Outsourced Software Lowers Our Creativity
The United States once had a consumer electronics industry turning out stereo systems, speakers and recorders. Now most equipment comes from low-wage countries that captured the market in a rapid series of waves, beginning with Japanese products in the 1960s. Five years after the first Japanese-made stereo equipment was marketed in the U.S., there was little American-made hardware left to buy.
It would be nice to build stereos again, but it is unnecessary to U.S. prosperity. In the past, manufacturing was the core of an economy. The standard of living only increased when people took materials from the earth and smelted and beat them into products that made other products or helped farmers produce food.
Today’s economy still requires creativity and production, but frequently the product is ideas encoded in ones and zeros, the bits and bytes that form the software needed to run the world’s factories. The United States enjoys a commanding lead in software design and production. The major names in the computer world are American: Adobe, Apple, Netscape, Oracle, Sun, IBM and Microsoft. U.S. dominance of the global software industry, however, is being challenged by low-wage countries, including India, Pakistan, the Philippines and China. There aren’t enough U.S. programmers to do the work of the computer industry. And not enough foreign software engineers to close the gap are entering the country under the “H1-B” temporary visa program.
As a result, major firms began opening subsidiaries in countries with good programmers but few jobs. Meanwhile, smaller U.S. firms contract directly with small companies in the same countries. A major reason for this outsourcing: the fact that a young programmer in India earns about $5,000 a year, without stock options and child care centers, while his American counterpart commands a $50,000 salary plus benefits.
But Indian firms, no longer the cheapest software houses, now subcontract to countries where cost is even lower.
Outsourcing has become very big business. Last year, India’s software export business brought in $4 billion and that may jump to $6 billion this year. More than a year ago, The Times reported that 10% of the software firms in Southern California outsource some programming. Two years earlier the number was 1%; soon it could be 30%.
What difference does it make who writes software? If foreign labor is cheaper, the products will be, too, which benefits consumers. But our superb technology is the greatest asset the U.S. has. If other nations close the gap so that “written in the U.S.A.” does not mean software that is better, U.S. technology could become nothing but a service industry for others. That would lead to a real economic decline.
There are only three ways to retain U.S. dominance in information technology: Bring in more top-notch foreign programmers in the short term, train more U.S. programmers in the medium term and seek ways to equalize costs.
Government-backed scholarships might increase our native talent pool. The government may further increase the number of foreign engineers who are allowed entry. A tariff on software might once have reduced the labor cost difference, but the world is eliminating all duties on information technology.
There is little the government can do to affect labor costs directly; it can, however use the “buy American” provisions of federal acquisition regulations, which require the government to buy only domestically manufactured products, except in special cases. Because software is no less a manufactured item than a car, the federal government should only buy software primarily written in the U.S., reducing the likelihood that companies that exchange files with Uncle Sam will buy foreign programming. This could promote competition that is fair to U.S. business and labor.
There is no clear fix for this new challenge to U.S. economic strength. But at least the wave is visible before it hits. Cheap hardware crippled our consumer electronics business before we saw it coming. Software is the engine of future prosperity; it makes the things that make the goods that drive the economy. Cheaply written software is no bargain.
