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Highlights—November 6 , 2004
- From Janet Krueger.
Full excerpt: I just talked to a national magazine reporter who is looking at doing
a story on the disappointments of retirement. She would specifically like to talk to someone who
retired, and then
ended up going back to work, either full or part time, because they
found they needed extra money to cover their basic expenses, such as
the health care bills. It would be ideal if that person has adult children who have started
thinking about their prospects for being able to retire someday, as
she would like to do a cross-generational story about retirement
challenges. You do NOT need an accounting background for this story, nor do you
need to understand the progressive cuts IBM has implemented in their
pension plan. If you would be willing to share your story with a reporter, or if
you know someone else who might be willing, please send me a note at
email@example.com... or give me a call at 507 289 9030.
- MSN/Money: Welcome to the risk economy.
The current economy has shifted risk to the individual. We shoulder more burden for our retirements,
our paychecks and our insurance than previous generations. No wonder we’re anxious. Excerpt:
Will I be better off than my parents? Will my children be better off than me? Those are extraordinary
questions for those of us living in the United States to ask. At least since the Great Depression,
and even further back if your family immigrated to this country in the last half of the 19th century,
each generation has done better economically than the previous one. Economic progress from one generation
to the next has been the foundation of our society. We’re asking those questions now because
we’re all part of a big economic change that
I call the “risk economy." That the questions are even being raised indicates just how
anxious many of us feel about the future. Most efforts to analyze this anxiety have focused on
the numbers -- specifically, will we be better off, on average, than the preceding generation?
That misses the point, and can be too easily influenced by the researcher’s bias. Instead
of averages, real people worry about worst-case scenarios while hoping for best-case scenarios.
The average doesn’t
keep us up at night. And that, I’m sure, explains our heightened economic anxiety. Because
so much economic risk has shifted, and continues to shift, to individuals, many people fear the
worst-case scenarios (serious illness, fraud, irreplaceable loss of income) are possible, if remote.
A good part of the certainty that characterized our parents’ economic life has turned into
a set of variable outcomes for this generation.
- BenefitNews.com: Pension system
future may turn on cash balance decisions. Excerpts: IBM case reverberates.
Cash balance opponents assert that they do not oppose the plan design itself, but are instead concerned
about the impact on long-service employees when there is a conversion from a defined benefit plan
to a cash balance plan. Despite earnest attempts by most employers to provide increased disclosure
and transition assistance for their employees, some long-tenured workers continue to cry foul over
the loss of future benefits, and legislators have heard their cries.
The most outspoken critics of cash balance plans continue to stoke the fire of debate by invoking
claims of age discrimination, a charge based on the aberrant July 2003 decision by the Federal
District Court for the Southern District of Illinois in the case of Cooper v. IBM.
Despite case law and legislative history to the contrary, Chief U.S. District Judge G. Patrick
Murphy ruled in this case that cash balance plans - and, by implication, numerous other pension
plan designs - are inherently age discriminatory. Even the federal government's own employee retirement
plans would flunk the court's standard.
According to the court's flawed logic, a pension design is discriminatory even if the employer
makes equal contributions to the plan on behalf of all its workers and, ironically, even in many
instances where the design provides greater contributions for older workers.
Representative John Boehner, R-Ohio, chairman of the House Education and the Workforce Committee
(with jurisdiction over ERISA issues), has announced his intention to propose legislation in
2005 that will help clarify the legitimacy of cash balance plans. "Our ultimate goal is to ensure cash
balance plans remain a viable option for employers who want to remain in the defined benefit system
and workers who prefer the portable and secure benefit this option provides," Boehner said
at a July 15, 2004, hearing on the topic. There will doubtless be resistance to such legislation.
Critics will continue to cite the Cooper decision in support of their efforts to undermine these
plans. By preventing the Treasury Department from regulating these plans rather than working
constructively to help plan sponsors, anti-cash balance activists are harming millions more working
Americans than they are helping. By attempting to discredit innovative pension plans with faulty
claims of age discrimination, they are exposing all pension plans to unwarranted liability. And
by misappropriating the appropriations process to further their own agenda, they are abusing the
trust placed in them by their constituents. Cash balance plans can still be the bright, shining
star in a dimming universe of the pension system - if we can get our leaders to see the light.
