In The Developing
And Developed World
By Huck Gutman
26 March, 2004
The Statesman, India
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.
to work done by people other than a corporations 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
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 Chinas 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 governments 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. Ricardos
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, Ricardos 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 Ricardos 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 Ricardos 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 USAs
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 USAs 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.
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 theres 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.
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 its 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: Britains 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 worlds business is done in English. English
is the primary language of the worlds economic superpower, the
There are, after all, highly trained engineers in China, brilliant computer
programmers in Russia. But add to Indias 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 todays global economy
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 USAs 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 Indias
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 Indias 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 Mexicos 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 Indias 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. Indias economy will not only prosper, but will see spectacular
growth. New horizons will open, new possibilities will beckon, for a
whole generation of Indias 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 dot.com
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 worlds greatest economic power.
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
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
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 USAs 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: its 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 Indias 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
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
ones 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 Americas
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 Americas 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. Theres 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, globalizations
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 USAs agenda.
The author, a Visiting Fulbright Professor at Calcutta University, teaches
at the University of Vermont.
Copyright 2004 The