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Outsourcing In The Developing
And Developed World

By Huck Gutman

26 March, 2004
The Statesman, India

We begin with a law of international relations: No action involving two countries has equal effects on each. This is certainly true of the new economic interdependence of India and the USA. For in addition to a new closeness between the governments of these two great democracies in recent years – including shared concerns about terrorism, the nuclear capacity of Pakistan, the possibility China will dominate all of Asia – there are also significant emergent economic linkages between them. These linkages may yet prove to be the most important event in their recent bilateral relationship.

The new economic interdependence of the two nations is the result of the intersection of several modern phenomena. One is the movement toward globalization. Another is the operating principle of modern corporations, in particular MNCs, that fiscal efficiency is absolutely necessary for corporate success. (It should be noted that corporate “success”, as used here, refers to the growth of profits.) A third is the strategy, originally brought to its highest level of practice in Japan as a mode of productive efficiency, of outsourcing.

Outsourcing refers to work done by people other than a corporation’s full-time employees; the outsourcing we will refer to henceforward is that in which a corporation divests itself of those elements in the process of production which bring in modest or little profit in terms of the capital invested. These less-profitable or peripheral activities can be performed, supposedly more efficiently, by other, usually smaller, corporations, which gain efficiency by concentrating on the activity itself, honing the productive process so that it can create new efficiencies, making profits which the larger corporation would not be attentive enough to generate.

For example, a large automobile manufacturer might want to purchase headlights, or speedometers, rather than produce them. That way, it could pay attention to assembling and merchandising automobiles, and could leave the process of designing and producing the headlight to a supplier. As the Japanese rediscovered, outsourcing means the headlight can be provided for the same (or often lower) price by a supplier as the car manufacturer, with its inefficiencies of scale, can provide it. With less capital investment, since no capital is required from the auto manufacturer to produce the headlights, as each car is sold the return on invested capital – which if the company is well managed should remain relatively constant – rises. In other words, if you invest fewer dollars (or yen, or rupees) for each item sold, and the profit on each item stays the same, you get back a greater percentage return on your investment. Still simpler: less invested, higher profits.

That is the theory, and Japanese manufacturers made it work. They concentrated on core business; they outsourced, reducing their need for capital; they developed a “just-in-time” strategy for ordering, cutting the cost of maintaining inventory, thereby passing on the cost of maintaining inventory. Inventory, after all, is merely product just sitting there, the physical embodiment of invested capital, and earns no return as it sits waiting to be used.

The potency of the Japanese model, which was so economically successful in the 1980s, was not lost on European and US corporations. Over the course of a decade, US corporations downsized, outsourcing less profitable aspects of their production, creating greater administrative efficiencies in the process. At first, they followed the Japanese model: outsource within the domestic economy.

The intersection of liberalized trade policies, the need for efficiency in production as a motor for increasing profits, and the strategy of outsourcing, created a global movement of jobs. Once the decision that outsourcing to reduce costs and improve return on investment is made, there is powerful impetus for major corporations to move jobs around the globe. If labor is less costly in one nation than in another, it makes economic sense to produce labor-intensive products where the labor cost is lower. When outsourcing involves sending labor-requiring work, whether in manufacture of services, to another country, it is known as offshoring.

In the USA, for instance, many hundreds of thousands of jobs were offshored to Mexico after the signing of the North American Free Trade Agreement in 1993. Manufacturers in the USA were accustomed to paying $15-25 an hour, with health care and retirement benefits, to US workers. NAFTA enabled them to hire Mexican workers in the Maquiladora zone – the mile-wide strip of Mexico just across the US border – to do the same jobs for a dollar or a dollar and a half an hour, without benefits.

