A View from the Subcontinent

Yesterday I ran across what I thought was an extraordinary article by Ashok Mitra from The Telegraph out of Calcutta, India, "Agonies of Connection - How a New Government in the US May Affect India."

I often read online Indian newspaper articles because I often find out more about a story than what is being told to us in the States. (For example, details about the Chrysler-Tata deals.) What I found fascinating about this story was what I thought was the depth of analysis about the upcoming U.S. presidential election, particularly concerning the outsourcing of American jobs to India. (Note: Mitra has some intelligent commentary about the war in Iraq, which really deserves its own post.)

I thought Mitra really hit the nail on the head when he talked about the challenges of using campaign rhetoric in order to be elected, coupled with the challenges of being held accountable for that same rhetoric after being elected into office.

Here are a few choice tidbits regarding outsourcing:

It is not altogether inconceivable that the resolve once expressed by a past chairman of the Federal Reserve Board — he would bring the prime rate down to the level of zero if that would save the American economy — might well be rendered real by his present successor. Even that most extreme measure could be of little avail. For meanwhile, business process outsourcing has cast a shadow across the nation’s landscape. [Emphasis mine]. If to the American entrepreneur an open economic system offered the opportunity to outsource work whereby costs could be markedly pared down, the crisis in employment would persist irrespective of whatever happened to the interest rate structure. Low interest rates will encourage the induction of relatively more capital-intensive technology, while the supply of trained personnel to operate such technology could be ensured by persuading the authorities to issue generous H1B visas. The thrust of the presidential poll campaign has been directed against both BPO and H1B visas, with politicians crying hoarse for a return to a non-liberal regime; leaders of the badly scarred American working class have been shouting the most. Not surprisingly, proposals about how to restore for domestic workers the estimated three million jobs the Bush administration has exported out of the country have held centrestage in the campaign debates.

It's amazing how the Bush administration is reluctant to even admit that there is even a problem, while an Indian newspaper is stating all of the above as fact! Mitra says a little later on:

All the greater reason to expect that greater attention will be riveted on the pre-poll commitments on economic issues. The cry of saving the jobs of American youth will grow shriller. Pressure will intensify to close loopholes in trade laws to prevent placement of orders on foreign firms on work that could be as competently done at home [emphasis mine] never mind if at higher costs. In case necessary, some tax relief may be considered for firms offering extra consideration to domestic workers. Penalty for breach of legislation enjoining preference to domesticemployees, could be stiffened too. There could also be a drastic reduction in the number of H1B visas issued each year.

I'm fascinated by this analysis. From where I'm sitting, I can't possibly see any of the above ever happening, even if a Democrat is elected President. The lure of corporate money flowing into campaign funds is just too difficult to resist. Loopholes could be closed, but other loopholes could be opened just as quickly. Companies would find more ways to send profits to offshore pirate coves (as Elaine Meinel Supkis would say), or, companies could simply just close shop here and move overseas. However, in India, they have reason to monitor the situation very closely, and they are worried.

How will all this affect India? The fastest growing among our industries is the information technology-related services. Many of them depend for as much as 90 per cent or more of their activities on orders flowing in from the US. A substantial part of India’s high rate of growth of GDP, touching more recently almost 9 per cent per annum, has a strong link with the high rate of growth in IT services. Suppose a severe contraction occurs in the activities in the IT sector following the ushering in of the new administration in the US next year. The spin-off could be a major setback for our GDP growth too. Whether such a possibility would turn into a probability can only be speculated on at this moment. What is however obvious is that an interdependent global system has its positive as well as flip sides. Foreigners can offer us bliss; excessive attachment of foreigners can also bring problems in its train.

Mitra practically admits that India's economic success can be greatly attributed to the offshoring of American jobs to their country. Contrast India's growth of GDP with research by economist Susan Houseman, where she states that costs savings from outsourcing and offshoring is incorrectly being applied to U.S. GDP. Ironically, jobs pouring into India is helping their GDP, while these same jobs pouring out of the U.S. is also helping our GDP.

Even in a world ruled by neo-liberal ideology, economics does not decide everything. Just because in an international framework of costs and returns, our software industry has proved to be a world-beater, we cannot expect the Americans to favour us perpetually, if to do so would hurt the interests of their own workers. Economic calculations cannot afford to ignore the desideratum of national interests. [Emphasis mine.]

See that? Even Indians recognize the importance of national interests over pure money-making economics. Do you think they'd ever treat their citizens this way? Mitra finishes up by saying:

Should not we at least prepare ourselves for the contingency of a sudden shrinkage in the demand from the US for our IT-related services? If we have to maintain the momentum of our GDP growth, we need to look for a substitute commodity or service to fill the space the IT sector would be forced to vacate. Do we have the faintest notion where to look for it? In case we have not a clue in that regard, we would have to fall back on growth induced by demand germinating within the domestic economy [emphasis mine]. That would however call for a drastic restructuring of income and assets distribution, including widespread land reforms. This is where China has scored over us. China’s export boom is pivoted on exports of commodities, not so much on outsourcing. That apart, it accomplished one of the most thoroughgoing programmes of land reforms the world has ever seen before it set on the road to export-led growth. It did not put the cart before the horse; we did.

Imagine that! Redistributing assets so that economic growth would depend on increased demand within a country's borders! Do you think we could ever come up with anything so radical? The Indians are looking ahead to what will happen if the influx of IT jobs into their country all of a sudden comes to a halt or even reverses. Mitra does not claim something ridiculous like 4.5 to 7 jobs will magically appear every time they lose a job in the IT sector, or that Indians will move on to higher and better careers in a "new economy", or even that the inevitable "green technology" bubble will transform the entire subcontinent. Mitra and others realize that their nation needs to look ahead and do some serious planning for the future.

(Cross-posted at Carrie's Nation.)