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Thursday, 11 March 2004
Page: 21450


Senator GREIG (6:22 PM) —I rise this evening to speak on an issue which is occurring steadily within the business community around us, yet we here in parliament have been largely silent on it when it is really something we need to talk about—that is, the business practice of offshore outsourcing, which has already whittled down and reshaped American manufacturing and is now spreading to high-tech and service IT jobs. It is spreading to Australia also. Computer programming, back-office functions like billing and claims processing, and customer services like call centres are increasingly being handled by educated English speakers in India, China and the Philippines.

Futurist William Dunk, of Global Province, says that America is not only exporting manufacturing jobs to China but sending knowledge-worker jobs all over the globe. He says that America, complacently, may have thought it was only sending blue-collar work out of the States, but in fact it is outsourcing a huge volume of white-collar work out to the world which, in turn, has retarded the US economic recovery. This year an increasing number of medical jobs in the US are also being sent offshore. For example, the doctor required to analyse an X-ray is cheaper in India than in the US, and he or she is probably trained just as well and may even be from the same training environment. Those same overseas students helping out today's economy with tuition fees may be helping themselves to the US economy when they return to their own countries. In many instances they have been trained not only in their subject area but also in the language and customs of the country to which they will ultimately contract their services. While there is no evidence that this is yet happening in Australia, what is often true for the US is true for Australia also.

As these first moves are bedded down, entire industries will be shifted offshore. The Australian Computer Society says that the trend towards offshore outsourcing of IT services could cost the country 40,000 computer jobs and billions of dollars in lost economic benefits by the year 2015. Recent press reports show that the number of jobless in the IT industry is 77 per cent higher than the national jobless figure. More than 160 Qantas IT workers are currently considering whether to sign up with IBM rather than face redundancy in another Qantas cost-cutting initiative. This followed media speculation that the jobs were to be contracted to workers in India. The speed at which Australian IT jobs are disappearing will increase as more and more international firms seek to rationalise their investments by moving the individual sectors of their businesses to the most cost-effective locations. In practice, this means India at present. However, India too may soon be threatened by China as a destination for Australian jobs.

The argument in support of outsourcing runs something like this: the availability of low-cost labour in developing countries encourages companies to shift labour-intensive, and therefore expensive, jobs offshore. The money saved can then be diverted into product development, thereby keeping the golden goose here, even if the eggs seem to be laid overseas. So the theory goes that the high-end, high-profit jobs stay here and the jobs that nobody wants to do in this country are shifted off to those who have little choice but to do menial tasks. There is some truth in this, up to a point. In reality, the jobs being shifted are no longer just low-level jobs but, rather, much more highly skilled IT jobs—and a surplus of optic fibre cable will ensure that that trend continues.

That said, such a scenario depends on many variables, none more vital than the ratio of savings to investment and a government which strongly supports research and development. Unlike George Moore, cofounder and President of Intel and the originator of the famous Moore's law, and his company Intel which spends more money on research each year than does the whole of Australia, it would seem that the savings being made by outsourcing from Australia are more likely to be used to prop up share prices, with little thought for the effect it will have on the country or even on the long-term future of the company itself.

Unfortunately for Australia, the opposition appears little better than the current coalition when it comes to limiting outsourcing. Labor policy, for example, as announced at its 2004 national conference, is to hinder Telstra's efforts to compete, whilst doing nothing to prevent the outsourcing situation worsening in the medium to long term. Sadly, Labor's policy is a `nobble Telstra' policy, not a real solution to a real problem. And the current government's record on this issue is pitiful. In the field of IT, it has yet to realise that the supply of future well-paid jobs depends on the development of IT. With universities being deprived of funds and priority being given to places for wealthier overseas students, our best and brightest young students simply cannot compete successfully for university places against full fee paying international students.

Labor's approach has been the populist cry to ban outsourcing. Labor knows that it cannot and that, even if it could, it really would not work. The answer is not an easy cut and paste job. It requires thought and it requires the intelligent direction of resources. This support will need to be in the form of government investment in education, training and resources, and in private sector research. This could take the form of tax incentives for investment in research and development. The government could also provide assistance through its own research arms, such as the CSIRO. We Democrats believe that the longer we take to act, the harder it will be. We believe Australians are mature enough to make the hard decisions if given the chance, and we call on both major parties to join with us in making those decisions.

When Gregory Mankiw, Chairman of the White House Council of Economic Advisors, praised outsourcing as a new way to do international trade, the Speaker of the House, J. Dennis Hastert, issued a statement disagreeing with him. Hastert said that he `understood that Mr. Mankiw was a brilliant economic theorist, but his theory failed a basic test of real economics'. According to Hastert, an economy suffers when jobs disappear, and outsourcing can be a problem for American workers and for the American economy. He believed it impossible to have a healthy economy unless there were more jobs in America. I conclude by saying again that what is so often true for the US will prove to be the case here in Australia also.