With the 1994 US acceptance of the General Agreement on Trade and Tariffs (now subsumed into the World Trade Organization), a new aspect of outsourcing emerged. Since a worker in Mexico would do for a dollar an hour what a worker in the USA did for $25 an hour, corporations laid off millions of US workers and sent their jobs to Mexico. But then it transpired that Mexican labor at $1 an hour was a lot more expensive than labor in China, where production workers work for of a fifth or a quarter of the Mexican wage. The Maquiladora zone, built from almost nothing into a major economic engine in Mexico, began to lose jobs by the tens and hundreds of thousands.

The emergence of China as a major economic power is almost completely dependent upon this phenomenon of outsourcing, as well as producing finished products for resale by multinationals, in a world of free trade.

While the pundits of capitalism speak of the huge market comprised by China’s 1.2 billion people as an economic territory in which foreign producers are eager to sell, there is a reason that Chinese consumers have disposable income: a great deal of money has been generated in China by the outsourcing there of manufacturing for the MNCs. It is worth recalling that it is not the low wage Chinese workers who have disposable income. Huge numbers of Chinese workers are laboring at starvation wages: often locked in factories to keep them working long hours at difficult tasks, they are disproportionately female (being more easily bullied into following the orders of management, being more patient at doing the endless routine tasks of production) and are among the lowest paid laborers on earth. In the Chinese government’s desire to keep wages competitively low, it encourages corporations to move ever farther inland where wages are even lower.

In 1817, British economist David Ricardo propounded a principle that he said governed capitalist production. “The natural price of labor is that price which is necessary to enable the laborers to subsist and to perpetuate their race, without either increase or diminution. When the number of laborers is increased, wages again fall to their natural price, and indeed from a reaction sometimes fall below it.” Ricardo’s Law was true then, and is true now: unless there is a scarcity of labor, wages tend to drop lower and lower, till they reach a point where they equal the minimum amount required to keep a worker alive. On an international scale, which is clearly in operation today, Ricardo’s Law is the dynamic behind the phenomenon known as “the race to the bottom.” Everywhere, MNCs seek lower and lower wages. If Mexico pays more than China, send the jobs to China. If China begins to pay more than Vietnam, send the jobs to Vietnam. And pay the Vietnamese worker only what is required for him or her to have sufficient strength to show up at the factory gate tomorrow.

The only way to counteract Ricardo’s Law within a domestic economy that has more workers than jobs is when workers organize labor unions, and use their collective strength to provide a counter force to the race to the bottom in their place of work. (Strong labor unions in middle third of the 20th century is the reason US manufacturing jobs paid as well as they did, $20-25 an hour.) The only way to counteract Ricardo’s Law in a global economy where there are more workers than jobs, is by putting protections in place, nationally and internationally, which recognize the right of labor to organize unions, and which establish fair labor practices to abet the rights of workers in every country.

Here are some remarkable statistics. In the past three years, the USA has lost 2.7 million jobs, some to automation and productive efficiency, but many to job flight to low-wage China. In that number were 15 per cent of the USA’s manufacturing jobs – 15 per cent!

But for a variety of reasons the hemorrhaging of jobs was not of immediate public concern in the USA. Those reasons are worth listing. First, of course, there are huge financial benefits to the owning class who outsource jobs. The owning class, the USA’s wealthiest citizens, along with the large corporations, pour huge amounts of money into funding political campaigns, with the result that most elected officials pay more attention to undergirding the corporate drive for profit than to the needs of “ordinary” US workers. Along similar lines, the US media choose to focus on small scandals, individual acts of violence, and gossip, since the handful of giant corporations which own the media have no interest, literally no interest, in bringing corporate downsizing and offshoring to the attention of the public.

