Americans Should Quit Whining about Globalization

That's the message I get from this piece on globalization from Guy de Jonquières of The Financial Times. At the risk of overkill on the globalization issue, here's one more:

Chinese manufacturing myths, by Guy de Jonquières, Financial Times: Amid all the squeals in Washington at the yawning US trade deficit with China, one strikes a specially resonant political chord: that unfair Chinese competition is annihilating US manufacturing industry and “stealing American jobs”. The assertion is so common it has assumed the status of fact. Yet it is almost entirely false.

For a start, the bilateral imbalance may be overstated. After ironing out the wide discrepancies between both sides’ data, Oxford Economics, a consultancy, finds China’s share has hovered at about a fifth of the total US merchandise deficit since 1995. ...

The US is still the top manufacturing nation, producing almost a quarter of global output, the same as in 1994, while Japan’s share has shrunk. ... True, more output is from plants owned by non-US companies, some of which have displaced indigenous production. That may fuel popular perceptions of national decline, particularly because greenfield factories usually shun the old rust belt. But corporate nationality is irrelevant to overall economic welfare, except insofar as foreign-owned plants often out-perform locally owned ones.

What of China as “job thief”? US manufacturing employment is in long-term decline, just as it is in other rich countries. But that is chiefly because of impressive productivity gains. ... Of course, Chinese competition has claimed some US manufacturing jobs. But Oxford Economics puts the losses from 2000 to 2010 as low as 500,000 – no more than the US labour force sheds each week. ...

If US manufacturing is stronger than many Americans believe, China poses a weaker challenge than is often supposed. Its output is still less than half that of the US – and many of its industries are suffering a severe profits squeeze. Indeed, to call China a manufacturing economy is something of a misnomer. In reality, it is the world’s biggest final assembly shop, with minimal local value-added.

As a forthcoming report by the Institute for International Economics and the Center for Strategic and International Studies points out, on average two-thirds of the value of Chinese products is imported... Furthermore, China’s much-ballyhooed “high-tech” exports are a quirk of customs classification: most are low-margin electronics products, such as DVD players. ...

Many big-ticket Chinese exports are of things no longer made in the US or that have never been made there. A large renminbi revaluation would merely shift Chinese production to even lower-cost locations elsewhere. Increases in China’s still low productivity levels will have a similar effect as higher wages make low-skilled, labour-intensive output increasingly uncompetitive.

At the same time, more sophisticated activities will spring up to replace it. That has already happened in steel, where China’s capacity has exploded in the past few years. It will soon be repeated in the car industry ... China needs to export vehicles profitably in volume.

That is a prospect to strike fear into Detroit. But the main reason is not because Chinese car companies are likely to develop overnight into super-competitive Toyota clones. It is because decades of mismanagement and failure to produce what the market wants have pushed US carmakers to the edge of the abyss. It will not take much to tip them over.

Moving steadily up-market is a natural, indeed inevitable, feature of economic development. The biggest worry for the US ... is not that China will follow the same path but that their own economies will stop doing so. There is no intrinsic reason why that should happen and few signs of it as yet. But if it does happen, they will have only themselves to blame.

For more about falling competitiveness due to rising wages in China, see this NY Times story on "Labor Shortage in China May Lead to Trade Shift."

Comments

[camille roy]

I think Europets, with health insurance, pensions, and employment security, should quit whining about Americans who have none of these and who are protesting the offshoring of our livelihoods.

[Movie Guy]

How Many U.S. Service Jobs Are Projected To Go Offshore

This is a long post, but an important one for future reference. Others are welcome to use the information.

We have observed quite a bit of discussion about the loss of U.S. manufacturing jobs to offshore sources, whether in-company (in-house) offshore or offshore outsource operations. It's not too hard to track the relocation of existing U.S. manufacturing jobs based on reports of factory closings, though such news reports and corporate announcements do not cover the total offshore manufacturing effort. As such, one has to carefully study the U.S. trade data to gain a better feel for offshore goods production.

