The Telegraph
Since 1st March, 1999
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Across the world, resistance is increasing to outsourcing jobs moving to India. The British media complains of 200,000 banking and insurance jobs moving to India, CNN reports that 1 million Indians work for US-based companies, and within India, there are reports that 40 million jobs have already been created in the English-speaking services segment. The United States of America, Britain, Germany, Netherlands and Malaysia are all countries where such resentment has surfaced. Developed countries preach virtues of free trade and free cross-border-movements of capital. Ipso facto, there are also welfare gains from free cross-border movements of labour. Before a foreign direct investment proposal is approved in India, few people are likely to ask whether an Indian company is capable of producing the same goods. Yet, in developed countries, such questions are routine ones for cross-border labour movements.

Restrictions on global labour movements are a post-World War I phenomenon. Yet, controls on immigration have now come to be accepted and the World Trade Organizationís service sector negotiations have minimum market access schedules for temporary migration of skilled personnel and further negotiations are expected in the Doha development agenda. Despite these commitments, barriers are erected by developed countries for such migration and there ought to be a new classification of non-tariff barriers for labour movements. Security considerations have now compounded traditional concerns about immigration. If governments defy economic rationale, markets will find solutions. Hence, since H1B or L1 visas have become difficult to obtain and these are required for providing on-site services, services will move off-site.

It is this movement that developed countries find difficult to accept. The developed world lost its comparative advantage in manufacturing to southeast and east Asia and thought it had one in services. Given that Indian salaries are one-tenth of those in the developed world, that assumed comparative advantage is also disappearing. Labour productivity (and there are problems with measuring this) and higher skills do not generally justify such huge salary differentials. As long as outsourcing to India meant a few call-centres, resentment was muted. But increasingly, business process outsourcing means more than call centres and non-IT related managerial, administrative and clerical jobs (especially in banking and insurance) are also moving off-shore. Job losses and salary cuts in the developed world are an inevitable outcome of globalization, although transitory pains have been accentuated by continued recession in the West. However, the West cannot have its cake and eat it too. First, it cannot preach free trade and resist opening up agriculture or textiles and garments. Second, it cannot push for free cross-border movement of capital and resist free cross-border movement of labour. Third, it cannot favour service-sector liberalization through corporate presence abroad (as opposed to cross-border movement of natural people) and then protest when jobs move off-site.

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