Decline – We Are Doing It to Ourselves

Where have all the flowers gone?
Long time passing
Where have all the flowers gone?
Long time ago
Where have all the flowers gone?
Girls have picked them every one
When will they ever learn?
When will they ever learn?
                   Pete Seeger

Joe Leahy reports in the Financial Times that decline of skilled technical employment in the U.S. is a self-created problem.  Quoting representatives of Cognizant Technology Solutions (CTSH) and Infosys Technologies (INFY), major technology outsourcing firms, Leahy says that the U.S. is falling far short of turning out enough technology and engineering graduates from its universities.

India produces 600,000 BS engineers every year; the U.S. only 84,000.  That is about double the rate per capita for India.  About 70% of Ph.D. candidates in the U.S. are foreign students.  Many of them remain to become permanent residents and citizens, taking positions in such places as Silicon Valley and NASA.  U.S. natives are choosing not to compete for these lucrative positions.

We are doing it to ourselves.

The outsourcing firms report difficulty in hiring the technical people they need to hold positions actually located in the U.S.  Infosys says it wants to hire 1,000 people a year here, but “it is a struggle”.

Cognizant has 88,000 domestic positions and has had import foreigners to fill about half of them, in spite of having 57 recruiters here scouring the country for qualified people.

We are doing it to ourselves.

Education level has a strong correlation with unemployment, as we reported a few months ago and is displayed in the following graph from http://www.chartoftheday.com/:


College degreed folks are 95% employed, while high school dropouts are only 85% employed.  Those with some college and high school diplomas are 89-92% employed.  Skills level as indicated by education achievement has a strong influence on unemployment.Skill level is not just a problem with outsourcing firms.  As reported in July, domestic firms are having problems finding skilled workers with basic high school knowledge competency.  From the July article:

The case described involves Ben Venue Laboratories, a Cleveland area contract drug maker for pharmaceutical companies.  The company has 100 job openings with starting pay at $13 to $15 an hour (average about $31,000 per year).  They have reviewed about 3,600 job applications so far this year and have found only 47 people to hire.

Also reported in the same article, the military is having difficulty recruiting: 

Does Ben Venue ask for too high a skill set?  It doesn’t seem that way.  The requirement is competency in reading and math at the ninth grade level. 

GreenRiver recounts the experience of an Army recruiter who found that a high school valedictorian could not pass the military’s basic competency exam without the use of a calculator to do simple arithmetic (addition, subtraction, multiplication and division).

When the rate of change of innovativeness was measured for 40 countries over the past decade by the Information Technology and Innovation Foundation, the U.S. came in dead last.  The result was strongly effected by education system output.

We are doing it to ourselves.

For years we have heard stories about scientists and engineers earning advanced degrees and then going to Wall Street to make mega bucks in “financial engineering”.  Instead of building things of economic utility they have been developing things that expand leverage to ridiculous extremes and diversify the risk to the extent that it can bring down the whole world.  Not only have we lost the services of many people who might have invented the next microelectronic marvel or medical physics breakthrough, we have allowed them to develop Frankenstein monsters.

We are doing it to ourselves.

Where have all the flowers gone?  We have picked them, every one….and we haven’t planted any more.  We are doing it to ourselves.

9 replies on “Decline – We Are Doing It to Ourselves”

  1. “Where have all the economic gains gone? Mostly to the top. The economists Emmanuel Saez and Thomas Piketty examined tax returns from 1913 to 2008. They discovered an interesting pattern. In the late 1970s, the richest 1 percent of American families took in about 9 percent of the nation’s total income; by 2007, the top 1 percent took in 23.5 percent of total income. ”

    “What’s more, the rich don’t necessarily invest their earnings and savings in the American economy; they send them anywhere around the globe where they’ll summon the highest returns — sometimes that’s here, but often it’s the Cayman Islands, China or elsewhere.”

    http://www.nytimes.com/2010/09/03/opinion/03reich.html?pagewanted=1&ref=opinion

  2. Where have the jobs gone?

    An example from Automotive industry:
    1. 0 In 2009, 60,986,985 motor vehicles were manufactured. Top three manufacturers are
    Toyota: 7,234,439
    GM: 6,459,053
    Volkswagen: 6,067,208
    Reference: http://en.wikipedia.org/wiki/Automotive_industry

    2.0 The number of people empolyed world wide by Totota and its affiliate companies is 320, 808. This means 22.55 motor vehicles per person were produced.
    Reference: Toyota in the World 2010
    http://www2.toyota.co.jp/en/about_toyota/in_the_world/pdf2010/databook_en_2010.pdf

    3.0 Assuming that all companies are as efficient as Toyota would mean
    that to manufacture around 61 million vehicles [exact figure 60,986,985] in 2009 would have required around 2.7 million people are required or out of total 2009 population of approximate 6.87 billion or o.4 percent percent of the world population.
    Toyota is one of the leanest manufacturer in the world.

