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Offshore Outsourcing: theImplications for Ireland

“This should not be a tool used by firms to lead to thedowngrading of pay and working conditions in basecountries nor to the systemic exploitation of workers inpoorer countries.

The best way to manage the jobs which are offshoredis to ensure that there are alternative jobs for thosewho lose out, preferably within the same employmentwith re-training provided in advance of the expectedjob losses.”

Congress House, 31/32 Parnell Square, Dublin 1. Tel: 01 889 7777 www.ictu.ie

Spring 2006

No.7

Introduction

Ross Perot, the US Presidential candidate in 1992warned of a “giant sucking sound as jobs gosouth” to Mexico because of the NAFTA1 tradeagreement. Perot’s opposition to the free tradeagreement was ironic because he had made hishuge fortune establishing EDS, possibly the largestoutsourcing firm in the world. There are great fearsabout outsourcing from many, including evenliberals like Perot, many American ‘free marketer’politicians and even France’s ultra neo-liberal,Nicolas Sarkozy, who promised to “help those thatdo not outsource.” It will be seen that even in thehome of so-called ‘free trade’, the USA, one stateis spending billions in attempting to blockoutsourcing by a major employer.

There are two opposing views on OffshoreOutsourcing. Mainstream economists argue that itwill lead to higher economic growth and even tomore jobs in the wealthier, offshoring country. Theopposing view is that offshoring/outsourcing isnew and it will lead to rapid economic decline andmassive job losses.

The answer is in between, but probably closer tothe first view because jobs have been offshoredand outsourcing for decades, with new jobs intime replacing those lost. The newer jobs areusually higher skilled and better paid, but notalways and there are redistributional effects.Ireland benefited from outsourcing in the 1960swhen foreign firms established plants to avail ofplentiful cheap labour and were welcomed by Irish

trade unions. Ireland has moved up the valuechain and now concentrates on higher skilled jobs.The difference between the earlier offshoring andtoday’s are three: a) the speed of change withglobalisation, b) many ancillary jobs within a firmare now outsourced to more specialist firms andc) it is no longer just manufacturing which isshifting jobs offshore, but also white collar jobs.

Jobs have always been outsourced and offshored.The problem now is that it is existing jobs held byreal people in Ireland, which are being offshoredand the new jobs will be for different, younger andmore skilled people. And some of these jobs maynot be in Ireland. There is a positive differencefrom the past and that was that whole factorieswould close down, whereas today, sectoral declinecan be better anticipated and planned for, with re-deployment within larger firms and provided forwith re-training etc. especially in a highemployment era.

Paul Sameulson, Noble Economics Laureate, said,“Yes good jobs may be lost here in the short run.Correct economic law recognises that someAmerican groups can be hurt by dynamic freetrade. But correct economic law vindicated theword ‘creative’ destruction by its proof that thegains of American winners are big enough to morethan compensate the losers.”2 While Sameulsonrecognises that there are losers from free trade(and it follows, from offshoring), there is no proof

AN EXAMINATION OF THE IMPACT OF OFFSHORING ON IRISH WORKERS2

1North American Free Trade Agreement (NAFTA).

2Economist, “Nagging Doubts about the benefits of globalisation and a lookat the evidence”, Economic Focus, 16 September 2004.

Glossary

Outsourcing is where jobs in an employment are contracted out to another firm, usually in the samecountry, which usually specialises in the area, eg catering, contract cleaning or IT work.

Offshore outsourcing or Offshoring is where jobs are moved to different countries by companies,usually to lower labour cost economies and generally, though not always, the outsourcing may beundertaken by different companies. “Outsourcing” is where functions are not longer carried out within acompany, but are contracted out to another firm which usually specialises in the function.

Displacement is where existing employees are displaced by new lower paid employees or contractworkers. They are offered “voluntary” redundancy and/or the choice of continuing to work in their ownjobs, but on much lower wages and poorer conditions. Those who are forced to leave are replaced bynew workers - usually immigrants - on much lower wages, very poor conditions and are generally notrepresented by trade unions.

that the winner compensates the losers. Inmodern capitalism, the mechanisms forredistribution rest with the state, which is slow toeffect redistributional change and often does sounevenly. Much redistribution in the modern statebenefits the better off, who can be bitteropponents of progressive change. Trade andoffshoring do generate greater gains than losses,though the gains from the latter depend on how itis executed. Losses there are, nonetheless, andthe losers are too often trade union members.

What is new is that there is now a threat tooffshore – outside the country or even thecontinent of Europe - many jobs, including whitecollar jobs. It is likely that many moremanufacturing jobs in the developed countries willbe offshored than in the past (e.g. textiles, clothingand footwear). Furthermore, it is foreseen that agreat number of white collar – middle class jobsmay be shipped abroad. The quality of low-costproduction is very rapidly catching up with that inEurope, US and Japan. The white-collar jobsinclude HR functions such as employee benefits,pensions, employee helplines and payroll andstock administration. The technology,communications links have improved greatly andtransport costs have fallen - facilitating effectiveoffshoring and allowing the far away employer tokeep in close contact with the offshored. Offshore

outsourcing is now impacting on services jobs, thatis, skilled white collar jobs, including senior andtechnical positions.

For some employers, outsourcing is nicknamed‘Fire and Forget’ or ‘Run my mess for less’. This isthe kind of approach which has given outsourcinga bad name, according to some.3 A PA Consultantssurvey found 66 percent of businesses whichoutsourced felt that the benefits expected wereonly partially met or not met at all. Another surveyby Bain consultants found that large companies inEurope, Asia and North America, where 82percent used outsourcers and 51 used offshoreoutsourcers, almost half said outsourcing failed tomeet expectations, even judged by the narrowmeasure of cost improvement. Only 6 percentsaid that were “extremely satisfied”. Others, suchas the financial director of the BBC, Zarin Patel,which outsources a huge amount of its product,including even 30 percent of its programme-making, found outsourcing “very satisfactory”.4

Offshoring and Outsourcing do not always makeeconomic sense. The wise business manager willhasten slowly to outsource and will research itdeeply. A quote to undertake the job cheaper thanin-house may lead to immediate savings which willbe eroded in two ways. First, the later cost mayrise and secondly, quality may fall. This is theexperience of many outsourcing companies, whichis detailed elsewhere in this Briefing. However, inmany areas, the specialist and expert outsourcercan and does generate saving and can improvequality simultaneously, if managed properly.

The motto “do what you do best and outsourcethe rest” sounds easy, but companies’management often do not know what they dobest, nor do they even know what their corecompetencies are. Further, they often overestimatethe cost reduction of outsourcing andunderestimate the cost in lost quality. Still, tradeunionists must take little comfort from casehistories where outsourcing has gone wrong.Outsourcing and offshoring will continue and it willgrow.

AN EXAMINATION OF THE IMPACT OF OFFSHORING ON IRISH WORKERS 3

3Michael Skapinker, “Reinventing Outsourcing”, Supplement in FinancialTimes, 2 June 2005.

4Ibid.

Machine Smashing Luddites

Since the Luddites at the beginning of the19th Century, rapid technological change hasbeen feared by workers, especially thosedirectly and adversely affected. The Luddites,led by Ned Ludd, were a social movementwhich began in 1811 in Nottingham. Thesepoorly paid workers destroyed textilemachines which they believed weredestroying their jobs and in the ensuingsocial unrest, some were killed. Since then,we know that the ensuing productivitychanges generate lower prices, greater outputand, in time, more and higher paying jobs –but for others! Rapid technological changedoes displace jobs and offshoring andoutsourcing is a part of such change.

The goals of the European Commission onachieving the agenda set out in Lisbon strategy arebroadly supported by Congress. These objectivesinclude developing Europe and its member statesinto a knowledge society; to ensure environmentalsustainability; to complete the internal market andto facilitate business with a more benign regulationand administrative environment etc. However, thisis not, under any circumstances, to be achieved bythe exploitation of labour. Indeed, a key objectiveof Lisbon is to develop the labour force in manyways, including developing strategies for Life LongLearning, skill enhancement and active aging.

Captive Outsourcing.

‘Captive Outsourcing’ is where the outsourcingcompany is one within the same group ofcompanies. Perhaps the biggest is GECIS orGeneral Electric Capital International Services.Formed in 1997, its revenue grew from $26m in1999 to over $500m in 2005 and it employs23,000 workers, mainly in India, but also inAmerica, China and Hungary and Mexico. It sellsservices in accounting, insurance claim processing,supply chain and IT management and call centres,mainly to companies within GE, one of the world’slargest companies. GE sold it in late 2004because, as it is captive, other companies arereluctant to buy its services and it was seen asnon-core to GE’s technology base. There are manyother companies which were once part of a largercompany which have been hived off andeventually sold off as the world becomes evenmore specialised. Captive business processoperations have been the most common vehiclesfor moving work offshore, with banks likeAmerican Express, Citigroup, Standard Charteredand HSCB, all of which have Indian captiveoperations. But even these captive outsourcesubsidiaries are under threat because it isestimated that captive operations’ costs are up to30 percent higher than those of independentcompanies.

How Big is the Market?

It is very difficult to quantify the size ofoutsourcing, but that does not stop some fromtrying to do so. The view is that it is not as big aspeople think but that it will grow. Forester, a USresearch firm, estimate that by 2015, 74,642 legal

jobs, (yes 74,642 exactly and in nine years!) willbe lost from the US to poorer countries andEurope will have 118,712 less computerprofessionals!5 IBM’s Bruce Herreld estimate thatoutsourcing only accounts for $1.4 trillion of thetotal of $19 trillion spent by companies on sales,general and admin expenses.6

Around 16 percent of IT services is done remotely– i.e. away from where services are consumed,according to McKinsey.7 There is no doubt that thelower end of the IT market has been commodifiedwhere there are common standards. A largenumber of middle range services are becomingcommodified as shared standards spread and thisincludes basic accounting functions. IDC surveyed500 European firms and found that only 11percent were sourcing IT from low wage countriesand that 80 percent would not even considerdoing it, with hard attitudes to outsourcing in Italy,followed by Germany and France. The Economist,which favours the Anglo-American form ofcapitalism and is hostile to the European socialmodel, cites Forrester and IDC, asserting that social


The Losers from Offshoring haveNames

Outsourcing and offshoring of work has beentaking place for many years. It is a part ofglobalisation. It is accepted that overall, itdoes generate gains for an economy. Butthere are losers. The losers have names,families and responsibilities.

The winners do not have names - they arenot yet known. But they are younger, moreeducated, and confident. The losers aregenerally more vulnerable than the winners -they are more often female, older, less skilledand less educated. Therefore, steps have tobe taken by the state to redistribute thegains, to prepare for offshoring and to ensurethat labour law is adequate to avoidexploitation and the displacement of Irishworkers.

5Economist “A Survey of Outsourcing,” 13th November 2004.

6Ibid.

7Ibid.

legislation in Europe makes it more difficult tooffshore and so US and UK, with more flexiblehire and fire laws, will steal ahead and edge outold Europe by developing stronger links with Indiaand low wage economies. It concludes that“European financial firms could be so badlydamaged by this loss of competitiveness that theymay fall into the arms of fitter American and Britishrivals”!8

A Mr. McCarthy of Forester forecasts that 3.4million white collar jobs in the US will beoffshored by 2015, while a Mr. Parker estimatesthat 1.2 million IT and service jobs will beoutsourced from 16 European countries over thatperiod.9 With the annual turnover in jobs or the

good as ever in cars and consumer electronics, inspite of the negative growth of the Japaneseeconomy in 1998, 1999 and again in 2002. Thethreat, unspecified, never materialised.