- Workforce Management:
The Cash-Balance Battle Grinds
On. "Massive plan termination" is possible unless Congress
acts. Excerpts: Give round one to Kathi Cooper. She’s the IBM employee whose lawsuit over the
computer giant’s conversion to a cash-balance plan helped transform the plans from one of the
most popular kinds of corporate pensions into one of the most controversial, and contentious. In
late September, IBM agreed to a partial settlement of the class-action suit, saying it would take
a $320 million charge against third-quarter earnings to end all but two claims. IBM also agreed to
a $1.4 billion cap for any additional liabilities it might be held responsible for, bringing to $1.7
billion the total liability the company could face in the matter. But the fight is not over. IBM
is still contesting claims at the heart of Cooper’s 1999
suit that the formula it used to convert to a cash-balance plan discriminated against older workers
in violation of federal pension laws. In July 2003, a U.S. District Court judge ruled in favor
of Cooper and 140,000 IBM employees. IBM is appealing that ruling to the 7th U.S. Circuit Court of
Appeals. A verdict could be more than two years away. ...
If an appeals court in the IBM case lets
the lower court’s ruling stand, it could have a further chilling effect, says Ethan Kra, chief
retirement actuary with Mercer Human Resource Consulting in New York. "It would be devastating,
and would lead to massive plan termination," Kra says.
That’s not true, says Cooper, 54, a 25-year IBM veteran who’s become an active pension
reformer since filing her suit, traveling to Washington, D.C., to lobby for fair treatment for
older workers and retirees. "They’ve said the entire pension scheme of America could
be affected, that everyone will go bankrupt. That’s the phoniest spin they created." ...
Even before IBM’s case is resolved, federal lawmakers are expected to pick up next year where
they left off earlier this year in drafting new pension guidelines. "I would be shocked if we
get through next year without legislation," Kra says.
- BenefitNews.com: Next Congress could
pass pension bill, experts say. Excerpt: With the prospects
dim for Congress passing legislation this year to address the concerns of defined benefit plan sponsors,
pension advocates are looking to the next two-year congressional cycle for a fix to their problems. "The
109th Congress has the potential to be know as the Pension Congress,'" forecasts
Stuart Brahs, The Principal Financial Group's vice president of federal government relations. ...
One issue that plan sponsors want clarified is the legality of cash balance plans. A cash balance
plan combines aspects of traditional defined benefit plans, which pay fixed benefits for life, and
defined contribution plans like 401(k) accounts. The hybrid plan delivers benefits more evenly to
the workforce and is more portable than traditional DB plans. Critics say cash balance plans have
discriminated against older workers, who would benefit more under traditional arrangements. Indeed,
that was the finding of a lower court last year in a case against IBM Corp. (Cooper vs. IBM). The
company agreed in September to settle most of the claims filed by its older workers who said the
company's cash balance plan discriminated against employees based on age. The partial settlement
gave pension advocates some legal relief because it allows IBM to resolve age discrimination charges
in an appeals court and caps its potential liability at $1.4 billion. "We are gratified that
IBM will continue its appeal to the Seventh Circuit," says Mark
Ugoretz, president of ERISA Industry Committee, which represents large employers. "If the Cooper
case were to be upheld, which we strongly believe it will not, it would jeopardize over a thousand
pension plans and the benefits of millions of current and future plan participants."
- New York Times:
Are Battling Against Wal-Mart Over Health Care. Excerpt: Now, Wal-Mart finds itself under
attack for what critics see as its miserly approach to employee health care, which they say
is forcing too many of its workers and their families into state insurance programs or making
them rely on charity care by hospitals. ... A survey by Georgia officials found that more than
10,000 children of Wal-Mart employees were in the state's health program for children at an
annual cost of nearly $10 million to taxpayers. A North Carolina hospital found that 31 percent
of 1,900 patients who described themselves as Wal-Mart employees were on Medicaid, while an
additional 16 percent had no insurance at all. ... Although Wal-Mart officials flatly deny
it, some Wal-Mart employees say they are encouraged to turn to public health care assistance.
When Wal-Mart hired Samantha Caizza, a single mother of three, as a cashier at its Chehalis,
Wash., store last November, she says she was told by a personnel manager "to
get ahold of the state" for coverage for her children.
- BenefitNews.com: More states help
residents buy drugs from abroad. Excerpts: Missouri and Washington
recently introduced programs allowing state residents to buy medications from foreign countries.
