If You Get the Ax, Don’t Blame India

Relations between the world’s largest two democracies, the United States and India, have never been better, but a small cloud has appeared in these otherwise clear skies: outsourcing.

Even as President Bush and Prime Minister Atal Behari Vajpayee announced in January increased cooperation in civilian nuclear, space and high-technology areas, the election-year rhetoric in the U.S. was rife with talk of India luring jobs away from the U.S.

Is it really so? Are “profits- before-patriotism” American corporations conspiring with India to move jobs abroad, tempted by depressed wages for high-skilled workers? Not quite. (We’re not talking here about “offshoring” companies in the Cayman Islands, which is usually a tax dodge, but about outsourcing of skilled jobs.)

It is undeniable that job growth in the U.S. has been poor and that jobs have gone abroad. At the same time, India’s economic growth -- estimated to average more than 7% in the current fiscal year -- is creating millions of jobs there. But such broad comparisons mean little.

Most jobs going to India are in the high-technology and professional-services sector. Data released by the U.S. Bureau of Labor Statistics show, however, that U.S. job losses are taking place mainly in manufacturing and retail services.

In the professional and business sectors, U.S. employers added workers in the last quarter. Although jobs did shrink -- for many reasons, including a burst stock market bubble -- employment in computer and mathematical occupations has grown since June last year by more than 150,000. According to the Information Technologies Assn. of America, only about 2% of 10 million computer-related jobs have gone abroad.

In U.S. manufacturing, jobs have been declining, but they have been gradually doing so over two decades. Investments by U.S. companies in India’s manufacturing are still quite modest. In India’s fast-growing automobile sector, for instance, Japanese and South Korean firms are big players. American auto giants have a comparatively low profile.

As for the loss of jobs or lowering of labor standards in retail business here, Wal-Mart might offer more clues to that than India or China.

What about wages? Yes, Indian wages are low compared with U.S. wages. This is an important reason, apart from the highly qualified skills pool, why technology and knowledge-based services corporations have moved some of their operations to India.

Though it’s true that a software engineer’s job worth $80,000 a year in the U.S. goes for $20,000 in Bangalore, that by no means indicates that India is deliberately depressing wages or that Indian high-tech workers are being forced to toil in Dickensian conditions. On the contrary, such wages are like manna for a tiny section of an Indian labor market long used to low incomes by world standards. Remember, India’s per capita income is still $490 annually.

If you look at purchasing power, $20,000 in India can buy you goods and services worth three or four times what it can in the U.S. Put differently, a job offering that much in India is like having one worth close to $80,000 here.

In a global economy, where communications have made differences between day and night operations almost irrelevant, it is inevitable that corporations around the world will seek the best-quality workers at the lowest price. That is one reason why, for example, BMW set up manufacturing facilities in the United States. Germany’s higher labor costs and relatively more rigid labor laws and unions make hiring and firing German workers much more expensive.

To seek to regulate this practice is to undermine the principles on which free markets operate, unless you believe that free markets are fine in everything except labor.

Although high-tech outsourcing unfortunately causes temporary disruptions in the jobs situation and keeps wages depressed in some skilled occupations, it also helps moderate inflation and thereby keeps prices low for the average American consumer.

Threats to the U.S. economy probably lie elsewhere -- in ballooning and unprecedented budget deficits, in a dollar that is cascading in world markets, in creeping doubts abroad about its long-term financial credibility -- and not in the shift of a few high-tech jobs abroad.

Meanwhile, outsourcing by U.S. companies helps a poor country like India skip a few steps on its way up the development ladder.