China is potentially far bigger than the Japaneseeconomy and it has two other differences whichmake its potential impact greater than Japan everwas. First, it is more open to trade and investmentthan Japan was and, secondly, it has a vast supply,almost unlimited, of cheap labour (including slavelabour). Yet it is likely that even with the massivesize of China and its rapid growth rates, it will notpose a threat to the US or other Westerncountries. It will provide a vast stimulus to demandas the world’s fastest growing market. As it grows,it will raise demand for imports. Already it ispropping up the US dollar. Ironically, theCommunist government could cause the dollar toplummet if it sold off its vast dollar holdings. Yetthe cheap imports from China are causing pricesfor many consumer goods to fall.

In Ireland the price of clothing is now only 60percent of what it was back in 1996, compared toan overall rise of 32 percent in consumer prices.This is partly due to imports from China. Ofcourse, Ireland’s clothing industry has virtuallydisappeared, but the jobs have been replaced byhigher value added employment in pharma-chemicals, ITC, financial services etc. Major UKretailers have moved production from China toEastern Europe and Turkey in response to demandin what is called “fast fashion”. Next, Zara, Primarkand New Look and others have not suffered withthe downturn in UK retailing, partly because theyhave responded to the speed in fashion changes.Phillip Green, the UK retail billionaire said thatChina was best on price and good on quality, butit is too “far away for what the market isdemanding”.10 AT Kearney a consultancy, foundthat a typical blouse cost stg.£6.50 to manufacturein China compared to £7 in Eastern Europe, £8 inTurkey and £10 in the UK.11 But retailers believethat there can be a bigger cost in lost revenues ifthey are not selling what the market demands.


Women are harder hit by Outsourcing

Women are more vulnerable than men to thethreat of outsourcing. This is because womentend to have more atypical and often lowerpaid jobs. This makes them particularlyvulnerable when a company decides to sub-contract out work. Those who are part timeand not well paid are too often the ones whofind their jobs have been outsourced.

8Ibid.

9OECD, Employment Outlook, 2005,p 33, Paris. McCarthy and Parker areboth from Forester Research.

10Financial Times XX August, 2005.

11Ibid.

“churn in employment”, this is not significant foreither the US or those European countries. Over7.7 million jobs are destroyed in the US each yearand this is only equivalent to 55,000 a year lost tooffshoring in the white collar sector.

The Threat from China

There is a great fear of China in the US and to alesser extent in Europe. It is similar to the fear ofJapan that gripped America in the late 1980s,especially when a great number of Americansbought Japanese cars. It got hysterical whenJapanese companies bought up real estateincluding the Rockefeller Centre in New York and anumber of major Hollywood studios. The fervourwas unfounded as Japan was shortly after to entera recession for much of the 1990s and it is onlynow recovering, sixteen years later. The Japaneseeconomy has needed structural reform for manyyears but Japanese politicians shy away fromreform, such as letting some big banks go bust.Nonetheless, Japanese manufacturers are just as

In many ways, China’s growth poses a biggerthreat to other emerging countries than todeveloped Western ones because they find itdifficult to compete with it. More importantly, itssoaring demand for commodities, such as iron andsteel for its industries, its demand for oil and itsmassive pollution of the world’s environment willpose perhaps more serious problems thanoutsourcing ever does. Outsourcing of lower skilledjobs therefore may be a minor problem, comparedto China’s contribution to global warming and itsimpact on oil prices.

There is some comfort in ‘fast fashion’ needing tobe nearer the market and the fact that price is noteverything. Ireland has strong state interventionistpolicies in supporting the private sector, a provenability to pick winning industrial sectors, investmentin education, in re-training and positive attitudeswhich means that Ireland can continue to gain.And in the long-run, we can gain from the growthof China. The road will, however, be paved withmany obstacles, including job losses especially oflower skilled jobs. With planning, these obstaclescan be overcome.

Outsourcing in Ireland

There is an increasing number of firms specialisingin outsourcing functions. This is not new. Therehas long been the growth of cleaning, catering andsecurity specialist firms. Many of these areunionised and all are now also protected by theminimum wage and by changes in labour lawswhich Congress has won over time. Other sectors,especially the Information and ComputerTechnology (ICT) sector have seen an explosivegrowth in specialist outsourcing firms providingnew job opportunities (with also the offshoring ofskilled white collar jobs, particularly to India). Forthose who have provided security, catering orwhatever function in firms which decided tooutsource the function to a specialist firm, there isa loss of livelihood. Sometimes the person maynot be unhappy to leave if they are compensatedwell for the loss of employment, but for others itcan be a personal tragedy. However, there is amajor churn in employment and while the rhetoricon the demise of life-time employment isoverstated, younger people are more accepting ofrapid employment change than older persons. It is


Irish Ferries

The attempt by Irish Ferries to sack its Irish workers andreplace them with vulnerable, low paid workers from othercounties has been highlighted in the media as a particularlybad case of Offshoring and Outsourcing. Irish Ferries is asubsidiary of Irish Continental Group, a profitable, quotedcompany, originally a state-owned company. While thecompany is under some pressure from low-cost airlines forits passenger traffic, this is no way to respond to marketpressures. The company is profitable, pays it executiveshuge remuneration and car ferries and passenger trafficmakes up just over half its total revenue (but is, as yet,more profitable than freight).

It offered its employees so called ‘voluntary’ redundancy orthe choice of working for less and under worse conditionsthan those built up by the unions over the years. It plannedto hire foreign workers at low wages and poor conditionsand it would circumvent Irish law by flying under flags ofconvenience. The profitable company enjoys low taxesincluding a refund of employers PRSI contributions.

Its employees on the Rosslare route, work at less than halfthe minimum wage in Ireland which is €7.65 This loopholein Irish law was achieved by flying under a flag ofconvenience. On the Rosslare route, a Ms Orge, a Filipinoworker, was paid only €1.08 an hour, by an Irish Ferries’outsourced sub-contractor when the minimum wage was€7. She was working as a beautician on MV Isle ofInishmore She had to work 12 hours a day and only had3 days off a month, where other workers had one week onand one week off. She was recruited from an overseasagency, FCF Sharp Crew management, clearly a sharpoperator. Her plight came to the attention of SIPTU whotook up her case and organised that she was awarded€25,000 by the company in compensation for loss of herjob, which was her preferred option. She returned to thePhilippines where she hoped to set up a beauty salon.Despite being found out, Irish Ferries still decided later tooutsource its own workers on the French route and thenon the Dublin route.

Fortunately, tough negotiations, supported by massivepublic demonstrations in nine centres around Ireland,resulted in a reasonable settlement of the dispute. Theminimum wage is to be paid, unions recognised and theships officers will retain their jobs on prevailing conditionsand pay. This is not the only case of the ‘displacement’ ofIrish workers by lower cost, insecure foreign workers, as it isalso occurring in the building industry, catering and othersectors.

The huge December 9 demonstrations – with up to100,000 marching in Dublin and some 60,000 in othercentres nationwide - demonstrated the widespread andstrong concern on the issue of outsourcing in Ireland.

the older and longer-term employees who are mostadversely impacted by offshoring, as will be seen.

The state is the major purchaser of outsourcedservices. While the Irish public service is the largestemployer in the state (as it is in every country,though in Ireland is it small, being proportionatelythe same size as that of the US), it buys vastamounts of goods and services from the privatesector. Huge areas of the private sector are almostwholly dependent on the public sector for theirrevenue. There is a strong interdependencebetween the two.

The size of public procurement by the state inIreland must not be underestimated. In 2005, thestate spent €42,779 million in total. Much of thiswent on wages and salaries to public servants, butit also bought in vast amounts of services from theprivate sector. The Dept. of Environment and localgovernment spent €1,680 million on day-to-dayspending in 2005 and a high proportion of it wason buying-in services. The Irish state also spent€6,397 million on capital expenditure/investmentthis year - on roads, rail, housing, hospital andschool buildings etc. built by the private sector,including notorious employers like GamaConstruction. The power of the state to set rulesand regulations on how this money is spent it veryconsiderable, within Ireland. This is an area ofsome interest to the trade union movement.Taxes, mainly paid by employees, must be spentcarefully in the best public interest.

It will be seen that in the US, Congress has beenvery concerned with offshoring of US jobs and hassought to impose some limits on it. Yet it is largeUS corporations which are most keen to exploitoutsourcing for their own advantage and haveeven sought to enter the public services area inother countries. Indeed, many of them are alreadyproviding services once provided only by thepublic service in the UK and in other countries.These firms see themselves are majorbeneficiaries of EU’s Service Directive. They are biglobbyists behind the scenes in Brussels and in theEU’s 25 capital cities. The trade union movementis deeply concerned that the EU’s ServicesDirective could exacerbate the shift to offshoring ofsuch jobs. It is hoped that “services of commoninterest,” such as hospitals, infrastructure and mostpublic services, will be exempt from the


12Interview with Commissioner McCreevy, This Week, RTE, 6th November2005. Also comments made by Mr McCreevy in Stockholm, Sweden on5th October on the Vaxholm case. The Swedish Minster for Industry andTrade, Mr Thomas Ostros, wrote a strongly worded letter to Mr McCreevythe following day. He said that Sweden welcomes all companies but “wedemand competition on equal terms.” He said that “I found it remarkablethat you, with such a clear voice, stated that the Commission is going tointervene against Sweden in the ongoing court proceedings concerning aforeign construction company.” He said that preserving the Swedish modelof industrial relations “was a prerequisite when we joined the EU in 1995and where we got assurances that it did not constitute any problem.” MrOstros said that he hoped Mr McCreevy’s views were personal and notthe view of the Commission but that if the Commission stands againstSweden on this issue then it is “truly unacceptable.”

Commission’s move to open up services withinthe Union.

“Onshore offshoring,” where workers from lowcost economies work for far less than theprevailing wage in the host country, must not betolerated. The former Irish Minister for Finance, EUCommissioner Charlie McCreevy, has stronglysupported social partnership and collectiveagreements in Europe, but at the same time, hehas thrown his support behind companies fromlow wage member states which operate in higherwage or higher cost economies but whichcircumvent the wages agreed nationally orsectorally in the higher wage country. If theServices Directive, which he is in charge of, isimplemented in a way which allows companies,established in low wage states, to pay thoseemployees which they employ in a higher wagestate, and not at the same rate as those prevailingin the higher wage economy, then the all workersare at risk. So too are many employers based inthe higher wage economy who will not be able tocompete with those from low wage economies.And so too is the European project, which will beopposed by growing numbers of workers.12

The evolution of the Irish labour market over thepast ten years has been constructed on two pillars,light-touch regulation and minimal enforcementcapacity. An example of the thinking informing thispolicy, which is relevant to the case of Irish Ferries,was the refusal of the Irish government to supportthe draft EU Directive on Seafarers Rights in 1999.Had that Directive been passed, the Irish Ferriescase would not have emerged. Nor was theregulatory regime capable of dealing with theGAMA debacle when it emerged.

When the decision was taken to open our labourmarket to the ten new accession countries of the

EU, Ireland, Sweden and the UK were the onlycountries not to avail of the seven year phasing inperiod for labour mobility. In effect this meant thata labour market of two million people is open toone of potentially two hundred million. Congresswas not consulted about this decision. Thegovernment acted at the behest of business andthe decision was predicated on everyone behavingthemselves. This did not happen. Thus strongerlabour laws are now required and enforcement,such as it exists, must be greatly stepped up.

