The Ethics of Software Outsourcing

The Ethics of Software Outsourcing

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Analyze whether the United States should outsource software development from several ethical viewpoints.

Introduction

Always act in your own self interest -- ex-boss

Many Santa Clara computer engineering professors ask their students where they are working. I am always surprised at the great number of students who are not. If these students are representative of the Silicon Valley job market, then its outlook is bleak. Many of these students' ex-jobs have been outsourced to lower cost countries such as India and now the Philippines. Software outsourcing has been a boon for such countries, creating many well paying jobs and stimulating their economies. Software outsourcing may also be a net benefit to the United States economy while hurting these students greatly.

Many people in other professions fear that the outsourcing wave will spread to their jobs. This fear has focused renewed attention on this previously software and manufacturing jobs issue. Many of today's arguments for and against outsourcing are based on ethical viewpoints. Many Americans argue that American companies should be supporting Americans or that the playing field is not level. In contrast, American companies almost invariably argue that it is their ethical obligation to maximize shareholder value. Many Indians and Indian companies argue that outsourcing has been a net benefit to America and that this trade promotes a common good. Some Americans take the opposite view, seeing outsourcing as a detriment to common good.

Utility Viewpoint

Outsourcing makes businesses more competitive, increasing their exports and their profits and placing more investment surpluses in their hands which can be deployed to make more jobs -- Indian Prime Minister Atal Bihari Vajpayee (1)

The utilitarian viewpoint states that an ethical question should be decided on the basis of the greatest good. Opponents measure utility for American workers and by implication the American economy. They argue that the loss of jobs will lead to the gutting of the middle class and the ruination of an economy based it. They point to the first net loss of American jobs in a Presidential term since Herbert Hoover as evidence. American programmers, in particular, are facing the highest unemployment rates ever measured for the group (2) despite an improving economy. American corporations in favor of outsourcing measure utility for the overall U.S. economy. They argue that outsourcing allows resources to be freed for greater innovation and that outsourcing promotes trade. These, they argue will ultimately create jobs. Opponents counter that what jobs are being created tend to be lower paying service jobs.

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Indian companies and government officials measure utility both for American corporations and for the Indian economy and as a secondary effect for the entire world. The Indian economy grew at 4.3% in 2002-2003 with business process outsourcing leading the way (3). In stark contrast to America's situation, outsourcing has led to the growth of Indian middle class with programmers there making many times the average salary of an Indian worker. Indian government officials feel improving economic conditions promote political stability, a benefit for the whole world. Economists generally favor outsourcing, feeling that trade based on comparative advantage ultimately generates more wealth than protectionist policies while opponents argue that America is losing control over a strategic industry upon which many other industries depend.

I find arguments on both sides valid yet narrow because they do not take all stakeholders into account. Opponents limit utility to America, ignoring the better quality of life afforded to some people in India. Opponents also ignore the real economic benefits that American corporations cite and the increased potential for innovations that economists tout. Many supporters choose to measure utility based on GNP instead of other metrics such as the unemployment rate. American companies choose to ignore potential long-term effects including the hollowing out of America's technical expertise and thus its capacity to innovate. Indian companies downplay the plight of American workers and play up the advantages to American corporations. Some economists choose to portray outsourcing as inevitable rather than as a process that can be controlled.

Even after we take all stakeholders into account, I still find the utilitarian approach problematic. I believe that outsourcing will ultimately affect a great number of Americans adversely. An equal or greater number of Indians and other outsourcees should be affected positively. I find it difficult to weigh large adverse effects. A person who loses his job in the United States is in a very precarious position but so is that of a person living in India. The utility approach demands that we weigh the very economic survival of one person against another. This approach also asks a person to act completely without self interest if the scale happens to not balance in his favor. Furthermore, it asks a person to shoulder the burden of the missteps and problems of other people if the utilitarian argument happens to disfavor him.

Rights Viewpoint

There is no job that is America's God-given right anymore -- Carly Fiorina, Hewlett Packard CEO (4)

As CEO of Intel, my allegiance is to the shareholders of Intel and to the success of the company. We go after the most cost-effective resources around the world, no matter where they are. However, as an American citizen, I would have to be worried about whether jobs that are created are created outside the U.S. . . . As a citizen, I see all these resources and I think this puts my country in danger. -- Craig Barrett, Intel CEO (5)

The rights viewpoint allows us to deal with situations such as the above where the utilitarian approach breaks down. It states that people have rights that should not be violated irrespective of whether the group as a whole benefits. Opponents argue that outsourcing attacks the right to a living wage and decent working conditions. American corporations cite the right to existence, that if they don't outsource then their competitors will and they will be driven out of business. American companies also cite the right to property i.e. the right and duty of a company to maximize shareholder value. Indian corporations and government officials cite the right to compete for work in a global marketplace.

The right to a living wage is the right of a person to earn enough to support a decent roof over his/her head, to eat properly, and possibly support children. Opponents feel that competition from the massive labor pool in China and India will drive wages to a subsistence level. I personally believe in a right to living wage and but I think it presents a conundrum because for the principle to be ethical, it must be applied to the entire world. Yet I do not think that the world can currently produce enough to provide everyone with a living wage. The world had a GDP of 32 trillion in 2002 (6) but with a population of over 6 billion, this translates into $6,000 per person. I doubt that that amount would support what Americans consider decent living conditions.