    4.0 On the other hand International Organization of Motor Vehicle Manufacturers, as per their web site says [ 2005 statistics], “Building sixty-six million vehicles requires the employment of more than eight million people directly in making the vehicles and the parts that go into them. manufacturing and service provision, such that an estimated more than 50 million people earn their living from cars, trucks, buses and coaches. This means that 1.1 cars were manufactured per person.”
    http://oica.net/category/economic-contributions/auto-jobs/

    For the 2005 population of approximately 6.5 billion this comes to approximately 1 percent of the population.

    5.0 Now the twist, how many are employed in automotive industry in US?

    6.0 So if the previous Bush administration spent tax payers money in stimulating US auto industry how and where was the money spent?

    7.0 Either way number of grim questions stand out:
    7.1: How much shall auto industry grow in next three years?
    7.3 How many incremental people will be employed worldwide and their distribution?
    7.4 Is just increasing the production of automobiles the answer to the economic growth, and transportation ? China’s 100 miles, week long traffic jams bring out the need for different paradigm.
    7.5 Is Auto industry going to be the growth driver as many analysts and policy planners worldwide believe?
    7.6 Last but not the least how many would be meaningfully employed in years to come in this industry?

    8.0 Economic and financial planning cannot be done in isolation, without hard statistics, benchmarking.

    If good intentions and isolated macro economic thinking could solve the problem economies would be roaring worldwide.

  3. Sanjeev – – –

    How many are employed in automotive production, sales and service in the U.S.? That may be tabulated somewhere but I don’t know where at the moment. It is not a trivial thing to determine. With all the independent parts manufacturers, both to supply manufacturers and after-market and all the local service operations, I would have no problem accepting that several hundred thousand are employed in the U.S. I think certainly more than 300,000 (1% of the population) and probably more than 600,000 (2%). One million is not out of the question.

    Do we count those who supply gasoline? Just the sales of gasoline probably employ more than 300,000 just at the pumps in the U.S.

    You asked a simple question that is really not a simple one to answer.

  4. John,

    Here is one more example from the software outsourcing industry which is causing resentment in India but where the larger picture is being missed by both sides.

    “Infosys CEO & Managing Director Kris Gopalakrishnan said, “We are concerned with the recent news from US about banning offshore outsourcing by Ohio State government departments. ”
    http://economictimes.indiatimes.com/tech/ites/Infosys-expresses-concern-over-Ohio-state-govts-move/articleshow/6519171.cms

    Leaving aside the political saber rattling consider the following:
    1. The software outsourcing which India feels so proud about is based on the performance of few companies like Infosys, TCS, Patni and the ill famed Satyam.

    2. These companies basically exploited the labor and cost arbitrage starting in early the early 90’s. Work outsourced was low end grunt work.

    3. Doubt if this party can continue for ever.

    Kris Gopalakrishnan of Infosys says in another report says, “India will continue to be competitive for at least the next five to 10 years”
    http://economictimes.indiatimes.com/tech/software/Despite-talent-shortage-in-IT-India-will-remain-competitive-Infosys/articleshow/6520944.cms

    Many industry insiders beg to differ and feel that a consolidation in the software services industry is imminent as enterprise software is undergoing a shift.

    4. More importantly what happened earlier was that old legacy processes were
    outsourced. However the Enterprise Software as we all know is changing slowly but surely as Cloud computing, SAAS take hold.
    Lesser understood factor is that creating software does not require as many people.
    How difficult it was to create a web site even two years ago and how easy it has become now. [ The WordPress is a perfect example]

    5. Ever macro economic planner, the politicians need to understand that technology is relentless jobs deflator, a point missed by both sides in US and India.