The European Union should set clear guidelines orrules for any outsourcing of jobs within the Unionafter the Directive is implemented, following itsamendment. Furthermore, the European Unioncould set the rules for European companies toadhere to in their foreign direct investment inChina and other emerging countries, similar to theOECD guidelines for governance for Multinationals.Of course, the US would not set such social rulesunder the present Administration. However, the USmay change in the longer term, under a moreenlightened regime, when international corporategovernance receives the attention it properlydeserves. Of course, international corporategovernance does set new rules and regulations, itcan ensure the playing field is more level and itcan impose the rule of law on those corporationswho prefer to operate without international laws.Markets do not operate well – or at all - withoutthe rule of law. Even the main ideologues of thefar-right, Milton Friedman and ‘philosopher’ FrancisFukyama, the latter who prematurely proposed the‘End of History’ with the triumph of capitalism andthe end of ideology with the collapse of the BerlinWall, have dramatically changed their views. Bothadmitted that the rule of law and the role of thestate are very important and much more than theirconservative ideology was.13

Outsourcing to Ireland

While this paper began by pointing out that Irelandgained many industrial jobs in the 1960s thatwere outsourced from the UK, Europe and the USto our lower cost economy, it is not generallyrealised that outsourcing to Ireland is continuing,while jobs are also being outsourced from here tolower cost countries. Even with the decline ofmanufacturing, new plants are still setting up in

Ireland, even though our labour costs (and verymany other costs too) are now on a par withmany countries in Europe. This is because ouroverall competitiveness is higher, due to higherproductivity, high embedded knowledge and themany other factors which underliecompetitiveness. Further, many jobs are beingoutsourced to Ireland in the higher end servicessector too.

The IDA’s 2004 Annual Report cites the “highlightsof the year included Intel’s announcement of itsnew Fab 24-2 investment, Guidant’s 1,000 personexpansion in Clonmel, breakthrough R&Dinvestments from Bell Labs, IBM and HP,biopharmaceutical investments from Centocor andPfizer, major European business services centresfrom Merrill Lynch, Kelloggs, Business Objects andMcAfee and upgrading and expansion in Dell’sIrish services operations.” Companies like Yahooset up an Irish base to support its products &services across Europe. The facility includes aEuropean data centre, a multilingual web serviceand a call centre.

It is of interest to note that IDA Ireland is reportinga number of new performance indicators ormeasures of success, in addition to those reportedin the past. “These indicators are more qualitativeand less focused on the single dimension of jobnumbers. In our view, they are more attuned tothe nature of an advanced economy.” In the1990s, Ireland’s share of world exports actuallydoubled, which is some achievement, especially asearnings were also rising substantially.14

A number of large financial services companieshave major support operations in Ireland,employing highly skilled persons in managing themore technical aspects of their operations. The


13 Friedman admitted that he was wrong to call for the former Soviet statesto “privatise, privatise, privatise” and that the rule of law was far moreimportant and should have been the priority. ”I was wrong. It turns outthat the rule of laws is probably more basic than privatisation”. Fukyamathe toast of the Right and of Washington reversed his position totally andhas admitted that “the idea of state building, as opposed to limiting orcutting back the state, should be at the top of our agenda”. Both quoted in“The Collapse of Globalism” by John Ralston Saul (2005) Atlantic Books,London. P 251.

14 Cassidy, Mark and Derry O’Brien, 2005, “Export Performance andCompetitiveness of the Irish Economy,” Central Bank of Ireland, Quarterly,No 3. However, most of the growth was from the foreign owned sectorsand it has slowed since 2000. The authors place a remarkable emphasison labour costs as the key to competitiveness, like IBEC.

less technical ones will, in time, be movedoffshore to India and China, but as long as Irelandstays ahead, especially in skills, it should continueto gain such jobs. They can lead to spin-offindigenous services too.

A number of trade unions have had positiveexperience of outsourcing to Ireland though someUS firms oppose their employees joining tradeunions, pleading that their parent company wouldobject if they agreed to union recognition at locallevel. This is not a sustainable position. A numberof companies which argued this initially, haveagreed to union recognition later. If the parentchose Ireland to outsource to, then it must beaware that a contributing factor to the economicsuccess is social partnership, that is, agreementbetween unions, employers and government onstrategic issues and wages. Such progress cannotbe maintained with a weak social partner. The IDAand government agencies, funded by taxpayers’euros, must inform foreign direct investors into toIreland that, if they seek to benefit from oureconomy and our workers, they should play by allour rules and our social and economic mores.

Offshoring - More Jobs gained than lost

“Economic Theory,” says the OECD, (theconservative think-tank with 30 rich countrymembers, including Ireland), demonstrates thattrade liberalisation (of which offshoring is a part)may “reduce the welfare of certain individuals as itimproves productivity and incomes. In particularthe real wages of certain workforce groups mayfall.” It continues, “the winners can afford tocompensate the losers and still enjoy net gains”. Itadmits - surprisingly for a free market think tank,that “in fact, however, a comprehensivecompensation scheme is rarely if everimplemented”. The drive to foster internationalintegration must be expected to generate losers aswell as winners. And even more explicitly for theOECD, it continues - “this raises the possibility thattrade may have distributional effects that violateequity norms or create political opposition to tradeliberalisation, even when it would increaseaggregate income.”15 It does, therefore, appear thatthe OECD may finally be appreciating that thereare distributional effects of free market economicsand that these have to be dealt by policy

interventions in the marketplace by the state. Thisis a step forward.

After an analysis of wage comparisons, the OECDpaper goes on to state that “it may be natural toconclude that workers in high wage countriescannot compete successfully with workers in lowwage countries.” But data shows that employmentin those countries which are most open to tradeor where it has increased most rapidly, did notsuffer and it demonstrates this in a chart that hasIreland topping the long list of countries for FDIrelative to domestic production and it is second inanother chart on trade flows. It is well known thatearnings and wages have risen rapidly in Ireland inthe Celtic Tiger era and this indicates that ouropen economy has not disadvantaged Ireland as awhole. A key issue is that those who are adverselyeffected must be compensated by the winners.This is done in many ways, including redistributionthrough taxation, investment in life-long learning,education etc, as outlined below.

The OECD examines outsourcing specifically andconcludes that in the industries where there is themost offshoring, there are trade surpluses andmore jobs created and it concludes that it leads to“more ‘insourcing’ of service jobs than areoutsourced.” It finds that the limited studiesundertaken so far indicate that the offshoring ofservice jobs is quite modest - so far. Lookingahead to the future, it estimates that “15 to 20percent of total employment in Australia, Canada,EU15 and the US correspond to services activitiesthat potentially could be subject to internationalsourcing.” It quotes an ILO study which used morestringent criteria than the other studies and itfound that between 1 and 5 percent of servicesector jobs were “contestable” by low wagecountries, that is are seriously threatened byoutsourcing. Thus a 3 percent outsourcing ofservice jobs would mean that 38,000 jobs arelikely to be outsourced from here.

While the studies on the impact of offshoring ofservice jobs are in their infancy, there is aconsiderable bed of knowledge on the impact ofoffshoring of manufacturing jobs. It has been seenthat economic theory demonstrates clearly that theeconomy gains from trade specialisation, but its


15 OECD, Employment Outlook, 2005,p 27/8, Paris.

spread is uneven and there are winners andlosers. Some workers’ earnings in manufacturingdo rise as a result of this specialisation relative toothers. One study has shown that skilled workersin the US have seen a 25 percent rise in relativewages compared to low skilled workers in theseindustries (in the US) and another in the UKfound a 12 percent increase in relative earnings.16

This means that it is the low wage or unskilledjobs in tradable areas (i.e. areas which can beoffshored) are most at risk. It has been seen thatwhile the numbers of manual workers in theeconomy has fallen with the shift to services, theabsolute numbers are up by 20 percent in thepast twenty years. Manufacturing employmentwhich peaked in 2001 at just over a quarter of amillion, has declined to 20,00 in early 2005.Internationally, there is a trend decline inmanufacturing numbers, which Ireland has largelybucked in recent years. Upskilling of the workers inthese areas must be therefore a priority.

An Irish Central Bank study (Konings & Murphy,2005) of 1,000 multinationals in the EU andCEEC, found that the threat to jobs from easternEurope was low because the types of firmslocating in Eastern Europe are different than thoseinvesting in Ireland and in the older EU memberstates. They found no evidence for moving jobs tolow wage economies in Eastern Europe. The mainthreat is the familiar one, between Northern EUstates. It is also known that most FDI in EasternEurope is not greenfield operations as in Ireland,but are usually takeovers.

The incidence and cost of jobs displaced

It is extremely difficult to estimate the incidenceand cost of jobs displaced by offshoring. Yet somestudies and the OECD have attempted to do so.We generally do not know if a group of workerslose their jobs because of a) offshoring or b) forsome other reason. On incidence, there are re-allocations of workers within industry all the timeas demand changes and it is impossible to say ifthe job losses are due to jobs being offshored orlost to domestic or other competitors.

Worker turnover rates are even higher than jobturnover rates. Various studies have shown that thegains outweigh the losses. In manufacturing in theUS, a pioneering study17 showed that while the

was a decline of 1.1 percent in employment eachyear during 1973 -1988, there was a gross jobdestruction of over 10 percent, but a gross jobcreation of over 9 percent at the same time, onaverage. Thus the decline in jobs in USmanufacturing was small compared to the churnor turnover in jobs.

On the issue of reduced costs, it is clear that theeconomy gains overall, but it is also accepted bymost economists and policy makers that it is thedisplaced worker who bears the brunt of thechange. They end up having longer periods ofunemployment than average workers and the newjob, if there is one, often pays less. The OECD, in astudy of nine countries,18 found that

a) even a year after the job loss, “substantialfractions of workers remain jobless;”

b) ”wages on the new jobs tend to average a littlebelow prior wages, but,

c) average wage losses rise significantly withtenure on the prior job in most countries” (i.e.the longer the prior job was held, the bigger thedrop in wages in the next job); and, worse,

d) “higher wage losses for older workers appear tobe a universal pattern.”

Further, an important point in designing policyresponses is that the duration of unemploymentand the loss of earnings differ greatly acrossdisplaced workers, even when individualcharacteristics are controlled (e.g. job tenure, age,education), with a significant minority experiencinglong periods of unemployment or a very large lossof earnings “while others appear to fare very well.”

The OECD says that correct estimates of the costof offshoring should not alone include the loss ofearnings borne by displaced workers with periodsof unemployment, but also their lower earnings insubsequent employment, when it occurs, as itdoes, for those who held jobs for a long time, orare older, or are less skilled. This is an importantpoint.


16 Feenstra and Hanson (2003) quoted in OECD Employment Outlook 2005a.17 Davis, S., J Haliwaner and S. Schuh (1996), Job Creation and Destruction,

MIT Press, Cambridge, Mass.18 OECD ibid, page 36/7,based on PJ Kuhn, Losing Work, Moving On, 2002.

US Protectionism Tries to BlockOutsourcing

The US government and the US establishment, itspress corporations and many, though not all, USeconomists, are the main advocates of ‘freemarkets’ worldwide. However, many are, of course,not slow to interfere in ‘free’ markets when it suitsthem. The US has heavy protection of its civilaviation sector, its agriculture and it grants massivesubsidies to private firms through the military-industrial complex. Its Chapter 11 is a form ofmarket intervention (usually used to ‘protect’ firmsfrom legitimate claims by trade union members)for ailing US companies.