Services present a slightly different picture. U.S. service jobs transferred to offshore locations are a bit more difficult to track because such announcements do not appear to capture as much attention. But what should be clear is that the U.S. corporations, companies, and government entities have had the advantage of having the ability and technical expertise to satisfy almost all services requirements domestically. Therefore, any import of services as evidenced in U.S. trade data is generally representative of offshore initiatives, whether in-company offshore or offshore outsource. And let us not forget that many individuals stated publicly that U.S. services were going to replace the trade and employment gaps created by U.S. manufacturing losses, domestically and internationally.

To some extend, media attention on manufacturing offshoring has overshadowed the full range of service offshore initiatives, whether in-company offshore or offshore outsource operations. One excellent source which offers insight into the U.S. service jobs offshore initiatives is the analysis provided by McKinsey & Company and McKinsey Global Institute (MGI), an internal think tank within the McKinsey corporation which was created in 1990. McKinsey has an excellent track record of projecting future business operation changes.

McKinsey published a report in June 2005 which stated that "...the total number of service jobs in the United States that could in theory be filled remotely represents 9 percent of total current employment." Similarly, McKinsey stated in two December 2005 documents that 2.3 million or 2.8 million (two separate figures quoted in different documents) U.S. service jobs will be offshore sourced by 2008. In a December 2005 report, McKinsey stated the number of cumulative U.S. service jobs offshore sourced as of year 2003 as 900,000 jobs. Moreover, McKinsey stated, "We expect that U.S. companies will create 200,000 to 300,000 offshore jobs per year over the next 30 years."

McKinsey has provided sufficient, well researched information and analysis upon which we can estimate the percentage of 'offshoreable' U.S. service jobs for 2004, 2005, 2006, 2007, and beyond. One slight adjustment will need to be made regarding projected annual increases between 2003 and 2008 based on the McKenzie projected sum totals of 2.3 million or 2.8 million by 2008. As a result, the annual offshore job gains are represented as 350,000 and 475,000 in order to reach the 2.3 million or 2.8 million cumulative totals. Thereafter, we can drop back to the 300,000 cap that McKenzie anticipates for annual U.S. offshore job gains over the 28 years beyond 2007.

Bear with me while I walk through this. I believe that my analysis can be readily used by others in future discussions.

Based on June 2005 actual U.S. employment data, 141,638,000 employed, "9% of total current employment" represents 12,747,420 U.S. service jobs which could be relocated offshore. Of the potential 12,747,420 U.S. service jobs which could be offshored, one can estimate the number of projected cumulative U.S. service jobs offshored as of the beginning of July 2005 as approximately 1,425,000 and 1,612,500 lost U.S. service jobs. These totals represent 11.18% and 12.65% of the 12,747,420 maximum potential U.S. service jobs which could be offshore sourced. And these figures represent 1% and 1.14% of total U.S. employment for June 2005.

Projections for February 2006 are based on U.S. employment of 143,257,000 (end of February 2006 data), along with the factor projections derived from McKenzie data. The beginning March 2006 approximations are 1,687,500 or 1,968,750 cumulative U.S. service jobs offshore sourced, and these updated figures represent 13.24% and 15.44% of the 12,747,420 maximum potential U.S. service jobs which could be offshore sourced. Meanwhile, these figures represent 1.19% and 1.37% of total U.S. employment for February 2006.

As you can see, the percentage fill is increasing at the rate of .2575% and .3487% per month against the McKinsey determined threshold of 12,747,420 U.S. service jobs which could be relocated offshore. Granted, I am not allowing for a net rise in the U.S. service jobs which would be considered 'offshore sourceable'. I am assuming that major adjustments may not be necessary in the short term due to ongoing efficiencies gains through improved technologies, methods and/or further corporate operations consolidations, all of which could represent a net wash. Moreover, I expect that the service offshore initiatives will ultimately represent a growing percentage of lost U.S. service jobs for which offshore sourcing is viable based on available talent pools and cost analysis, whether applied through in-company offshore or offshore outsource (external contracts).

Projecting to January 2008 reveals that 2.3 million and 2.8 million U.S. offshore sourced jobs represent 18.04% and 21.96% of the threshold of 12,747,420, the original 9% of total U.S. employment cited as 'offshoreable'. These figures represent a percentage fill rate gain of 6.83% and 9.31% over the original June 2005 offshore fill rates vs. the maximum threshold of 12,747,420 offshore source jobs.

