of the local casinos and Bill had worked at the same casino for 14 years as a blackjack dealer.  They both lost their jobs – Mary because of the new technology and Bill because the casinos were downsizing the number of table games that they ran and eliminated some of their staff.

If you think about it from the casinos’ perspective, this transition makes a great deal of financial sense.  Although there is always a house edge built into any game of chance, baccarat, craps, blackjack or roulette, there is always the possibility that someone can get lucky (or as in the case of blackjack become an expert card counter – which is why it is NV state law that card counting is “illegal”) and seriously hurt the house with a good run of luck and skill.

No such chance exists with a slot machine where the ultimate house rake is pre-determined by an internal chip that exactly calculates the house’s percentage based on the money that is run through it.  And unlike a blackjack game which requires a dedicated person to staff it or a craps table which requires four employees, one hundred machines can be overseen by one technician in the event of a rare mechanical breakdown.

That’s why Bill lost his job.

And Mary, well she got replaced by more modern technology.  While there are still change people who help the slot players in the event of a jackpot win which requires the completion of a 1099 form, their number has diminished because the same machines which payout the winning tickets also break down larger bills into smaller ones.  Technology marches on and unfortunately for Mary and many like her, it marched her out of a job.

It’s interesting to me that the many people I know who talk about the evils of “outsourcing” never seem to feel quite as passionate about those who worked in casinos whose jobs were not outsourced but eliminated.  The reason I happened to write this post is that I had just listened to one of them go on at length about how we are shipping jobs overseas and the tragedy of it all.  This same person spends a few hours almost every day entertaining herself in a casino.  So I mentioned Mary and Bill to her and how they had lost their positions.

Her response was, “Well that’s progress for you.”  She displayed no remorse for them and I am certain that is because she doesn’t play table games and because she finds this new arrangement, not having to deal with coins, as a big improvement, far outweighing the human toll of Mary and others who no longer have jobs.

I thought it was inconsistent for her to be so empathic to nameless, faceless people whom she has never met and were outsourced, when she was so cold-hearted about now unemployed Mary (whom she knew).  While I do not believe it is right to make judgments about others, unless their actions affect me, still this acquaintance’s attitude is not uncommon.  At least that is my empirical observation based on a lot of anecdotal evidence.

So many are willing to descry the unfairness of the loss of American jobs to foreign workers, yet they continue to buy the same products those foreign workers produce in greater and greater numbers, thus supporting those companies which outsource and validating their policy.  Is the company which outsources or the consumer who purchases the outsourced products really at fault?  I would lay this squarely at the feet of those who make those purchases – for without their patronage, these companies would have no sales.

I believe in the reality of a global economy and I realize that the financial capital needed to produce a manufactured product will always find a home where it is best treated.  And that home is not currently in the United States.  That is not China or Bangladesh’s fault.

That is the fault of the Congress and the President for imposing onerous rules which add to the cost of every product manufactured in America and for continuing the policy of assessing the highest tax rate of any nation in the civilized world on its corporations – again further adding to the cost of producing goods here.

But to get to the heart of the matter, even if you accept my scenario that without the consumer’s co-operation, outsourcing simply wouldn’t happen – there is someone who bears an even greater share of the responsibility.  That person is the voter who empowers these bureaucrats with another return to office so that they may continue the same policies which got us here in the first place.

It’s time for a new, fresh and realistic approach.  It’s time that we set aside all the rhetoric about “Saving General Motors”.  It’s time we really took stock of those whom we elect to serve us – and to rid ourselves of those who believe that their election proves we were meant to serve them.  It’s time – no it’s way past the time – that each of us cut through all the hype and got down to the bare bones and the truth.

It’s time for the American people to vote intelligently.

“X” MARKS THE SPOT

There is a stock listed on the NYSE which has one of those most coveted of all ticker symbols – a single letter. In this case the symbol is “X” and it represents the United States Steel Corporation.  It has maintained that distinctive symbol for a century.