Perhaps the biggest subsidy to one firm not toshift jobs from one region to another was amassive $3.2bn paid by the state of Washington toBoeing, not to move production of its 787 aircraftfrom its Seattle base, in recent times. This kind ofstate aid, a clear and blatant subsidy of enormoussize, would be illegal in the European Union. TheBoeing Company, one of the biggest UScorporations, also gets hundreds of millions inother subsidies directly and indirectly from theFederal government, especially in military contracts.Further, as will be seen, it extracts huge subsidiesfrom foreign governments too! Airbus, itsEuropean competitor, also gets state aids, whichare explicitly allowed under specific EU rules.These rules are, albeit, probably more generous forAirbus, which is an European Champion than areallowed under its strict but flexible rules for othercompanies, state owned and private. However,from the perspective of outsourcing, it is estimatedthat Boeing will still source up to half of itscomponents for the 787 aircraft from outside theUS, including 35 percent from three Japanesecontractors. But there is a sting in the tail!

Boeing is getting subsidies from the Japanese forthese outsourced contracts. The state subsidy paidto Boeing by Washington state is dwarfed by the“massive infusion of funds by the Japanesegovernment into Fuji Heavy Industries, MitsubishiHeavy Industries and Kawasaki Heavy Industries, toenable them to meet the price point Boeing setfor the wing assemblies these companies build.”19


19 Financial Times, Barry Lynn, “The trade row over aircraft is missing thepoint”, author of End of the Line: The Rise and Coming Fall of the GlobalCorporation, 13, June 2005.

Work - Changing for the Better

In recent times routine manual jobs have beenincreasingly eliminated. Tedious, repetitive jobs inmining, farming and in many factories have alsobeen replaced by robots/machines. Networkedcomputers are replacing simpler service jobs, butare being replaced by more sophisticated work inteaching, management, engineering, law andmedicine etc. with some of the routine jobs beingoffshored. Some companies give employees morecontrol over their own working environment andmanagement has had to change from “commandand control” to “coordinate and cultivate.”

A 100 years ago 80 percent of the workforce wasinvolved in the production of food. Today just afew percent of the workforce feeds all others. Theproductivity of agriculture has been astoundingand would be even higher, had it not beensubsidised by the rich governments in the EU, USand Japan. A hundred years ago, it took oneAmerican farmer to produce food for 2.5 people,whereas today, because of engineering, plantbreeding and chemicals, one farmer can now feedover 130 people. In 1961, there were 379,000 or36 percent of the workforce in Irish agriculturewhereas only 113,000 or less than 6 per net ofthe workforce, are now in agriculture and theyproduce far more output.

While the numbers of manual workers in theeconomy has grown by 20 percent in the twentyyears to 2002, to a total of 485,000 (skilled andunskilled in all occupations), the proportion ofthese workers in the workforce has fallen. Therehas also been a massive shift from manual workto less onerous work and to clerical andknowledge working. Much manual working is nowautomated and where it continues, it is eased bymachinery. This long time trend has come close toreducing most of the very hard manual work to afraction of what it once was, and while muchtedious work remains, it too is reducing.

Thirty four years ago, in 1971, 39 percent ofpeople at work were in services in Ireland. Todaythe figure is 67 percent, or 1,294,000 andgrowing. There are 537,00 in industry, of which220,000, are in manufacturing.

“Boeing was able to force offshore suppliers andtheir state backers (governments) to cover 45percent of the total development cost of the 787.The take (in subsidies) from domestic sources wasnearly as great.”20 Boeing, once the world’s leadingmanufacturer, transformed itself in the 1990swhen it closed its plants, fired workers, outsourcedand became “a systems integrator.” On the otherside of the Atlantic, Airbus will source up to 45percent of its A380 from US contractors.21

This illustrates the high level of hypocrisyemanating from the Free-Marketeers in the US andto a lesser extent in European capitals on theissues of state aid and of subsidies. It alsoillustrates that governments in the offshoringcountries can, do and will subsidise indigenousfirms in order to get offshored work. Thus therecan be a level of state subsidy from poorercountries to the more developed in order to suckin work. Therefore, there is a proportion of workoffshored which is not driven purely by free-market principles of lower labour costs, but itincludes subsidised labour and other subsidisedcosts. “Boeing has secretly transferred much of therisk of producing commercial airliners to a motleycollection of states.”22 Far from free marketprinciples, just like Walmart and Dell, Boeing andsome other producers which are dominant in theirmarkets, are extracting part of their profits fromtheir suppliers. These sub-supply companies, inturn, wrangle subsidies and aids from theirgovernments, but some go bust because of theabuse of dominance by the big players.Globalisation and outsourcing are driving a newbrutalist form of capitalism, where competition isfar from fair and where sub-suppliers are beingpartly cannibalised by dominant companies.

Free trade is very good for economies, arguesClyde Prestowitz, but he points out that it isseldom free.24 Thus free markets do not operate inthe way in which many economists appear tobelieve. He points out that many countries offercapital grants (Ireland), tax incentives (Ireland) andprovide infrastructure to attract vital plants from“strategic industries” to their countries (Ireland).He points out that governments spend billionspropping up sunset industries, propping up foreignexchange (for example, Japan spent $300 billionto prop up the yen against the dollar in the

previous year). He was criticising George Bush’smain economic advisor, Greg Mankiw, who saidthat outsourcing is good for the US economy(during the election campaign), not for saying thatit was, but because many politicians engage inprotectionism. A strong free-market proponent,Prestowitz is unusual in admitting that mostmarkets are seldom free.

In May 2004, the US Senate approved a bill thatforbids the outsourcing of government contracts.Even Republican politicians of the far right - andthere are many now in the US - baulk at theimmediate impact of outsourcing of jobs from theUS. The rhetoric of ‘free markets’ often shallowand self-seeking in the US, quickly gives way tocrass and old-fashioned Protectionism, when itsuits.

In response to the US Congress, the GovernmentAccountability Office undertook a study under theComptroller General’s authority to help policymakers to better understand offshoring of services.The study found that most economists believedthat offshoring will benefit US living standards inthe long run. Some economists argued that undercertain scenarios – e.g. where offshoring couldundermine technological leadership – offshoringcould harm living standards. It was found thatwhile most economists believed that employmentwill not be very much affected, it was agreed that


“Congress and the American people don’twant any servicemen killed overseas, so itmakes sense that if contractors want to risktheir lives, they get the job.”

- Myles Flechette, former US Ambassador toColumbia.23 The US-led invasion of Iraq hasprovided great opportunities for outsourcingactivities previously undertaken by the USmilitary, for many firms connected to theWhite House.

20 Ibid.21 Ibid.22 Ibid.23 Miami Herald, 22 May 2001.24 Financial Times, 26 April 2004, “Free trade and outsourcing are not the

same”. Presowitz is director of the Economic Strategy Institute(http://www.econstrat.org/index.html) and the author of “Rogue Nations:American Unilateralism and the Failure of Good Intentions”.

some pockets of workers will lose jobs due tooffshoring. Some economists argued that it willlead to increased income inequality in the US.Some others disagreed with this viewpoint. Therewas concern about the impact of services’offshoring on the security of US defence andcritical infrastructure – utilities and communicationsnetworks - and on privacy and security ofconsumers’ financial and medical information .

Another US study of offshoring by George Bush’sformer economic advisor Gregory Mankiw andPhillip L. Swagel and published by the conservativeAmerican Enterprise Institute is, as the authors putit, “a report from inside the eye of a storm”, kickedoff by Mankiw’s remark that outsourcing is goodfor America. Mankiw sticks to his previousassessment. Interestingly, however, he and his co-author admit that Outsourcing will create winnersand losers, and the pain of dislocation will be realfor workers and their families.

The authors also admit that there is a lot we stilldo not know about outsourcing. Nevertheless, theydo suggest the following conclusions:

• So far, the extent of outsourcing to date and inthe foreseeable future is and will be modestrelative to any meaningful labor market indicator.

• As technology develops and global economicintegration deepens, more jobs and people willbe affected by actual or potential offshoreoutsourcing. This could affect employmentrelationships and alter incentives for humancapital accumulation. Further development oftheoretical models will help foster betterunderstanding of the associated welfare impacts.

• Outsourcing appears to be connected toincreased U.S. employment and investmentrather than to overall job loss. Some U.S. jobsare certainly lost to other countries. On thewhole, however, firms involved with offshoreoutsourcing are not shifting net jobs overseasbut instead are creating jobs both in the UnitedStates and in other countries.

Outsourcing will create winners and losers, and thepain of dislocation will be real for workers andtheir families. Taken together, however, theseconclusions suggest that offshore outsourcing islikely to be beneficial for the United States as a

whole. This presents a challenge of how to bestassist people affected by offshore outsourcingwithout retreating from international engagement.

Offshoring is Not always Good Business

Not all offshoring has been good for business.Several firms, (Dell, JP Morgan Chase) havemoved the offshored jobs back to the mainland,for reasons of quality. Nike, which is one of themajor outsourcers, and which manufactures little,was hard hit when many of its contract factorieswere correctly accused of exploiting labour, usingchild labour and harassing women workers. It tookthe company many years to overcome thecharges. It now works with the Fair LaborAssociation to improve working conditions in itscontractors factories and even went so far as topublish the list of all it sub-contractors on itswebsite, with their addresses. It was in effect,calling for exposure and criticism of any abuses. Anumber of case histories show that outsourcing isnot always good for individual businesses,including some big firms, even if the aggregateimpact on a developed country is positive.


Everyone’s a winnerBenefit per $1 of US spending sent offshore, 2002 est

United States

Savings accruing to US investors/customers 0.58

Imports of US goods and services by providers in India 0.05

Transfer of profits by US-based providers in India back to US 0.04

Net direct benefit retained in US 0.67

Value from US labour re-employed 0.45-0.47

Potential net benefit to US 1.12-1.14

India

Labour 0.10

Profits retained in India 0.10

Suppliers 0.09

Central government taxes 0.03

State government taxes 0.01

Net benefit to India 0.33

Source: McKinsey Global Institute

Source: Economist 11 December, 2003.

McKinsey and PWC Surveys

One third of managers in one survey25 saidoutsourcing delivered less than expected or hadbeen a complete failure. “White label funds” -funds managed by one financial firm butdistributed by another under the brand name ofthe other - can first lead to cost reductions, butcan lead to “disaster” in the absence of strongcontrols according to PCW.26 McKinsey, anotherconsultancy, warns senior executives to apply thesame rigorous approach to outsourcing as tomergers and acquisitions and divestitures.27

However, McKinsey did find that for every dollar aUS firm spends on services from India, the USeconomy gains €1.14.

The table on the previous page sets out thepurported gains from offshoring. It is from theEconomist, a staunch advocate of offshoring and afree-marketeer, and it sets out the gains fromoffshoring, as estimated by McKinsey, aconsultancy which works mainly with largecorporations and governments. While the basicpremise is accepted, it is dubious that the actualgains can be quantified to this degree and thetable is clearly reliant on many assumptions.

The Prudential

The Prudential, the UK life company, warnedagainst unfettered outsourcing of assetmanagement to third party providers. It said thatinvestors should focus on asset class selectionrather than manager selection,28 Citibank was hitby a high tech scam at one of its Indian callcentres, where two former employees transferred$426,00 from customers to their own accounts.29

There has been a big reaction against thedepersonalisation of banking, according to MrLascelles of Centre for CSFI (Centre for the Studyof Financial Innovation) a think-tank financed bythe Bank of England and big UK banks.

No-one is Safe

With outsourcing, even the large and secureemployment in utilities like power and waterplants are no longer secure. For example, UnitedUtilities in the UK has two growing subsidiaries,Contract Solutions, which manages utility assets forother owners and Vertex, which outsources

customer services. Contract runs the gasdistribution for National Grid Transco and water forWelsh Water and also for Scottish Water andSouthern Water. Vertex provides outsourcing suchas call centres and HR services for utilities and forlocal authorities.

