Employers can't escape from outsourcing

Bharat Jhunjhunwala, Contributor, New Delhi

The wage of a blue-collar worker in the United States. is about US$10 per hour or $80 per day in comparison to $2 per day in a developing country. American companies have to pay higher wages if they employ American labor. Their products become costly in the world market. American companies are making profits only because they have monopoly over certain technologies. Glaxo can sell its drugs at a higher cost than a pharmaceutical company in a developing country. It can yet pay $200 per day to its workers because it can sell the drug at high price due to its exclusive patents.

It has become necessary for Western multinationals like Glaxo to pay less to their workers in order to compete with the developing countries in non-patented products. A small reduction in the wages of American workers will not make much difference. Thus, American companies are transferring many activities to contractors in developing countries China, India and Philippines.

General Motors has to reply to thousands of queries of its customer's everyday. These calls are transferred to centers located in India and replied to by English speaking operators from there. American patients can consult doctors and psychiatrists through email. Credit cards can be used to pay the fees of the doctors. Officers located in the developing countries can process insurance claims. Thousands of Americans and Europeans who were previously doing these jobs are becoming unemployed.

No wonder American people are disturbed. One Software programmer Kevin Flanagan committed suicide. He had seen his fellow workers had lost their jobs one after the other as the projects went to India. One day he too was terminated. He went out and shot himself dead in the parking lot of his employer Bank of America.

Eighty thousand jobs have been lost in King and Snohomish counties of Washington State in the last few years where the headquarters of Boeing and Microsoft are located. Dozens of people who had lost their jobs to outsourcing demonstrated before Aldorf Astoria hotel in June 2002 where a business conference on outsourcing was taking place.

A few states like New Jersey are in the process of enacting laws that will prohibit outsourcing of government contracts. The replies to customers of a municipal administration would not be allowed from any offshore location.

Many specialists believe that things will get only worse. Dayan Wiggins explains on the internet how America may be losing its technological advantage forever.

Foreign software experts from developing countries were allowed to work in the U.S. for only six years under H1B visas. This policy has backfired upon the United States. The experts acquired knowledge of frontline technologies as well as the requirements of American customers during their stay.

They took this knowledge with them and started supplying the same services to their earlier clients directly at a fraction of the American price. America has inadvertedly transferred the frontline technologies to the foreign experts in her anxiety to prevent them from immigrating.

American companies are transferring their frontline knowledge in areas such as biotech to their research outfits located offshore. In the process, scientists of developing nations are gaining frontline knowledge. They can use this knowledge to develop the next generation technologies themselves. America may soon lose its present lead in these emerging sectors.

Outsourcing is not new. U.S. companies like General Motors have been getting parts made in Asian countries for many years. Glass components of TV tubes have long been made in India, China or Korea. America has been outsourcing nearly all of its requirements of shoes, clothes and toys. However, this did not have a severe negative impact on American people. Such products have to be packed and transported which takes both time and money.

Therefore, certain manufacturing jobs were retained in the U.S. Second, new and better-paid jobs were being created in new areas like computers, biotech and internet. American people were losing low-paid blue-collar jobs but getting better-paid jobs in emerging sectors. This strategy had been successful in the last thirty years because America was continuously creating new technologies.

This lead of the rich countries is now being eroded. High- skill jobs may no longer be created in the rich countries in future.

America does not have a solution to this problem. The products of American companies will be more expensive if outsourcing is prohibited. Glaxo's drugs will be more expensive than those manufactured by an Asian company. They will be ousted from the world markets and the American people will lose their jobs. On the other hand, outsourcing would lead to the transfer many jobs to the developing countries. The American people stand to lose in either situation.

President George Bush appears to understand this dilemma. He has clearly said that he will place no restrictions on outsourcing. This way, at least, the American companies will be able to maintain their competitiveness even if the American people lose their jobs. American companies can pay dividends and taxes in America from the incomes made through outsourcing.

Some benefits can be provided to the American people with this money. The alternative of prohibiting outsourcing is worse because the American corporations will be killed along with American workers losing their jobs. Thus, America has taken the path of lesser evil.

The developing countries should understand that information technology has fundamentally changed the nature of world production by making it possible to transfer services like telephone calls at nominal price.

Globalization necessarily means that the global wages too should be equal. Therefore, developing countries should ignore the opposition to outsourcing that is emerging in the rich countries and continue to march ahead.