There was a time in America when economists and investors waited anxiously for U. S. Steel to report its earnings.  A good report could mean a surge in the general stock market.  A bad report could mean a nasty selloff.  Of course, this was at a time when America owned a large share of the global steel industry.  Those times have passed.

In the decade beginning in 1910, the amount of steel that was manufactured in the United States gradually increased as a percentage of worldwide steel production to the point where we consistently produced between 30% – 50% of all the steel made in the world.  Cities like Gary, IN became boom towns – welcoming workers to the state of the art mills that had been built.  Good jobs were plentiful and the steel industry was the backbone of American prosperity.

But things changed.  Other countries learned how to manufacture steel of equal quality to our American product – and they learned to make it less expensively than we could.  One of those countries was Japan.

If you know anything about that island nation you know that Japan, unlike America, is blessed with few natural resources.  The raw materials to manufacture steel have to be shipped in from other countries where they abound.  Despite that additional cost, Japan has still been able to manufacture a quality product at a fraction of the cost of its American counterpart.

How is that possible?  Perhaps the answer lies, at least in part, in the demands and entitlements which American unions have been able to extract from U. S. steel companies.  The cost of labor is an essential component of the way that any product is priced.  And if your costs are significantly higher than your competitors’ you simply will not be able to offer your product at a price that is going to be attractive to buyers.

Recently I’ve been covering the flap about “outsourcing” as it pertains to the presidential race.  Although I think this should have about the same level of importance as getting a peek at President Obama’s college transcripts, allow me to play devil’s advocate and assume that there is something that is actually material in this conversation.

Let me further assume that Gov. Romney’s Bain Capital outsourced some jobs to countries overseas.  How many jobs?  Well, considering the nature of the companies that Bain owned I am going to take a stab at estimating that number.  I’m going to suggest that number is between a few hundred and a few thousand.

By contrast, the number of American workers employed in the steel industry shrank from 500,000 to 224,000 in the period between 1980 – 2000 – a loss of 276,000 jobs that were essentially outsourced to countries overseas.  Thank you union leaders for your excellent work.  You certainly deserve to be recognized for your achievements.

By 1980 the United States’ share of global steel production had declined to 12%.  By 2000 our market share had declined further to 8%.  Today it stands at 2%.  And that once great boom town of Gary, IN has an unemployment rate of 13.1% which is more than half again as much as the national average.

Given these statistics, even if Gov. Romney is an “outsourcer”, he is a veritable neophyte at it.   He needs to sit in on a few AFL-CIO leadership meetings to see how it really is done.

If we want to make outsourcing an issue in the November election, let’s look at the real causes and perpetrators of it.  Our unions which demand that their members earn wages and benefits which make our products globally uncompetitive; our politicians who enact onerous rules and regulations which detract from productivity and add significantly to cost; and ourselves, for being willing purchasers of products manufactured overseas because they are less expensive and we can save money.

Harry Truman said, “The buck stops here.”  I guess that was back in the days when “X” marked the spot.

THE FIRE

You had a hard week at work.  Everything that could go wrong did and at the worst possible moment.  But that’s done with and you’re driving home, looking forward to spending a pleasant weekend with your family.

A few miles from your home the traffic turns into a jam.  You think to yourself, “Well, that’s kind of typical of the way this week went.”  And then you see the reason for the stall.  There is a dark cloud of smoke ahead – and it’s coming from the neighborhood where your home is located.

“Oh please, God –  please don’t let that be my house that’s on fire,” you exclaim out loud.

Your anxiety builds as the traffic crawls forward in the thirty minutes it takes to move one half way to the billowing smoke.  Even with the air conditioner running at full throttle you can feel the perspiration dripping down the side of your body from your underarms.  In the distance you can see the fire equipment which has been deployed to combat the blaze.

Another half hour passes.  The police and a fireman are directing traffic on the street that feeds into your street.  At that point you breathe a sigh of relief because you can see that the source of the fire is a house that is two blocks away from yours.  Perhaps the week didn’t turn out as badly as it might have.