When the NHS in the UK was ordered tooutsource hospital cleaning to reduce costs, it waslater found that hospitals were dirtier and it did notmatter if the hospital was cleaned by contractorsor in-house. Hospitals were still dirtier because ofthe over-arching need to bid low in order to wincontracts in this labour intensive area (the pay isalso low and low pay is used as a competitive toolby bidding companies) even when the hospitalswere bidding for their own cleaning contracts. Thedrive for competitive tendering had reducedstandards all over. The outsourcing had also greatlyassisted in the spread of the hospital super bug,MRSA. The UK’s National Audit Office said that 9percent of hospital patients picked up an infection(like MRSA) during their stay and many die fromsuch infections.30

Outsourcing champions say that it is important toget the contract right and the rest will follow. Butas the Financial Times argued31 “the problem isthat contracts cannot take account of everyeventuality. They are no replacement for a mangerwho can tell an employee: just do it. Anyone whodoubts this should look at the UK governmentsnew guidance for hospital cleaning contracts,”Skapinker says.

In the past, companies used to like to deal withtheir own customers directly. It was once seen as“core business.” That is no longer the case. Forexample, Capita, the biggest outsourcing companyin the UK, runs many services including tollcollection of London’s congestion charge, Dixon’scomplaints, the BBC’s programme complaints and


25 Gallup/Proudfoot, FT 17th Nov 2004.26 PCW’s Barry Benjamin, FT 15th August 2004.27 McKinsey Consultants, Craig and Wilmott.28 Financial Times, 14 March 2004.29 Business Week, 25 April 2005.30 Financial Times, 26th January, 2005, Michael Skapinker, “Outsourcing the

essential is bad for your health,” which also quoted UK government’s“Revised Guidelines for Contracting for Cleaning.”

31 Financial Times, 26th January, 2005, Michael Skapinker, “Outsourcing theessential is bad for your health”.

even the collection of its licence fees. If suchmajor companies have shifted the care of theirhard-won customers to contract outsourcers, it isclear that they must be happy to lose their owndirect contact with customers. Thus it appears thatno matter how many consumers complain aboutthe frustration and inhumanity of call centres, itmay be the shape of things to come.

HBOS

Yet HBOS, one of the Europe’s biggest banks,strongly holds that as the call centre is the mainlink between the bank and its customers, it isimportant that it works well. It has 6,000 supportstaff in lower cost regions of the UK, including thelargest call centre in Northern Ireland. “The callcentre operator is the voice of the company”HBOS said. Linda Jackson of Penna Meridan, a HRconsultancy, warns companies about weakeningtheir primary means of communicating withcustomers. “Organisations are keen to look at costsbut they need to remember that customers arehard won”. Lehman Bros, the investment bank,shifted some call centres back from Delhi to theUS after customer complaints. In September2005, British Prime Minister, Tony Blair, promisedthat an Indian technology company, HCL, wouldcreate 600 call centre jobs in Northern Ireland.HCL had just bought up another call centre firm inthe North and has a joint venture there with BT,with 1,940 jobs in total, making it one of thelargest private sector employers.

Call Centres

There are 800,000 people working in call centresin the UK, with only 6,000-8,000 in India,according to the UK Call Centre Association.56,000 work in Scottish call centres, or2.3 percent of the workforce. The sector added10,000 new jobs in 2000-2003 and the numberof call centres rose from 220 to 290 in the period,according to a study made in 2003.32 The researchfirm Datamonitor, says that the number of jobs inUS call centres at 2.86 million in 2003 will rise,albeit slowly to 2.94m over five years. They face abigger threat from voice recognition computers(poor consumers!) than off-shoring, Datamonitorestimates. Companies want to hang on tocustomers and attract new ones, it believes and so

quality is important. Clientlogic, a specialistoutsourcing call call-centre firm in the US, expectsto grow as it believes that American call centreworkers have better communications skills withclients/customers than ones which are offshored.

A study by Contactable, a research firm, foundIndian call centres provide inferior servicescompared to those in the UK. While labour costsare one-ninth those of the UK costs, UK staffanswer 25 percent more calls in a hour onaverage and resolve 17 percent of those calls firsttime round. It surveyed 290 UK and 44 contactcentres and generally found UK centres better inmany ways. The study 33 was undertaken for theDepartment of Trade and Industry.

JP Morgan Chase

JP Morgan Chase scrapped its huge $5bninformation technology outsourcing contract withIBM after concluding that the operations would bebetter handled in-house in September 2004. Thebank's decision to reverse the largest ever financialservices outsourcing meant more than 4,000 IBMstaff around the world would be transferred backto the JP Morgan payroll. The company took overBank One and its chief executive, Jamie Dimon,became chief operating officer of the combinedgroup. He and his chief information officer, AustinAdams, have been prominent opponents of thetrend for banks to outsource technology. In 2002,they ended Bank One's large outsourcing contractswith IBM and AT&T, arguing that technology is ofsuch strategic importance for banks that theyshould keep full control, in-house. "We believemanaging our own technology infrastructure isbest for the long-term growth and success of ourcompany as well as our shareholders. Our newcapabilities will give us competitive advantages,accelerate innovation, and enable us to becomemore streamlined and efficient," Mr Adams said.34

The US Senate

The US Senate and Congress passed draftlegislation preventing companies with Federalcontracts from offshoring such work, in 2004. Inthe US, financial firms have felt it wise to warn


32 Financial Times, 3 December. 2003.33 Financial Times, Report deals blow to India call centres, 12 January, 2004.34 Financial Times, 15th Sept. 2004.

investors that they were offshoring and to fileinformation with the regulator, the SEC (e.g. GEwhich insists that a job offshored is not a job lostto the US).

There is some comfort in the knowledge that it isnot easy to offshore jobs and it may not be costeffective for firms to do so. A study by Konings(2003)35 found that while wage rates in EasternEurope are around five times lower than in highwage economies like Belgium (or Ireland), labourproductivity is typically five times lower there,suggesting that there is no labour cost advantageto moving jobs offshore. However, this is in theshort run and over time, unless developed, higher-cost countries continually move up the valuechain, many functions will be offshored.

One of the dangers of outsourcing is that toomany companies begin to do it because everyoneelse appears to be doing it, according to someexperts. It has been seen that there are manydangers in offshoring for business, especiallyfinancial services and banking. Yet with thestandardisation of many functions and theincreased versatility of computer technology, thevast banks of unused broadband around theworld, which is the legacy of the telecoms bubble,it would be unwise to take too much comfort fromthe tales of woe of outsourcing of some firms. It isclear that the lower end functions will continue tobe offshored and that lower end jobs are rising allthe time.

The Rules for Successful Outsourcing

As the representative of many people who losewith outsourcing, it is not the role of the IrishCongress of Trade Unions to outline howcompanies should outsource successfully.However, if union officials understand howoutsourcing works and how it does not work, theycan be better negotiators on behalf of theirmembers and also assist companies in recognisingwhere the ‘panacea’ as some in the mediaperceive outsourcing, may not work.36 A littlecomfort can be taken by trade unionists and thoseworried about outsourcing, in the short run, fromthe examples above. Successful outsourcingrequires the following:

• The Companies which outsource must seek to

gain more than simply cost reduction.

• They should have a service level agreement(SLA) which specifies everything from how longit takes to answer a letter, how many complaintsare dealt with in one hour, etc. to ways tomeasure customer satisfaction with theoutsourced service The SLA is very difficult andnegotiating it is long and difficult. It is theyardstick by which contractors are to be paid. Itcan make dealing with even the toughest unionofficial relatively easy for many companies!

• Companies must manage the outsourced servicewith the provider, and at several levels.

• They must not micro-manage the provider.

• Confidentiality and data protection can be a bigissue in many cases.

• Intellectual Property Rights are also important.Who owns them, especially as the agreement isfurther developed over time, can become apoint of dispute.

• HR issues can loom large, just when the parentthought that by sacking and outsourcing, theyhad made their managers’ lives easy and theSLA may have to cover the qualifications and thetraining of the services providers. It must alsocover background and security checks on keymanagers, especially on countries wherecorruption may be common.

• Companies should be very aware that there maybe a clash of corporate cultures.

• There may be a need to post an individual orteam in the outsourcer’s facility for somemonths initially to ensure delivery of quality andthat the outsourcer’s approach fits in with that ofthe company’s.

• Termination clauses may be very important too!There are often lock-in periods - usually of 2


35 Koniongs, J 2003, Are Wage Cost Differentials Driving Delocalisation?LICOS, University of Leuven, Belgium.

36 For example, Ferghal O Connor in Business and Finance makes thefollowing statement in an article on Aer Lingus (14 July, 2005). “WhenWillie Walsh (the former CEO) lowered the airlines fares, he did that onthe understanding that he would achieve outsourcing in catering,cleaning, baggage handling and cargo. None of that has been achievedand some close to the airline believe that this should have happenedbefore fares were lowered”. While costs may require reduction, O’Connor(and many other commentators) appear to take as a given thatoutsourcing is the only way to achieve such cost reductions.

years. (The school meals contract in the UK isfor 20 years).

A study by Gartner, an IT specialist, found that overhalf of companies re-negotiated the relations withthe outsourcer during the contract.

Outsourcing will Continue

Just like trade, outsourcing is not new and it willcontinue to grow. The outsourcing of white collarjobs to India has suffered a little from a backlashin the UK and US, but it will still continue to growfor three reasons. First, the cost-savings are verylarge and can be translated into lower prices forconsumers. McKinsey estimates that of every $1that is offshored, the company gains 58 cent innet cost reductions. In short, if they are correct,competitor companies will find it hard to competewith such cost savings. There are many graduatesand skilled persons in India who can take up thework, especially in software development,customer support, IT systems integration, etc.Secondly, India is only beginning to be used byoffshoring companies and it has great growthpotential. Many US software companies have notstarted to outsource yet. Forrester found that in2003 as many as 60 percent of Fortune 1,000companies had not yet considered offshoring.37

Thirdly, India’s service sector productivity is rapidlyrising. It is assisted by low wages and the flexibilityof a young and almost non-unionised workforce inIndia where workers have to do what they are toldwithout question. They have to work long, longhours without complaint or be sacked andreplaced. With the dramatic reduction incommunications costs (e.g. the cost of a phonecall from India to the US fell by 80 percentbetween 2001 and 2004), the growth of theinternet, etc. it is increasingly easier and cheaper todo business remotely.

Other studies38 of outsourcing found “theefficiency gains can be enormous” and large USfirms are gaining bigger than expected cost savingsfrom offshoring white collar jobs and they plan tolocate more operations offshore.

Most manufacturing still takes place close to wherethe goods are consumed, and 87 percent offoreign direct investment is made in search oflocal markets. While products and brands are now

global, production has not yet become so.However with the reduction in the cost ofbandwidth, in transport costs, improvement incommunications, the growth of the rule of law inChina and Russia, manufacturing is shifting rapidlyto low cost countries and white collar jobs willfollow. Outsourcing will reduce costs as it hasdone over the years, but it will also create newmarkets in China, India and in countries we havehardly ever heard of, as they get richer, assistedwith new outsourced jobs.

International Governance

There is a clear case for more concerted actionbetween governments and by internationalagencies on the issue of international standards. Aserious problem is that the economists in many ofthe international bodies - the IMF, World Bank andWTO - are strong believers in ‘free markets’. Theyseem to be unaware that they are advocates ofpolicies which benefit the major economic powersespecially where they contravene the so-called‘free markets’.

Thus their world view is clouded in economic neo-liberal orthodoxy. They are not open to alternativeviews and rely on an economic model which iselegant, logical and works well in theory but it isbased on markets working efficiently. The promotionof their theory has not worked well in practice, butthey can easily find good reasons to justify why theywere not implemented properly etc.39 While it is thepoliticians who ultimately decide the policies to beimplemented, they usually follow the advice of theexperts in these bodies.

