Busting The Outsourcing Myth

Updated: Apr 27 2004, 05:30am hrs
Who is worried by John Kerry Certainly not Azim Premji and N Narayanamurthy. In the last fortnight, the two not only steered their companies sales past a billion dollars but also came out with the most optimistic outlook that weve heard from them in a long while. An outlook that most analysts said would be clouded by the rising rupee and the kind of threats that John Kerry, the Democrat front-runner for the US Presidency, had been making against outsourcing.

These threats enthused the media as only stories of conflict and stand-offs can. They also kept the markets in ferment. Now, since its left the people most likely to be affected unruffled, did we all over-react Thomas J Donohue, President of the American Chamber of Commerce, thinks we did. But then he would. His is the worlds largest business association with over three million member companies, so anything that upsets business sentiment upsets him.

But then all we did was report the facts. You did, says Donohue, who was in Delhi on his first visit to India a few days back, but you didnt say that Kerry can do precious little to enforce those threats. There are no doubt 30-odd legislations that have been proposed to limit outsourcing but not a single one has been passed into a law. And a law says Donohue, aint going to happen without a big fight, even if Kerry does become President. He would have to get his bills past the Senate and Congress, and both these will most likely be held by Republicans. And even if he can get it past them, theyll be illegal as theyll violate World Trade Organisation agreements.

Why is American big business so against Kerrys stand on outsourcing Its profits, silly. Before I get to Donohues arguments, after all he is an interested party, here are some numbers from a Bloomberg report. It says that when Delta Airline created 1,000 jobs in India in 2003, it saved $25 million. This allowed them to create 1,200 in the US. So net net, there were no job losses, only employment gains in America. Lets take a look at General Electric. There are no official numbers, but industry analysts estimate that it saves over $340 million a year by shifting its back office operations to India.

And heres what McKinsey Global Institute found after a study it did. For every dollar spent on outsourcing by the US in 2002, the total value derived by the global economy was between $1.40-1.47. Now, 78 per cent of this was retained in the US, in the form of lower costs to consumers.

So its not outsourcing thats the prime culprit behind the joblessness in the US, says the National Council of Applied Economic Research in its April report. It says manufacturing employment between 1995 and 2002 declined 11 per cent in the US, 15 per cent in China (yes, even the factory of the world saw job growth slow down) and 16 per cent in Japan.

This was not because of slowdown in investment or in the global economy but because the globalisation of the IT sector helped reduce prices of IT products by 10 to 30 per cent. This in turn saw more companies turn to IT which pushed up productivity by almost 2.8 per cent. This saw job growth slow down and also added at least $230 billion to the US GDP.

But despite all this there is going to be a shortage of labour in the US. Donohue estimates that by 2010 there will be seven million jobs in the US without Americans to fill them. This is because of a slowing population growth and an ageing population. These jobs will have to be filled by immigrants or by jobs migrating out. The preferred choice would likely be outsourcing.

Now heres from a report prepared by Donohue on the future of the US workforce. This would perhaps be useful to the ruling party as well when its criticised for a jobless recovery. Bush has been charged with leading an administration thats lost three million jobs since it came to power. Donohue argues that this is according to the Payroll Survey of the Bureau of Labour Standards (BLS). He argues that the household survey done by the BLS shows that more Americans are on the job today than ever before in history 138.3 million. Thats 978 million more than were working in August 2003. This when payroll data showed that only 759,000 jobs had been added by companies. Donohue argues this is because temporary workers have become the fastest-growing segment of the workforce. Its time perhaps for India to do a household survey as well, rather than just depend on registrations at the Employment Bureaus.

The author is executive editor of CNBC-TV18. These are his personal views