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Professor Norm Matloff On Offshoring And The Future Of American Engineering
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November 10, 2007, 12:16 AM
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Professor Norm Matloff [email] wrote this to his mailing list, and it appears on his website, [the original is here. and an archive of previous postings is here]

Professor Matloff writes:

On October 23, IS Associates, an industry affiliates program in the UCLA Anderson School of Management, held a panel discussion on the future of U.S. IT professionals, given the rise of H-1B and offshoring.

This is one of the few panel discussions I`ve ever participated in that gave everyone a chance to speak in full. Instead of the usual one hour, we actually had three hours (including a break and a Q&A period) in which to thoroughly debate the issues. That sounds like hardship for both speakers and audience alike, but the debate was quite lively and the audience seemed quite engaged.

Enclosed below is a blog report on the event by Don Tennant, editor of Computerworld, who served as the moderator. He posed some excellent questions, and included a couple of small excerpts of the ensuing discussion in his blog.

Though Don is correct in stating that much of the debate consisted of exchanges between Prof. Ravi Aron and me, it`s important to point out that there were two other panelists, Jesus Arriaga, Interim CIO of Bosley Medical, Inc. and Mitch Stern, Director Human Capital, Deloitte Consulting. Mr. Stern, an HR expert, did have quite a bit to say, and Mr. Arriaga made some interesting comments as well.

As you will see in his remarks below, Prof. Aron takes the libertarian point of view. He admits that the H-1B program is used for cheap labor rather than for remedying a labor shortage, and over lunch before the event he also admitted that the H-1Bs are mainly brought in so that employers can avoid hiring older, i.e. 40+, Americans; indeed, he brought this up before I did. (He also mentioned that to prep for the debate, he talked to his former colleague at Wharton, Peter Cappelli, whose writings on the non-shortage of labor I`ve often quoted.) He put forth the usual argument, spoken with religious fervor and mathematical certainty, that purely laissez faire economic policies make the world better.

For my part, I stated that I respect the libertarians because at least they are honest about issues like this. However, I also stated that I believe most people (including those in the audience) aren`t libertarians. My willingness to participate in forums such as this is motivated mainly by a desire to get the facts out in the open; then each listener can apply his own political/economic philosophy to forming his stance on the issues.

The nature of the audience, consisting of CIOs, IT managers, IT entrepreneurs and the like, made for quite a different type of discussion than one usually finds in these forums. They KNOW these issues. This is the first such forum I`ve seen in which NO ONE (if I remember correctly) challenged my point that H-1B is about cheap labor and replacement of older workers. Even Stern and Arriaga, both of whom strongly asserted a tech labor shortage, did not dispute these points, and as mentioned, Aron did not dispute them either.

One thing that got a big laugh and several references in the subsequent discussion was that I said, "Paraphrasing Shakepeare, I say `First thing we do is kill all the HR people.`" :-) After the event, several people told me some of their own favorite HR horror stories. HR people tend to be zealous gatekeepers, a major obstacle to good hiring. Mitch Stern, a very personable guy, took the kidding good naturedly.

Ravi Aron was personable too. Though the discussion between him and me got a bit heated at times (I do get irritated when offered false choices such as "Who would you rather believe on H-1B, Paul Krugman or Charles Grassley?"), I look forward to another pleasant chat with him when we bump into each other again.

Yet it`s clear that Ravi and I differ sharply in, literally, our views of the world. It`s not just ideology, but also a sense of nationality—or lack of one, as the case may be. I get the impression that Ravi is a member of a growing class of immigrants to the U.S. who consider themselves transnationals, not tied to any particular country. Just as many big firms view themselves multinational, and Harvard economist Richard Freeman says even his university thinks of itself as multinational, there are now many individuals who have a multinational mentality too. The trend has been noticeable enough for UC Berkeley anthropologist Aihwa Ong to write a book on it, titled Flexible Citizenship.

Before coming to the U.S. for study and later work, Ravi was a consultant in Malaysia, and for a while ran a software firm in his native India. It wouldn`t surprise me if Ravi`s next job were in the UK or China, say. This has to color his views of offshoring and H-1B.

His stance on those issues is also presumably impacted by his outside consulting work on offshoring, which I`m told has been quite lucrative for him. (Speaking of which, one of the people writing comments on Don Tennant`s blog asserted that I have a "vested interest" against H-1B; but it ought to be clear that the status of the H-1B program has no substantial impact on me one way or the other.)

By the way, I posited three points that I thought everyone could agree on as to the desirability/necessity of keeping a major fraction of this profession American. Two are in Don`s excerpt below—military work and the need for innovation. The third one was the point that whether we think the importation of foreign programmers and engineers is good or not, they`re not going to keep coming here in the future. Tech careers in the U.S. are becoming less attractive, due to stagnant wages and a roller coaster job market, while jobs in India and China are on the upswing. Even Mitch Stern, the HR expert, seemed very concerned when I mentioned this. Yet Ravi dismissed it, saying that we (he may have said "you") can grow this labor force internally if things come to that. Mitch replied, no, this is not a feasible solution, as an economy takes many years to make such adjustments.

In a somewhat comic twist (whether deliberate or unwitting), all of us speakers were presented with special clocks, with a map of the world and 24 time zones, perfect for the globalist future. :-) I did notice, though, that in order to see the U.S. one needs to hold the clock upside down. :-)

Norm

Matloff vs. Aron on the loss of U.S. IT jobs to non-U.S. workers

By Don Tennant on Mon, 11/05/2007 - 11:39am

A couple of weeks ago I moderated a panel discussion at the fall meeting of the UCLA Anderson School of Management IS Associates. The topic of discussion was the future of U.S. IT professionals in a global market, and we focused on offshore outsourcing and the H-1B visa controversy.

