Date: Sun, 26 Feb 2006 00:31:37 -0800 From: Norm Matloff To: Norm Matloff Subject: and another self-serving "study" To: H-1B/L-1/offshoring e-newsletter Austin Fragomen is one of the most prominent immigration attorneys in the U.S. His firm is the largest immigration law firm in the nation; he writes standard-setting books on immigration law practice, most notably on H-1B; and most importantly of all, he is one of the major players in lobbying efforts to get Congress to enact H-1B legislation favorable to immigration lawyers. It is most illuminating, then, to see what Fragomen told Workforce Magazine in March 1996 (emphasis added): "The business community mobilized, forming American Business for Legal Immigration (ABLI), a Washington, D.C.-based lobbying group that represents a number of associations and employers, and COMMISSIONS ACADEMIC STUDIES TO SUPPORT ITS POSITION." The most salient aspect of Fragomen's remark is that the ABLI knows ahead of time that the "academic" studies will come out in its favor. Yesterday I posted my analysis of the ACM study released earlier this week. This study too was conducted mostly by academics, and in fact FOR academics, in the sense that it had a hidden agenda to preserve academic empires. The study was highly biased, and as I said, its "conclusions" were preordained. In my current posting, I will discuss another recent "study," by the prestigious National Academies of Science. Again, these are academics, and many, probably most, of their studies are of good quality. But in many cases, the studies are highly biased, with membership of the study panels being chosen only to present one side of the issue. I've often mentioned the NRC report, for instance. It was commissioned as part of the 1998 legislation which expanded the H-1B program, and its mandate was to investigate whether there really was a tech labor shortage, etc. The panel was stacked with representatives of Microsoft, Intel and so on, and its director, Alan Merten, was an academic who sat on many boards of high-tech firms. The NRC is part of the National Academies, and its Computer Science and Telecommunications Board, which ran the study, lists as its sponsors Cisco Systems, Sun Microsystems, Hewlett-Packard, Intel, Microsoft, Texas Instruments, and Time-Warner Cable. With the exception of Time-Warner, all of these firms have been in the forefront of lobbying for increases in the H-1B program. Though the report did contain much valuable material, its conclusions were very highly biased. It found, for instance, that the H-1B program was vital to the tech industry. You can read my detailed analysis at www.cis.org/articles/2001/back301.html Well, now the NAS has conducted a study which claims that the reason tech firms are offshoring so much of their work is not due to the low cost of labor overseas after all. It's not labor costs, they say, it's access to talent that supposedly is in short supply here in the U.S. Well by now you can see what their motivation is: Get Congress to further expand H-1B, and also stop blaming industry for offshoring its tech work. But what is startling about this study is the degree of blatantness in misleadingly presenting its findings. Here is what happened: The study consists of a survey of U.S. (and European) firms, asking them what reasons they have for offshoring. Needless to say, the firms know that all this publicity on offshoring is bad for them (recall Kerry's term "Benedict Arnolds" in 2004, though it turned out to be phony), so they have a built-in incentive to downplay labor costs as a factor for offshoring. So, it is not surprising that the study authors report that the survey showed that labor costs were not a big factor. But guess what! That's not what they found at all. It's outrageous. What the authors have been telling the press is that they found that low wage costs overseas were only a minor factor. Actually, they found that the survey respondents rated its importance as a 4 on a scale of 5, hardly minor! And the factor the authors claim is the major one, availability of talent, is only a 4.2. Though the publicity-conscious industry has recently taken to saying that offshoring is an issue of availability of talent, rather than of low labor costs, they certainly were very open about it a couple of years ago. For instance, consider this excerpt from an article in Businessweek, February 3, 2003: * In a recent PowerPoint presentation, Microsoft Corp. (MSFT ) Senior * Vice-President Brian Valentine--the No. 2 exec in the company's Windows * unit--urged managers to "pick something to move offshore today." * In India, said the briefing, you can get "quality work at 50% to 60% of * the cost. That's two heads for the price of one"... * "A basic business tenet is that things go to the areas where there * is the best cost of production," says Ann Livermore, head of services * at Hewlett-Packard Co. (HPQ ), which has 3,300 software engineers in * India. "Now you're going to see the same trends in services * that happened in manufacturing." You can view the slide presentation of the study at www.kauffman.org/items.cfm?itemID=678 I'm enclosing below an article from the New York Times on the study. There's no questioning of the study. The average reader, including those in Congress, will assume that if the prestigious New York Times quotes the prestigious National Academies of Science, it must be correct. Right? I mentioned yesterday, and in the past, that university administrators are panicked at the reduction of foreign student applications to U.S. graduate programs. Though the PC explanation is post-9/11 visa restrictions, in actuality the foreign students no longer find the U.S. to be an economically attractive place to be. In any event, the administrators are scared. So the following excerpt from the NYT article below is interesting: * Some university administrators said they see the same trend. * "This is part of an incredible tectonic shift that is occurring," said A. * Richard Newton, dean of the college of engineering at the University of * California, Berkeley, "and we've got to think about this more profoundly * than we have in the past." Berkeley and other leading American * universities, he said, are now competing in a global market for talent. His * strategy is to become an aggressive acquirer. * He is trying to get Tsinghua University in Beijing and some leading * technical universities in India to set up satellite schools linked to * Berkeley. The university has 90 acres, or 36.42 hectares, in Richmond, * California, that he thinks would be an ideal site. * "I want to get them here, make Berkeley the intellectual hub of the