Tim Geithner, the US Treasury secretary, made two conflicting statements on his visit to India?on the one hand stating that the US has been trying to expand trade in the post-crisis period and on the other hand stating that ?outsourcing makes the US economy weaker.? The outsourcing debate has gained more fodder by way of forecasts claiming that 3.3 million jobs will be outsourced from the US by 2015. However, the number of jobs in an economy in the long run is determined by the natural rate of unemployment, so what is affected is the composition of jobs, not the number.
By outsourcing jobs that require a relatively low skills base, firms free up additional capital that is then available for R&D?the bastion of growth and expansion. Information Management Consultants, an American company, illustrates this point. Their goal to develop a programme that allows pharmaceutical companies to better exploit research on the human genome would have been financially unviable if done entirely in the US. So the firm outsourced the majority of the coding to an Indian firm and for each Indian engineer it still employs six engineers in the US.
This shows that Geithner?s support of protectionist policies limiting outsourcing on the premise that it increases US unemployment levels disagrees with economics. Also, not all outsourcing leads to the displacement of US workers. Owing to high costs, if certain jobs (say customer care) were not outsourced, they would be replaced by automated electronic response systems. Thus, jobs are lost anyway (to technology instead of another country) and in addition, costs are also raised.
On an empirical front, those who contend that most service sector jobs will be outsourced to India and China are mistaken. About 70% of the service jobs in the US are in retailing, catering, restaurants and hotels, tourism, and personal care. These require the consumer and producer to be at the same place and, consequently, cannot be outsourced. India?s interests apart, outsourcing makes the US economy more competitive and not weaker, in contrast to popular perception.
feedit@expressindia.com