Most of us who found ourselves in this situation would probably, almost involuntarily, react the same way.  “Oh please, God – please don’t let that be my house that’s on fire.”  But what are we really saying in making that plea?  Simply that we are perfectly content for this tragedy to have befallen one of our friends or neighbors – just as long as we remain unscathed by it.

We have asserted our moral superiority to prosper at the expense of someone else who is not as fortunate, gifted or entitled as we are.  We have passed judgment that our interests are more important than the interests of others.

After the  tragedy of this event we might find it in our hearts to make a small donation to the family who’s lives were affected or perhaps put together a bag of canned goods for them to eat.  And in these ways we assuage our consciences and tell ourselves that we really are “good people.”

I offer this lesson in “situation ethics” as a prelude to a discussion about which there has been much and will be more conversation.  That topic is outsourcing jobs.

As I see it, there are three categories of people who are involved in this conversation.

The first are those people who really don’t want to make the effort to get a job and find this a convenient excuse for their own idleness.  As far as I am concerned, they are a part of the problem and in no way contribute to a solution.

The second are those people who have a job and are breathing a sigh of relief that their employment does not appear to be in jeopardy.  They may have a view on outsourcing and indeed be empathetic to a co-worker who’s position was outsourced – but in their hearts they’re saying, “Oh thank you, God for letting me keep my position.”

The third are those people who are actively seeking work but cannot find it.  They are bitter that a potential job has been shipped overseas.  We hear a lot of this from OWS.  They also have made the moral judgment that they have a greater right to life and prosperity than some other worker who happens to live in another country.

Now the facts are that many of these outsourced positions are low-level and low-paying.  A large contingent of OWS protestors are frustrated people who are college educated and are unable to find work using their degrees.  I suspect that none of them spent four years in college so that they could get a minimum wage job working in a fast food restaurant or in a customer service call center.

In fact, I doubt that if offered that kind of position so that they could support themselves until things got better they would even consider accepting it.  I say this based on several conversations I have had with OWS members.  The people with whom I spoke considered that type of work as being “beneath them.”  Personally, if I were in their position, I would humbly accept the work and be grateful for it while I continued to look for something better.

So is outsourcing immoral?  Let me introduce a fourth group that carries the most weight in this discussion.  That group consists of our President and the Congress.  You see, if they had the sense to understand the nature of the recession and to work proactively at fixing it – rather than spending two years going off on tangents and bickering, we might not be having this discussion at all.

As bad as the June Jobs Report was with an overall unemployment rate continuing at 8.2%, things got worse for the very people whom President Obama counts as his core constituency – blacks and Latinos.  The rate of unemployment for blacks increased to 13.6% from 13.0% and for Latinos to 11.0% from 10.3%.

It is truly difficult for me to understand how these unemployed minorities can support a man who has done so very little to assist them – and, in fact, who has by omission,  done so much to prevent them from entering the work force.

This fourth group, our politicians needs to tend to their knitting – rather than trying to blind each other with their knitting needles.  They need to be honest with themselves and with us – and if they are incapable of that, they need to be replaced with thoughtful people who will work toward finding solutions.  The blame game is not only not productive – it is counter-productive.

We have seen what happens when a people learn to distrust their politicians’ ability or willingness to address problems in a serious manner.  That life study comes to us from a country called Greece.  We saw the fires that raged in the streets of Athens – and those streets are only a few thousand miles and a couple of years away.

If we don’t take the responsibility to elect people of quality and vision this November I predict that it won’t be long before we’re all saying, “Oh my God, our country’s on fire.”

ON OUTSOURCING

When we hear the word outsourcing (and the rhetoric over that is sure to increase as the Presidential campaign heats up), most of us tend to think that it means taking American jobs and shipping them overseas.  That is one, but not the only aspect of this business practice.  This post will attempt to explain both the process and the reasons that companies outsource certain internal procedures.