Additionally, the majority of the job loss has been in manufacturing, in what are called “blue collar” jobs. But in the USA union membership, once concentrated in the manufacturing industries, has been in decline for many years. Because of declining worker solidarity, when jobs in manufacturing disappear, there is less public outcry at the closing of economic horizons than one might expect. And Americans have been, up until recently, and not without some justification, gripped by a new “great American dream”. The USA has always prided itself on being a land of upward mobility. Since World War II, and ever more strongly in the ensuing decades, that dream has not only been of greater financial rewards for each generation, but also of movement from blue collar jobs to white collar jobs – from workers to professionals, from the assembly line to the office suite. Thus, if manufacturing jobs are lost, it may not necessarily seem of great consequence: Americans believe their children will be able to get better jobs, jobs in offices, jobs in the new knowledge and information based economy. For that world of technology and information is, Americans have been told, the economy of the future.

The first huge job losses were in labor-intensive low-pay work such as textiles and making shoes. The textile and clothing industry is, in terms of employment, a behemoth of manufacture. It was textile manufacture and processing, more than anything else, that created the modern proletariat: low-pay jobs, long hours, men and women working to the unceasing demands of machines. Although industrial manufacture helped create a huge middle class in Europe and the USA, it was never textile manufacture which did this. Those who made the cloth, sewed the clothes, stayed poor. So one could argue that making clothing in low wage countries was just another chapter of the continuing history of the first great sector in the industrial revolution. Movement upward has always been the dream of the working class: into better jobs, better work. Thus, losing jobs in the textile and clothing industries could be seen as relatively benign: there were always jobs making cars, in construction, in government service, which paid better and offered more opportunities.

Even when the job losses were in high-paid manufacturing, there was a sense that goods could be produced elsewhere, because the vital sectors in the economy were not in making things, but in “mental” work. Deciding how things were to be manufactured, moving and sorting information, developing new knowledge: Americans thought, not without justice, that the emergent economy of the late 20th and 21st century would demand computer programmers, accountants, scientists, architects. All of whom would be well paid, and work at satisfying jobs.

White collar jobs were the future of the USA, and US workers. But today there’s a new phenomenon that has appeared in the global marketplace. The same forces – globalization., fiscal efficiency, and outsourcing – that transformed manufacturing have now reshaped the nature of white collar jobs. Job flight from the USA (and Europe) has begun in the professional services. In consequence, whereas five years ago the major threat to US workers was seen to be China, today the major threat appears as India. India.

The movement of white-collar jobs – in service, in information technology, in professional expertise – has created a new relation between India and the USA. For while the massive job loss to China, mostly in low-skill manufacturing, has had major consequence for both nations, it has not created as much political tension in the USA as the loss of professional service jobs to India. What is happening in the interaction of the Indian and US economies seems one of the most publicized issues in US politics today; indeed, it is not beyond possibility that it will emerge as one of the central issues in the election forthcoming next November, when Americans will choose a president and the large majority of the federal legislature.

In looking at what the outsourcing of white-collar jobs to India means, it is hard to see anything but cause for optimism about the economy of the subcontinent despite certain dangers posed by the MNCs’ ‘race to the bottom’, writes HUCK GUTMAN

