Who Stole the American Dream? (40 page)

Within twenty-four hours, IBM pulled its patent application.

Even so, losses of solid middle-class jobs now ripple throughout the knowledge economy. Banks, airlines, hotels, retailers, investment banks, law firms, and even hospitals and American states have been shipping work offshore. In Madras, India, a
Los Angeles Times
reporter came across an offshore operation where “
task by task, function by function, the American office is being hollowed out and reconstituted in places like this….” He described a local shopping arcade where researchers, librarians, claims processors, investment analysts, typists, proofreaders, accountants, and graphic designers were churning out work for U.S. tax accountants, insurance companies, and law firms.

Offshoring today involves brainpower jobs. Wall Street investment bankers use Indian analysts to gather information on potential merger or acquisition targets. Massachusetts General Hospital in Boston hires radiologists in India to process X-ray images of American patients. In 2002, the state of California outsourced the processing and delivery of some state welfare benefits to Citicorp Electronic Financial Services Inc., and Citicorp turned the work over to English speakers in Bangalore and Pune, India. The volume of such offshore work, not only in India but in China, Brazil, the Philippines, Russia, and Eastern Europe, has
shot up exponentially since 1990, from next to nothing to roughly $100 billion a year.

“
They told all the workers when manufacturing jobs were leaving the country, ‘Train in computers. Jump to computers,’ ” protested Lee Conrad of Alliance@IBM/CWA. “Well, now computer jobs are
going out of the country. These are high-skilled jobs—IT specialists, HR specialists, IT architects—college-educated. Desk jobs. Good pay. They’re just decimating white-collar people. It’s devastating.”

Offshoring may not have been a hot issue during the booming 1990s, but in the recent recession, public opinion swung against it. In October 2010, most people blamed offshoring as the main reason for the slow U.S. economic recovery, according to a
Wall Street Journal/
NBC News poll. Among blue-collar workers, 83
percent cited outsourcing as the reason U.S. companies were not hiring. Even more professionals and managers—95 percent—said the same.

And no relief is in sight. At the depths of recession in January 2009, the Hackett Group, a strategic consulting firm, reported that in the United States, “companies are clearly … accelerating the pace of their globalization efforts, particularly in finance and IT, while at the same time implementing hiring freezes and/or staff cuts for their other back-office staff positions.” In sum,
job cuts at home, big hiring overseas. In the decade from 2000 to 2010, Hackett said, offshoring had been “a major culprit” in the estimated loss of 3.9 million jobs in finance, IT, human resources and business support functions in North America and Europe.

During recession,
the big Wall Street banks bailed out by taxpayers rebuffed President Obama’s pleas to “hire American.” Instead, they pushed ahead with overseas hiring, but like IBM, they kept it quiet. The Indian press broke the news that in 2011, JPMorgan Chase, Bank of America, and Citigroup had signed contracts to offshore $5 billion worth of new IT and back-office work to Indian firms.
At home, the big banks were firing tens of thousands of employees.

In November 2010, Hackett put out a report entitled “
How Offshoring Could Prolong the Jobless Recovery,” predicting that offshoring of white-collar and professional jobs would be a persistent
source of “net job destruction.” Hackett forecast that offshoring in the knowledge economy would keep rising, wiping out another 1.3 million jobs in North America and Europe by 2014.

Looking over the long term, Princeton economist Alan Blinder spelled out the implications for the upper echelons of the American middle class. Roughly one-quarter of all the jobs in the U.S. economy are vulnerable to be offshored, Blinder said:
That “corresponds to about 30–40 million jobs” vulnerable to loss—unless, as some business groups are now advocating, the federal government changes tax policies and investment incentives and business leaders find ways to keep more jobs at home, to prevent that massive job loss from happening.

I
N
A
MERICA
, one of the most controversial causes of job loss in the high-tech industry involves not offshoring but “onshoring”—importing college-educated foreigners to come work in the United States and replace Americans—a strategy favored by such major U.S. companies as AIG, Disney, IBM, Microsoft, and Pfizer.

The high-tech world has long looked
to recruit hot new talent through immigration, and in fact, immigrant scientists and entrepreneurs have played key roles in sparking America’s preeminence in high tech. Among them, Andy Grove from Hungary, the ex-CEO of Intel; Jerry Yang from Taiwan, a co-founder of Yahoo!; Andreas von Bechtolscheim from Germany and Vinod Khosla from India, co-founders of Sun Microsystems; Pierre Omidyar, founder of eBay, from France; and Sergey Brin, a co-founder of Google, from Russia.

For America to stay on top, Bill Gates of Microsoft and other high-tech industry leaders have told Congress and the White House, the United States needs to recruit the world’s “best and brightest.” By the late 1980s, high-tech industry leaders were sounding the alarm that U.S. global leadership was endangered by a “skills gap” in the critical STEM fields—science, technology, engineering, and mathematics. They said there was a shortage of qualified Americans and a slowdown in the flow of foreign talent to industry from America’s premier graduate schools in the sciences, where roughly half of the students were foreign born. There was a logjam, they said, in the government’s approval of green cards to foreigners to let them work in the United States while they applied for citizenship.

Gates and others pressed Congress, from the late 1980s into the 2000s, to take action to help them recruit foreign talent. “
It makes no sense to educate people in our universities, often subsidized by U.S. taxpayers, and then insist they return home,” Gates testified. “These top people are going to be hired. It’s just a question of where.”