The trade unions attempt to influence one of theworld economic bodies, the OECD, though anadvisory body, TUAC. In regard to globalisation andstructural adjustment, TUAC had called onMinisters to develop a range of government policyresponses to the employment impact of offshoringby reinforcing core worker rights, strengthening theOECD Guidelines on multinationals, guaranteeingtransparent corporate governance and developingbest practice adjustment assistance. Their


37 Economist, 1 December 2003, Relocating the Back Office.38 EDuke and Conference Board of US, FT 26 Jan 2005.39 See Joe Stiglitz, Nobel Prize winning economist, advisor to President

Clinton, former World Bank Chief Economist on this and especially histrenchant criticism of the IMF in “The Roaring Nineties” Penguin, 2003and in Globalisation and its Discontents” Penguin/ Allen Lane, 2002.

conclusions state “that policies must be put inplace to ensure that it (globalisation) benefits all”and it lists the components of structuraladjustment as covering – a macroeconomicframework, social safety nets, regulation, opentrade and investment, human resourcedevelopment, active labour market policies, lifelonglearning and innovation policies. TUAC focuses onnational reactions to “externally driven”globalisation rather than attempting to shapeglobalisation, including its social dimension,through more international rules.

OECD’s Views on Offshoring

The OECD, the Paris based think-tank of theworld’s richest countries, plays down the numberof potential job losses from offshoring. While itadmits to “significant uncertainty” on informationon the issue it states that “internationaloutsourcing will accelerate in most OECD countriesin coming years.”40 It believes that the number ofjobs lost, “is however likely to be modest”. Itargues that from the limited available information,service offshoring and its employment impacts arelimited. It compares the jobs churn (or turnover) inthe US to the expected number of service jobsoffshored. In the US, 7 million jobs are, in its word,“destroyed,” each quarter of each year (theaverage over the past ten years) in the normalfunctioning of the economy. This compares to aquarterly job loss of only 55,000 expected jobsoffshored, based on what it calls the oft-quotedestimate of 3.3 million white-collar jobs movingoverseas by 2015.

OECD estimates that the UK is moving at thesame pace but France and Germany are movingslower in the number of jobs offshored. Thismeans that Ireland, as one of the world’s mostopen economies, should expect a higher numberof jobs offshored than the relatively closed USeconomy.

In Ireland it is estimated that labour force attritionis around 37,000 jobs a year according to a studyby FAS/ESRI.41 This is where people die, emigrateor leave the labour force. It is not the same as thetermination of jobs, or the jobs destroyed, a figurewhich is not known, but it is the closest figure wehave. Another figure is the numbers who changejobs every year and it is considerably larger. The

FAS/ESRI study was concerned mainly with findingenough people to fill the job vacancies. The grosslabour force inflow between 1997 and 2005 wasestimated to be 621,000 compared to a grossattrition of 293,000 or the average of 37,000 ayear. It is worth noting that the study found thatthe largest inflow of new jobs would be forprofessional workers, followed by clericalpersonnel. The wider professional and assistantprofessionals, together with sales and personalservices workers, made up about half of the621,00 additional workers which were needed inthe period. This is of some comfort for thosehigher skilled workers, but for the vulnerableworkers who are threatened by offshoring, whoare mainly unskilled, it is cold comfort.

OECD holds that while there will be jobs“displaced,” the net impact on jobs and real wages“may even be positive, even in the short run”. Itsays evidence from “large financial firms in the USindicates that a majority of workers affected byinternational sourcing are repositioned within thefirm.” It also asserts that “jobs are moving in bothdirections,” with firms based in developingcountries investing in OECD countries. In spite ofthe growth in offshore services, it says theexposed services sectors have continued to growin employment in most OECD countries. Finally, itargues that there is significant sourcing of serviceswhich takes place within the OECD area and sosome OECD countries see a net inflow of servicejobs.

The incidence of jobs displaced by trade, byoffshoring, cannot be measured with any accuracywith current data and it is difficult to differentiatewhether jobs are lost from natural churn or fromtrade or from offshoring. However, in the US, itcan be concluded that:

a)the jobs losses which can be identified withtrade competition are a small share of the totaljob displacement, according to the OECD;42

b)trade competition could play a significant role ina much higher share of job lay-offs;

c)a large number of workers are displaced every


40 OECD, 2005, Trade and Structural Adjustment. Box 3. Paris.41 Sexton et al, FAS ERSI, 2001 p28.42 OECD, Employment Outlook, 2005, “Trade-Adjustment Costs on OECD

Labour Markets: A Mountain or Molehill? Paris.

year - with 5 percent being a reasonableestimate for the US; where,

d)this represents a little more than one-third oftotal job destruction; suggesting,

f)the high rate of voluntary labour mobility allowsnearly two-thirds of all employment reductionsto be achieved via voluntary attrition.

The OECD admits that “these magnitudes aresubject to considerable uncertainty and differ forother OECD countries”. Its point is that while thereare many jobs lost due to trade and probably tooffshoring, it is not significant in the normal churnof jobs in an economy and many peoplevoluntarily (to varying degrees) change jobsannually. The OECD quotes a study43 of its own of14 European countries, which included Ireland,where the average annual job displacement ratesat 2.8 percent are higher than an estimate for theUS of 2.2 percent (and 2.8 percent would give53,000 jobs ‘displaced’ in Ireland). In conclusion,the OECD’s view of offshoring, on which it hasdone some studies, is that its effect is quite limitedcompared to the normal churn of jobs in theeconomy and even more so compared to thenumbers of persons who change jobs each year inan economy. Its view of outsourcing is positive fordeveloped and for many developing economies. Itdoes, however, also recognise that there arelosers.

The TUAC response to Offshoring

The Trade Union Advisory Committee to the OECD(TUAC), to which Congress is affiliated, argues thatmore effective international rules are needed toshape globalisation and ensure social progress.Governments must guarantee core workers’ rightson a global basis and encourage agreementsbetween trade unions and business. Corporationsbased in G8 countries are the drivers ofglobalisation. A specific focus is needed to stopthe proliferation of labour rights abuses in exportprocessing zones and to address the repression ofworkers’ rights in China, given its role as a magnetfor foreign investment. G8 governments must


Flexicurity

Flexicurity, originating in Holland and developed inDenmark, brings a new balance between flexibilityand job security for workers and for firms. It is analternative to unbridled deregulation of labourmarkets and the dismantling of social securitysystems. With globalisation and greater competitiona rising proportion of workers who are in non-standard employment such as part-time worktemporary work and subcontracting. Flexicurity cancontribute to the growing demand for labourmarkets, employment and work organisation whichare more adaptable and flexible, on the one side,and also on the other, where there is a very strongdemand from employees for security, especially forvulnerable groups of workers and for preserving, oreven enhancing, the social cohesion of oursocieties.

While it is now known that the growth of atypicalwork is greatly exaggerated, with most employeesbeing in permanent if not fully pensionable jobs,workers themselves have new needs andpreferences. Many may prefer flexible jobs whichallow them to adjust working life and working hoursto their lifestyles and to childcare etc. Thus theneeds of firms for more flexible working may beenabled by workers who wish such workstyles.

The flexibility-security nexus, is a major target of theEuropean Employment Strategy, and a challenge tothe European Social Model and the Lisbon agenda.Various models are considered in Demark, Holland,Germany and Belgium, but the institutional andhistoric experiences of each country means thateach has systems of Flexicurity which differ in manyways.

Some studies are pessimistic about the trade offbetween flexibility and security and onecomprehensive study by Ozaki (1999) found “theflexibilisation of the labour market had led to asignificant erosion of workers rights in fundamentallyimportant areas which concern their employmentand income security and the (relative) stability oftheir working and living conditions. Regarding thetrade-offs arising from flexibility bargaining, there hasnot been an attempt to drastically change thepresent paradigms of economic and social policy.”Thus a move towards Flexicurity in Ireland, which isan area which must be seriously explored, wouldhave to comprehensively deal with these issues.44

43 OECD secretariat study, based on data from the European CommunityHousehold Panel (ECHP) for 14 countries.

44 This box has been largely based on a Special Issue of Transfer, the ETUIQuarterly, on Flexicurity: “Flexicurity: Conceptual issues and PoliticalImplementation in Europe”, Summer, 2004.

encourage dialogue and negotiations betweentrade unions and businesses, supported bytargeted regional and industrial policies along withlabour market policies to encourage employmentin those sectors and communities affected bychange.

The OECD Guidelines for Multinational Enterprisesmust be observed as a benchmark for goodpractice in managing change. They are highlightedin the UK Government’s Africa Commissionrecommendations. However, a significantimprovement needs to take place in governmentimplementation of the Guidelines. A system ofpeer-group monitoring of National Contact Pointsresponsible for the Guidelines should beintroduced at the OECD to strengthen theireffectiveness in dealing with cases. Trade unionsand forward-looking employers are also negotiatingthese issues both at the national and internationallevel, leading to the conclusion of globalframework agreements. Appropriate use should bemade of trade safeguards as set out in the WTOAgreement on Safeguards to allow this.

Such a ‘whole of government’ approach to thesocial responsibility of business also applies to thegovernance of corporations and the assurance oftheir integrity. The series of corporate scandals hasnot ended and so far national regulatory responseshave come too little and too late. Corporategovernance is a public good and should remainfirmly in the hands of governments. Self-regulationand ‘comply or explain’ mechanisms are nosubstitutes for real public enforcement systems.

What is to be Done?

Congress recognises that globalisation andoutsourcing have been around for a long time andthat Ireland and Irish workers have benefited fromoffshoring of work in the past and continue to doso. However, the threat by firms to offshore workunless they get harsh changes in work practicesand remuneration is increasing. Firms do offshore,but this should not be a tool used by firms to leadto the downgrading of pay and working conditionsin base countries nor to the systemic exploitationof workers in poorer countries.

The best way to manage the jobs which areoffshored is to ensure that there are alternative

jobs for those who lose out, preferably within thesame employment with re-training provided inadvance of the expected job losses. It is best ifthey are re-trained in advance, when it is clear thatthe jobs/functions are threatened by offshoring.Simultaneously, the government and its agenciesshould be active in ensuring that retraining isprovided for those in jobs which they should alsobe identifying as threatened by offshoring.

Adults should be actively encouraged to take adifferent road, including a complete career changewithout a major loss in income. Career andeducational opportunities should include entry toThird Level, at a high percentage of prior pay.Much more has to be done in this area in bothencouraging universities in taking in more adultsand in devising financial systems which allow thisto occur, both for the colleges and for thedisplaced persons.

At the broader level, much is being done,especially by groups like the Expert Group onFuture Skills Needs which attempts to forecastwhere employment will be in future years and ithas been quite successful in preparing Ireland forsuch change. The current low level ofunemployment is of course a great help, thoughjobs displaced may be in remote regions with fewalternative opportunities. (see Life Long Learning:Everybody Gains Briefing No 6, May 2005).

