Hillary Clinton does outsourcing

One of Bill Clinton’s political gifts was to take at a divisive issue and frame it in a way that sidestepped traditional political faultlines. Quick example: his call for making abortion “safe, legal, and rare.” That phrase epitomizes the vast American middle on the issue. One could argue that this is the core of “Third Way” politics in general — Tony Blair’s “tough on crime — and tough on the causes of crime” would be another example. Which brings me to Hillary Clinton and outsourcing. The good Senator from New York has managed to play both sides of the fence on this issue, blasting Treasury Secretary John Snow for suggesting that outsourcing helps the economy — while simultaneously welcoming one of India’s biggest outsourcing firms to Buffalo, NY. How to explain this? Some have accused her of lacking a firm grasp on policy issues — but it could be that Hillary is stumbling around, trying to find a Third Way on the issue. Which brings me to her Wall Street Journal op-ed of a few days ago. No stumbling here — she comes up with a superior political response to offshore outsourcing — that it’s not as cost-effective as firms believe it to be:

New Jobs for New York, a nonprofit corporation focused on economic development, commissioned a study by Howard Rubin to explore the real facts on outsourcing. He found that next year, nine out of the 10 largest firms in New York are predicted to perform IT or business process work offshore. The primary reason given by 90% of these firms is “cost savings.” So he analyzed these savings by category. It turns out that the savings from outsourcing were not as large as many employers believe. While they cited average savings of 44% per outsourced job, Prof. Rubin demonstrates that the actual figure approximates 20%. Lower wages are only one part of the offshore equation. When you tabulate all the costs, our nation is more competitive than employers think. You’re probably asking, “How can we compete against countries where a computer programmer’s wages are $10,000 per year while the equivalent U.S. wage is $100,000?” The explanation is that additional costs must be added to the offshore wages themselves to get the complete picture on costs. Companies have to spend money for planning, offshore transition, vendor selection, technology, communications, offshore management, travel and security. Many employers do not take every one of these costs into consideration. Add up all the costs and suddenly a call-center worker with a raw wage of $5 an hour offshore has a true cost of $17. And that’s why we have the potential to be competitive.

The article then goes on to propose many of the things John Cassidy said wouldn’t be discussed by politicians in his New Yorker essay. The political brilliance of this argument is that it allows the junior Senator from New York to blast the trend of offshore outsourcing without having to agitate for inane policy solutions like protectionism. Her argument is that if firms only realized the true costs, they wouldn’t outsource to Bangalore, but to Buffalo instead. Now, I’m pretty sympathetic to Clinton’s argument — it’s a definite improvement over the position taken by the senior Senator from New York. It also buttresses a point I made in “The Outsourcing Bogeyman“:

It is also worth remembering that many predictions [about the explosion of outsourcing] come from management consultants who are eager to push the latest business fad. Many of these consulting firms are themselves reaping commissions from outsourcing contracts. Much of the perceived boom in outsourcing stems from companies’ eagerness to latch onto the latest management trends; like Dell and Lehman, many will partially reverse course once the hidden costs of offshore outsourcing become apparent.

My one caveat: eager to learn more, I checked out the New Jobs for New York web site to find the Howard Rubin study. I found this press release and this summary of the Rubin report (co-authored with Patricia Jaramillo). What I did not find was any hard numbers to back up Rubin’s findings. It’s not that they don’t necessarily exist — I just couldn’t find any copy of the full report, and the summaries provided no data on this point. Lest I be accused of not doing enough shoe-leather reporting, I, like, actually picked up the phone and called New Jobs for New York. The executive director was very friendly, and suggested I contact Rubin directly. I’ve left a message with him. Should I see hard numbers, the readers of danieldrezner.com will be the first to know. In the meantime, consider this a case study of how Hillary is learning from Bill. UPDATE: Rubin might have his own consulting prejudices — according to Forbes, he’s a VP for Meta Group.