Missouri's program, I-SaveRx (http://www.i-saverx.net/), helps
residents to save 20% to 50% on the price of medications by using pharmacies in Canada, England and
Ireland. Washington's program involves a state Web site (http://www.rx.wa.gov/)
that links to approved Canadian pharmacies. At least a dozen other states and local governments have
done likewise in defiance of federal law. ... Americans paid an average of 81% more for patented,
brand name drugs than buyers in seven foreign countries in 2003, a new report from Boston University
researchers indicates. For example, Americans paid 118% more than Italians and 75% more than Canadians.
- CNN/Money: IBM:
Workplaces did not cause cancer. Big Blue says study it commissioned says some diseases warrant
additional research. Excerpt: A study of 126,000 IBM employees commissioned by the world's largest
computer company found that workplace conditions did not cause cancer or other fatal illnesses,
but some diseases warranted further research, IBM said Wednesday. IBM commissioned the study in
2000. The company has faced dozens of lawsuits from former employees who alleged that IBM knowingly
exposed them, or their unborn babies, to dangerous chemicals. Critics and activists expressed skepticism
about results of the study, which was carried out by researchers from Harvard University and the
University of Alabama at Birmingham. ... Sheila Davis, director of the clean computer campaign
for the Silicon Valley Toxics Coalition, an advocacy group, said it would be premature to make
conclusions about the study before greater details were published.
Davis added that she was skeptical of IBM's findings, noting that some other studies that were not paid
for by the computer maker came to other conclusions. "It's not a surprise that if IBM sponsors
a study they would get the results they're looking for," Davis said.
- New York Times: Bush
Pledges a Broad Push Toward Market-Based Policies. Excerpts: Mr. Bush's allies
say they are confident he can now advance his vision of an "ownership society" and extend
his conservative, market-oriented proposals for health, economic and tax policy. In particular, they
said he was ready and eager to tackle what many considered an extraordinarily difficult political
task - transforming Social Security so that younger workers could divert part of the taxes they pay
into it to private accounts. ... Mr. Bush's "ownership society" is built on the assumption that giving
individuals more responsibility for their financial lives, combined with a greater reliance on the
private market, can slow the growth of government, reduce the cost of social welfare programs and
modernize programs created in the New Deal and Great Society. ... "This is not going to be easy," he
said. "This is the underpinning of the New Deal. There's a lot of emotional attachment to it
among Democrats. And then there's the practical difficulties as well." Among those practical
difficulties are the costs of moving to such a system, which some analysts estimate could be as much
as $2 trillion over 10 years. Mr. Bush is also expected to keep pushing the idea of health savings
accounts as a way to create savvier consumers who shop around for the best deals in medical care.
... Mr. Bush has been vague about how he will approach rewriting the tax code. Tax reform is appealing
in the abstract, but the actual details and tradeoffs can be politically dangerous. Almost all of
the major ideas being debated - such as a flat tax - would involve shifting some of the tax burden
from the wealthy to middle-income families. Many Republicans say the current system penalizes people
who save or invest their money rather than spend it.
- New York Times: After
the Voting: What May Lie Ahead for Business in America. Excerpts: From Wall
Street to Detroit, there were plenty of sighs of relief as it became clear that President Bush had
won another term. As one auto executive said, "Bush has been a good president to work with." ...
But the biggest smiles yesterday came from Wall Street executives, who were pleased with the tax
cuts in the first Bush term and hope for more of the same from the second. ... With the Bush victory,
the shares of pharmaceutical makers like Pfizer, Merck and Eli Lilly, and for-profit health maintenance
organizations like United HealthCare, Aetna and Wellpoint rose sharply yesterday. "We're seeing
a big collective sigh of relief from those companies," said Kenneth Thorpe, a health care economist
at Emory University. But no matter who is in the White House, big policy challenges remain. Roughly
45 million people are uninsured in the United States, and an estimated 70 percent of them are employed.
To increase coverage, the Bush administration supports creating tax credits and health savings accounts
and associated health plans for small businesses. Those strategies are intended to reduce the cost
of health insurance for small employers and individual workers. But those kinds of health plans typically
require sizable out-of-pocket payments by individuals.