Opponents also cite the right to decent working conditions. In an argument we will touch upon again in a discussion of common good, opponents feel that the poor working conditions in China and the severe pricing competition it contributes to will lead to poorer working conditions here. I believe that you already see those effects in the recent attack on worker's compensation in California and in the Safeway lockout where the rising cost of health care was cited as the chief reason for the lockout. As with the right to a living wage, a genuinely ethical opponent of outsourcing should also be concerned with improving the working conditions of people in other countries, not just citing them as reasons our working conditions are degrading.

I find American corporations' arguments disingenuous. Their elevation of the right of a virtual entity to survive over the rights of people is actually just an elevation of the right to property over all other rights. American corporations state that if they do not outsource then they will be at a competitive disadvantage. I find this justification weak. If outsourcing is unethical, then unethical behavior on the part of your competitors does not justify unethical behavior on your part.

I find the Indian outsourcing corporations' and government's assertion of the right to compete disingenuous. On the one hand, India asserts it right to compete fairly in the global marketplace. On the other hand, India imposes trade tariffs of between 20-30% on industrial goods compared to the maximum of 3% by the U.S.(7)

The next step in the rights viewpoint is to weigh these rights irrespective of whether the parties are behaving disingenuously. However, I find it hard to apply the rights argument to unethical parties. An unethical party should not expect a right to property when it chooses to raise that right above all other rights. An unethical party cannot demand the right to a living wage when it denies directly or indirectly those rights to others. I believe that a rights argument must be based on other ethical viewpoints rather than on the arbitrary imposition of rights.

Justice Viewpoint

If countries around the world that are emerging economic powers want to get the benefits of the system they are going to have to contribute to the system. -- Robert Zoellick, U.S. Trade Representative (8)

If the US feels that we must understand their political compulsions, why should not American politicians or trade negotiators understand our political difficulties? -- Arun Shourie, India IT Minister (9)

The justice approach decides an ethical problem by determining what is fair or just irrespective of the intentions of the parties. Both sides of the outsourcing argument appeal to fairness. Opponents complain that it is unfair for American workers to compete with workers when those workers can live comfortably on a wage that would not even put a roof over someone's head in the Bay Area. Supporters appeal to a sense of fairness of opportunity. A person in India or China should have an equal opportunity to work, compete, and enjoy economic fruits as someone in the United States. Opponents also appeal to justice. They feel that it is unjust for white-collar Americans to suffer from outsourcing after supporting the American economy for so many years. More specifically, American software programmers may feel it unjust that the very tools that they helped create are used to eliminate their jobs while creating jobs for others.

I find the principle of fairness persuasive. I believe that ethical principles of conduct are well understood and have been for thousands of years yet people still behave unethically. The fairness principle allows us to deal with imperfect people and a divergent set of values. However, I find the opponents' fairness argument misapplied because it only holds to foreigners. Americans complain far less if it is other Americans taking there jobs because their wage scales are lower. It would be more fair for Americans to apply the principle to all involved. Likewise, I see the Indian government acting unfairly and disingenuously. The Indian government imposes tariffs of between 20-30% on both industrial and agricultural products yet see no 'quid pro quo' when Secretary of State tied continued outsourcing to the opening of India's markets. The principle of fairness of opportunity requires that India open its markets if it expects to compete for outsourcing work.

I find the principle of justice problematic. I believe that justice requires a common set of values. I do not believe that the entire world shares a common set of values despite pretensions to the contrary.

Compassion Viewpoint

The compassion approach appeals to your sense of empathy irrespective of the fairness of a situation or the ethics of the other person. Opponents appeal to compassion for out of work tech workers while supporters appeal to compassion for the welfare of workers in developing countries. I find both arguments persuasive yet misleading. American workers are suffering great economic hardship yet this hardship is miniscule compared to the hardship suffered in Third World countries. The supporters' arguments are also misleading Although India's economy is benefiting as a whole, only a small percentage are benefiting greatly. I seriously doubt that Indian outsourcing companies have any compassion for the poor of India. The compassion approach tells us that we should act compassionately but that the focus must be appropriately placed.

Common Good Viewpoint

The very process of liberalization, on which we have been lectured for so many years, has created competitive skills which are available for utilization by business everywhere," Vajpayee said. "Outsourcing is a natural consequence of this process -- Indian Prime Minister Atal Bihari Vajpayee, March 13, 2004 (10)

Both outsourcing opponents and supporters appeal to common good. Common good is an appeal to the creation of conduct and institutions that support an eventual greater good. Opponents see outsourcing destroying common goods of living wages and decent working conditions. Supporters claim that outsourcing is a form of trade and that trade binds groups together so that they are less willing to fight.

I find that both arguments have merit. I believe that outsourcing is being used as a cover by businesses in California to eliminate or curtail workers compensation. Outsourcing allows many Silicon Valley companies to force their workers to work overtime without extra pay. However, opponents often also believe that foreign workers are working under unfair labor conditions. This may be the case in manufacturing but hasn't proven to be the case in software development.