For a good number of years, India has invested heavily in education, in what economists call human infrastructure. There are, at the present moment, large numbers of Indian engineers, architects, computer programmers, scientists, mathematicians and students of management. Thus, India has major resources in intellectual capital; nor is this an accident, since it’s a direct result of decisions made regarding support for education in general and higher education in particular.
Additionally, India is also a nation whose advanced training is done in English. No one wants to apologise for the historical reality that led to the primacy of English: Britain’s imperial hegemony over the subcontinent in the 19th and 20th centuries propelled English as a national language and made it the primary the language of university instruction. Today, the world’s business is done in English. English is the primary language of the world’s economic superpower, the USA.
There are, after all, highly trained engineers in China, brilliant computer programmers in Russia. But add to India’s huge cadre of trained professionals, with their immense drive to succeed and their deep pride in doing work well, the advantage of thorough conversance with and in English, and you have a recipe for – in today’s global economy – job creation.
The importance of English can clearly be seen in the first influx of US jobs to India. These were lower-level service jobs: some were low-paying in the USA, like answering calls from those who have questions about, say, a billing for a credit card transaction, while some were moderately professional jobs, at higher salaries, as in providing technical services over the telephone. Clearly, English is required for these telephone call centre jobs, so India, with its highly trained and completely fluent English-speaking work force, is the site of choice for the relocation of US call centres.
But US and European corporations were quick to understand that if labour-cost savings were to be had by answering telephones in Mumbai or Bangalore instead of New York or San Francisco or London, even greater savings could be had by making use of the internet. If an architect works on a project in Philadelphia, for instance, the highly-skilled and laborious process of making drawings and establishing specifications for every aspect of the project can be done by a trained architect or engineer in Chennai for a small fraction of the cost that such architectural support work would cost in the USA.
The USA’s Fluor Corp, for example, according to Business Week, “employs 1,200 engineers and draftsmen in the Philippines, Poland and India to turn layouts of giant industrial facilities into detailed specs and blueprints. For a multibillion-dollar petrochemical plant Fluor is designing in Saudi Arabia, a job requiring 50,000 separate construction plans, 200 young Filipino engineers earning less than $3,000 a year collaborate in real time with elite US and British engineers making up to $90,000 via Web portals.”
And there is no reason, none at all, why a skilled financial analyst in Mumbai cannot do investment research as well as one in New York – at a fifth of the cost.
According to figures from the International Labour Organisation and the Paaras Group, while a software engineer in the USA makes an average of $66,100 a year, in India she or he makes $10,00 a year. Mechanical engineers: $55,600, India $5,900. IT managers: $55,000, India $8,500. Accountants: $410,00, India $5,000.
According a CNN report, Bangalore alone is “home to 1,00,000 high tech workers, many of them employed by US companies. Across all of India, one million people work for US based companies, like GE Capital and Microsoft.” It is estimated that eight billion dollars in services are exported from India to the USA each year. The future will see more of the same.
It is not just the USA that is offshoring professional employment. A recent study by the McKinsey & Co. estimated that in 2002 MNCs moved nearly $35 billion in white-collar job spending offshore. Yet more significant, it estimated that the offshoring of such jobs would grow by an astonishing 30 and 40 per cent each year though 2008. Recently, Business Week reported a reputable prediction that “By 2008 in India, IT work and other service exports will generate $57 billion in revenues, employ 4 million people, and account for 7 per cent of gross domestic product.”
In looking at what the outsourcing of white-collar jobs to India means, it is at first hard to see anything but cause for optimism about the economy of the subcontinent. Money for wages will flow into India in significant amounts, much of it directly into the pockets of India’s growing middle class. A whole stratum of the population will earn salaries which, by US or British standards, are low and therefore competitive, but which by Indian standards are, if not princely, more than comfortable. (Some may even be princely!)
This inflow of money into wages has positive implications for the Indian economy as a whole. Ever since the pioneering work of economist John Maynard Keynes, it has been clear that adding money into a system has a “multiplier” effect. Most of the lakhs (in new salary) that call centre employees earn will be spent, and what is spent will be spent again. The telephone service centre employee in Bangalore will buy, say, a new cooking pot. The seller of the pot takes his profit – and spends it, as does the corporation that made the pot. Both those profits, and the pot-workers’ wages, will be spent in turn, perhaps on buying soap. The seller of the soap and the maker of the soap, will in turn receive rupees – which they, too, in turn, will spend. The number of times this money is turned around and spent creates the multiplier – a figure measuring the velocity of money, the degree to which each additional rupee brought into the system will create economic activity. (The money from this string of transactions, beginning with the salary of the call centre employee, that is not spent ends up in savings. And unless those savings are kept under the mattress or put into gold jewellery, they become available as capital, to fund new investments in the Indian economy. Some of the money earned, especially since outsourced jobs are not part of an underground economy, will go to taxes, which are a tangible form of social capital.)
This inflow of money into wages has another positive effect. The “back office” jobs in managing its accounts receivable that an MNC sends to an Indian company, must be remunerated. The pay for this work enters India in dollars, even though the employees in Mumbai are paid in rupees. Thus, there is a new inflow of dollars into India – a current accounts balance, as it is called. India, as a nation, now has money it can use in the international economy. It can buy advanced technological equipment, so that its own native industries can compete against foreign corporations to make the best cars or telephone equipment in the world. It can pay to meet current needs – for petroleum imports, food, or upscale foreign automobiles. It can “bank” the money by holding gold, American Treasury notes or Swiss francs, and so have a reserve fund for future needs.
