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http://www.usatoday.com/money/industries/technology/maney/2004-02-03-maney_x.htm

Unpopular argument: Sending tech jobs abroad is good 

Behind closed doors, many U.S. technology executives will say
something that could get them flayed if repeated in public: Sending
computer programming jobs to India and China is good for America.

Not just good for business, they believe, but good for everybody �
part of a process that will raise the standard of living in the USA
and make us more secure in the world.

This can be tougher to swallow than a low-fat wheat germ muffin. It's
counterintuitive.

"The system works so amazingly well that it's a wonder anyone doubts
it, and yet, of course, people do," says Marc Andreessen, chairman of
tech services company Opsware (OPSW), and one of the few who will
forthrightly say that the outsourcing trend should be cheered.

That belief is based on a widely accepted theory � the theory of
comparative advantage � that goes back to David Ricardo, a brilliant
19th-century economist who seems not to be related to Ricky.

Though, as Ricky Ricardo might say, let me do some 'splainin. 

Let's say the USA is really good at two different things, software
programming and creating innovative technology. And let's say India is
also good at both. Because Indians don't get paid nearly as much as
Americans, India can do each job at a far lower cost compared with the
USA.

A big fear is that if trade is free and open, the USA would lose both
those pieces of its economy, because lower costs win. Then our
standard of living would fall, while the Indians could increasingly
buy Porsches and plasma TVs.

But that fear, Ricardo would say, is misplaced.

Why? India's schools churn out loads of programmers, but the country
has little venture capital and other infrastructure to help drive
innovation. So even though India can do both for less than we can,
inside India, the cost of doing programming is relatively little while
the cost of starting companies is relatively high. India is "most
best" � to use the language of economists and many 3-year-olds � at
programming.

In the USA, we pay programmers very well. We also have a well-oiled,
technology-creating innovation machine. Inside our country, it has
become relatively expensive to our society to do programming; and
relatively cheap to innovate in technology. Our "most best" is
innovation.

Now here's where it gets funky: Ricardo would say that the USA should
innovate in technology and stop programming, and India should do the
programming and stop innovating. If we each concentrate on our "most
best" and then trade, more of both get produced for less � the very
essence of increased productivity.

Of course, the "most bests" change over time, and that changes the
equation. The genius of U.S. capitalism is that it continues to create
"most bests" that are of higher value than everybody else's "most
bests." Next up will be industries like biotech and nanotech.

Anyway, if productivity goes up, people have more of everything.
Standards of living rise in both countries. "This is absolutely not a
zero-sum game," says Stanford University economist Paul Romer.

Real life gets a lot more complicated than that, but in general the
theory has been proved over hundreds of years. In the 1980s, the USA
lost tens of thousands of auto and steel jobs to Japan, but because of
comparative advantage, we gained those jobs and more in fields that
were new "most bests," like high-tech and financial services. And
though some people back then predicted we were going to become Japan's
servants, and congressmen symbolically bashed a Toshiba boom box on
the Capitol lawn, in the end the standard of living in Japan and the
USA rocketed.

Ricardo's point shows up on a more practical level, too. If a computer
company outsources programming and saves 30% in costs, some of that
savings results in lower computer prices � a good thing for consumers.
At the same time, the company keeps some of the savings, giving it
higher profits.

That means it can hire more people. It can also invest in new
products, which might result in the company doing even better, and
hiring more � some, perhaps, in other countries, but some in the USA.
And if profits go up, the stock price probably goes up, making
millions of stockholders wealthier.

"A free movement of labor allows us to become more efficient, produce
better products at lower costs, grow more profitable, pay more taxes
to the government which, in turn, looks after the people who have been
displaced," says Oracle (ORCL) CEO Larry Ellison.

At the same time, U.S. workers benefit when the standard of living
rises in India or China or anywhere in the world. "Those people are
all going to buy cars, cell phones, PCs, espresso machines, mutual
funds, iPods, Nikes, Polo cologne and on and on," Andreessen says.
Many of those products will be made by U.S. companies.

"We can benefit if they become more like us," Romer says.

One last note: The more this goes on, the less likely the United
States will have enemies. If India's economy is booming because U.S.
companies outsource there, India pretty quickly becomes our friend.
Same with China and elsewhere. We'd have a lot easier time with North
Korea's Kim Jong Il if a few American telemarketers could move their
call centers to Pyongyang.

Not every tech executive buys all this. Intel (INTC) Chairman Andy
Grove argues that the USA is in danger of losing key technology
capabilities and needs to mount a counterattack. That doesn't mean he
wants to close off trade. Basically, Grove is saying we need to once
again become "most best" at software programming, and keep those jobs
here.

A lot of people and politicians don't buy Ricardo-ism, at all. How can
firing a well-paid, intelligent, contributing member of society in
Chicago, then giving the position to a low-wage young hotshot in
Mumbai, turn into a net gain?

Or just try telling programmers who see their whole departments
vacuumed out and replaced overseas that it's all for the best. "This
is a disaster for American workers and for our country," says Alva
Perry in Clearwater, Fla., who says her husband's job as a programmer
is at risk.

Competing economic theories argue that much has changed � like cheap
broadband Internet connections that make a computer in India seem like
it's next door � and Ricardo's theories no longer apply.

Ricardo isn't an easy man to believe in. But so far � 180 years after
his death � he still seems right.

Kevin Maney has covered technology for USA TODAY since 1985. His
column appears Wednesdays. Click here for an index of Technology
columns. E-mail him at: kmaney@usatoday.com.