EARLIER this year, a group of politicians from Britain's left-of-centre Labour Party made a field trip to EXL Service, an Indian outsourcing firm in Delhi. Its charming boss, Vikram Talwar, must have worked wonders. On their return, the politicians chided Britain's trade unions for being negative about sourcing work from poor countries, and praised EXL Service's facilities for its workers. These included a health clinic, a gym and a good staff canteen. Laura Moffat, one of the politicians, approvingly told the Financial Times: “The benefits EXL offered its employees would be a wish-list for us in Britain.”
More often than not in the past two years, public champions of outsourcing have found themselves bullied into silence. The chairman of President George Bush's Council of Economic Advisers, Gregory Mankiw, got howled off the stage earlier this year when he dared to defend the practice. Lou Dobbs, a TV news anchorman who names and shames unpatriotic American firms that hire workers abroad, is hawking around a new book, “Exporting America: Why Corporate Greed is Shipping American Jobs Overseas”.
Such attacks have instilled caution in some of the big technology firms: IBM, for instance, no longer likes to talk publicly about the growth of its business in India. Yet the backlash against outsourcing has been less violent than people like Mr Dobbs might have hoped; indeed, as the reaction of Mr Talwar's British visitors show, outsourcing is beginning to win support in unexpected quarters.
Protectionists are finding it hard to argue that “corporate greed” is draining jobs from Britain and America when those two economies are close to full employment. More awkwardly still, the very industries said to be badly hurt by the migration of jobs overseas report a shortage of workers at home. Most of the jobs created in India are either in call-centres or at IT firms. But call-centre companies in both Britain and America suffer from rising staff turnover and struggle to recruit more people. Britain's Call-Centre Association, a trade lobby, thinks that employment in the industry in Britain will rise in the next few years; in the United States, call-centre employment is expected to decline slightly.
As IT spending recovers from recession, labour markets in America and Europe are becoming tighter in this industry too. Not many students in rich countries choose to study engineering at college. Even a modest rise in the demand for IT workers in rich countries will create shortages—and therefore openings for Indian, Chinese and Russian engineers.
In the longer run, ageing populations in rich countries will mean labour shortages in many industries. Sourcing some of the work from abroad will ease the problem. It will also help to lift productivity among rich-country workers who will have to support larger numbers of older people. Moreover, it could help to lower some of the costs of ageing populations, especially in health care. America's health-care spending is rising at 12% a year, far faster than GDP. Farming out the huge job of administering this system to lower-cost countries would restrain such spending. Trade has the same sort of effect, and Americans think nothing of shopping online for cheaper drugs from Canadian pharmacies. Yet, as McKinsey's Diana Farrell points out, it is precisely the supporters of drug imports (and haters of big business) who complain most about jobs going to India.
Anti-globalisers claim that multinational firms that obtain goods and services in low-cost countries exploit the poor by putting them to work in sweatshops. Trade unions and industrial lobbies use such arguments to make their demands for protection look less self-interested, and guilt-wracked American and European bien pensants swallow them whole.
The spread of global sourcing may help to unpick these politics. The smartly dressed, brand-conscious young men and women who stroll around the lush technology parks of Bangalore are patently not some new underclass. New wealth in the East will help to expose old protectionist politics in the West. That might provide globalisation with a new legitimacy and moral strength.
This survey has argued that, although the opportunity to source large amounts of white-collar work from low-cost countries has arisen quite suddenly, the work will in fact move over gradually. This will give rich economies time to adjust to new patterns of work, and should keep the politics of change manageable. But from time to time, ugly protectionism is sure to flare up again.
A sudden increase in global competition could force faster and deeper restructuring in rich countries. Big IT-services firms such as IBM and Accenture have scrambled to hire tens of thousands of new employees in India to compete with Indian IT firms such as Wipro and TCS. This could happen in other industries, too, as India becomes expert at providing outsourced banking, insurance and business services.
Office workers everywhere are likely to be discomfited by the rise of Indian firms that promise to do white-collar work cheaper, faster and better. Just as the Japanese car makers licked Detroit into shape, India is going to change life on the cubicle farm forever. So far only American and British firms have sourced much work from low-cost countries, but other rich economies such as France, Germany, Italy and Japan will eventually have to follow as British and American firms reduce their costs and make their rivals look vulnerable. In Japan, France and Germany, this could lift high levels of unemployment (disguised in Japan; explicit in France and Germany) higher still if rigid, unreformed labour markets continue to deny displaced workers new jobs. This is likely to fuel protectionism and cause a backlash.
That may be all the more reason to reassert both the economic and the moral case for free trade. Buying goods and services from poor countries is not only hugely beneficial to rich countries' economies, it can also provide opportunities for millions of people in poor countries to lift themselves up and improve their lives. It is a game in which everybody can win.
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