Greed Runs Thicker than Blood

Well !! At least in some boardrooms (if not all) Greed truely does. In the corridors of power all over Silicon Valley and Detroit, decisions to outsource are framed in the most unassumingly harmless manner: -"we are expanding our global footprint", "India/China is a huge market for us and we need to have a local presence there".

CEO contingents will spend countless hours shuttling across the world on Business Class flights to attend conferences in Shanghai/Mumbai only be pampered. They would stay at the most exquisite hotels, dine in the most profligate of manners, skim through pie charts filled with details they know little or nothing of at conferences and lobby late into the night, all this just to reafirm their commitment to their capitalistic ideals.

The latest TIME magazine Cover story from noted journalist Fareed Zakaria doesn't list many new suggestions about what everybody knows Washington should be doing to improve the US Economy. Instead, Fareed gives us a few good takes on how America got into this mess and why it would be an uphill task for anyone to get the country out of this.

A particlular passage that caught my mind was the Middle Class Hollowing out effect we see in America today. Over the last 10 years, since the .com bubble burst in 1999, corporate America has gradually moved into the overdrive mode with outsourcing. One could compare this to the act of chipping away at the bark of the trunk of a tree. Initially outsourcing started as a small trickle. However, as this chipping progressed, it began to make more sense, and more jobs were lost and transferred abroad. Around about 2008, when the tree was totally unstable, a whirlwind called Lehman Brothers provided the final push. 

The sad thing about this situation is echoed by the ex-GE boss Jack Welch,which is that in todays world, technology has made GE more efficient and the jobs they lost during this recession will likely not return. 

One of the causes of the middle class hollowing out is simply the present demand crunch. With demand at an all time low in the US, companies will not hire which would cause wages to drop which in turn would feed the cycle of deflation. However falling wages in this case could effect a whole range of existing beneficiaries.

Consider this. Thousands of H1B IT professionals from India arrive on American shores every year for employment. Some of them work for Giant Indian MNC's while a large chunk of them are employed at shady body-shopping outfits that prey on the Indian-American IT Dream of a lucrative pay packet in America being translated into a comfortable life back at home in India at a later stage.

Is all this about to change now?

Well, studies have been done by various interest groups tracking this phenomenon. Here is one such study that highlights the difference between employing a H1B worker as against a locally skilled American tech worker for the same job. As per American law, H1B workers should be paid as per the same levels as their American compatriots. Somehow though, this is rarely the case since capitalism is the system where every drop of blood is squeezed to service a meagre spoonful of greed. 

The research paper highlights the gap of $15,000 per year as the difference in cost between foreign H1B employees and the American tech worker. To add to this, since most H1B visas are employed at salaries lesser than $90,000 a year, there are lesser taxes incurred resulting in lesser revenue for the government. Till date, the government could always write these off as long term benefits gained at a lower cost and a higher processing cost of the H1B Visa. Well the same excuse may not hold much water any longer.

As real wages drop, the American Middle class will gradually need to take salary cuts in order to remain in business. With so many Americans already out of work (9.6 unemployment), a time may come when this $15,000 gap between the Indian IT worker and his American comrad will get squeezed. In fact, a recent report showed that 20% of Americans wont mind taking a 5-10% cut in pay, given the state their economy is in.  

If this were to happen, The H1B remuneration will have to be more reflective of the current economic situation, or in other words, it will have to decrease to remain competitive. In case they don't, American companies may find it a lot easier and politically correct to recruit local techies and claim the Obama tax benefits than to shell out increased sums of money to hire a H1B candidate. (In fact the senate recently passed a bill that hiked H1B fees steeply).

For the H1B techies still in the US they will have to live with lesser return on investment and a dollar that may even weaken instead of getting stronger over time(not good news for repatriations). Have no doubt whatsoever though, that the grass is still greener on the other side, and there are many who would still pack their bags on short notice if given the opportunity.

The other thing that may happen is that free-market Americans may actually turn racist by seeing the number of rich and successful Asians around them. A small section of Americans did turn anti-turban after 9/11 and it can be argued that a large portion of them are secretly Islamaphobic as well. 

So the Hollowing out of the middle class may even result in a gradual shift in the preferences of global knowledge workers, who have always preferred America. A recent student from a top university in China said that she would still prefer to work in the US for a few years after her graduation, return to China to start her company and then Holiday in Europe. 

If you study her analysis it wont be too difficult to understand why. She would choose to work in America for a few years becuse the strong dollar would give her good returns on her fixed peg renmimbi. She would then  loaded with mullah, return to China and start her own company for the simple reason that most of the growth happening in the world is in this part of the planet. Finally the returns she would make in China would allow her to party in the Socialist State of Europe.  

Greed has a new marketplace now. There is a whole sea of Asians waiting to dip their hands into her warchest and follow in the ways of the Fallen, "the American Way". They ought to take a lesson or two from the Frustrated, Impatient and Hollowed-Out Middle-Class American who is now on drips!!