How the economy went south in 2001

Economic Train Crash

I have rambled on about the way the IT industry has become more outsourced in previous rantings, but as the economy slows down we are seeing some disturbing signs of the implications of this move. It is fairly clear at the moment that the economy is slowing, what is less certain is the velocity with which it will hit bottom. Irrespective of the economic forecasts, we have now to consider the cultural significance of this downturn.

For most industry sectors the outsourcing of IT people has been a boon. They no longer have the costs of pensions, 401K's, state benefits, etc.. Added to that has been the flexibility of right sizing the IT force at a moments notice, just by calling up a consulting company or two. The easy of handling employees in this manner has been well recieved by most industry segments.

For the IT professional it has been a disaster. With no provisions for retention, reductions in pay rates and conditions, the average Joe has decided that being mobile is like breathing, and staying at any one consultancy or contract client is stupidity. The fluid nature of the consulting industry has lead to extreme contrasts in the way the IT industry is getting employees and the way the rest of the economy does it. The consulting companies take a hammering when they have big contracts to fill, and have no incentive to retain staff when work falls off.

As this economy has slowed, most industry sectors have held up fairly well. The big exception seems to be the Technology sector. It is getting killed. This has lead to a wave of lay- offs. Many consulting companies are ditching consultants at an alarming rate. I keep hearing of rolling lay-offs, where companies are getting rid of consultants in small groups every few weeks. But the numbers add up.

With possibly as much as 30% of the US ecomomy based in the Technology industry, be it chips, telecommunications, MIS or service industries like consulting the effect of a chill could have terrible ramifications for the economy as a whole. This particular segment of the ecomomy happens to be well paid, withholding discretionary spending or seeing the end of income, will have a profound effect on the rest of industry in short order. The New Economy... absolutely!

What happens to the consultants and IT workers that are laid-off? They may find new jobs, but work in the industry is scare at this time. They may move into other work. They will certainly be less inclined to show servitude to some employer in the future, though. In the last round of big lay-offs in the 80's it soon became apparent that people started to work differently; they still worked hard, but they worked at an employer only so long as it benefited them. Employers were struck by the lack of trust employees were showing and tailored their response in the form of less commitment to those employees (less training, poorer conditions of service, though to some extent, higher salaries).

Happening again, the lay-offs may be a death nail to the current IT industry model. It has suffered in recent years from an image problem, only really dedicated techies and foreigners are entering technology education, leaving a huge hole in the recruiting space (which has also forced up wage rates). If it is now seen that all IT people are just throwaways, the impact of the tarnished image of the industry may become to difficult to patch. There are several areas closely associated with the higher technical echelons that have decided to start Unionizing, this type of activity could be very bad for the flexibility companies have so far abused.

Over the coming weeks and months we will see where this economy is headed, but it is safe to say that more peoples' lives will be wrecked as a consequence of the Outsourcing Disease.