If you were the Managing Partner of a successful CPA firm and had guided your partnership’s growth over the years, one of the aspects of your business which you would have to manage was records destruction.  Destroying records containing sensitive client information, Name, Address, SSN, DOB, income might easily have been accomplished as a firm with a small practice with a simple paper shredder.  But because of the volume of client documents what was once a simple task that took one of your employees a few hours now has grown to a monumental job.

Solution:  Outsource this to a firm that is bonded, specializes in the destruction of sensitive records and has the most sophisticated equipment to make sure that they accomplish their job in a secure manner.  You have just outsourced this aspect of your business – although in this case you have done so with an American company.  No loss of American jobs here – merely a transfer of who is paying the individuals performing the task.

The reason companies do this is that it makes for a more efficient operation.  Someone using the most advanced equipment and whose sole job is to destroy records, as in the case above, is going to provide a better product and do so in less time.  I doubt the critics of outsourcing as a practice have a problem with the example I have given.

Nor are they likely to have a problem with another aspect of outsourcing – engaging temporary personnel to work on a specific project – rather than hire a full-time employee.

I think most of us would agree that it is more efficient to hire a person from a temporary agency for a project which is expected to last only a few weeks or a few months, rather than hire a person to work full time until the project is completed and then lay that person off.  Again, we have another example of how outsourcing can be an effective, if not the only, logical strategy in certain business situations.

The rhetoric surrounding outsourcing does not concern itself with either of the two examples I have cited.  It specifically refers to taking jobs which formerly were done by Americans and shipping those to other countries.  There is no doubt that much of that has occurred.  The question is, if this is a “bad” thing, who is at the root cause of it and who should shoulder the blame?

There is one party to whom I would point:  The American consumer.

The American consumer’s spending comprises two-thirds of our Gross Domestic Product.  You and I collectively are the single largest driving force behind our economy – or it’s greatest nemesis.  We want more, we buy more, we spend more – or we still want but we cannot afford to buy and as a result we spend less.  When we spend less, the economy suffers.  And our economy is suffering.

It would be untruthful not to admit that many products which were once made in the United States are now manufactured abroad.  The American dominance in the automobile and steel industry have long since waned from their days of glory.  And the reason – the American consumer.

Absorbed with our desire to buy we naturally want what we want at the lowest price.  And the lowest price is a direct function of the lowest material and labor cost.  A car which can be assembled in Germany or Japan for one half the cost in terms of labor will be sold in the showroom at a lower price than a comparable American product.  Look in your garage and check out the make of the vehicle that you are driving.  Does it have “Made in America” stamped on it?

The largest tech company, Apple, Inc. does not have a single product in its line which is manufactured in the United States.  The glass on your iPhone and the engine on the iPhone and iPad are made in the U. S.  – and are then shipped to China and other Asian countries where these units are assembled – together with all the rest of the parts that are manufactured in those countries.

Why does Apple pursue this manufacturing strategy?  CEO, Tim Cook responded to that question by saying, “Cost and facilities.”

If an iPad sells quickly at $499 the question is would one that was manufactured in the U.S.A. sell as well at $999?  Would the lines at the Apple store be as long and would the company move as much product if they decided to bring the manufacturing process home?  Probably not.  And so each of us who purchases their products provides positive reinforcement for Apple’s strategy of outsourcing.

I do not mean to sound as though I am picking on Apple.  Countless other examples could be cited ranging from appliances to food products.  I now find it nearly impossible to buy dog treats that don’t have “Made in China” stamped somewhere surreptitiously on the packaging.  And if I purchase those products, I am contributing to the wave of outsourcing in which we find ourselves.  And if you buy them, so are you.

There are many who will argue that outsourcing is anti-American, a disgrace and a shameful practice.  Perhaps their assessment is correct.  But at the heart of the practice is our insatiable desire to acquire more and more, the latest and greatest – and to pay the lowest price for it.

That’s something of which we should all be mindful the next time we pull out our credit card to make a purchase for a product that doesn’t say, “Made in America.”  That is, if you can find one.

Tag Cloud