Supporters are right in claiming that this form of trade pushes countries towards conflict resolution instead of fighting. Many people believe that the more amicable relations between Pakistan and India are because both countries would lose outsourcing business if tainted with a hint of political instability. In the long term, I find the supporter's argument unappealing because it treats out-of-work American workers as a necessary by-product e.g. a means to an end. This provides precedence for future ends justifying the means arguments and that is not for the common good.

A particular common goods argument applies to software outsourcing. Software development in America had been seen partly as an art and some practitioners practiced it for the love of it as much as for an income. Software outsourcing may have a chilling effect on the practice of programming as art, forcing practitioners to focus their efforts solely on economic survival. I believe that this argument is valid if we focus solely on software development in America. However, if you expand your viewpoint to China, you find an emerging software industry behaving much like Silicon Valley of old. The Chinese government is intent on developing a strategically important software industry while foreign companies such as Microsoft are intent on gaining a foothold on the fastest growing computer market in the world. Software startups are being created in droves and a few even plan on going public, an almost forgotten practice in Silicon Valley.

Virtue Viewpoint

The virtue approach uses role models are guides for ethical behavior. Let us take the central figures in Christianity and Hinduism as role models. My understanding of Jesus' message is that you must have compassion for your fellow man and that you do unto others as you would have them do unto you. The compassionate part of the message makes sense. If you neighbor is in trouble, you help her. The do unto others as you would have them do unto you message breaks down when you deal with economic survival. Is Jesus' message that if my neighbor loses her job then I should offer her my job instead? Not even the minister who lives across the street from me does that. Furthermore, passages in the Bible have been used to justify slavery. Now lets take the Bhagavad Gita. In the Bhagavad Gita (11), the god Krishna urges Prince Arujna to do the right thing. That seems like an uplifting message until you find that part of the text is used as justification for India's caste system. I find the virtue viewpoint enlightening but vulnerable to unethical interpretation.

Conclusions

Outsourcing threatens the economic life of many Americans while promising a better life for many people in India, China, and other outsourcee countries. The utility, rights, common good, and virtue viewpoints do no help us decide, either because they are inapplicable or because they provide equally valid arguments both for and against. The justice and compassion viewpoints do give us guidance. Compassion helps us decide whether and how to limit outsourcing to minimize or remedy its adverse effects. Compassion also helps us direct outsourcing so that it truly benefits those we should have the most compassion for. The compassion viewpoint sets a floor of living and working conditions that all countries should adhere to and that wealthier countries should contribute to. The fairness in opportunities approach ties outsourcing to the creation of truly fair marketplaces irrespective of the ethics and values of the people involved.

Citations

"Outsourcing makes businesses more competitive...", Misra, Neelesh "India's Prime Minister Defends Outsourcing", InformationWeek, March 12, 2004
http://www.informationweek.com/story/showArticle.jhtml?articleID=18312118

"Highest unemployment rate for American programmers...", IEEE USA
"A Pre-Hearing Statement on The Impact of L-1 Visas on America's Interests in the 21st Century Global Economy", IEEE USA, July 29, 2003
http://www.ieeeusa.org/forum/POLICY/2003/072903.html

"Growth of Indian economy..." IndiaBizNews "Profile of Indian Economy", India BizNews, December, 2003
http://www.indiabiznews.com/biznews/categoryNews.jsp?cat=7

"No God-given American right..." NewsMax.com Wires "U.S. Companies Defend Export of White-Collar Jobs: 'No God-Given Right'", NewsMax.com, January 7, 2004
http://www.newsmax.com/archives/articles/2004/1/7/144142.shtml

"Allegiance to Intel..." Heim, Kristi "U.S. tech giants invest in future competitor", SiliconValley.com, March 14, 2004
http://www.siliconvalley.com/mld/siliconvalley/8192104.htm

"World GDP..." World Bank "Total GDP 2002"
http://www.worldbank.org/data/databytopic/GDP.pdf

"Indian import tariffs" Reddy, Rammanohar "Tariff challenge at the WTO", The Hindu, June 22, 2002
http://www.hinduonnet.com/2002/06/22/stories/2002062200721000.htm

"Quid pro quo on outsourcing" Agencies "India has no right to flay anti-BPO move: Zoellick", rediff.com, March 10, 2004
http://inhome.rediff.com/money/2004/mar/10bpo3.htm

"Call for opening markets politically based..." Agencies "Bush may use BPO backlash to pressure India", rediff.com, March 8, 2004
http://www.rediff.com/money/2004/mar/08bpo2.htm

"Outsourcing is a natural consequence..." Misra, Neelesh "India's Prime Minister Defends Outsourcing", InformationWeek, March 12, 2004
http://www.informationweek.com/story/showArticle.jhtml?articleID=18312118

"Bhagavad Gita, doing the right thing, caste system..." Prasad, Ramanand "The Bhavagad Gita translated by Ramanand Prasad"
http://eawc.evansville.edu/anthology/gita.htm
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