APRIL 25, 2003

By Christopher Kenton

Grasping, Greedy, Unpatriotic? Not Me

Readers branded me all those things and worse for hiring an offshore programmer. So here's an explanation, one straight from the heart

My last column apparently touched a nerve. After detailing my exploration of offshore technical labor, I received a lot of angry mail from critics accusing me of exporting American jobs and ruining the economy. The worst labeled me unpatriotic, while the best took me to task for trivializing the plight of America's unemployed by worrying about the identity of my foreign contractor. A number of people wished various disasters on me and on my business (see BW Online, 4/11/03, "The Woman Behind the Code").

After speaking to a number of my critics, I found out why they were angry. Most were laid-off U.S. technology workers unable to find new jobs in the current economic environment. They lumped me together with the huge companies lopping off departments to make quarterly budget targets by cutting costs -- and they didn't pull any punches. A number of interesting discussions came up that cut to the heart of the issues facing our economy, and I think it's worthwhile to air some of those debates here.

ON THE BRINK. Most of the angry letters accused me of displacing American workers. They're right. In the case of the project I outsourced to Argentina, the American worker I displaced is named Nik. He's worked for my company for more than four years and has been a phenomenal employee and a good friend. We were forced to lay him off when my company was decimated by the economy -- but not before I, and my my partners, went a year without pay so we could continue to cover his salary, medical benefits, and those of his co-workers.

As a skilled programmer, Nik was making $80,000 a year -- but it cost my company $120,000 a year to pay his salary, benefits, taxes, and to keep him sitting at a desk with the equipment to do his job. That means he had to do $120,000 worth of billable work just to stay in his chair. With the flagging economy, his contribution to overhead -- down to about $50,000 at the end -- went underwater almost two years ago.

That means our loss on just one employee was approaching $70,000 a year, and that was money out of our profits, our operating revenue, and, eventually, even out of the equity in our homes. However noble our notion of giving up our own salaries to sustain our employees might have been, it was a bad business decision. All it achieved was to postpone the inevitable layoffs and ignore the necessary adjustments while draining the resources we had to continue operating. In the end, we came to the brink of bankruptcy before making the radical changes needed to bring our company around.

THE TURNING POINT. For me, reality hit home one day last October, when I was perched on the bed of a pickup truck unloading 15 years of our company's history at the local recycling depot. As part of our reorganization, we had to give up our beautiful high-rent offices to pare down expenses. I can't describe the feeling, but it would be something like taking the entire contents of your house to the dump. For me, it signaled for me a major shift, both in attitude and approach to business.

I'd spent the previous two years watching my business go down the economy, watching my assets disappear, and watching my future crumble. But I was tired of lying awake and staring at the ceiling. I was tired of agonizing over what would happen to me. I was tired of railing against the big companies that found ways to do well in an environment that was crushing me and my employees. As far as I was concerned, I needed to adapt to the new economic environment, to understand what it would take to survive and rebuild my business.

What I found most interesting in the letters from readers was the implied argument that, somehow, U.S. technology jobs should be protected. Anything else would ensure the destruction of our technical markets, writers insisted, if not our economy at large. The most compelling argument in this camp came from an unemployed engineer who pointed out that he could no longer afford to buy a new car, dine out, or go on vacation. He even itemized the products and services he would no longer buy to illustrate the recent layoffs' rippling effect on the economy. When you multiply that by the millions of people currently out of work, it is indeed troubling.

WAY OF THE MARKET. In the long run, however, even the best plans for protecting U.S. jobs strike me a recipe for disaster. If I don't have to worry about my job, I don't need to be the best I can be. I don't need to waste time learning new skills. I don't need to work harder to make my company succeed. In short, I don't need to compete. Not only is this the antithesis of American capitalism, but how long would it take for the quality of U.S. products and services to fall behind other nations that are compelled to try harder in order to survive? India, China, and many other advancing Asian nations are able to compete for our technology jobs because of the enormous strides they are making in technical capabilities -- and they aren't likely to slow down.

The bottom line, literally, is that free markets rapidly migrate to cheaper sources of raw materials and labor. Anyone who shops for lower prices puts this principle in motion. To try and hold back the tide is to ignore a law of economic physics.

Does that mean I'm a cynical advocate of globalism, as some readers claimed? No. I simply believe we're at a point of major disruption in our economic system -- one that is painful for a lot of people, including myself -- as skills and technologies become more universally available. But as a student of Systems Theory I see chaos as a natural part of the cycle in any system. Every revolutionary step in the evolution of a system is accompanied by disorganization. That means that immediately following the pain, there is opportunity for those who are willing to find it.

CREATIVE DESTRUCTION. That means continuing to lament my fate at the hands of a ruthless economy, or trying to figure out how to reorganize my business and prepare for the next wave. Exploring the potential for cheaper offshore labor certainly does threaten the jobs of my technical employees. But if I'm successful, it will open up opportunities for new employees to manage the fresh load of projects I will be able to bring in with cheaper prices. If I had to put a stake in the ground and predict a trend, it would be precisely this: Technology production jobs will move overseas while technology research, design, and management jobs will grow at home.

In my next column I plan to address the related question: How did we get here? While many blame the displacement of American jobs for our economic woes, I have a different point of view based on my experience in Silicon Valley. In the meantime, I'm interested in hearing your perspectives. I learned last week that many of the most angry letters conceal the most compelling stories, and I'll continue to try and bring those perspectives to the table.