By SCOTT DEWING
Published: December 2005

The debate on outsourcing is like watching a tennis match:

“Outsourcing results in job losses for Americans.”

“More Americans are employed than ever before.”

“Only greedy corporations benefit from outsourcing.”

“Everyone benefits from outsourcing.”

“The government should protect American workers from outsourcing.”

“It’s a global economy stupid. Protectionism and isolationism will only hurt us.”

Back and forth like that, the economists, politicians, labor unions and corporations pairing up and lobbing shots at one another while you and I are left wondering if we’ll have a job tomorrow.

Sometime last year, as I was researching an article about globalization, I ransacked my own home in search of something—anything—with the words “Made in U.S.A.” printed on it. The only item I found was a candle. As I stood holding the candle amidst the wreckage of my search, I couldn’t help but think that when it came to making things, America just barely held a candle to the rest of the world.

You don’t need to have an MBA to understand the economic rationale behind this: labor is far cheaper overseas than it is here at home. Without the outsourcing of manufactured goods, there would be no Wal-Marts filled to the rafters with Cheap Roughly Assembled Products, or CRAP as it is commonly referred to in its acronymic form.

Fueled by greed and enabled by the open trade policies of the Reagan era, American corporations began aggressively outsourcing manufacturing jobs overseas during the 1980s. Manufacturing jobs in America peaked in 1979 at around 20 million jobs and have been steadily declining ever since, down to 14 million today.

Indeed U.S. jobs were “lost” to outsourcing, but amid the din of debate and the doomsday predictions of labor union spokesmen, new jobs were created in newly emerging sectors of the economy to replace those jobs that were shipped overseas.

Today’s global economy can be divided into four separate sectors: primary, secondary, tertiary and quaternary. The primary sector is focused on the harvesting and gathering of raw materials to be made into something. Logging, mining and agriculture are examples of the types of industry in the primary sector. The secondary sector is all about manufacturing, that is, taking the raw materials gleaned from the primary sector and turning them into finished goods—cars and computers, sailboats and shoes—that can then be sold to consumers. The tertiary sector is the service sector, which transports, distributes and sells those manufactured goods. The last sector is the quaternary. This is the high-tech sector that creates and delivers software and other information technology services.

Globalization has resulted in the first three sectors being outsourced to varying degrees. It comes as no surprise then that jobs in the quaternary sector are now being outsourced too. This trend began in the 1990s with the rise of the Internet and continued picking up speed as we slid into the new millennium. In fact, the new millennium had something to do with giving IT outsourcing a major boost with U.S. companies looking offshore for high-tech contractors during the last-minute scramble to prepare for the impending and overly hyped doom of Y2K.

Statistics and predictions from research firms abound regarding the future of IT outsourcing: the worldwide outsourcing market will grow at an annual compound growth rate of 20 percent to $18 billion by 2008; 3.3 million high-tech jobs and $136 billion in wages will move offshore to countries such as China and India over the next 15 years; the market for offshore IT services will more than double to 7 percent of overall spending within the next three years.

Just as the outsourcing of manufacturing jobs didn’t send America to the bottom of the economic ladder, neither will the outsourcing of IT jobs—well, as long as we replace those jobs with higher value jobs just as we did when manufacturing jobs moved overseas. And therein lies America’s predicament and next big challenge.

“We should be scared witless,” says Henry Kelly, president of the Federation of American Scientists, about America’s unpreparedness to remain the global leader in science and technology innovation. “We are coasting on a previous generation of solid investment.”

In order to remain the global leader and create high-value jobs, the U.S. must have the best education system in the world. We must invest heavily in science and technology programs as well as R&D in both the public and private sectors.

Meanwhile, back at the ranch, government R&D funding, as a percentage of GDP, has hit an all time low. Private sector R&D investment plummeted by $8 billion in 2002—the largest decline in 50 years. And the 2006 Federal budget calls for $4.3 billion in education cuts. This is not a recipe for success if we endeavor to remain the global leader in science and technology innovation.

Last June, the President’s Council of Advisors on Science and Technology submitted its report, Sustaining the Nation’s Innovation Ecosystem, to the President. Among the report’s findings and recommendations was that, “Our innovation ecosystem is the best in the world. Yet without immediate steps to preserve and strengthen it, our system is threatened by significant changes in the global technical talent pool and shifts in the global R&D effort…This global shift in talent [to Asia] and R&D infrastructure is dramatic. We must aggressively maintain the U.S. innovation ecosystem if we do not wish to see ourselves surpassed in global economic leadership.”

Meanwhile, on the other side of the world, China and India are aggressively pursuing national technology policies that receive support at the highest levels of government. Both countries are investing heavily in science and technology education as well programs that sponsor growth through government funding and private investment.

That sound you hear is a clarion call to action if America wants to maintain its hard-earned hegemony in technology innovation. Without action—and especially at the highest levels of government—this next round of job outsourcing may prove to be our last. And that is something that we should be a bit more than just scared witless about.