| Caught between the devil and the deep sea
Like information technology, business process outsourcing is on the way to become a household term all over the world. American workers regard it as their nemesis. Indian workers and businessmen welcome it as their saviour. The debate on BPO or “outsourcing” is hotting up. But what is this fuss all about'
Workers in the United States of America feel that they are caught between the devil and the deep sea. First, high-skill workers, like software professionals from countries like India came to the US to work onsite on temporary work permits. They were often sent by Indian companies to do project-based work at relatively low cost. As long as the US economy was booming due to the IT revolution and there was a shortage of such people in the US, complaints were few and far between. But now, with the bust of dotcom companies and the US economy showing no signs of recovery, complaints are becoming more vociferous.
As a result, H-1B temporary work visa quota has been drastically reduced by about 67 per cent by the US over a year. The current complaint is more against the “misuse” of L-1 visas under which workers are brought from low-wage countries through inter-company transfers. Some of them are then allegedly “loaned out” to other companies in the US. Unlike H1-B visa workers, for whom there is a floor level of compensation, no such provision exists for L-1 visa workers. US politicians are complaining that such workers are often working at much lower wages in the US, pulling down the availability of jobs and wages of comparable American workers. Recently, the Indian media was full of stories of harassment of Indian IT professionals over alleged violation of visa formalities in countries like the US, Germany, the Netherlands and Malaysia. In the past, many such technical violations were overlooked by the authorities, but not any more.
The second squeeze for the US workers has come from “outsourcing”. Previously, the primary concern of American, European and Japanese workers was the export of relatively low-skilled manufacturing jobs to countries like China. The resulting reduction in real wages — due to lower demand for such workers — led to slogans like “US wages are being set in Beijing.” However, professional people in the US were not that concerned. It was generally accepted that countries like China with low wages would be major exporters of labour-intensive simple industrial products in a globalized world.
On the other hand, such low-wage countries would be buying high-skill and technology-intensive manufactured products and services from the industrially advanced Western countries. So, along with job loss for low-skill blue-collar workers there will be a job gain for high-skill white-collar professionals. In other words, countries like the US were expected to switch from manufacturing to service economies just as the developing countries were to graduate from agriculture to manufacturing.
But that does not seem to be the case anymore. The voice of complaint against outsourcing is now being raised by professional people in the US. It is mainly directed towards India. The popular feeling in the US is that Americans are losing IT-enabled service jobs like those of accountants, stock analysts, actuaries, architects, designers, research and development scientists, radiologists, telephone operators, data entry and processing workers, to countries like India. Mainstream national US media is talking about the loss of some 2.5 million jobs of all types through outsourcing over the last two years. According to their estimates, some 560,000 of these are high-skill white-collar professional jobs.
The US media hype started after one well-publicized suicide case by an American software professional who apparently lost his job to an Indian engineer and was then forced to train him in his job. Senators from five US states have moved bills to ban overseas outsourcing of technology-service jobs by state governments. It is doubtful whether these would get the necessary political support to be made into laws. Moreover, the legislators cannot stop private enterprises from outsourcing as they, unlike government departments, will have to cut costs to stay in business. Nonetheless, the popular mood against on-site foreign workers and outsourcing is becoming increasingly hostile. Even private companies cannot be totally immune to the local political and social pressures.
What is the response of Indian industry which are the apparent beneficiaries' Nasscom and several major Indian IT companies are using counter-arguments and lobbying to control the damage. They are emphasizing the indirect benefits which the US economy is deriving from both onsite Indian professionals working in the US and overseas outsourcing. The US companies, they argue, are cutting costs by using lower-wage Indian professionals in the US and also through outsourced jobs done in India. Without this, the US companies would lose their international cost competitiveness. Closures and job losses would follow. So, lower wage Indian professionals are helping Americans retain their jobs in the US.
Then there is the gain to American consumers. They are getting cheaper goods made possible through outsourcing. Even Indian professionals on H-1B temporary work visas have to pay social security taxes in the US but they are not entitled to social security benefits. This amounts to a gift to the US. True, India is selling some $ 7 billion of software services to the US each year. But the flip side is that India also buys hardware and software from the US. Indian workers in the US are spending their money and creating demand and jobs, specially when lack of demand for goods is the major problem. Some Indian companies hire American marketing and consulting professionals, creating jobs for them.
Job loss for professional people is a highly sensitive issue in any country. So, instead of an aggressive posture, Nasscom has opted for subtle diplomacy and lobbying with influential politicians and industry leaders in the US. However, the option to take the dispute to World Trade Organization remains open. Restricting outsourcing amounts to violation of the General Agreement on Trade in Services, which is a component of the WTO agreement.
Irrespective of the legal options, we have to realize that the job loss for high-skill professionals is qualitatively different from loss of blue-collar jobs. First, professionals are much more articulate and can create more media hype. Second, though the wage rate in China could be one-tenth of the US wages for blue-collar workers, usually their labour productivity is also much less, as they have less sophisticated machines and technology to work with. Hence, low wages do not necessarily give an advantage to low-wage countries in all kinds of manufacturing jobs.
But for high-skill professionals, the salary is much less in India whereas the productivity is fairly comparable since the required infrastructure and technology can be easily duplicated in India. Hence, the advantage of outsourcing such jobs from overseas is all too evident. Correspondingly, the connection between outsourcing and job loss for white-collar professionals in the US appear obvious to the US public. So, the popular support for protectionism in the US would continue till the US economy starts to grow at a sufficiently high rate to make unemployment a less urgent issue.
The paradox is that globalization is being blamed by all parties. The protectionist lobby in the US is holding the liberalized trade regime under the WTO and their own multinational companies responsible for exporting jobs to countries like China and India. At the same time, protectionists in India also think that Indians are losing jobs as a result of trade liberalization and the entry of multinational companies. Both cannot be right at the same time. In fact, in most cases, it is the technological changes which have made this kind of outsourcing both feasible and cost-effective. For example, the revolution in telecommunications has made it possible to have call centres in a different continent doing the back office work of a company located thousands of miles away. Of course, the reduction in trade barriers and freer international capital movements have facilitated the process. So the question remains: who is the bigger villain — globalization or technology'