An American Tragedy: Hanging Up on Workers

By Gus Tyler

Published March 19, 2004, issue of March 19, 2004.
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There is a town in Kentucky named Hazard. By some turn and twist of fate, the name was tragically prophetic. What not too many years ago was hailed as a great good fortune has turned out to be a miserable misfortune.

The national spotlight first fell on Hazard in 1999, when Bill Clinton came in person as president of the United States of America to bring good news to this desolate piece of eastern Kentucky’s Appalachia. He introduced John Sykes, a high-flying entrepreneur who was ready to create call centers to help folks fumbling with their idiosyncratic computers. In short order, Sykes Enterprises set up centers employing some 3,000 people.

To do their job, those hired had to be well-educated in the ins and outs of the complicated computer world. They had to be able to communicate their instructions. They became a sort of middle-class elite in the land of Li’l Abner and Daisy Mae.

Sykes’s business boomed. He set up 19 facilities, including two in Eastern Kentucky. But he did have competitors who located their centers in Third World countries where wages were a mere fraction of what they were in the United States. So Sykes followed suit, and so far has announced the closing of 19 centers in the U.S., including the operations in Hazard.

In reporting this tragic tale, The Wall Street Journal comments, “As Hazard and other small U.S. towns have learned, the phone links on which they had banked their hopes have quickly zipped to even more remote places such as India, China and Central America. The same technology that brought jobs to towns such as Hazard can, in a flash, whisk them away to Bangalore.”

By an astonishing coincidence, Bangalore, India, made the news in an op-ed piece in The New York Times, written by Jagdish Bhagwati with the headline, “Why Your Job Isn’t Moving to Bangalore.” The author of the piece probably did not write the headline, but he might as well have done so. His central point is that job loss in America is not due to “outsourcing” but to automation. Machines of high technologic quality enable one worker to do the work formerly done by two or three — or more.

As this Columbia University professor puts it: “The overwhelming cause of wage stagnation in manufacturing has been automation within America. The same dynamic applies today.” This is an antiquated explanation for recurrent depressions in our free-enterprise economy. When the Great Depression hit America in 1929, some economists hastened to explain that the tragedy was the work of the “technocrats” whose machines displaced workers.

So how did we handle that problem? Very simply. People were working 50 and 60 and more hours a week. The New Deal enacted a Fair Labor Standards Act reducing the normal workweek to 40 hours and, to maintain buying power, simultaneously establishing a minimum wage of 25 cents an hour when, in many occupations, the going wage was 5 or 6 cents an hour. The increased demand and the shorter hours made for a more effective distribution of the work and simultaneously expanded demand for products.

We could do that again by reducing the legal workweek and raising the minimum wage. So, where does Bhagwati get the idea that outsourcing is not the reason? He explains that he has taught students from India in his class, and they just don’t have the needed intellectual stuff. Meanwhile IBM just fired some 6,000 highly qualified and highly paid computer programmers in the United States and transferred their work to — where else? — India.

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