Rolling out to year 2036 and falling back on the 300,000 per year job cap, the McKinsey projections reveal that 10,700,000 million and 11,200,000 million U.S. offshore sourced jobs will be created, representing 80% and 87.86% fill rates against the original 12,747,420 potential U.S. offshore sourced positions.

While rates of potential offshore source fill at 80% or higher may appear to be high, it is possible that the ultimate achievable offshore fill rate will fall within a range of 70-85%. Obviously, the factors influencing such offshore sourcing include the availability of skilled talent in the fields concerned, but make no mistake that the offshore sourcing trend will continue whenever sufficient cost savings can be achieved if similar levels of performance can be enjoyed by the U.S.-based corporations and companies. Very conservative estimates may fall in the range of 40-50%, which still represent significant numbers of lost U.S. service jobs placed with offshore sources, whether in-company offshore or offshore outsourced to contractors.

McKinsey states that 2.8 million U.S. service offshore sourced jobs will represent less than 2% of total U.S. employment in 2008. I agree that 2.8 million offshore sourced jobs should represent a figure slightly less than 2%, perhaps on the order of 1.86% or higher based on current employment growth. But the percentage of offshore sourcing as portrayed as a comparable measure of U.S. total employment will have grown from 1% - 1.14% in June 2005 to projections nearing 2% in January 2008. And the two percent figure can be expected to grow going forward. While it may never reach the 9% McKenzie cites as the potential threshold, it is possible if not likely that 5%, 7%, or 7.5% of total U.S. employment may be represented eventually by U.S. offshore sourcing. It will not be for lack of corporate effort to minimize overall operational costs.

Also bear in mind that the "less than 2% of total U.S. employment figure only represents approximate offshore sourcing fill rates of 18.04% - 21.96% by January 2008, but that such fill rates will have grown from the 11.18% - 12.65% observed rates in June 2005. Moreover, U.S. service jobs filled by offshore sources will have grown from 1,425,000 -1,612,500 in June 2005 to 2,300,000 - 2,800,000 by January 2008, a period of 27 months.

By January 2008, the projected U.S. service jobs filled by offshore sources will have increased 61.4% to 70.31% in a period of 27 months, representing an average offshore job growth rate of 2.27% to 2.6% per month. From 2003 to January 2008, an average of 32,407 to 43,981 U.S. service jobs per month will have been lost.

So, which service job fields will take the offshore hits?

As explained in McKinsey's paper, "The Emerging Global Labor Market: Part I—The Demand for Offshore Talent in Services", the following types and percentages of such U.S. service jobs can be offshored based on McKinsey's analysis if sufficient offshore worker talent and suitable proximity to desired work locations exist to accommodate such U.S. corporate, company, non-profit, and municipal/county/regional agency/state/federal government needs:

Maximum Offshore Losses Anticipated by Services Field:

Packaged Software - 49%
Engineering - 52%
IT Services - 44%
Accounting - 31%
Banking - 25%
Insurance - 19%
Pharma - 13%
Auto - 11%
Generalist - 9%
Health Care - 8%
Retail - 3%
Support Staff - 3%
Life Science Researchers - undisclosed %
General Analysts - undisclosed %

Note that the above listing of offshore positions is not inclusive of all types of U.S. service jobs which can be offshore sourced.

The following nations are among the offshore sources for filling the above U.S. services positions:

Argentina, Brazil, Bulgaria, Chile, China, Colombia, Croatia, Czech Republic, Estonia, Hungary, India, Indonesia, Latvia, Lithuania, Malaysia, Mexico, Philippines, Poland, Russia, Romania, Slovakia, Slovenia, South Africa, Thailand, Turkey, Ukraine, Venezuela, Vietnam

Summary:

By January 2007, projected cumulative U.S. service jobs lost to offshore sources will fall within the range of 1,950,000 to 2,325,000 jobs, representing 15.30% to 18.24% of potential 'offshoreable' U.S. service jobs as identified by McKinsey. Going forward, the percentage of potential 'offshoreable' service jobs may grow based on McKenzie projections.

