Cobb

In this downturn, lots of people are getting squeezed, myself included. My division got canned two years ago and I've been on the labor spot market ever since. I'm doing my damndest to land a full-time gig as my contract rates hit the toilet. Two years ago, I could ask for $100 an hour and people wouldn't bat an eye. Today, I'm lucky to get $60. An upper middle class complaint to be sure, but here in the upper middle class is where we really feel the volatility of economy in dramatic fashion. When I was a union guy and the stock market crashed, did I care? Hells no. But I sure do know how it feels to lose tens of thousands of dollars now.

Part of this phenomenon is the commodification of high tech skills, especially in the software industry. When the economy shrinks, not only is there less IT spending, but research and development stops as a practical matter. What I mean in this regard is that there have traditionally been young software companies who may or may not go public who nonetheless take the lessons of one era of software development and build better tools for the future. These new companies have traditionally kept larger, slower companies, like Oracle and Microsoft on their toes, and could be counted on to push the market forward even if their cumulative share was only 20%. People make jokes about the dot com bubble, but there was real product innovation going on we in the software industry recognized. You ask any software practitioner their biggest gripe 3 years ago and it was, there's always somebody around the corner with something better. Whatever your specialization to stay on top you had to learn another new technology every 2 or 3 years.

That is no more. There are no new companies, and people aren't looking for ways to innovate and build newer and better. Nobody talks about 'the next big thing.' Aside from all that, customers aren't buying anyway. Now is the time that IT departments are hedging their bets on the new and buying the old if they are buying anything at all.

This hits the contract labor market (where many Indians are employed) hard, because now it means that everyone can learn the same old technologies since no customers are buying new technologies. In practical terms this means that instead of American workers being ahead of the curve with new trends, all of us are jogging in place with the same tech, and younger, less experienced programmers can have as much experience with old technology as anyone else. Advanced experienced programmers now have to work with old boring stuff and get paid commodity rates which keep going lower all the time.

Under these conditions, there is a flight from quality and experience. Instead of going with the expensive parallel database server on Unix, Z Corp decides to go with Microsoft SQL server on NT. Instead of the highly paid 40 year old database programmer who can do parallel tuning, Z Corp pays 2/3rds of his rate to somebody younger. When this trend continues long enough, the effect is clear. More and more people learn the simple stuff,

Cringely understands the productivity trade-off, and he also understands that bodies are literally human capital when it comes to project management accounting and the way weight is thrown around in software and application development.

In many ways, IBM is a different company than it was back then, but revenue per employee has barely budged. But it is not just IBM. Every big IT company is the same way, especially if services are a large component of what they sell. IBM, EDS, Accenture, they are all the same. And the reason they are the same is that these companies tend to think of their business in terms of billable hours. Yes, IBM also makes computers, but recently, they have made more money from billable hours than from building boxes.

Big IT companies think in terms of billable hours, and the way to maximize billable hours is by having lots of workers. Headcount is everything. It not only determines potential revenue, it also determines political power. If my division is bigger (has more people) than your division, I am more powerful you, you worm.

All things being equal, Indian labor in India is cheaper. Here in the states, there is little animosity between Indians and others. We all make the same rates by and large. But when the tech stagnation hits, some Indians have the choice to follow the work back offshore. Of course there are new immigrants hitting these shores too, so there's competition and friction over that. Don't doubt that Indians retain their class consciousness here in America; they do. Add on top of that various levels of English speaking skills and you will understand that there is a great deal of competition between Indians themselves, hailing as they do from various states in India. That doesn't change the fact that ugly things are being said about Indian workers by Americans.

I am trying to get out of the contract labor market as soon as possible and attach myself to a robust IT organization. This stagnation in tech is not healthy and a good sized corporation is the best place to wait it out. As consultants drain from the field less contractual outsourcing will occur. That is going to hit domestic Indians hard. The only good news is that many IT shops are a great deal more sophisticated than they were not too long ago, partially because of the brain drain from small software companies and the contract market. But it's still a short term solution because the longer capable people stay in corporate IT, the more time enterprising independents will have to assimilate the stagnant technology and underprice.

The key will be to look at the most capable project managers. Where will they go? If they stay in the field, then outsourcing will eventually decimate corporate IT, but if they join the corporate cadre, it will slow the outsourcing movement.

UPDATE: BradDeLong's economic analysis.