- Workforce Management:
What to Watch for in ’05. Excerpts: The new look of Washington, D.C., is likely to be more business-friendly
than the past four years have been. ... Indeed, Tim Cullen, senior vice president of Blue Cross Blue
Shield of Wisconsin, says that employers themselves may soon tire of lackluster results in the efforts
to control health costs. Cullen tells the Milwaukee Journal-Sentinel that if costs don’t slow
down by the next presidential election, businesses might "throw in the towel" and support
far more government involvement in the health-care system. Voters in California narrowly defeated
Proposition 72, which would have forced medium and large employers to pay 80 percent of employees’ health
insurance premiums or contribute to a state fund. Gretchen Young, vice president of government affairs
for Aon Consulting, says that the initiative could have passed had the very popular California governor,
Arnold Schwarzenegger, not opposed it. And, adds Young, some employers wouldn’t be too upset
if the initiative went through--particularly those that currently pay for employees’ health
care. "Employers who have (provided) health
care are saying, ‘I want a level playing field,’ " Young says. Some employers,
Young says, also believe that if more employees are covered, it could reduce the costs of uncompensated
care that are eventually paid for by all Californians.
- Blue Cross Blue Shield Association: Health
Care Industry: Expects To Benefit From Bush Re-Election.
Excerpts: "Status quo is good news for drug makers" such as Pfizer and GlaxoSmithKline,
which were "facing the potential of much tougher oversight in pricing under" a Kerry presidency,
according to the AP/Times. The result of the election prompted shares of
Pfizer stock to increase 75 cents, or 2.6%, to 29.45 on Wednesday. Shares of Johnson & Johnson
stock rose $1.41, or 2.4%, to $59.45, and shares of Merck stock increased $1.07, or 4%, to $27.87.
In addition, shares of Abbott Laboratories stock increased 3%. ... Shares of stock in large health
insurers, pharmacy benefit managers and hospitals also increased on Wednesday, in large part because
some had concerns that Kerry would "reverse many of Bush's Medicare reforms that were viewed
as being very favorable to health care providers and insurers," USA Today reports. According
to the Journal, the re-election of Bush could provide a "potential windfall" for
health insurers as he seeks to implement a proposal to move the industry to a more free-market system
through tax credits and health savings accounts ... Meanwhile, stocks in companies that currently
perform embryonic stem cell decreased "sharply" on Wednesday "in expectation that Bush-imposed
funding limitations will continue," according to the Journal.
- New York Times: Insurers
and Drug Makers See Gain in Bush Victory. Excerpts: Insurance and pharmaceutical
executives said Thursday that they were pleased and immensely relieved at the election results. President
Bush's victory, they said, guarantees that the new Medicare prescription drug program will be carried
out by officials who enthusiastically support it. By contrast, they said, if John Kerry had won the
election, he would have tried to revise and repeal major parts of the law, and the appointment of
a new team of federal health officials would have delayed efforts to carry out the complex measure.
... The election results were seen as a good omen for insurers, especially managed-care companies.
Smith Barney, the stock brokerage unit of Citigroup, predicted higher earnings for Aetna, Humana
and PacifiCare as a result of the presidential and Congressional elections. "Medicare is a profitable
new growth driver," Smith Barney said Thursday in a research
report written by Charles A. Boorady, a securities analyst. By increasing Medicare payments to
private plans, it said, the new law will make all three companies "more profitable.'' "A
managed-care organization can receive an average $10,000 per customer per year for each Medicare enrollee
they sign on, and marginal profit of about $300 to $400 per member per year,'' Smith Barney said. "Senator
Kerry had threatened to cut reimbursement, whereas President Bush is a strong supporter of Medicare
Mr. Kerry had denounced the new Medicare law, saying it did more to help drug and insurance companies
than the elderly. On the campaign trail, he often said he believed that the government should directly
negotiate with drug companies to secure lower prices for Medicare beneficiaries, a practice forbidden
under the law. Mr. Bush and Republicans in Congress can ensure that the ban stays in force. Bradford
J. Holmes, vice president of Forrester Research, a technology consulting company in Cambridge, Mass.,
said: "The new law will now go into effect unchanged, without the pressure of revisionist
desires of the Democrats. A Kerry administration would have put the Medicare drug benefit under the
microscope and would have pushed for importation of prescription drugs as a way to expose global
- Yahoo! News: Bush
Pledges to Make Changes to Tax Code. Excerpts: Contending Americans have embraced
his conservative agenda, President Bush (news - web sites) pledged Thursday to aggressively pursue
major changes in Social Security, the tax code and medical malpractice awards,
working with Democrats if they are receptive and leaving them behind if they're not. "I earned
capital in the campaign, political capital, and now I intend to spend it," Bush said a day after
a decisive victory that made him the first president in 68 years to win re-election and gain seats
in both the House and Senate. "I'll reach out to everyone who shares our goals," said Bush,
who 24 hours earlier had promised to try to win over those who voted for his Democratic opponent.