planet, * and they won't leave," said Newton, who emigrated from Australia 25 years * ago. No, I don't understand Newton's plan either, but it certainly shows how worried he is. In Bush's speech to the Asia Society, also excerpted below, he says * India's middle class is buying air conditioners, kitchen appliances and * washing machines, and a lot of them from American companies like G.E. * and Whirlpool and Westinghouse. And that means our job base is growing * here in the United States of America. This is straight from Tom Friedman's paean to globalization, "The World Is Flat." I've been amazed at how educated people can accept such an argument so easily. Say Indian consumers buy so many Whirlpool washing machines that Whirlpool doubles its sales. Will Whirlpool need to hire any more engineers? Of course not. I'm also enclosing part of an article from the online edition of the Washington Post, which reported Bush's speech. Norm By Steve Lohr The New York Times THURSDAY, FEBRUARY 16, 2006 NEW YORK The globalization of work tends to start from the bottom up. The first jobs to be moved abroad are typically simple assembly tasks, followed by manufacturing, and, later, skilled work like computer programming. At the end of this progression is the work by scientists and engineers in research and development laboratories. A study that was to be presented Thursday to the National Academies, the leading American advisory groups on science and technology, suggests that increasingly more research work at corporations will be sent to fast-growing economies with strong education systems, like China and India. In a survey of more than 200 multinational corporations on their research center decisions, 38 percent said they planned to "change substantially" the worldwide distribution of their research and development work over the next three years - with China and India having booming markets and world-class scientists and attracting the greatest increase in projects. Whether placing research centers in their home countries or overseas, the study said, companies often use similar criteria. The quality of scientists and engineers and their proximity to research centers are crucial. The study contended that lower labor costs in emerging markets are not the major reason for hiring researchers overseas, though they are a consideration. Tax incentives do not matter much, either, it said. Instead, the report found that multinational corporations were global shoppers for talent. The companies want to nurture close links with leading universities in emerging markets to work with professors and to hire promising graduates. "The story comes through loud and clear in the data," said Marie Thursby, an author of the study and a professor at Georgia Tech's college of management. "You have to have an environment that fosters the development of a high-quality work force and productive collaboration between corporations and universities if America wants to maintain a competitive advantage in research and development." The multinationals, representing 15 industries, were from the United States and Western Europe. The authors said there was no statistically significant difference between the American and European companies. Dow Chemical is one company that plans to invest heavily in new research and development centers in China and India. It is building a research center in Shanghai, which will employ 600 technical workers when it is completed next year. Dow is also finishing plans for a large installation in India, said William Banholzer, Dow's chief technology officer. Today, the company employs 5,700 scientists worldwide, about 4,000 of them in the United States and Canada, and most of the rest in Europe. But the moves overseas will alter that. "There will be a major shift for us," Banholzer said. The swift economic growth in China and India, he said, is part of the appeal because products and processes often have to be tailored for local conditions. The rising skill of the scientists abroad is another reason. "There are so many smart people over there," Banholzer said. "There is no monopoly on brains, and none on education either." Such views were echoed by other senior technology executives, whose companies are increasing their research employment abroad. "We go with the flow, to find the best minds we can anywhere in the world," said Nicholas Donofrio, executive vice president for technology and innovation at IBM, which first set up research laboratories in India and China in the 1990s. The company on Thursday was to announce that it is opening a software and services laboratory in Bangalore, India. At Hewlett-Packard, which opened an Indian laboratory in 2002 and is starting one in China, Richard Lampman, senior vice president for research, points to the spread of innovation around the world. "If your company is going to be a global leader, you have to understand what's going on in the rest of the world," he said. The globalization of research investment, industry executives and academics contend, need not harm the United States. In research, as in economics, they said, growth abroad does not mean stagnation at home - and typically the benefits outweigh the costs. Still, more companies in the survey said they planned to decrease research and development employment in the United States and Europe than planned to increase employment. In numerical terms, scientists and engineers in research laboratories represent a relatively small part of the national work force. Like the debate about offshore outsourcing in general, the trend, which may point to a loss of competitiveness, is more significant than the quantity of jobs involved. The American executives who are planning to send work abroad express concern about what they regard as an incipient erosion of scientific prowess in this country, pointing to the lagging math and science proficiency of American high school students and the reluctance of some college graduates to pursue careers in science and engineering. "For a company, the reality is that we have a lot of options," Banholzer of Dow Chemical said. "But my personal worry is that an educated, innovative science and engineering work force is vital to the economy. If that slips, it is going to hurt the United States in the long run." Some university administrators said they see the same trend. "This is part of an incredible tectonic shift that is occurring," said A. Richard Newton, dean of the college of engineering at the University of California, Berkeley, "and we've got to think about this more profoundly than we have in the past." Berkeley and other leading American universities, he said, are now