Flexicurity is “Denmark's magic formula”, asdescribed by the Organisation for Economic Co-operation and Development. It is based on arobust social security system coupled with aflexible labour market (see panel p.19). Thesystem seeks to prevent social unrest and povertyby paying high unemployment benefit. Insuredworkers qualify for benefits as high as 90 percentof their previous income from their first day ofunemployment,” according to the Financial Times.45

Measures to Deal with Offshoring JobLosses

The OECD and most economists recognise thatwhile Offshoring brings gains, they are not evenlydistributed and there are losers. They are too oftensilent on how to help the losers. Unemployment


45 Financial Times, Martin Arnold, Clare MacCarthy and John Thornhill.

benefits are the first bulwark in compensating thelosers from offshoring, when the jobs are lost.Taxation of the winners, the big companies andindividuals who gain, is transferred to thosedisplaced by globalisation. But the tax system isnot very equitable in Ireland (see Congress, Pre-Budget Submissions, 2006, 2005). Irishcompanies pay both low rates of corporation taxand make very low social contributions to society.There are low taxes on capital and there are alsorelatively low taxes on incomes but there are hightaxes on spending, which are regressive. Mosttaxes are paid by ordinary workers on theirincomes and on their spending. On top of that,unemployment benefits are not particularlygenerous, being a hangover from the era of massunemployment. Thus the first bulwark inresponding to the impact of offshoring, thetransfer, is not very effective in Ireland. Tax reform,which is equitable, with a switch from the over-reliance of indirect taxes, can be more effective,enabling higher unemployment benefit, otherpayments and more active labour marketmeasures to be undertaken.

Systems should be in place to keep displacedworkers in touch with the labour market too. The‘activation’ strategies such as job search assistance,counselling, training and other re-employmentservices are important too. The design of labouractivation programmes have to be relevant forworkers as well as firms. With low unemploymentin Ireland and the forecast that it will continue toremain low for some years, this is a good time forpolicymakers to attempt to lift the overall quality ofskills in the economy with a sustained drive intraining, aimed particularly at the less skilled.

The US has had a scheme to assist workersdisplaced by trade for over 40 years, the TradeAdjustment Assistance Programme. It has beensubject to much evaluation, though it has evolvedover time, as it was evaluated. It is very modest inits support. More recent wage insuranceprogrammes have been introduced in France,Germany and another one for older workers in theUS. Since August 2003, older US workers, whohave been certified as being displaced by trade,can received a wage subsidy if they start a newjob within 26 weeks and who are paid wagesbelow those on the previous job. As long as they

do not earn over $50,000 a year, a payment of50 percent of the difference between the newwage and the old is paid, up to a max of $10,000over two years. Similarly in France, from 1999,workers displaced by mass layoffs, who get alower paid job, can get a subsidy of up to 75percent of the difference, with a monthly statecontribution of up to €153. The previousemployer makes a contribution, but if they cannot,the state can raise the contribution to €229 amonth for a maximum of 2 years. In Germany, ajob loser who is over 50 years of age may receiveone of two types of supplements. First is apayment of up to 50 percent of the earnings gapand the second offers pension contributions up to90 percent of the level of those on the prior job.There are no time limits on the German schemes.A similar scheme could be considered for Ireland,perhaps aimed at the over 50s who are, we haveseen, are the worst effected by offshoring and joblosses.

Ireland is close to full employment, yet thegovernment is still offering many generousincentives to foreign companies to locate here,even though it can be argued that we do not needas many of the jobs as in the past. We can chosesome of them, like ones which recognise workers’rights. We are simultaneously having to encourageimmigration to fill many the new jobs. Between1998 and 2006 structural unemploymentcontributed 0.5 percentage points to the growth inIrish output, but it is forecast that this will fall toonly 0.1 per cent between 2007 and 2010 byOECD46 and the contribution of unemploymenthas already fallen to a low rate. It is the taxpayerwho is paying for the incentives to industry, whichmay belong to another day. Why should ordinarytaxpayers pay high taxes on spending and endurepoorer public services in order to encourage firmsinto Ireland, with low taxes and low socialcontributions and generous grants and other stateassistance? The ensuing employment is adding tosoaring house price inflation, massive trafficcongestion, waste crises and potential problems ofadaptation for immigrants around housing,schooling, language, etc..

It is recognised that the near full employment is


46 OECD, 2005, Economic Outlook, T1.7, Paris.

an excellent economic and social situation, but it isclear that some policy instruments must be re-directed in tune with the new realities. While it isimportant that state intervention in attractingforeign direct investment is maintained andbecomes more sophisticated, it may be time totake the foot off, or at least, to ease it from theeconomy’s accelerator. ‘Growth for growths sake’has major social and economic costs. Whileindustrial and services policy has moved to asomewhat more sophisticated approach, this shiftshould have begun a decade ago with a moreradical move, especially on issue of thecontribution the corporate sector to society. Policyhas to have a greater focus more on up-skillingworkers etc. to fit in better with a fulleremployment scenario and to make finer choiceson the industry sectors which would best fit, alongwith a greater focus on improving the productivityof indigenous industry and services. The full list ofCongress’ recommendations to deal with thegrowing implications of outsourcing are givenbelow.

Public Procurement and Outsourcing

The issue of contracting-out services by the stateto the private sector is also a matter forconsideration with the recently published publicprocurement directives. These legal instrumentsprovide that member states may imposeobligations on private sector entities wishing toprovide goods and services to public authorities.The Irish Government can and should ensure thatprivate sector bidders must have regard toconditions of employment established by collectivebargaining and also to recognise unions, whilecarrying out public works.47 This is not attemptingto undermine any benefits of outsourcing of publicprocurement from the private sector, but it sets alevel playing field for all bidders. Bidders mustoperate a modern, stable and adequately paidworkplace with employee rights enforced if theyare to gain contracts paid from taxpayers’ money.This is one aspect of a civilised social economy,especially where social partnership is at the heartof business. There are discussions currentlyunderway between Congress and Governmentconcerning the transposition of these directives.There should be no repeat of the Gamaoperations, where a large Turkish company won a

series of multi-million Euro Irish governmentsponsored contracts, largely though theexploitation of its workforce. It is utterlyunacceptable to virtually all taxpayers that theGovernment or its agencies make contracts withcompanies who deny employees the right toprofessional representation.

Lost Jobs and Lost Taxes

Most European countries prevent financialinstitutions from recovering VAT payments madeon outsourced services. This means that they mayset up their own operations in the offshorecounties. Congress is strongly of the view that thetax code must not be changed to facilitateoffshoring of domestic jobs AND the losses of VATtaxes for Ireland and other European countries.

Conclusion

There will be a more critical public view ofglobalisation and offshoring in the West now thatthe jobs being offshored are not just manual jobsin manufacturing but are also service jobs,affecting the middle classes. Congress recognisesthat outsourcing and offshoring will continue andgrow. We expect that middle class people, many ofwho may have been indifferent to the effects ofglobalisation or probably felt impotent, are nowtaking a greater interest in its effects. This newinterest by the voting classes will impact on theattitudes of politicians. Irish politicians caninfluence the international bodies. Thus, it ishoped that the governance of globalisation, whichis poor if not downright negligent, will improve,assisted by Irish politicians who havedemonstrated that they can punch above theirweight on international fora, the EU, WTO, OECD,IMF and World Bank. There are a good number ofactions which can be taken both at national leveland internationally to improve the lives of thosethreatened by offshoring.

Actions at National Level

Services, which are produced and consumedlocally, account for 70 percent of the moderneconomy and most of these jobs cannot beoffshored. Many jobs in retail, restaurants andcatering cannot be exported. However, the range


47 See section in the Congress Pre-Budget Submission 2006 on this.

of jobs which can be offshored successfully is stillsubstantial and it is widening all the time.

At national level, there are a many initiatives whichthe government, employers and trade unions cando to mitigate the worst effects of offshoring andoutsourcing. They can focus on preventativemeasures to up-skill workers long before the threatof offshoring arrives at the door. Reform of the taxand social welfare system – which has focused onthe requirements of business and competitiveness,must now shift to equity. The two systems mustbe reformed and made serve those who lose fromoffshoring and outsourcing.

Under the aegis of social partnership, a greatermove to ‘flexicurity’ or ‘protected mobility’ whereemployees are less fearful of flexibility if theiremployment is protected from job losses anddowngrading of pay and conditions is one wayforward, combined with greater training especiallyfor the less skilled, preferably on the job and longbefore the offshoring threat materialises. It is clearthat trade related employment losses and theimpact of offshore outsourcing is a major policychallenge. It is not new, but it is accelerating withmore rapid globalisation. Therefore, simultaneouslynational and international policies must beactivated on offshoring.

The ILO estimates between 1 and 5 percent ofservice jobs are contestable by low wageeconomies. Taking 3 percent, this is equivalent to38,000 service jobs. As the jobs churn in Ireland isunknown, but the figure coincides with the annualattrition estimate by FAS/ESRI referred to above, itis probably the closest we can come to estimatingthe numbers of jobs threatened by offshoring.Redundancy figures, which of course, excludemany jobs losses (where service is under twoyears etc) averaged just over 18,000 a year overthe last six years (with the figure at over 27,000in 2003 and 23,000 in 2004) and so the possiblefigure for annual losses due to offshoring is difficultto estimate. It is probably in the range of 10,000to 25,000 jobs a year. The range is large becauseinformation and the data is insufficient. In short,the range is a guestimate.

While it is difficult to estimate the number of jobsthreatened by offshoring, the state, through one ofits agencies, should now attempt to monitor the

detailed reasons for factory closures and for all joblosses in all sectors, including services.

It has been seen that outsourcing is not new.Ireland was a beneficiary of jobs outsourced fromthe US and Europe in the 1960s and 1970sbecause of our much lower wage rates The 1980swere a lean period, with job losses especially inindigenous firms. The 1990s saw the Celtic Tigerera and today Ireland has 60 percent more jobsthan it had for most of the 20th century and livingstandards have improved substantially. Earningsare no longer low, yet we still continue to attractmany jobs created by Foreign Direct Investment inmanufacturing and also in financial services.Simultaneously, Irish firms have expanded abroadand outward foreign investment by them (largelyin developed western countries up until recently)means they are now employing almost as manyas the foreign companies do here.

The great difficulty with outsourcing and offshoringfor trade unionists is that it is real jobs of ourmembers which are being destroyed. The bestway around it is to have firms and policies whichanticipate that in the globalised economy and withhigher wages in Ireland, there must be acontinuous improvement in productivity and in theskills of employees. On the workers’ side, unionofficials and shop stewards have to be moreadaptable and to seek re-training and up-skillingfor members. Simultaneously, we must try topersuade management to invest in the firm andnot to take profit, at the expense of the firm assome do.

In the first decade of the 21st century, a countrylike Ireland, with low unemployment and ashortage of labour and net immigration, offshoringshould not be a problem. It is, however, a seriousproblem for those individuals and groups inexisting jobs which are offshored. It is recognisedthat if unemployment grows, and in time, it isinevitable that it will increase, offshoring andoutsourcing will become a bigger problem. This isa very good time to put policies in place whichdeal with it here in Ireland and internationally.

Congress must persuade policy makers, the stateand its agencies that it must redouble its efforts inthe areas – more attention to lifelong learning (formore detail, see Congress Briefing, Lifelong


Learning: Everybody Wins, 2005), moreinvestment in and by firms in raising productivity,more R&D including the under-valued low techinnovations, (for more detail, see forthcomingCongress Briefing on Productivity), less tax breaksfor property and more directed at productiveinvestment etc.

The over-reliance on state aids for industry, whichare not based on real competitive advantage butare artificial, such as low taxes on profits and onemployers social security, have to be recognisedby serious policy makers. Other economic policieswhich have been driven by ideology must beabandoned sooner. These include the wholesaleprivatisation of Irish telecoms, leading to a massivefall in investment and the consequent loss ofcompetitiveness; the drive for ‘competition’ withartificially high prices in electricity (which has notemerged in the small island economy) (seeCongress submission): the dismantling ofintegrated waste management by the localauthorities in favour of piecemeal solutions whichhas contributed to the waste crisis and high wasteprices etc. .