By January 2008, projected cumulative U.S. service jobs lost to offshore sources will fall within the range of 2.3 million to 2.8 million jobs, representing 18.04% and 21.96% of the threshold of 12,747,420 'offshoreable' U.S. service jobs derived from the original 9% of total U.S. employment in June 2005 cited by McKinsey as 'offshoreable'.

For future reference, I will cite an estimate of 15-20% as representing the approximate percentage of potential U.S. 'offshoreable' service jobs lost to U.S. service workers. Moreover, I will cite annual losses as 350,000 to 475,000 U.S. service jobs until January 2008. Thereafter, I will cite 300,000 as the anticipated annual job loss figure unless McKinsey or other sources update this projected figure. Until January 2008, I will cite average U.S. service job losses of 32,407 to 43,981 jobs (or 32,000 to 44,000) per month as representing U.S. offshore initiatives.

Source:

McKinsey & Company

[Movie Guy]

Louis Uchitelle vs Guy de Jonquières: $13.25 per hour

"Retraining Laid-Off Workers, but for What?", Louis Uchitelle, NY Times, 26 March 2006:

"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."

The total employment in the U.S. at the end of 2004 was approximately 141,000,000, so we're talking about roughly 63,450,000 American workers who were earning a base hourly wage of less than $13.75 per hour, or $27,600 as a base annual salary.

That's 63 million workers. Today, we're talking about 67 million or more workers.

U.S. median income is down. Real wages are down. Real overall compensation is beginning to decline.

It appears that we are moving in the wrong direction if we intend to improve the U.S. standards of living for the lower 50% of the American households.

And the Delphi employment model for other U.S.-based corporations and companies to copy is front and center. Reduced wages. Reduced U.S. work activity (intending to close 21 of 29 U.S. plants). Reduced benefits. Reduced employment. Reduced everything.

Advanced globalized trade. Front and center.

[save_the_rustbelt]

Who is Guy and why should we care what he thinks? :-)

With Delphi and Dana in meltdown, the slide could be even quicker than I had anticipated. One-half of American auto parts jobs gone within 5 - 7 years, following the textile industry.

This year could be the perfect storm, gasoline prices over $3.00 following massive increases in natural gas bills, major layoffs/strikes, the Iraq war going badly.

The impact on the Congressional elections will be interesting.

[Betsy L. Angert]

Dear Mark . . .

This is interesting to me. Only this morning, a friend and I were discussing China. We spoke of their accelerated growth. We wondered whether businesses in China were attending to labor laws and environmental concerns. The impact this burgeoning nation is having the world was among our focuses. We mentioned the parallels and the disparate relationship between our two countries. Indeed, we were addressing “globalization” issues and how this is the true topic in question when we talk of immigration, or it needs to be.

As you wrote, at the “risk of overkill,” I will submit a new piece on “migration.” Many have harped; they insist I present a “plan.” Thus, I sat down and wrote my proposal. Immigration legal or not, is a “global matter”, in my opinion. Therefore, I offer a solution that considers this worldwide situation.

I thank you for indulging me.

IMMIGRATION ISSUE . . . PROBLEM AND PLAN ©

May you experience the best, trusting that you are!
Betsy L. Angert Be-Think

[Ninjaplease]

yeah...

As an electronics engineer in NJ, one of the US' most expensive to live in, it's pretty clear that I need to get ASE certified to become a part time car mechanic & need to get ANOTHER 4 year degree in either accounting or business so that I can sell insurance.

To quote Bruce Willis in 13 Monkeys, "I have seen the future, and it sucks." It is laughable when we're told by our benevolent leaders that we need more kids studying math and science "to be competitive in the global market." If the kids are smart enough to complete advanced math and science, like that required for engineering, they should be able to figure out that when they graduate they'll have a ton of debt and no jobs to pay for it.

Good thing I took calculus 3 to learn differential equations...A skill I'll definitely need selling insurance or for repairing cars.

[Movie Guy]

Ninjaplease,

I recommend a careful read of McKenzie MGI's 'Emerging Global Labor Market three part report (June 2005) before locking in on an alternate career path. Just a suggestion, of course.

Some of the available offshore skills and advanced training in certain fields really knock holes in a few career path choices, depending on which side of the offshore/onshore split that one manages to fall within.

