2014-08-04

    Outsourcing

    2014-08-04

    Offshoring is a threat to our jobs and livelihoods

    Offshoring is a hermaphroditic word. It doesn't really describe one thing or another. What it means is transferring jobs from Australia to countries that have lower labour costs than Australian wage rates. This is regarded as a big productivity gain for firms as it reduces their costs and increases their profits.

    Ken Henry, our gilded ex-secretary of the Treasury and now on many business and government boards, called objections to offshoring "just another form of protectionism". The idea was that the process was good for the Australian economy because ULTIMATELY (the caps are a deliberate emphasis) it would create more highly skilled, highly paid jobs for Australians.

    It must be wonderful to pontificate from the heights of a PhD in economics and the top public service position in Treasury. Most Australians don't have highly paid, highly skilled jobs.

    Offshoring is, in its most fundamental form, just another form of "blackbirding". In the nineteenth century we brought the Kanakas to the cane fields because we could pay them next to nothing. We have introduced an innovation. Now we don't have to take them from their homes.

    Innovation has enabled us to use services provided by people who don't have to leave their hovels or their ratty offices. The firms don't have to worry about their holidays, their sick leave, their occupational health and safety issues, their overtime rates, the number of hours they work, or their superannuation entitlements.

    The big issue is the cost to the Australian economy of supporting our displaced workers. They have to live and our community has to help them. Those still working will pay more taxes for the Centrelink payments to the unemployed, while the offshoring companies increase their profitability.

    We have to acknowledge the risks of this scorched, basic employment strategy that we are so jubilantly creating.

    The first risk is that the consumer suffers badly. Service, quality and delivery problems are a nightmare. We never get the right response to a warranty or product service question. It might take offshore responses from a few countries before we end up far enough up the complaint food chain that we get a sensible response.

    Who decided they could flagrantly waste the consumers' time? Why can't we charge the companies for wasting our time?

    The second problem is the simple and obvious risk involved in offshoring. We aren't just offshoring the workers. We are offshoring the data that they work with. This isn't about wasting the consumers' time. It is about wasting the consumers' money.

    The banking system has managed to quell consumer concern about theft from their accounts by simply making good the loss. They manage that because the interest rate on credit cards is so high that they have a big, fat profit margin that can take a lot of hits from international gangs using data obtained, often, from offshore workers.

    My third problem is the idea that "beggar my neighbour" is a good one. There is little doubt that companies can make obscene profits by offshoring functions, especially to low tax jurisdictions with limited interest in policies that are pro-social. The evidence is abundant. We are moving to a global society where the owners of intellectual property and brand names get very rich and the people in their product markets or manufacturing centres are getting poorer and poorer.

    This idea used to be all about manufacturing. We never had the scale of manufacturing or the low wages level necessary to make things in Australia. So our manufacturing contribution to Australian GDP has halved in the past 30 years. In 2012, there are about 900,000 workers in the Australian manufacturing sector. The total was 1.4 million in 1974 when our population was about 13 million people.

    The offshoring heat is now on the back room functions of companies. It focuses on services in insurance companies, accounts data in banks, and internet and telephone services in communication. Australia's services sector seemed to think that our "lazy" manufacturing sector had it coming. Everyone except the plutocrats and their advisors seem to have had it coming. The only sector that seems to keep growing and growing are the public service establishments and their consulting mates.

    I suppose a leader in a Big 4 Business transformation practice has to believe that offshoring "works". It obviously works for the senior executives in large corporations who won't be offshored and will continue to collect multi-million dollar incomes and share benefits. It works for the offshore employees who regard a little as much better than nothing. It probably works for the Big 4 partners charging a thousand dollars or more an hour.

    We live in a time of great danger for our economy and our way of life. There is a mood in our society that will create a ferocious division between the haves and the have-nots. The financial plague is spreading and many who thought they were immune are finding out that they were wrong. Those reaching retirement age are finding out that they don't have enough superannuation. Those who are young often don't think about the approaching horizon of working life at all.

    Offshoring doesn't work. It is a cancer dividing our society and destroying the most vulnerable amongst our people. It is not manufacturing-centric. Offshoring is developing a strong services sector base. That base is expanding as the productivity locusts have moved beyond our manufacturing workforce.

    We have to create an Australia that works and that won't be obfuscated by an "offshoring that works" mantra. Some large companies and their gilded advisors would undoubtedly disagree. They shouldn't lead our society.

    Posted 15 May 2012

    Martin Feil is an economist specialising in Customs, logistics, ACCC actions, industry policy and international trade related matters, including transfer pricing.