Ireland must continue the substantial stateintervention in industry and in the services sector,in kick-starting and maintaining growth in financialservices, in tourism, in other areas like agricultureand fisheries etc.. The many state agencies areactive, with their thousands of public sectoremployees, in the successful promotion of theprivate sector in Ireland. Continued success is notassured without continuing strong stateintervention underwritten by the Irish taxpayer andthere should be increasing contributions paid bythe successful beneficiaries. It is feasible toenvisage that eventually there will be greaterprivatisation of the multitude of state aids to theprivate sector, but it will be some time before thatoccurs in Ireland. The state will continue to have arole, not just in policy formulation and direction,but also in direct intervention in assisting privateindustry and private services in Ireland.

Improving International Governance

The free run of free-market ideology which hasshaped the policies of the WTO, World Bank IMFand other international institutions has beenstrongly if ineffectually challenged by the anti-

globalisation movement, which does represent theviews of many people about the way the world isgoverned or rather is not governed. These bodies,which should be the guardians of the publicinterest and not of that of multinationalcorporations, too strongly reflect and impose theideology of the rich and powerful on developingstates. Some, especially IMF, have wrought havocon the countries in which they have intervened.They are driven by a righteous ideology which hasbeen demonstrably inappropriate for many of thecountries affected by these policies. Theirs is notjust Western ideology, but one which reflects theviews of a minority, albeit the powerful one, in theWest.

International governance of ‘free trade’ and ofmultinational companies by the internationalbodies must insist on respect for people’sfundamental rights at work. Core labour standards,also known as fundamental workers’ rights, are theinternationally-recognised fundamental humanrights for all workers, irrespective of countries’ levelof development and negotiated at the ILO. Theycover:• freedom of association and the right to collective

bargaining;

• the elimination of discrimination in respect ofemployment and occupation;

• the elimination of all forms of forced orcompulsory labour;

• and the effective abolition of child labour,including its worst forms.

Working conditions and health and safety issues indeveloping countries must be governed by theinternational institutions, led by the ILO. It is notgood enough that there is some self-governanceby companies like NIKE, who may neglectstandards once public pressure eases off. It isrecognised that the emerging countries willcompete on wages, but the hundreds of years ofbuilding up workers rights in the West must not beundermined by the rapid growth of offshoring andglobalisation. Trade union rights, many of whichare enshrined in the laws of Western democracies,are an integral part of our societies.

It is the clear desire of the people in democraciesthat not alone are union rights not diminished, but


that there is a level of solidarity with the workers indeveloping countries which should be enhanced,and not diminished by the international bodies.Decent wages and working conditions fought forand built-up over centuries by unions in thedemocratic countries for their own people must bepart of the new emerging economies. Internationalsolidarity demands such outcomes. Many of themultinationals which have sought competitiveadvantage through exploitation in the past, havenow come to recognise that it is far bettermarketing if their goods are not tainted byexploited labour. They also recognise that decentwages build consumer markets too. But self-governance is not as strong as the rule of lawwhich levels the playing field for all companies.

More effective international rules and laws areneeded to shape globalisation and to ensure socialprogress, internationally. Governments mustguarantee core workers’ rights on a global basisand encourage agreements between trade unionsand business. Corporations based in G8 countriesare the drivers of globalisation. The increases inlabour rights abuses in emerging countries and therepression of workers’ rights in China must nolonger be ignored by western governments. Theyshould encourage dialogue and negotiationsbetween trade unions and businesses, supportedby targeted regional and industrial policies alongwith labour market policies to encourageemployment in those sectors and communitiesaffected by change.

The OECD Guidelines for Multinational Enterprisesshould be the benchmark for good practice inmanaging change. TUAC, the trade union bodywhich talks to OECD, has recommended that “asystem of peer-group monitoring of NationalContact Points responsible for the Guidelinesshould be introduced at the OECD to strengthentheir effectiveness in dealing with cases”. It saysthat “Trade unions and forward-looking employersare also negotiating these issues both at thenational and international level, leading to theconclusion of global framework agreements.”

Appropriate use should be made of tradesafeguards as set out in the WTO Agreement onSafeguards to allow this. Such a “whole ofgovernment” approach to the social responsibility

of business also applies to the governance ofcorporations and the assurance of their integrity.The series of corporate scandals have not endedand so far national regulatory responses havebeen little and late. Corporate governance is apublic good and should remain firmly in the handsof governments agenda. Self-regulation and‘comply or explain’ mechanisms are no substitutesfor real public enforcement systems.

Congress takes the view that globalisation canmake a significant contribution to development ifthe benefits of globalisation are equitably spread. Itis our view that a menu for a more justglobalisation is contained in the report of theWorld Commission on the Social Dimension ofGlobalisation. The report was produced by aninternational panel of distinguished personalitiesfrom a wide range of backgrounds and points outthat what is required is a better focus on people, astrategy of sustainable development, fair rulesgoverning productive and equitable markets,greater accountability and solidarity, deeperpartnerships and an effective United Nations. Suchan approach was supported by the Taoiseach inhis 2004 speech to the IMI, when he said: “What is required to achieve this potential (ofglobalisation) was set out in the report of theWorld Commission on the Social Dimension ofGlobalisation.”

The Taoiseach went on to say that: “These are allprinciples with which the Irish Government canidentify.” We would argue therefore that the IrishGovernment actively promote therecommendations contained in the document inall of their dealings with multilateral institutions.These include a call for more coherence betweenthe various multilateral institutions in the worldtoday, on the basis of decent work, respect forhuman and workers’ rights and other socialstandards, higher and more equitable growth andan end to poverty.

It is vital that the global governance system, whichgives undue power and importance to the WTO,the World Bank and the International MonetaryFund, be rebalanced so that social andenvironmental issues are given equalconsideration to trade and the economy.


Congress recognises that outsourcing andoffshoring will continue and grow. Therefore weurge that the following steps be taken to mitigatethe impact on those who may lose out:

What can be done at National Level:

1. In the light of the Gama and Irish Ferries cases,it is clear that the open labour market within the25 member states and the model of weaklabour regulation and non-enforcement aremutually exclusive. Irish labour law and itsenforcement must be considerablystrengthened.

2. Congress is strongly of the view that all majorpublic spending (both current and capital andwhether contracted out or not) should requirethat the winning bid must be in full compliancewith good practice in Ireland in areas includinghealth, safety, equality, tax compliance, tradeunion recognition, etc.48

3. Policies must anticipate the areas where thethreat of offshoring is threatening in theglobalised economy.

4. Government, employers and trade unions mustfocus on preventative measures to up-skillworkers long before the threat of offshoringarrives at the door.

5. While unemployment benefits are the firstbulwark in compensating the losers fromoffshoring, when the jobs are lost, the Irish taxsystem is not very equitable in Ireland, manyrich people pay little or no tax and the welfaresystem is a residual from a time of massunemployment. Both systems needed seriousequitable reform.

6. Systems should be in place to keep displacedworker in touch with the labour market. The‘activation’ strategies including job searchassistance, counselling, training and other re-employment services are important.

7. A similar scheme to that in the US which hashad a scheme to assist workers displaced bytrade for over 40 years, or the French orGerman schemes, could be considered forIreland, where, as in Germany, a job loser, whois over 50 years of age, may receive a paymentof up to 50 percent of the earnings gapbetween the new wage and the old, or an offer

of pension contributions up to 90 per net of thelevel of those on the prior job.

8. Under the aegis of social partnership a greatermove to ‘flexicurity’ or

9. ‘protected mobility’ where employees are lessfearful of flexibility.

10.There must be a continuous improvement inproductivity and in the skills of employees. Onthe workers side, union officials and shopstewards have to be more adaptable and to seekre-training and up-skilling from members.Simultaneously, we must try to persuademanagement to invest in the firm and not to takeprofit, at the expense of the firm as some do.

11.Policy makers, the state and its agencies mustredouble its efforts in the areas of education, inlife long learning (for more detail, see CongressBriefing No 5, Life Long Learning: EverybodyWins, 2005), and there must be moreinvestment in and by firms in raisingproductivity, more R&D, including the under-valued low tech innovations, (for more detail,see forthcoming Congress Briefing onProductivity), less tax breaks for property andmore directed at productive investment etc.and more investment in infrastructure,especially public transport.

12.Ireland must continue the substantial stateintervention in industry and in the servicessector, in kick-starting and maintaining growthin financial services, in tourism, in other areaslike agriculture and fisheries etc. with thereincreasing contributions paid by the successfulbeneficiaries.

13.The state, through one of its agencies, shouldnow attempt to monitor the detailed reasonsfor factory closures and for all job losses in allsectors, including services.

14.The Department of Enterprise Trade andEmployment should actively promote theOECD guidelines for multinationals among Irishbusinesses.

What can be done Internationally:

15. A global response with real movement ongovernance by the international agencies on


48 Pre-Budget Submission, 2006.

labour standards is urgently required. Morecoherence is needed between the variousmultilateral institutions in the world today, onthe basis of decent work, respect for humanand workers’ rights and other social standards,higher and more equitable growth and an endto poverty.

16. The governance of globalisation is poor andmust be greatly improved, assisted by Irishpoliticians who can punch above their weighton international fora, the EU, WTO, OECD, IMFand World Bank. The Irish Government shouldnow actively promote the recommendationscontained in the World Commission on theSocial Dimension of Globalisation in all of theirdealings with multilateral institutions.

17.WTO, World Bank, IMF and other internationalinstitutions should represent the views of theworld’s citizens about the way the world isgoverned or not governed. These bodies mustbecome the guardians of the public interestand no longer so strongly reflect the views ofmultinational corporations.

18.The level of solidarity with the workers indeveloping countries should be enhanced - notdiminished by the international bodies. Decentwages and working conditions fought for andbuilt-up over centuries by unions in thedemocratic countries for their own people mustbe part of the new emerging economies.

19.International governance of ‘free trade’ and ofmultinational companies by the internationalbodies must insist on a reasonable level offreedom for the peoples of the emergingeconomies, - • freedom of association and the right to

collective bargaining; • the elimination of discrimination in respect of

employment and occupation; • the elimination of all forms of forced or

compulsory labour; • and the effective abolition of child labour,

especially in its worst forms.

20. The increases in labour rights abuses inemerging countries and the repression ofworkers’ rights in China must be addressedimmediately by western governments and bymultinational corporations. The EU should

promote the European social model (asopposed to the American business model) asthe way in which China will be able to matcheconomic development with social justice. Inparticular, the European social model offers theChinese elite the opportunity of managingchange without major social dislocation orupheaval (trends they are genuinely andsometimes openly concerned about). TheEuropean Union might provide resources forspreading awareness in China about theEuropean social model

21. The OECD Guidelines for MultinationalEnterprises should be the benchmark for goodpractice in managing change.

22.Corporate governance is a public good andshould remain firmly in the hands ofgovernments’ agenda. Self-regulation and‘comply or explain’ mechanisms are nosubstitutes for real public enforcementsystems”.

23.More information on offshoring and corporaterestructuring is needed to inform policy.49


49 The Foundation for the Improvement of Living and Working Conditionspublishes the European Restructuring Monitor quarterly (ERM quarterly)which offers an overview of the main findings and an interpretation of thedata collected quarterly. It provides statistics comparing restructuringactivities across the 25 EU Member States and two of the candidatecountries, Bulgaria and Romania, identifying the countries and sectorsmost affected. Each issue of the ERM quarterly highlights developmentsin a specific country or sector, pointing to key facts behind the statisticaldata. In addition, background information on two major, recentrestructuring cases will be presented. This is one useful document but itis based on media reports.

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