Monday, March 13, 2006

Comments, questions, anecdotes

A couple of people posted comments and I wanted to respond.

The first has to do with corporate greed, which I agree there is a lot of and the second has to do with IT globalization which I didn’t address at all in my last post. I believe in a more collective economic structure. Socially, especially in terms of those without health care for the low and middle classes the US is woefully behind other nations. I believe there is more than enough wealth generated in this country to move us more closely towards socialism without impacting personal wealth to a huge degree. I am more than willing to pay more of my personal earnings towards taxes if those taxes will be used to help people in need. However, without changing the entire organizing structure of our society, which would be nice, but is ultimately not possible without a revolution, this is the world we live in.

The second has to do with IT outsourcing to low cost countries which is much broader topic. I touch on it briefly.

Here are the comments:

1. Maybe instead of the workers giving money back the CEOs should take pay cuts for the better of the company? When the last time that happened at GM? Where's your blog about that? Fuck the these big companies crying poor and expected the only people actually working for a living to bail them out!

2. Ok fine maybe you can blame the unions for some jobs being more costly here than they should be. But what do you say to the IT workers, software developers, and other tech workers who don't have unions, and who in most cases have to pay for their own health coverage (and more than $5 a month in many cases), who would not be able to live off the same salaries as those doing the same job overseas? Don't forget also that China provides most health care and medical care in other countries is relatively cheap (though inferior in many cases).

First, let’s be clear, I am not really blaming the unions, their members, or organized labor. I am blaming their negotiating tactics and some of their leadership, which doesn’t seem to be that interested in protecting or creating union jobs. In this economy, in this world, they are going to be forced to be more flexible or they are going to continue to lose members at an alarming rate and worse, lose thousands of jobs. If you read that article, the president of the Teamsters more or less agrees that the unions need to change or they will continue to face steep declines in membership. I am saying that as the marketplace evolves, everyone has to evolve with it or the losses will continue to mount. In a global economy the labor force needs to re-organize and re-prioritize.

GM has 327,000 full time employees. Richard Wagoner, the CEO makes less than 5 million dollars. That’s about $15 for each employee he is responsible for. GM sold between 9 and 10 million cars in 2005. Richard Wagoner’s salary cost GM around .50 cents per car. GM’s revenues for 2005 were approximately 192.6 billion. 1% of GM’s revenue was 1.926 billion. 1% of that is 19.26 million. Wagoner’s salary is less than 25% of that. It doesn’t seem unreasonable in a capitalist society. Conversely GM’s healthcare costs were about $1500 per car or about 15 billion dollars. That is close to 8% of total revenue. A $5 co-pay on the health insurance mitigates a significant portion of this. If GM’s response to the losses is to close three plants and put 15,000 union laborers out of work, permanently, which is worse? I think adding the $5 co-pay protects a lot of jobs for a decent amount of time and a hard line labor stance costs an already dwindling union fifteen thousand members. I think I am a pretty reasonable person, but that kind of negotiating by a union seems to be doing a disservice to its membership in the short and long term.

There are evil companies out there. Wal-Mart is one of them. Wal-Mart is so anti-labor it is sickening. Here is an excerpt from a CNN labor article that demonstrates the point.

Wal-Mart Stores
The largest private-sector employer in the country with 1.3 million employees, Wal-Mart is by far the biggest target for labor. And so far it has been among the most unattainable.
Unions have won the right to hold organizing votes at only a few Wal-Mart locations. The only time that a union won a vote was in 2000 -- 10 butchers signed on for representation at a Jacksonville, Texas store. Two weeks later, Wal-Mart got rid of all its butcher operations nationwide.

That is downright evil. Fired every butcher in its employ and stopped cutting meat globally rather than allow its workers the right of collective bargaining. Of course, most everyone I know shops at Wal-Mart, because we like cheap stuff, so we are ALL part of the same hypocrisy.

Moving on to IT globalization:

The glib answer is, of course, these people should have joined a union back in the 70’s, but of course, who knew that the IT industry would be ravaged from overseas in 1977. You want someone to blame? Blame Al Gore, he invented the internet after all. The internet, long distance networking, the ability to transfer terabytes worth of data in seconds or minutes killed the US programmer’s stranglehold on the industry. Another way to put it is the commoditization of programming skills killed the US marketplace. What does that mean? Good question.

Commoditization is an exercise in basic economics. It is simple supply and demand. When the demand for programming talent can be filled anywhere in the world, including places where labor is significantly cheaper than in the US, then that is where it will be filled. Manufacturing has a chance to come back, because the logistics of moving parts back and forth across the ocean is getting more expensive, while the transmission and storage of data via phone line and satellite is shockingly cheap. The price of raw material fluctuates, but steadily rises. The amount of available mechanical and design engineering talent is shrinking which drives wages up. In the IT world, wages are being driven down by a glut in talent, prices for hardware are being driven down by cutthroat competition, so the industry has less monetary value overall. Have a CISSP (data security certification)? Are you able to code in special languages? There are still plenty of high paying jobs out there for Americans to fill. Basic html and java coders are pretty much a dime a dozen and because of this they are not as valuable as they used to be in the marketplace. It isn’t an indictment of the American economy to say that, it is the function of the American economy existing in a global marketplace.

Try looking at it this way. If you lined up 20 HTML coders and gave them an assignment would you get basically the same product back? My contention is that you would. How does an employer distinguish between the 20? They hire the cheap one because the have to meet budgetary constraints. Extrapolate that out to a large company who needs 50 java programmers. Does that company go through the human resource expense of identifying, interviewing, and hiring 50 programmers, paying them a yearly wage and benefits? Can that larger company justify that to its stockholders and investors when there are plenty of solutions available that will get them the same production at ¼ the price? (i.e. outsourcing the jobs to India or eastern Europe or wherever.) Should our fictitious large company spend 75% more for the same thing? That doesn’t make any sense to me at all. Understandably it is a tough pill to swallow.

Protectionist responses to market shifts like this only bring protectionist responses from other countries. Who is taking our programming and manufacturing jobs? China and India. Who are the two largest emerging markets for US goods and services? China and India. We need to expand our markets and we need trading partners to do that. Our economic problems can’t be solved with reactionary tariffs or protectionist legislation. We have to innovate within our own borders and come up with the “What’s next” for our economy. What’s next? I don’t know. Maybe the biomedical industry? Private space companies? We need to identify the next big thing and nurture that. Then, 20 years from now, when there is a glut in geneticists in the biomedical marketplace, someone will complain that all the gene sequencing jobs are being outsourced to India.

Marketplaces evolve, and so do economies. Companies have to evolve with them in order to continue to exist. So do labor forces. There are no easy answers or short term solutions.

Thanks for the comments!

No 1 of Consequence

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