[Movie Guy]

McKinsey & Company Publications and Articles:

* Simple registration is required to access many of the reports.

McKinsey MGI (McKenzie Global Institute)
*1999 to 2005 articles

McKinsey MGI - In The News

McKinsey MGI reports

McKinsey MGI - The Emerging Global Labor Market (June 2005)
* Three related reports:
Part I - The Demand for Offshore Talent in Services
Part II - The Supply of Offshore Talent in Services
Part III - How Supply and Demand for Offshore Talent Meet

Perspective - U.S. Offshoring: Rethinking the Response, December 2005

U.S. Offshoring: Rethinking the Response

U.S. Offshoring: Small Steps to Make It Win-Win
* Latest revised presentation; article.

McKinsey MGI - Offshoring
*13 documents

McKinsey Press Archive

McKinsey in the News

When, How, Where, and Other Questions on Going Offshoring
by Toos Daruvala
Director, New York office, McKinsey & Company
3 July 2003

"Early successes encouraged others to promptly follow suit, and by 2008 worldwide offshoring expenditures are expected to reach $346 billion."

McKinsey Site Map

* Includes a breakdown by industry and functional practices

[Movie Guy]

Ninjaplease,

I would assume, though, that you would be in good shape with the ASE certification plus additional program certifications for automotive work. I know a dealership owner in Washington State who is recruiting skilled mechanics at the 80K level.

Or maybe you should set up a hedge fund. Hardly anyone understands the math being used on many of the derivatives.

[NinjaPlease]

With enough quantitative data points as inputs, I'm sure a profiling system could be created to predict what funds to buy, how long to hold them, and when to sell.

Though it would be complex, it's no where near as complex as weather pattern simulation and prediction.

Ironically, I learned how to work on cars by:

Taking 2.5 years of automechanics in highschool (I went to a good public highschool with a fully equipped autoshop,) and having a piece of shit 1983 Chrysler New Yorker which needed constant repair due to parts failing and no suitable aftermarket replacement: the OEM parts were designed wrong, replacing them delayed their inevitable failure, and while working on my brother's $500 'special deal,' fix-er-upper 3rd Gen. Trans Ams, Firebirds and Camaros (like I said, I'm from NJ.)

An international conglomerate that competes directly with my current employer has a "worker replacement program" setup in Iselin, NJ. They get people in on 1-HB visas, have their domestic workers train them to do their jobs, then lay off the domestic workers and ship the 1-HB's back to India. They've outsourced nearlly all of their IT, Call Center, Manufacturing, some Design Engineering.

If only they could outsource senior management, they'd probably get what they want: Good business decisions out of the company officers that actually increase the company's market and value instead of dropping their costs, which of course are finite (that is until Africa becomes the hot new outsourcing destination, and then maybe Mongolia, and then maybe the Ainu & Inuit of Alaska. I would not be surprised if, instead of developing new robotics to aid new and innovative automation, the companies would rather spend their money training Monkeys or other animals to assemble their products.

I don't have a problem with automation at all--repetitive tasks should not be performed by humans, they are mind numbing and allow for lower precision. I don't have a problem with legal foreigners coming to America to try and make it in electronics--they'd be directly competing with me for jobs / pay, but they'd also be saddled with my taxes, standard of living, housing, fueld and food prices, nothing could be more fair.

But when you tell me to 'compete' against a nation where electronics technicans are 18 year old women from the country side, bussed into cities to work 5 days a week, 12-16 hour shifts for $120/month (this is actually the case at a factory I know of in Southern China,) and design engineers (like mechanical designers, PCB layout guys) are paid $3000, AND THE PHD LEVEL ENGINEER/SCIENTIST IS PAID $5000 / YEAR, and due to their standard of living, that's not a bad wage, I am completely insulted and can't even imagine how people can support globalization, to me, your argument is akin to: "If you kill yourself, you'll consume less resources, making the world a better place, so that EVERYONE ELSE can benefit."