Thus, on both the individual level for the worker, within the economy as a multiplier, and in the international economy as positive returns on the current account balance: on every level, the movement of white-collar jobs into India is a boon.
But while an expanding and affluent middle class, a richer nation, and a new eminence in the international economy will result from the offshoring of jobs from the developed world to India, there are also potential dangers that deserve mention. First is a problem that afflicts the USA, even though its government and corporate leaders rigorously avoid mention of it. As money flows into the upper middle class, the gap between the haves and have-nots can dramatically widen, a situation particularly true when the wealth is generated by the expropriation of profits rather than through wages. In this regard, India is extremely fortunate. The service sector jobs that are coming to India in increasing numbers are good paying jobs.
The offshoring of jobs to China has meant vastly increased employment for Chinese workers. The great majority of these workers labour in low-wage jobs, at the bottom of the international labour scale. The gains from this kind of low-wage employment flow to the major corporations, which have cut their labour costs immensely; and to an owning class in China, which operates sweatshops for the large corporations. Thus, it is increasingly common for the wealthy “new class” to drive their immensely expensive automobiles through streets where impoverished workers live in dire poverty.
Under the regime of Mao Tse-Tung, China 20 or 30 years ago, though less developed, was relatively egalitarian. Today, in a remarkable and distressing turn of events, its disparity in wealth is so great that it quite literally approximates that of the USA – which has the most unequal division of wealth in the industrialised world.
Parenthetically, it should be noted that as China trumpets its remarkable economic progress, it is silent about job losses. Between 1995 and 2002, China lost 15 per cent of its manufacturing jobs: while low wage manufacture for foreign customers was rising, state enterprises were closing down in large numbers, laying off more workers than were hired in the private sector. For instance, over 25 million Chinese employees lost their jobs in the public sector between 1998 and 2002. Likewise, a dark side of “free trade” is the havoc wrought on agricultural employment in developing nations: China estimates WTO reforms will cost that nation 20 million farmers. Under Nafta, Mexico has lost 1.3 million farm jobs.
With well-paying jobs pouring into India, the stark stratification taking place in China will likely not occur: though there may be increasing number of wealthy owners, there will be a large, growing, affluent middle class. Still, in an India where 72.2 per cent of the population live in rural communities, the increasing differences between a growing urban professional middle class and a similarly growing (because of higher birth rates) impoverished class, will severely test the democratic principles which have been India’s bedrock foundation since independence.
There is another danger besides that of increasing economic stratification. As economist Harry Magdoff demonstrated in The Age of Imperialism almost five decades ago, the movement of money in the new imperialism that replaced colonialism is still from the periphery to the centre. As nation after nation has discovered (often delivered the news by the bludgeon of the International Monetary Fund), money may flow in from the developed nations, but when the total account is tallied – interest charges, repatriation of profits, costs of technology – more money flows back to the centres of imperial finance than flows out.
The international banks and MNCs, even more than the Indian people, are likely, in the final analysis, to be the great beneficiary of the economic activity that is outsourcing service sector jobs to India. It is easy to lose sight of the fact that imperialism does not exist to enrich the periphery. There may be benefits – and in the case of professional service job movement to India there are many – but much of the profit, and indeed much of the international flow of capital, will not remain in India, but will flow back to centres in New York, London, Paris, Tokyo, Frankfurt and Zurich.
A third danger should be mentioned. The first large outsourcing of US jobs was, under Nafta in the early 1990s, was to Mexico. But manufacturers quickly discovered that Mexico’s low-wage workers were more costly than the low-wage workers of China, Indonesia or Malaysia. So the jobs in assembling computers, in making shoes and electrical appliances that had moved to Mexico were soon lost. MNCs moved jobs to wherever labour costs were lowest: the race to the bottom.
Again, as our world moves into the future, other developing nations will follow India’s example (many, indeed, are already doing so) in training large numbers of engineers and scientists and managers; and already everywhere the importance of fluency in English is taking its place in national educational priorities. So the race to the bottom, unexpected as it may seem at the present moment, will likely in due course have an impact on the service-sector and professional jobs that have come to India. If a call centre in Indonesia can provide employees who will do equivalent work for half the Indian wage, Indian workers will either see their wages halved or their jobs disappear to Indonesia. (The Philippines, for example, already has an abundance of accountants trained in US accounting standards: today one of the largest MNCs, Proctor and Gamble, employs 650 employees in Manila to assist with the preparation of its global tax returns.)
Notwithstanding these dangers, the present moment is a bright one for India: for its economy, for its educated citizenry. Good jobs at good pay will continue to flow into India, enriching the overall economy as well as solidifying the economic well being of those who gain those jobs. India’s economy will not only prosper, but will see spectacular growth. New horizons will open, new possibilities will beckon, for a whole generation of India’s young professionals and university students. The second half of the first decade of the 21st century, and the second decade as well, hold great promise as the coming-into-prominence of India on the world economic scene. These next 15 years may well be the “Age of India.”

