Suketu Mehta, essayist and author, laments the “primal fear in the Western public” that stories about outsourcing have engendered, and attempts to dispel these fears in an op-ed piece in the New York Times.
I agree with Mehta that Americans’ “fears” of Indians swallowing American jobs are misplaced, and commend his attempt to clear the air. However, I think that Mehta’s op-ed is partly guilty of the same mistakes as the very same stories that started (and stoked) the outsourcing controversy in the first place.
Mehta cites anecdotes or solitary statistics as evidence of the impact of outsourcing.
According to a confidential memorandum, I.B.M. is cutting 13,000 jobs in the United States and in Europe and creating 14,000 jobs in India.
First of all, are the job cuts in the US & Europe related to the job creation in India?
Secondly, the number of jobs lost because of mergers, poor management decisions and other missteps by management are many multiples of those moved offshore — as BlameIndiaWatch has often pointed out. Check this post on GM.
From 2000 to 2015, an estimated three million American jobs will have been outsourced; one in 10 technology jobs will leave these shores by the end of this year
This ominous statistic is a guaranteed fixture in any of the outsourcing alarmist creeds. However, that number has no significance without context. Such as
a) The size of the US economy — total employment of 140 million, wherein 3 million over 15 years works out to only about 200,000 jobs per year or less than 2%.
b) The number of job losses in a dynamic economy like the US, even at full employment is 18.7 million per year. That sounds far more ominous than the 3.million over 15 yrs. However, more than 18.7 million Americans find jobs, which is why the unemployment rate continues to fall.
And it’s a really low, low. Last week, my colleagues Eric Chabrow and Marianne Kolbasuk McGee reported that unemployment among IT workers averaged 3.7% for the four quarters ended March 31. That’s according to the latest data from the U.S. Bureau of Labor Statistics. And 3.7% is a good bit less than the national unemployment rate for all workers, which stands at 5.2%
c) The total volume of America’s outsourcing to India is approximately $10 billion (India’s total exports were approx $15 billion last year and 70% of that was that to the US, as per Nasscom)
This $10 billion include everything — IT services, call-centers, specialized business-process outsourcing.. the whole shibang! The US GDP is approximately $12 trillion, which means India’s share is less than 0.1%. In reality, outsourcing to India will have a small impact on the US economy, and it’s time Lou Dobbs and his ilk found another voodoo doll.
By the way, Indian triumphalists can stop their chest-thumping. We’re no IT superpower or knowledge superpower — not yet. $15 billion is peanuts — the worldwide market for IT services and products alone is $800 billion+. India’s come a long way, but let’s not get ahead of ourselves.
I agree with Mehta when he decries the “perverse hypocrisy” of the rich countries, who can’t have it both ways. However, he loses the plot somewhat when he points to colonialism and agricultural subsidies as the ultimate causes of outsourcing. To me, the real hypocrisy of the rich countries lies in their double-standards when it comes to trade. As Nandan Nilekani points out
“You (the West, especially the US) asked us to liberalise our economies, you preached the virtues of globalisation, you invented the business practice of outsourcing. We have merely followed your advice and used the tools that you gave us.”
Even more so, if the US were to build walls against outsourcing, they’d be hurting themselves the most. Brink Lindsey notes that
– The United States runs a trade surplus in the IT services most directly affected by offshoring (in the categories of “computer and data processing services” and “data base and other information services”).
– The United States is a major exporter of services generally and runs a sizable trade surplus. In 2002, for example, services exports accounted for 30 percent of total U.S. exports, and exports exceeded imports by $64.8 billion.
Sidebar: Mehta, like the alarmists, has the obligatory dig at the American educational system — in this case, vis-a-vis India’s.
When I moved to Queens, in New York City, at the age of 14, I found myself, for the first time in my life, considered good at math. In Bombay, math was my worst subject, and I regularly found my place near the bottom of the class rankings in that rigorous subject. But in my American school, so low were their standards that I was – to my parents’ disbelief – near the top of the class. It was the same in English and, unexpectedly, in American history, for my school in Bombay included a detailed study of the American Revolution. My American school curriculum had, of course, almost nothing on the subcontinent’s freedom struggle. I was mercilessly bullied during the 1979-80 hostage crisis, because my classmates couldn’t tell the difference between Iran and India. If I were now to move with my family to India, my children – who go to one of the best private schools in New York – would have to take remedial math and science courses to get into a good school in Bombay.
There may be problems with the American educational establishment. Regardless, this belief about the “wonderful” Indian educational system is pure myth! A very, very tiny percentage of schools and colleges are even half-way decent. India’s literacy rate is lower than many countries in sub-Saharan Africa!
Hat tip: Sepia Mutiny, where I’ve got a comment or two as well.
Full disclosure: Just so you know, my day job entails running a small outsourcing firm.
Update: Dan Drezner has a solid, facts-based take on offshore outsourcing, while Tom Friedman comes up with (some more) howlers. When will journalists realize that anecdotes may make for good journalism but are terrible for policy prescriptions?
India and China together account for only 1.6 per cent of total employment of American multinationals by way of outsourcing, the government’s figures have revealed, dispelling notions spread by critics of offshoring that the two countries are swallowing American jobs.
In 2003, US MNCs employed 344,000 workers in China, up from 252,000 in 2000. They employed 131,000 in India, up from 71,000 in 2000.
However, combined, India and China amounted to just 1.6 per cent of the total employment of US multinationals, of which India’s share was 0.6%.
The United Kingdom was home to about nine times as many workers as India.