Forget your theories on globalization, accept the realities of how it's being implemented. It's like talking to socialists, they point to theory and ideology, you point out the actual government implementations that were failures (for many reasons, not the least of which is the failure of those "revolutions" to remove greed, envy, lust for power & corruption from the human pysche of thier prolitariat) and they simply repeat themselves as if reality is simply my personality quirk. I fully understand that benefits of globalization, but I also fully understand the nefarious goals of those implementing this apparatus, and who the losers are in the process. The issue with socialism and globalization is the transition from the here and now to the theoretical society that will benefit from the transition. The means need to justify the ends. The hiker who got his arm caught in by a falling boulder HAD to hack it off with a pen knife. He waited 5 days, and there was no alternative. BUT, he didn't also cut off his legs and stab himself in 1 eye.

Slavery in the south would have eventually collapsed because of automation (the cotten gin for example,) but laws and a war had to be fought to put it to an end (yes I know that there was much more at stake and many other reasons.) But slavery created some pretty terrible living / working conditions and made workers as disposable as hand tools.

[NinjaPlease]

"By moving service industry work to countries with lower labor costs, US companies can focus on creating higher-value jobs"

This is from McKinsey in Nov, 2003.

This is the sort of statement that irks me. So we should give up our security in the hope that the companies who are offshoring our jobs use their new found profits to create new and "better" jobs, instead of the reality:

Companies keep investing offshore to keep their unrepatriated investments from being taxed. from 2001-2005 we haven't seen great new high wage jobs created, and you've had the highest corporate profits ever recorded and a record breaking stock market and bond market that is allegedly capital rich.

Except that the companies aren't investing in human capital anymore [in america.] The new corporate mantra is to expand by acquisition to decrease development time of products. When the market segment dries up, layoff the workers, never spend money on retraining them, that's what the government is for, you know that entity who gives us tax breaks.

[NinjaPlease]

Dividends should be the highest tax bracket. It would force companies' senior management to not Plateau and to keep investing in it's workers.

[cm]

Ninja: "The new corporate mantra is to expand by acquisition to decrease development time of products."

No, it's risk (but OK time is not an independent variable). It's the old "make or buy", should we risk throwing 10 million out the window attempting our own R&D with the people we have, or should we let others take the risk and buy what the most successful of *all* players have created for say 20 million (in today's dollars).

Of course one side effect is "outsourcing leadership" and demoralizing your own people and get them stuck in dead-end careers where they can do ever fewer new and interesting things.

The (illusory) time thing comes in because what you can buy *now* is the very stuff you decided not to start 2 years ago, or were even un aware that you should do it because of effective loss of leadership (e.g. not listening or having no communiaction channel with above mentioned people who were eager 2+ years ago to do it and could have told you).

Like in my old job -- the boss: "We need another qualified project member now, what do we do". Me: "Hire one 3 months ago".

[a]

NinjaPlease, you have said a lot. I agree with some of what you say, but not all of them.

I don't see what is so immoral to pay someone $5000 for developement if he can deliver the job and is happy with the pay.

I do see the problem where the decision to do so is made by the senior management without consultation of the workers in USA who is also doing the job, but at $70,000. It is a problem that the worker in USA is laid off and see no benefit of his sacrifice.

But I wonder if you are running the company, (or, all of the workers have a decision power on the matter) what would you decide? Blindly reject the possible benefit of lower cost and higher profit for the firm, or make more practical arrangement so that EVERY worker also benefit from the increased profit?

I would say, if the decision making and the benefit of the decision is shared among everyone, particularly the worker who actually make the firm run, blindly closing the borders and stopping globalization may not be the conclusion. In fact, even you, given the cost and benefit (whcih includes the workers themselves) may be practical enough to choose some smart outsourcing.

But, you are absolutely right to point out the disconnection, both at the national level and the firm level, between the benefit of globalization and livelihood of workers.

However, I disagree with your solution. Globalization is good for both USA and Other countries economies. But the way it is done, it benefits small people on both side.

The solution is not to stop globalization, the solution is to require business owners and politicians to include the workers as part of the beneficiary. But it is hard to do in current capitalism economy and the poltical system based on it.

It is hard, but one should try. Perhpas it is time for knowledge workers to unite themselves and seek economic justice.

The truth is: you can't stop globalization, if you can't change the way it is done. If I have to choose between the two: stop or change, I choose the latter.