Two weeks ago, I attended a meeting in the north-eastern USA between a public official and eight IT experts. The eight were part of a cadre of 50 in a large insurance company. Most of the people in the meeting had worked for the company for 20 years or more. Suddenly their work had been outsourced to a domestic firm. That firm had in turn announced that it would be replacing the IT workers – who earned an average of $65,000 a year – with Indian workers who would earn something like a tenth of that. Not only would most of these American workers lose their jobs: they were told that, in coming weeks, they would be required to train the Indian employees who were to replace them.

The US stock market, severely depressed since the implosion of speculative fever of the boom, is in the midst of a strong rebound. The balance sheet on corporation after corporation shows profits at or exceeding expectations. Even the fall of the dollar, a plunge of about 35 per cent against the Euro, has its positive side, making US goods strongly price competitive with those of other developed nations. Things would seem to be going well in the realm of the world’s greatest economic power.

“Seem” is the operative word. For while stocks soar and some CEOs earn $100 million a year in pay, the American populace is increasingly worried about the economic future of the US workplace. Chief among their worries is this: Forrester Research predicts at least 3.3 million white collar jobs and $136 billion in wages will shift from the USA to low-cost countries by 2015.

It has been argued that the loss of blue collar jobs, which has marked the previous decade and become a veritable torrent of offshoring in the past three years, did not strike at the heart of the US body politic in the same way as does this new loss of service and information-related jobs. The dream of everyone in the USA is that sometime, someday, their children will not have to work with their hands. Office jobs are more desirable – they are cleaner, pay better and have more status – than jobs in manufacture. So as blue collar jobs disappeared, and the nation was promised that white collar jobs would take their place, there was little outcry.

But now the white collar jobs are disappearing too. The USA is in the midst of what is being called a “jobless recovery”. For 43 consecutive months, manufacturers have cut the number of workers on their payrolls. The USA is in the longest employment slump since the 1930s, when the nation was mired in the Great Depression.