- New York Times: Confident
Bush Outlines Ambitious Plan for 2nd Term. Excerpts: As he did in 2000,
Mr. Bush campaigned this year on his proposal to add voluntary personal investment accounts to Social
Security, letting workers divert part of their payroll taxes into stocks and bonds for their retirement.
But he has never answered the big questions that would accompany any effort to remake the system,
starting with how, in an era of large budget deficits, he would continue to pay for full benefits
for current retirees if payroll taxes from current workers are partially diverted to private accounts.
Personal accounts could provide greater returns than those earned by the system currently. But they
are unlikely, by themselves, to address Social Security's long-term financial problems, which will
become acute over the next several decades as the baby boom generation begins reaching retirement
age and life expectancies continue to rise. Mr. Bush has never said what steps he might support,
along with the creation of personal accounts, to pay for the new system and fill the long-term financial
hole projected by Social Security's trustees. Beyond higher returns through investment, the menu
of options is not appealing to either political party: benefit cuts to reduce expenses or tax increases
to increase the amount of revenue flowing into the system.
- Nashville City Paper: Sweeping
changes ahead. Excerpts: Steve Forbes, the
president and chief executive of Forbes Inc. and editor-and-chief of Forbes magazine sees some
major changes in Medicare, Social Security, Federal tax code and personal savings accounts
with the re-election of President Bush and the increase in the Republican majority controlling
Congress. ... Individuals should expect to be given a choice between Medicare or new health
care savings accounts (HSA). In this program Americans can contribute money to their own account,
thus providing more control over their health insurance. Initially a hybrid system would exist,
consisting of both programs, as Medicare is phased out. He predicts President Bush will also
propose legislation for retirement or personal savings accounts to replace Social Security.
Forbes expects to see a “super savings account” program
proposed, where savings and other needs can be combined. Returns on the account would be tax-free.
A revamping of the tax code should be anticipated. Much like his own proposal, he sees this
taking the form of a flat tax.
- New York Times: United
Seeks an Additional $2 Billion in Cost Cuts. Excerpts: United Airlines, trying
to restructure after nearly two years in bankruptcy protection, told its unions last night that it
wanted to terminate its four employee pension plans and seek additional wage and benefit cuts, as
part of a plan to cut another $2 billion a year in costs. ... The move has huge implications for
the federal Pension Benefit Guaranty Corporation, which insures pension benefits in the event of
a default. If United terminates its plans, the pension insurance agency would have to assume most
of the airline's unsecured debt to its present and future retirees, which it estimates at $8.3 billion.
The government has calculated that it would be responsible for about $6.4 billion of that total,
the largest burden from a single company in the agency's 30-year history, almost twice as large as
Bethlehem Steel's unfunded liability. United employees would lose the remaining $1.9 billion.
- http://www.beneplace.com/ibmer/: "As IBM continues
to revolutionize excellence in the workplace, we recognize your role you play everyday. With that
in mind, welcome to EXTRAS, your one stop destination for all voluntary benefits, discounts and services
available to you as an active employee of IBM." (Editor's note: Links to companies offering
employee discounts are offered on this site in these categories: financial products and services,
insurance programs, automobile discount programs, personal shopping, travel services, and work/life
services. Also provided are links to regional discounts available to IBMers through the network
of IBM Clubs. Although this site is available to anyone on the public Internet, some of the
links on the site point to locations on the IBM internal-only (W3) intranet.)
- "ol_pops" posts
information about the DHL Small Package Discount program for IBMers.
Full excerpt: NOTE: This program is for personal package delivery only. IBM
Employees must pay by check at Airborne distribution centers. Drop
boxes and home pickup are not allowed. Employees must insure that the
Account Number 191898287 is in the "Bill to" Account # field of the
airbill, and the "3rd Party" box is checked. Employees must also
place their full name in the "Billing Reference" field of the
airbill. (DHL employees are not authorized to provide the Account
Number for this program so IBM Employees must have this information
with them.) Contact DHL at 1-800-247-2676 or 1-888-508-4IBM or go to the web to
determine the location of your local DHL distribution center
Take your package(s), and a valid IBM employee badge or an IBM
retirement identification card to the DHL distribution center to show
eligibility as an active full-time U.S. employee or U.S. IBM retiree.