[anne]

http://www.nytimes.com/2006/03/29/business/worldbusiness/29place.html?ex=1301288400&en=d22c2ee80d9393cf&ei=5090&partner=rssuserland&emc=rss

March 29, 2006

Possible Opening for Unions in German Software Company
By MARK LANDLER

FRANKFURT — With its stock options, Silicon Valley-like image and reputation as Germany's answer to Microsoft, SAP would seem a rather fruitless place to organize a labor movement.

But this Thursday, 9,000 SAP employees in Germany will take what could be the first step toward bringing unions into this 34-year-old company, Europe's most successful software developer. They are to vote for a committee that will later hold an election for a works council, a legal entity that represents workers.

SAP does not welcome this change, viewing it as unnecessary in a company with healthy management-employee relations and an entrepreneurial culture. Neither do most of the employees: in a vote this month, 91 percent rejected a proposal to set up a council.

"I thought, in a democracy, when you have a vote of 91 percent to 9 percent, the 9 percent would accept that," the chief executive of SAP, Henning Kagermann, said Tuesday in an interview.

In this case, however, three employees who supported a works council filed a petition with a German labor court. Because Germany guarantees workers the right to organize, even if most oppose it, SAP concluded that it could not block the creation of such a council. It accepted an offer by another group of employees to conduct an election for its members.

"You have to respect that there is a law," Mr. Kagermann said.

The success of the campaign demonstrates the enduring power of organized labor in Germany, even at a time when membership in unions is declining and when unions have lost much of their muscle in extracting wage increases from old-line industrial companies like Volkswagen.

SAP was named Germany's best employer last year, in the category of companies with 5,000 or more employees, by Capital, an economics magazine here. It is the world's largest maker of business software, with a 62 percent market share, compared with 16 percent for Oracle, its nearest competitor.

But these are not reasons to oppose a works council, according to IG Metall, the union that has backed the campaign and represents workers in the computer industry.

"People say, 'Why do we need a works council? Things are going well. Leave us in peace,' " said Bernd Knauber, a union secretary at IG Metall in Heidelberg, north of SAP's headquarters in Walldorf. "But when the problems erupt, then it's too late to start a works council."

The German operations of I.B.M. and other American technology companies have works councils, he noted. Members of IG Metall marched in front of I.B.M.'s offices in Stuttgart last year to protest job cuts.

A works council does not have to have union involvement. In practice, however, unions often come to play an influential role because they have experience and expertise in promoting workers' interests.

"Works councils have had an enormous impact in unionizing the shop floor," said Michael Fichter, an expert in labor relations at the Free University of Berlin. "This is a very sensitive issue for a company like SAP, where you don't have production line employees."

Mr. Fichter, however, said he doubted IG Metall would make inroads with SAP employees. They would probably not earn higher wages if the union negotiated for them, he said. And SAP solicits the employees' views in other ways.

Like all major German companies, SAP follows the principle of co-determination, which stipulates that workers and shareholders have an equal voice in the oversight of the company. Employees hold 8 of the 16 seats on SAP's supervisory board....

[anne]

The need is for strengthening worker rights in America, in approaching rights in other developed countries. SAP workers, even with no union protection are just not much threatened by outsourcing by a company in which they are well-represented in management councils.

[Bond investor]

Continuing the debate on the merits (or lack thereof) on globalization, I would curious to see people's reaction to this article from The American Prospect, whining about globalization's effect on the U.S.' economic production mix:

http://www.prospect.org/web/page.ww?section=root&name=ViewWeb&articleId=11367

[anne]

http://www.prospect.org/web/printfriendly-view.ww?id=11367

April 3, 2006

The Tchotchke Economy
By Robert Kuttner

Census data show median household income fell 3.8 percent or $1,700, from 1999 to 2004, according to economist Jared Bernstein of the Economic Policy Institute (on whose board I serve.) And this drop occurred during a period when average productivity rose three percent per year.

Moreover, as economist Jeff Madrick has observed in his book ''Why Economies Grow," the reality is worse because prices of commodities that make us middle class are rising much faster than inflation generally: housing, college education, health care, and also child care. These very rapid price increases are offset by falling costs of consumer electronics, basic food, and clothing, creating misleadingly low inflation measures.