  5. Sanjeev – – –

    The outsourcing process has a long way to run. Already China is outsourcing low end manual labor to less developed countries as the native (Chinese) labor costs start to rise. The “grunt work” software processes (as you put it) will be outsourced over time by India as now undeveloped countries start to produce more people with the basic skills and lower wage demands. The point of my article is not that the outsourcing occurs but that that the U.S. has lost the capability to adapt to shifting labor patterns in the world by falling down on education. The ability of the U.S. to produce a new wave of start ups is diminished by a reduced number of engineering, science and technology graduates. India produces twice as many degreed engineers per year per capita as does the U.S. This ratio reflects an ascending country vs. a declining country.

    The U.S. has also diminished its own security by losing a labor base that does the high labor content work of manufacturing. Some of this is far from grunt work and requires skills that will be difficult to regain quickly should globalization ever reverse under some political/military scenario.

    Finally, technology as job deflator is an excellent point. This was envisioned by futurists 50-60 years ago. The result was considered to present the onset of a nirvana, where people would retire early, those working would split work weeks, perhaps 24 hours per week each. Vacations would extend to 2 months a year instead of the standard 2 weeks. Futurists largely portrayed the benefits of reduced manual labor content of production to accrue to labor, as well as providing improved return on capital. It has not turned out to be as balanced as the nirvana envisioned way back when. It has been a case where water has been flowing up hill instead of experiencing the trickle down effects of supply side dogma.

    When we figure out how to have a system that rewards initiative without putting a boot to the neck of the masses, we may escape the repeated economnic patterns of history. Of course, when we figure that out we may also figure out how to make pigs fly. After all, don’t we depend on animal spirits?

  6. John,

    “When we figure out how to have a system that rewards initiative without putting a boot to the neck of the masses, we may escape the repeated economic patterns of history. Of course, when we figure that out we may also figure out how to make pigs fly”

    Guess, this is THE conundrum.

    International trade is not new and has been going on for thousands of years [200 BCE]. The two Silk Routes [land and sea routes] were an transnational network connecting Asia [ Both China and India], Mediterranean, Africa and Europe. Recent archeological in India indicate that Romans had a trade with India which would predate the earliest record of “silk routes”.
    http://www.indiajournal.com/pages/event.php?id=11753

    It seems very difficult to envision a world without international trade. History also is a pointer to rise and fall of civilizations, a cycle repeated since documented history.

    There are three other factors which need consideration

    The first factor is the nature of economic drivers has changed. Many argue that the world has essentially become unipolar and the military compulsions have reduced. This means that the international trade is the economic driver, rather than arms race of previous century. An interesting side consequence is that information and knowledge flow is far more unrestricted lubricated by internet, inexpensive communications technology and electronics.

    The second factor is that money flow too has become transnational flowing where it gets maximum ROI.

    The third factor is intense competition compels organizational management to take decisions which are not national.

    Peter F. Drucker in his book The New Realities had argued that national governments would become powerless to look after their people and the responsibility would shift to the organizations. Incidentally in this book he had predicted the fall of USSR.
    [http://www.amazon.com/New-Realities-Peter-Drucker/dp/0765805332]

    These factors are seen in full force in Knowledge industry – Computing.

    My sense is that people are linked horizontally across nations by industry linkages rather than cultural and national considerations, creating horizontal streams of wealth. For example a group of people working in software company “A” in Beijing, Bangalore and Palo Alto compete viciously against Company “B” which has people in the same three cities. Ownership for these companies whose stocks are traded internationally also becomes diffused.

    Left out of this trend are those are not able to ride this wave for various compleex reasons, creating pockets of dispossessed from the first world to the third world countries.

    This is the biggest challenge that nations, political and economic leaders face.

    To paraphrase your observations making pigs fly might be easier?

  7. Sanjeev – – –

    Yes, the world is changing and most of us have not seen the new architectural plans. The average American is angry and has no idea what is actually happening to them. Thus anger is sprayed around like a shotgun blast, hitting lots of innocent bystanders. Similar things are happening in the rest of the world. I will repeat what you wrote which captures the essence of this:

    “Left out of this trend are those are not able to ride this wave for various compleex reasons, creating pockets of dispossessed from the first world to the third world countries.”

  8. John,

    India faces similar challenges, amplified many fold by population pressures and a tortuously slow and a rather garrulous democratic process.

    The dispossessed are cynically exploited by the fringe, criminal and a small section of self serving political elements offering quick fixes when there are none.

    The Naxal insurgency in East India is one of the many examples. The tribal development has been sacrificed at the altar of economic and political processes gone awry.

    PS: Apologies for typo in earlier post…should be complex and not “compleex”.

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