Benedict Arnold Legislators

this was the subject of a businessweek cover story this week.

"With their diverse workforces, American companies can field teams that speak Mandarin, Hindi, French, Russian -- you name it. As global software projects take shape, with development ceaselessly following the path of daylight around the globe, multicultural teams have a big edge. Who better than U.S.-based workers to stitch together these projects and manage them? "These people can act as bridges to the global economy," says Amar Gupta, a technology professor at Massachusetts Institute of Technology's Sloan School of Management."

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The answer to your question is obvious. If American companies are discouraged from using overseas software programmers, then overseas firms will employ them instead, taking advantage of any comparative advantage that the overseas programmers provide. In other words, the secondary effect will be to send the jobs overseas anyway, but with non American companies.

Take an example: the market for enterprise resource planning (erp) systems. Say that American firms (PeopleSoft, etc) are discouraged from using overseas programmers. Meanwhile, the gorilla in this market, the German company SAP, increases use of low-cost sources (they already have a significant presence in Romania). PeopleSoft is laboring under a cost disadvantage relative to SAP. So what is the next step in protecting American jobs--banning imports of software that has components developed in low-cost countries? What would the effect of *that* move be on the competitiveness of American users of software? (not to mention the international political ramifications)

One caveat, though: development costs for a software product are basically fixed rather than variable costs, so it might still be possible for the American company to be competitive. The use of offshoring for truly variable costs (support, customization) probably has more impact on competitiveness than does the use of offshoring for development.

Most look at this problem in the wrong way. The greatest effect would be the reduction of payscale of American Software programmers, rather than a total loss of their Jobs. American programmers who would not accept the pay cuts would be downsized. This is not really a topic of Comparative Advantage, but of realignment of Payscales. lgl