competing in a global market for talent. His strategy is to become an aggressive acquirer. He is trying to get Tsinghua University in Beijing and some leading technical universities in India to set up satellite schools linked to Berkeley. The university has 90 acres, or 36.42 hectares, in Richmond, California, that he thinks would be an ideal site. "I want to get them here, make Berkeley the intellectual hub of the planet, and they won't leave," said Newton, who emigrated from Australia 25 years ago. The corporate research survey was financed by the Ewing Marion Kauffman Foundation, which supports studies on innovation. It was designed and written by Thursby, who is also a research associate of the National Bureau of Economic Research, and her husband, Jerry, who is chairman of the economics department at Emory University in Atlanta. ************************************************************************** Excerpts from Bush speech to Asian Society, Feb. 22, 2005: The area of America's relationship with India that seems to receive the most attention is outsourcing. It's true that a number of Americans have lost jobs because companies have shifted operations to India. And losing a job is traumatic. It's difficult. It puts a strain on our families. But rather than respond with protectionist policies, I believe it makes sense to respond with educational policies, to make sure that our workers are skilled for the jobs of the 21st century. We must also recognize that India's growth is creating new opportunities for our businesses and farmers and workers. India's middle class is now estimated at 300 million people. Think about that: That's greater than the entire population of the United States. India's middle class is buying air conditioners, kitchen appliances and washing machines, and a lot of them from American companies like G.E. and Whirlpool and Westinghouse. And that means our job base is growing here in the United States of America. Younger Indians are acquiring a taste for pizzas from Dominoes, Pizza Hut. (LAUGHTER) Air India ordered 68 planes valued at more than $11 billion from Boeing, the single largest commercial airplane order in India's civilian aviation history. Today India's consumers associate America's brands with quality and value, and this trade is creating opportunity here at home. Americans also benefit when U.S. companies establish research centers to tap into India's educated workforce. This investment makes American companies more competitive globally. It lowers the cost for American consumers. Texas Instruments is a good example. Today, Texas Instruments employs 16,000 workers in America. It gets more than 80 percent of its revenues from sales overseas. More than 20 years ago, Texas Instruments opened a center in Bangalore, which is India's Silicon Valley. They did so to assist in analog chip design and digital chip design and related software development. The company says that their research centers in countries like India allow them to run their design efforts around the clock. They bring additional brain power to help solve problems and provide executives in the United States with critical information about the needs of their consumers and customers overseas. These research centers help Texas Instruments to get their products to market faster. It helps Texas Instruments become more competitive in a competitive world. It makes sense. The research centers are good for India and they're good for workers here in the United States. In the past decade, India's made dramatic progress in opening its markets to foreign trade and investment, but there's more work to be done. India needs to continue to lift its caps on foreign investment, to make its rules and regulations more transparent, and to continue to lower its tariffs and open its markets to American agricultural products, industrial goods and services. ******************************************************************************* Washington Post online edition, 2/23/06 Page 3 of 3 < Back Bush Previews Upcoming South Asia Trip Bush is scheduled to visit India from March 1 to 3 before traveling to Pakistan on March 4 for a day-long stay. The president told the Asia Society that India represents one of the fastest-growing markets for U.S. exports and that "we welcome the growing prosperity of the Indian people," notably an expanding middle class now estimated at 300 million people. "The area of America's relationship with India that seems to receive the most attention is outsourcing," Bush noted. "It's true that a number of Americans have lost jobs because companies have shifted operations to India. And losing a job is traumatic. It's difficult. It puts a strain on our families. But rather than respond with protectionist policies, I believe it makes sense to respond with educational policies, to make sure that our workers are skilled for the jobs of the 21st century." He said Americans "benefit when U.S. companies establish research centers to tap into India's educated workforce," adding that this investment "makes American companies more competitive globally" and "lowers the cost for American consumers." He cited the example of Texas Instruments, which opened a center in Bangalore more than 20 years ago. "The research centers are good for India, and they're good for workers here in the United States," Bush said. But he said that "there's more work to be done" in opening India's markets to foreign trade and investment. "India needs to continue to lift its caps on foreign investment, to make its rules and regulations more transparent, and to continue to lower its tariffs and open its markets to American agricultural products, industrial goods and services," he said. A leading critic of U.S. high-tech industry's cost-cutting practices disputed Bush's assertion that outsourcing could be addressed through educational policies. "For the American engineers who are displaced due to offshoring of tech work, further education won't help them gain comparable work," said Norman Matloff, a computer science professor at the University of California at Davis. "The only retraining which makes sense for them is to move downward, with engineers becoming technicians and the like," he added, citing a Commerce Department study. "Globalization will increase the number of lower-skilled jobs in the U.S. while reducing the number of higher-skilled jobs," Matloff said in an e-mail. "You don't have to be a rocket economist to see that this is an unhealthy swap. Bush's emphasis on the establishment of design centers in India also puts the lie to the current prevailing wisdom that the U.S. should concentrate on its forte, innovation."