It's great that shirts are cheaper than a decade ago, and that we all have cell phones. But that doesn't exactly substitute for a house, an affordable college education, or health care.

According to economist Bernstein, whose study covers the years 1991-2002, households in the middle fifth of the economy increased their incomes (not adjusted for inflation) by 41 percent. Inflation during that period, as measured by the government's Consumer Price Index, went up 33 percent. That implies real living standards rose by a not very impressive 8 percent during more than a decade.

But hold on. During the same period, housing, healthcare, education, and child care went up 46 percent, or more than incomes. We cannot afford the big things we need and comfort ourselves with gadgets. The cheaper laptop, plasma TV, and GPS screen in your car make it appear statistically that living standards are not falling as much as they are.

The emblem of the new economy might be a 35-year-old, listening to an iPod, living in a house much smaller than the one he grew up in.

To use a favorite word of my grandmother's, call it the Tchotchke Economy (a Tchotchke is a small trinket): Plenty of nifty, ever cheaper electronic stuff -- and ever more costly housing, education, healthcare. An iPod is swell, but it doesn't exactly make you middle class.

Why does this describe America in 2006? Don't blame it on immigrants. Blame it on the people running the government, who have made sure that the lion's share of the productivity gains go to the richest 1 percent of Americans. With different tax, labor, health, and housing policies, native-born workers and immigrants alike could get a fairer share of our productive economy -- and still have the nifty iPods.

[a]

"whining about globalization's effect on the U.S.' economic production mix" is not the way I would summarize this brilliant article.

"Blame it on the people running the government, who have made sure that the lion's share of the productivity gains go to the richest 1 percent of Americans" is just so correct.

[Lord]

As a result, the annual offshore job gains are represented as 350,000 and 475,000 in order to reach the 2.3 million or 2.8 million cumulative totals.

As we are creating ~200k jobs per month, ~150k of which are merely to keep pace with population growth, and ~30k-40k to keep pace with outsourcing, then only 10k-20k jobs are being created in net. That pretty much explains the job market.

If you kill yourself...

Something about 'decreasing the surplus population' as I recall.

[anne]

Through the years of Bill Clinton we created an average of 235,000 jobs a month. I think we are short of 200,000 since 2001, but do not have the figure at hand and Oliver Conure does not like me to wade through paper :) and bites.

[anne]

What is astonishing is that we ran a surplus during the Clinton presidency and turned out lots more jobs than during the Bush presidency and deficit. But, still, worker safeguards have been slowly lessened for decades.

[brad setser]

A bit apart from the flow of the discussion, but i would think that De Jonquieres should have mentioned that the Oxford Economics study was financed by a group of US firms with operations in China. Personally, i found the study a bit off and that it consistently put a positive spin on data -- i.e. finding ways to make china's current account surplus seem small by comparing it to say germany's without noting the eurozone surplus, and not doing the comparison in terms of GDP, ignoring the 05 data showing a big rise in China's current account surplus and so on.

[anne]

Hypothetically:

Whining by the way is fine, but suppose we finally do wish to toughen our trade stance with China, given the strategic importance of China I wonder how tough we could be in negotiation. The sense I have is that we have weakened ourselves considerably in strategic negotiation through our involvement in Iraq. China is important to us in ways beyond economics and I rather think we are limited in pushing her economically.

[ninjaplease]

Comparative advantage will ensure that no one argues or whines, ever again---or they don't get food shipments anymore, or they get their water shut off.

[cm]

Re Tchotchke: Ipods (or, for that matter, their cheaper brethren), cell phones, TVs etc. cover it all ways: For one thing, as we are constantly hearing they are the reason that the poor are so much better off than earlier (when I must presume they have been "really" poor?), and the middle class is better off than ever.

Me, a supposedly middle class (but no cell phone!) engineer, my doctor wants to refer me to a specialist, and none of her close by suggestions are in my employer's (supposedly better than average) health care plan "network". In fact, no applicable specialists in the whole zip code, unless I want to swallow a $500 out-of-pocket deductible and 80% coverage.

[calmo]

Hope you are well cm.