The seemingly robust economic recovery, with its 6.1 per cent growth in the last half of 2003, just has not created jobs. Unlike the previous two decades, which saw job growth averaging more than a quarter of a million jobs a month, current job growth is negative or flat. The last month reported, February, did note a net gain of 21,000 jobs, but they were all in the government sector. Unemployment is officially pegged at 5.6 per cent, but because the economic outlook is so bleak, many have stopped looking for work and therefore are no longer counted as unemployed. If the labor force had not shrunk in the last half year, the unemployment rate would be 6.4 per cent. Many economists believe the actual number of unemployed is closer to 10 per cent.

As Americans confront the evaporation of their dreams, they are beginning to look at where their jobs have gone. What they find, a discovery greatly abetted by the media, is that their jobs have gone, or are going, to India.

It should be made clear that India in this regard is a synecdoche (a term of rhetorical analysis for a part which stands for the whole). The first great offshoring of service jobs occurred when back-office work and call centers went to Northern Ireland over a decade ago. The Northern Irish, like Indians, were available at “low wages”, they spoke English and at the time there were excellent phone hookups to Belfast. Today, excellent telephone links are global and there are many sources of lower-wage workers who speak perfect English. Sometimes English is not even required.

The offshoring of white collar jobs is the current American nightmare. The professional jobs, the well-paying jobs, the future jobs of the USA’s young people, seem to be moving across distant seas to countries where people will work for salaries so low that they would not pay the rent on a small American flat. Soon, people fear, all that will be left are jobs that cannot be exported: flipping hamburgers, making beds in hotels, picking up the garbage.

Indeed, in an attempt to skew the dismal statistics on manufacturing jobs, President Bush proposed in his annual economic message to the Congress that cooking hamburgers, notoriously one of the lowest-paying of jobs, be henceforward defined as a “manufacturing” job. But then, Bush seems to have a tin ear, unable to hear what is going on in the nation he governs. He guessed wrongly, deeply wrongly in setting the tenor of his whole administration: it’s not terrorist planes flying into skyscrapers that keeps Americans awake at night, but the sense that future of the middle class and working people is ebbing away, their jobs more and more often landing on foreign shores. The Americans see their future seeping away to the Philippines, to Poland, to Russia, of course to China, and especially – especially – to India.

As said earlier, India has great advantages in the world labor market. Its cost of living and wage standards are, by the measure of the developed countries, low; it has a huge highly educated work force, with, for example, over 5,20,000 IT engineers; and its professional workers are fluent in English.

So when Americans bemoan the offshoring of white collar jobs, it is, unhappily, India that most often comes to mind. Partly this results of from an awareness of how attractive are India’s professional services, highly trained and of modest price. Forrester Research found, for instance, that more than half of all outsourced IT jobs go to India.

Partly it is related to the fact – tragic fact, not defensible in any way – that color prejudice sometimes runs deep in the American psyche, so that it may be more politically or socially acceptable to be upset by Indian software engineers than Russian ones, by Indian call centers than Northern Irish ones.

Partly it is, as with China, the size of these two behemoth nations, both felt to be future competitors rather than junior partners in the world economy: India is a potential rival, Poland and Korea are not.

While China has “taken” more jobs from US workers than India, there seems not as much outcry against job outsourcing to East Asia as there is against the movement of jobs to India. As noted earlier, on some deep psychic level, the loss of manufacturing jobs is partially acceptable to Americans. The contemporary American dream says manufacturing jobs are being lost because developed nations are heading into a knowledge-driven, 21st century economy. Information-based jobs, talking-to-people jobs, office jobs: these were to be the sanctum into which the next generation of Americans would move. Now, more and more of those jobs are being offshored, and often offshored to India.

Added to the American situation is a political variable. It is a truism in the USA: the lower one’s income, status, age, the less likely one is to vote. So voters are disproportionately well-employed, professional, established in their jobs. Offshoring of white collar jobs threatens the very core of the voting public and so it has become a major factor in US politics.