DHL will determine price
based on the weight of the package (must be <99 lbs), the type of delivery service needed (i.e.
next-day, 2nd day), and a U.S. destination address. Print your full name in the "Billing Reference" field
on the Airbill.
Make sure that the Account Number 191898287 is in the "Bill to" Account # field of the
airbill, and the "3rd Party" box
is checked. The DHL employee at the station will mark the "Paid in Advance" box
(PIA) when they take the package. Marking the PIA box alone does not
make it PIA. The "Check No." and "Amount" information must also be on
the airbill. The DHL employee will mark the information in these
fields. Pay for the shipment by PERSONAL CHECK. IBM does not allow DHL to
bill employees! Keep a copy of the Airbill or Airbill number.
Track your package(s) with the Airbill Number at DHL track,
http://track.dhl-usa.com/TrackByNbr.asp or by
contacting DHL at 1-800-247-2676 or 1-888-508-4IBM.
- Telegraph Group Limited (United Kingdom): Pursuing
the American Dream. Excerpts: Many Europeans
moving to America assume it will be a cakewalk given the lack of language barriers but discovering
how to operate can take a while. ... The next surprise is the cost of health care. No one in their
right mind would move to America without medical insurance. Even with coverage, you may have to contribute
up to 20 per cent of the cost and meet a minimum deductible. The NHS can only be regarded with fond
nostalgia. Some 44 million uninsured Americans rely on health and good fortune, but if either vanishes,
they may face financial ruin, a fact borne out by medical bills creating the second major cause of
personal bankruptcy. ... A workaholic society based on Protestant work ethics in pursuit of the American
Dream, Americans work longer hours than their counterparts in other industrialised countries. As
an expatriate, don't expect to stroll in at 9am and sneak out at 5pm each day or have free weekends.
... Affluence has a dark side and the richest nation on earth boasts 34.6 million Americans below
the poverty line with around 12 million reportedly living on the edge of starvation. Ironically,
the US has the worst child poverty rate and life expectancy throughout the industrialised world.
... After working in America, many Europeans return home with innovative ideas, a stronger sense
of "can do" and a sigh of relief at shorter working hours, free medical care and less stress.
(Editor's note: This article is highly recommended if you are interested in how at least one expatriate
living in America views American society).
- Telegraph Group Limited (United Kingdom): Dollar
hits all-time low despite jobs growth. Excerpts:
The US dollar fell to an all-time low against the euro yesterday despite strong employment news,
as traders panicked over the greenback's inability to mount a revival. The dollar fell to $1.2942
as the market worried about America's economic prospects and large trade and current account deficits.
Some strategists believe it could fall to $1.40 within a month.
- The Onion (humor): National Museum
of the Middle Class Opens in Schaumburg, IL. Excerpts: One of the 15 permanent exhibits, titled "Working
For 'The Weekend,'" examines the routines of middle-class wage-earners, who labored for roughly
eight hours a day, five days a week. In return, they were afforded leisure time on Saturdays and
Sundays. According to many anthropologists, these "weekends" were often spent taking "day
trips,"eating at chain family restaurants, or watching "baseball" with the nuclear
family. "Unlike members of the lower class, middle-class people earned enough money in five
days to take two days off to 'hang out,'" said Benson Watercross, who took a private jet from
his home in Aspen to visit the museum. "Their adequate wages provided a level of comfort
and stability, and allowed them to enjoy diversions or purchase goods, thereby briefly escaping
the mundanity." ... Many museum visitors found the worldview of the middle class—with
its reliance on education, stable employment, and ample pensions—difficult to comprehend.
|Coverage on H1-B and L1 Visa and Off-Shoring
- New York Times, courtesy of CNET News: An
industry in India cheers Bush victory. Excerpts: India's outsourcing companies were jubilant
Wednesday that the elections in the United States will return President Bush to office. "This
is great news for the offshoring industry," said
Nandan Nilekani, chief executive of Infosys Technologies, a software services company. The
trend toward outsourcing will now become even more inexorable, Nilekani said. Offshore outsourcing,
or the moving of work from the United States to low-cost centers like India, was an issue
in the presidential election. The Democratic candidate, Sen. John Kerry, blamed Bush and
outsourcing for the loss of thousands of American jobs. Bush, in contrast, was largely silent
on the issue. But members of his team, among them N. Gregory Mankiw, the chief economic adviser,
and Treasury Secretary John Snow, have both defended outsourcing as another form of free
trade. Kerry referred to ''Benedict Arnold companies and CEOs" who sent jobs overseas. He
promised that as president he would end tax deferrals for companies that send work abroad.