Much of the discussion took the form of a debate between Professor Norman Matloff of the University of California at Davis, a long-time vocal critic of the H-1B visa program; and Professor Ravi Aron of the University of Southern California Marshall School of Business, an authority on offshore outsourcing.

The following is an exchange between Matloff and Aron, edited for clarity and brevity. It began with Matloff`s response to my first question:

Is the premise that there is a shortage of IT workers in the U.S. fact or fiction?

Matloff: You can look at it in terms of salaries—they`re not going up. There was a Business Week study that found that starting salaries for computer science and electrical engineering graduates, adjusting for inflation, are on the downswing. There is no study, other than those made by the industry, that has established a shortage, even during the dot-com boom. The problem is that people are not willing to hire who`s out there, and largely it`s a matter of money. That, in turn, becomes a matter of age—older people cost more. They cost more in salary, they cost more in benefits. The whole thing about [there being a shortage because of] baby boomers retiring is kind of ludicrous, because almost nobody gets to retirement age in this business. After you reach age 40 or even age 35, you find yourself becoming less employable. I`m talking about my specialty, which is software development, so everything I said holds to that group. HR doesn`t know what to do with that mountain of applications. They vet people out, and the age issue is central—it`s a way to filter out the older people. Eminently qualified people can`t even get an interview. It amounts to legalized age discrimination.

Aron: If you`re willing to pay enough, supply will meet demand. Let me add: You should not pay that much. The idea that there exists an exalted class of [computer] aristocracy that should be pampered with the salaries of their desired level is baloney. We did not do this with agricultural or steel workers or bank tellers. There is absolutely no reason whatsoever for someone coming into this occupation to feel entitled to an $85,000 salary and a bonus. If I can`t get it, I find another occupation. The road to China winds through entitlement. No IT worker, now or in the future, can have an entitlement that says, "I have the right to bypass the salary level set by the market because in some way I`m critical to the future of the United States." Let the market decide that number. If you find that number unacceptable, there are plenty of other things to do.

How important is it to change the perception among young people that an IT job isn`t worth pursuing because offshoring and H-1B visas are making those jobs too difficult to attain?

Matloff: You have to ask if this profession is important to us as a nation, as an economy, as a society. There are some real issues there. There`s an obvious one: the military, which is very dependent on technology. We don`t want to offshore that. Regardless of what you think of the war, you obviously don`t offshore that kind of stuff. On the other hand, you can`t say, "We`re going to produce just enough [IT talent] for the military." It doesn`t work that way. You have to have a critical mass. Innovation is supposed to be our forte in the United States. There`s a lot of stuff that we don`t do well as a society, but we are creative. And if we offshore that to a place where, on average, people are less creative, we`re going to have less innovation and we`ve lost our comparative advantage. So it`s a negative for us as a country, and it`s a negative for the business community.

Aron: Is the concern that these people might go be a lawyer or an MBA? So go be a lawyer or an MBA. What`s the big deal? If you can find a good MBA program that will take you, go and be an MBA. You will do useful work; you will add to the wealth and efficiency of the corporation. The military needs steel. They need mechanical engineers, metallurgical scientists, all of which can be offshored. Have we lost our innovation? Today, the gap between the United States and the rest of the world in terms of value-bearing patents—patents that actually make money—is increasing, not decreasing. Who are America`s chief competitors? Germany and Japan, not the low-cost manufacturing economies of China and India. Design and innovate in America; develop and deliver in the CPI countries [China, the Philippines and India]. That is the formula for making money and staying innovative. Not protected by America, for Americans. If people want to leave [the IT profession] and go become lawyers, let them become lawyers. Nothing will stop them from being innovative, creative, and adding to the wealth of this country.

Why not recognize a good thing when you see it? Why do people have to go through these [H-1B] procedures? Why have procedures that [cause people to look for] painful ways of skirting them? Why don`t they simply say, "If you`ve got a Masters degree and Goldman Sachs wants to employ you, come on over?" If they`re good enough for Goldman Sachs, they`re good enough for the Unites States.

Matloff: The implicit theme of your argument is that these engineers and programmers are smart people, and we need more smart people. Well first of all, they`re not necessarily all that smart—anybody here who`s been an IT manager knows that. They`ve been burned many times. No. 2, and much more importantly, is the issue that that influx is causing an internal brain drain. Innovative people are leaving the field, and I know many, many cases of that. I don`t think anyone, including Ravi , is going to say it`s a good thing when you have bright people not going into something where they really have talent. They`re going into something that they don`t like and where maybe they don`t have talent. Let them become a lawyer? Well, maybe they`re not going to be as good a lawyer as they would have been a software engineer.

Aron: I`m not at all saying that you should bring these people in because they`re smart. I couldn`t care less whether they`re smart or not. If they are pumpkin farmers, and it turns out there`s an economic viability and they can find a market for it and they can make money, I say bring them in. I am completely agnostic about their intellectual prowess. And if people become lawyers and they find they`re not very good at it, fine—find something else to do. As I discovered when I was 18 years old that it was not likely I was going to make it in a career as a rock guitarist, you will discover that there are other things to do.

Will it mean that some people will not go into IT as a career? Absolutely. So what? Will it mean that some talented, bright folks will move from IT into financial services as they`re now doing? Yeah, of course. So what? That is the strength of the U.S.: Constantly reallocate people and talent where it is most rewarded. We do not want to be North Korea.

Can we do without the H1-B program? If you`re willing to pay enough, certainly. I don`t think that`s a good idea. Can America`s driving needs be met without Japanese cars? Of course. Can our photographic needs be met without Japanese cameras? Without doubt. But the consequences would be catastrophic. For sure, we can do without H1-B. For sure, we can do without Japanese cars.