There will be two major issues in the next election. If national security – meaning, primarily, the ongoing war against a faceless terrorist adversary – is seen by voters as the primary issue, President Bush, who portrays himself as having a solid and capable hand on the tiller of the ship of state, will likely win re-election. If the faltering economy – despite record low interest rates and a rising stock market, jobs are not increasing and joblessness is on the rise – is the central concern, John Kerry will likely be the next President. There will, of course, be what are called wedge issues abortion, homosexual marriage, concerns about immigration – but they will function as the Ram Temple in Ayodhya functions in India, to muddy the waters so that the central issues of war and prosperity will not dominate.

A recent poll indicates that support for “free trade” is dropping in every income category, and falling most in the high income groups that most strongly supported free trade just five years ago. In the primaries, every Democratic candidate for President expressed concern about job losses overseas; the likely nominee, John Kerry, who supported free trade agreements until recently, has thus far resisted calling for renegotiated multinational trade agreements. Nonetheless, speaking of the Bush administration he recently proclaimed, “They have delivered a double blow to America’s workers, 3 million jobs destroyed on their watch, and now they want to export more of our jobs overseas?” Kerry has pledged that as soon as he is elected, he will order “a 120-day review of all existing trade agreements to ensure that our trade partners are living up to their labor and environment obligations and that trade agreements are enforceable and are balanced for America’s workers.”

But Bush and his challenger may feel a need to respond more strongly yet to what is going on in the body politic. In general, Americans exist in a different world than their politicians. While the majority of Congress and the two presidential candidates court the corporate interests for their potential for sizeable campaign contributions, there is a tectonic shift taking place in the American populace. The specter of continuing job losses – a major financial publication suggested that as many as one third of all US jobs are vulnerable to offshoring – has shaken the American middle class to its core. There’s not yet a call for protectionism, but there is mounting pressure for some variety of government action to halt the outflow of white collar jobs.

The problem of offshoring is a difficult one for Americans. Caught in an economic squeeze – real wages have been flat for 30 years, and the middle class is shrinking – there are three ways an American family can maintain its standard of living. One is to work longer hours: Americans now work longer hours than workers in any other industrialized country, even Japan. Another, so widespread it has become the norm, is for all adults in a family unit, not just the husband, to work. The third is to subsidize the cost of necessities by importing low-price goods. Today, a pair of shoes, a shirt, a television, a cooking pot, a computer, cost far less in inflation-adjusted dollars than they did 10 or 15 years ago. For Americans, globalization’s main benefits have gone to those who own and run MNCs and international banks, but some of its benefits have underwritten the economic stability of American families.

That stability is now doubly imperiled. If offshoring is curtailed, the continuing subsidy to American consumers of everything from electronics to apparel to telephone services to computer services may end, and prices will rise so that the necessities of life are less affordable. If offshoring is not curtailed, American jobs may disappear, or Americans may find themselves working for increasingly lower wages as employers try to keep pace with the downward movement of wages in the world economy.

Which brings our attention back to India. It is hard to say just what may happen. There is a serious proposal in the US Congress to deny federal aid to companies who move their employment overseas. There are calls for not just re-examination of multinational trade treaties, but renegotiation of them. The visa policies that currently allow foreign professionals easier access to the US workplace may be tightened. Then again, the demands of arguments of MNCs, free-market capitalists and internationalists may hold sway, and free trade, regardless of its consequences for US workers, may continue unrestricted and unabated.

The greatest danger to India, of course, is that the USA may move toward a protectionist policy, through the imposition of tariffs or the erection of barriers to offshoring of service jobs. There is, however, no move towards serious protectionism at the present moment. Still, the issue of offshoring has been raised to a very high level in the public consciousness.

While what will ultimately transpire is not evident, the offshoring of jobs, and in particular the offshoring of high-tech and professional service jobs to India, is on the USA’s agenda.

The author, a Visiting Fulbright Professor at Calcutta University, teaches at the University of Vermont.

Copyright 2004 The Statesman