The tone of some campaign comments criticizing outsourcing was noted with some concern in India.
The Times of India, the country's leading newspaper, called outsourcing the "swear
word" of the 2004 elections. Thousands of workers in India's technology centers like Bangalore
and Hyderabad closely followed the campaign. India's outsourcing industry employs hundreds
of thousands of workers.
Bush's re-election will bring out the latent demand for outsourcing and lead to more offshoring
announcements by companies, he said. "Some corporations have been cautious about signing or
announcing deals in the last few months," he said, adding, "Now they will no longer hold
back." Some executives said that offshoring would grow at even steeper rates with Bush's victory. "The
elections are over and so is the rhetoric; it will be easier for American corporations to
step out with their outsourcing plans," said Vivek Paul, the vice chairman of Wipro, who works
in Mountain View, Calif. The company itself is based in Bangalore. ... Bush's victory also
proved that Kerry's anti-outsourcing position did not resonate with voters, Griswold said. "The
talk about Benedict Arnold CEOs and traitors of the country, that rhetoric is finally dead," he
- The Economic Times (India): Nasscom
happy with Bush victory. Excerpts: Nasscom on Thursday said
the re-election of George W Bush as US President would boost outsourcing and hoped that contentious
issues like visa cap and social security paid by Indian IT workers in America would be sorted
out. "We are glad that President George Bush is back in office as we know his policies. After
his re-election, we would see more announcements by companies on outsourcing," Nasscom president
Kiran Karnik told newspersons. He said software exports to the US from India account for
68 per cent of our total software exports and have been growing at around 30 per cent a year. "We
are confident that with George Bush getting re-elected, the growth momentum will continue," he
said. "Because of the rhetoric against outsourcing, many companies were not willing to talk
about their plans to move work to India. But now, we would see more announcements by companies
on outsourcing that will spur their peers to look at the concrete benefit it brings," he
- The Economic Times (India): What
Bush's victory means for India. Excerpts: Bush staying in the White House for a second term
will be good for Indian trade. Bush is a big advocate of free trade.
Kerry, on the other hand, has been more outspoken about offshoring of jobs. He plans to
end tax breaks for companies that ship jobs overseas and wants federal contract work
to be performed by American workers "where possible”. ... Q: What would a Bush victory
mean for Indian professionals? A: Pressler said the United States does not have enough young
people to do the jobs that are outsourced to India. “The unemployment rate in the US is
only 5 per cent, comprising people who don't want to work and 2-3 per cent are temporary
workers. We need outsourcing as well as immigration,” he said in a recent speech in India.
(Editor's note: Former U.S. Senator Larry Pressler [R-S.D.] serves
on a variety of corporate boards, as well as advisory boards, of several U.S., British, and Indian companies.
Senator Pressler travels to India several times a year to perform his board duties, give lectures, and
attend to other business.) For Indian professionals planning to move to the US, it is better if Bush
stays in the White House. Though there has been an outcry over the cap on H1-B visas, there are already
quite a few Bills in the US Congress calling for relaxation of visa norms. With Bush in the White House
and Republicans in control of the Senate and the House of Representatives, Indian H1-B seekers shouldn’t
be worried. India's IT sector is the highest user of these visas globally, used to send its software
professionals to the US for providing outsourced services onshore.
Q: What would a Bush victory mean for India’s booming IT industry? A: Good. Part of the popular
enthusiasm for Kerry in the run-up to the elections stemmed from his promise to stop outsourcing
American jobs to India and other countries. In a recent survey carried out among 300 companies
in the Silicon Valley, 46.7 per cent said that offshoring will increase if President George
W Bush is re-elected. As opposed to this, only 14.2 per cent said that outsourcing will increase
if Kerry gets elected. While President Bush has refrained from commenting on the subject, his
advisers have defended offshoring.
Indian technology companies have reported robust growth in earnings in the past few quarters
as more and more multinational corporations shifted back office jobs to India in an effort
to control costs.
- Communications of the ACM: Globalization and
the American IT Worker [PDF].