In response to intense industry lobbying, Congress enacted a special visa program in 1990 as a stopgap measure. The new H-1B visa program would permit an annual quota of sixty-five thousand temporary three-year visas to be issued to college graduates to work in the United States in “specialty occupations.”

Former Democratic congressman Bruce Morrison of Connecticut, who helped write the law, saw it as a temporary fix—a bridge for channeling talented foreign students into high-tech America while the government broke the immigration logjam. The visas were made renewable for a second three years to help keep precious talent in America long enough to recruit them as U.S. citizens. The visa quota was kept fairly low, Morrison said, to encourage bright foreigners to become Americans.

Inevitably, there was hot debate over how to protect Americans from being shoved out of solid, high-paying high-tech jobs and replaced by younger, cheaper foreigners. In speech after speech, members of Congress vowed that American jobs would be protected. But in the end, Morrison said,
no ironclad protections for Americans were written into the 1990 law. The law did require U.S. employers to pay H-1B visa holders at prevailing wages and not to undercut existing U.S. salary scales. But there was no legal mandate requiring employers to keep qualified Americans in their jobs or to scour the labor market and hire Americans before foreigners for any high-tech opening. “H-1B does not require that and never has,” Morrison said.

The law had so many loopholes that it was easy for companies to evade it, Morrison told me. American companies figured out a legal dodge: They could legally get rid of American employees and replace them with foreigners by working the switch through subcontractors. Under the law, Morrison explained, “you can’t fire your own worker and hire an H-1B worker, but you can fire a contractor that has supplied you with American workers and hire another contractor who will supply you with H-1B foreign workers.”

With such loopholes, the H-1B program soon altered the economic landscape in the high-tech world, eliminating hundreds of thousands of prime American jobs. IT giants such as Microsoft, Intel, Oracle, Cisco, and IBM, which had pushed the H-1B legislation, were among the first to exploit it. But other companies quickly saw its benefits. One was AIG, the insurance giant, which wanted to cut costs by replacing much of its main information staff in Manhattan, New Jersey, and New Hampshire.

Linda Kilcrease, a former AIG computer systems manager, described how in September 1994
senior AIG executives summoned 250 of the company’s most experienced IT staffers to a sudden meeting at a local hotel. “
After we were seated, an executive stood in front of the room and coldly told us that the computer systems were outsourced,” she said. “We were each handed a folder of papers that detailed our 60-day notice and severance.” Summarily fired, the
Americans were being replaced by H-1B visa workers from India—workers they were ordered to train, or else lose all severance benefits. The firings came as a shock to Kilcrease and her colleagues because they had been instrumental in developing AIG’s IT capabilities and the company was then enjoying strong profits. They knew that theoretically H-1B visas are designated for foreigners with special, otherwise unavailable job skills. But Kilcrease, a ten-year veteran at AIG who led a team of twenty computer programmers and systems analysts, commented after working with the Indians that “it was clear that Syntel [the firm supplying the Indian workers]
did not bring in any special skills that we did not have.”

Cost-cutting was AIG’s evident motive, Kilcrease asserted. “
This profitable company boasted they were saving $11 million as they made us train our H-1B replacements,” she said. “The company that provided the foreigners to AIG, Syntel, was punished for paying foreigners less than the prevailing wage. I sought to sue AIG via four government agencies. This failed as they did nothing illegal, no matter
the harm to their employees. I secured [another] job, but retirement benefits were destroyed. In my fifties, I cannot start over, [and] there remain no protections to prevent abuse.”

Such mass firings were terrifying to employees, but a boon to companies. H-1B fever spread rapidly during the dot.com boom of the late 1990s and the Y2K angst over a potential computer apocalypse at the stroke of midnight on December 31, 1999. Silicon Valley and its political allies in the Clinton administration, claiming they needed more foreign “techies” to head off trouble, got Congress to triple the annual H-1B visa quota from 65,000 to 195,000. Companies such as IBM and Microsoft, which have overseas subsidiaries, added to that total by using another visa, the L-1, to bring in their own foreign employees without any quota.

So the numbers of “onshored” foreign workers in America shot up. Microsoft acknowledged in 2007 that
one-third of its 46,000-member workforce in the United States was foreigners on work visas or green cards. Even in hard times, when Americans were being laid off in large numbers, the
foreign worker tide kept rising. In 2009, the industry lobbying group TechAmerica reported that while the industry cut 245,600 U.S. jobs, it added more than 100,000 H-1B visa workers.

Once again, the driving force behind the wave of imported IT workers on H-1B visas was the aggressive coterie of Indian offshoring firms, Infosys, Wipro, Satyam, and Tata. They have recruited tens of thousands of Indian knowledge workers at home and sent them into America. Other so-called body shops
or multinational temp agencies, some owned by Americans, have copied the Indian strategy. But the four Indian firms have dominated the field. During the recession, from 2007 to 2009, four of the five largest users of H-1B visas were Indian firms—Tata, Infosys, Wipro, and Satyam—each receiving several times more visas than American giants such as Microsoft and
Cisco, according to Ron Hira of Rochester Institute of Technology, who has frequently testified to Congress on offshoring issues.