Loans And Finance: offshoring

Those of you who are fed up with ringing your "local" bank or financial institution hoping to talk to a "local" operator, only to find yourselves talking to an operator based in India, may be less than happy to learn that the fetish for outsourcing financial services helplines etc continues.

Indeed, the call centres are likely to be moved even further away from the UK, as the Chinese have now been identified by financial institutions as a source of even cheaper labour.

A report, titled Global Financial Services Offshoring Report 2007, issued by Deloitte notes that India continues to be the global offshoring hub. However, it is likely to lose its share of two-thirds of offshored staff in the next 10 years due to competition from China.

Quote:

"India remains offshoring's hub but is likely to lose share in the future. The DTT GFSI group estimates that about two-thirds of global offshored staff is employed in the sub-continent. China threatens to be India's principal offshoring competitor.

Some 200 million Chinese people are currently learning English, providing a growing pool of skilled labour that may compete with India over the next 10 years. China's share of offshore labour is already rising, with a third of financial institutions now having back-office (mainly IT) processes based in China."

Needless to say, the financial institutions will never bother to consult with their customers over their outsourcing arrangements or the security of their outsourcing arrangements.

Of the 44 million jobs in the United States, nearly one in three of the total pays low wages—and often does not include affordable health insurance, paid sick days or retirement coverage. That eye-opening information, provided in a new report by The Mobility Agenda, finds these $11.11-an-hour-or-less jobs also tend to have inflexible or unpredictable scheduling requirements and provide little opportunity for career advancement.

So maybe that’s why when Bush touts the nation’s low unemployment rate, few people outside Wall Street cheer. They are too busy working several jobs to make ends meet.

The Mobility Agenda, a special initiative of Inclusion, a virtual think tank affiliated with the Center for Economic and Policy Research, finds that since 2001, there has been a sharp decline in wages for workers at the bottom third of the wage scale. Worse, reviewing the evidence on economic mobility, the authors of Understanding Low-Wage Work in the United States conclude:

In the U.S. labor market, it is not possible for everyone to be middle class, no matter how hard they work. Moreover, it has been getting harder to do over time.

Oh, and about that middle class. A devastating report by Robert Pear in The New York Times March 5 documents the economic fragility of the U.S. middle class when it comes to paying for health care.

Seems that more than one-third of those without health insurance—17 million of the nearly 47 million—have family incomes of $40,000 or more, according to the Employee Benefit Research Institute, a nonpartisan organization. More than two-thirds of the uninsured are in households with at least one full-time worker. As Pear writes:

It is well known that the ranks of the uninsured have been swelling; federal figures show an increase of 6.8 million since 2000.

(The AFL-CIO supports universal health care, and last week, the AFL-CIO Executive Council approved a statement saying such a system should be built upon the nation’s most successful universal health coverage plan for seniors—Medicare.)

A confluence of forces is behind the sinking of the middle class. But one big factor is the disproportionate gain by corporations in the growing global economy. So wide is the gap, in fact, that even the denizens of economic world leadership, at their annual gathering in Davos, Switzerland, this year started humming a new refrain: Globalization isn't working for everyone. According to The Wall Street Journal (subscription required):

Stagnating wages and rising job insecurity in developed countries are creating popular disenchantment with the free movement of goods, capital and people across borders.

In theory, less-developed countries win from globalization because they get jobs making low-cost products for rich countries. Rich countries win because, in addition to being able to buy inexpensive imports, they also can sell more sophisticated products like machine tools or financial services to emerging economies.

"The first win is there, but the second win is going to the owners of capital rather than labor," says Stephen Roach, chief economist at Morgan Stanley.

Ouch. There’s that capital-and-labor dichotomy again. From Morgan Stanley, no less. Guess it didn’t go away with the 20th century after all.

Several key factors are fueling the inequities in globalization. One is the rapid growth of foreign direct investment by U.S. corporations to other countries—while internal investment is decreasing. According to economist Thomas Palley:

Since investment in the U.S. is critical for future economic prosperity, these patterns are troubling and provide evidence of how globalization and flawed policy are encouraging corporations to abandon America.

With regard to outward [foreign direct investment], part of the increase is attributable to affirmative improvements in emerging market economy prospects, but part is due to bad policy. The over-valued dollar has encouraged U.S. business to shift productive investments from the U.S. to both developing and other developed economies, while the lack of global labor and environmental standards encourages shifts to developing economies where standards are lower or even absent.

Another factor is the preferential tax treatment of foreign profits of U.S. corporations, which encourages outward FDI that displaces domestic investment. This speaks to repealing that provision.

Palley notes the U.S. Commerce Department recently launched an initiative to promote such investment, promising to actively court foreign companies. But the approach, while beneficial, also is “incomplete and inadequate.”

Cheerleading cannot substitute for fundamental policy change...the exclusive focus on [internal direct investment] is like one-hand clapping and completely misses the problem of investment off-shoring by U.S. corporations.

Another factor exacerbating the gap between what the wealthy are paid and everyone else is excessive CEO pay. We’ll discuss that in a couple weeks, when the AFL-CIO releases its Executive PayWatch report in early April.