Exporting IT jobs and importing IT workers not only harms U.S.
IT workers, it also harms U.S. firms and the broader economy,
by Norman Matloff. Excerpts: There is no question that having the work done
on-site is more productive than shipping it overseas.
Offshoring often results in longer completion times
and lost market opportunities due to delays. Numerous
detailed accounts of such problems have been published. Good software development requires
constant interaction among developers and managers
being able to walk down the hall for spur-of-the moment
face-to-face conversations. Another major
problem with offshoring is that the Indian business
model involves staffing projects with young, inexperienced
programmers in order to minimize costs.
This has obvious adverse effects on quality. Some
Indian offshoring firms point to their high ratings
under the Capabilities Maturity Model (CMM). But
CMM merely assesses a project’s management techniques,
not the quality of its personnel. As one official
in the CMM project at Carnegie Mellon University noted, “You can be an [highest CMM-rated]
organization that produces software that
might be garbage.”
Not to worry, says the ITAA, because the number
of jobs will increase in non-IT categories (such as
construction and finance). But the vast majority of
these jobs will not be of the high-level variety (such
as architects and financial market analysts that have
begun to migrate offshore, too). Thus the U.S.
would lose IT and other jobs requiring a more rigorous
level of education in exchange for gaining jobs
(such as carpenters and loan officers) requiring a less demanding
education. You don’t have to be a rocket
economist to see that such a trend would be disastrous for the U.S. Some proponents of offshoring
argue that the cost
savings incurred by U.S. businesses from offshoring
will lead to increased IT investment by these same
businesses, thus creating new jobs for U.S. IT workers. They also argue that the U.S. should
on its forte—innovation—to create jobs. But in
both cases, among the new jobs, the technological
ones are likely to be offshored, too, or filled in the
U.S. with H-1Bs. Americans would mainly have
access only to the nontechnological jobs. The venture
capitalists call this new business model “micromultinational,”
with sales and marketing jobs in the
U.S. but with R&D done offshore. Once again, this
amounts to trading jobs that require more education
for jobs that need less education.
on the Alliance@IBM Site:
- Binghamton Press & Sun-Bulletin: 185
jobs cut at Endicott Interconnect, Huron. Excerpts:
Endicott Interconnect has reduced its work force twice before in 2004. In April, a
union official reported about 60 workers were fired because of performance issues.
In May, Endicott Interconnect cut 84 workers as part of a restructuring it said would
eventually strengthen the company. Bill Eno, 47, of Vestal, was one of the Endicott
Interconnect workers told Friday he no longer had a job. The equipment service technician
was at home on vacation when he got a call from his manager to come to the plant. He
had spent 22 years working for IBM and then two years employed at Endicott Interconnect. "We
were a world-class operation, and now all of a sudden we can't keep our head out of
Eno, who described the mood among workers at the plant Friday as "pretty
Endicott Interconnect has lost a reported 429 workers through layoffs and firings since
its inception. The number includes the 200 workers the company laid off two weeks after the
company took over the former IBM Microelectronics operation in 2002. Those cutbacks, which had
affected about 10 percent of the company's work force, occurred almost two weeks after Election
Day in 2002. Managers told affected employees about the recent job losses just three days after
Election Day this year.
| In Politics—
Note: The views expressed in the news articles and
editorials in this section are those of their authors. They may or may not reflect the
views of the editors of www.ibmemployee.com.
- Robert Vanderbei, Professor, Operations Research and Financial Engineering, Princeton
2004 Results. (Editor's note: Professor Vanderbei's map uses
county-by-county election return data from USA Today together with county boundary
data from the US Census' Tiger database. His map is interesting in that it shows that,
contrary to what traditional "red and blue" electoral college maps
infer, the United States' political makeup is very much "purple!" Highly
- New York Times commentary by Nicholas D. Kritof: Living
Poor, Voting Rich.
- New York Times commentary by Maureen Dowd: The Red Zone
- New York Times commentary by Garry Wills: The Day the Enlightenment Went Out
- The Guardian (United Kingdom): Onward Christian soldiers
- BBC News (United Kingdom): US
vote boosts interest in Canada. Canadian immigration
officials said the number of US citizens visiting their website went up six-fold the
day after the US election.
- New York Times commentary by Bob Herbert: O.K., Folks: Back to Work
- New York Times commentary by Bob Herbert: Voting Without the Facts