A spectre is haunting America -- the spectre of outsourcing.
The prospect of a steady stream of manufacturing jobs winging their way to China and service jobs migrating to India has spooked the world's only superpower, and US politicians are wasting no time, in an election year, to jump on the anti-outsourcing bandwagon.
Yet outsourcing is hardly new. US manufacturing jobs shifted to East and South-east Asia and to Mexico decades ago, and there's hardly any doubt that the American economy has emerged stronger from that trend. What's different this time?
Well, this time it's the outsourcing of services that's in the spotlight. Earlier waves of job losses occurred in manufacturing, and blue-collar workers were affected.
As US companies shifted their factories to Asia, costs and prices fell. Consumers across the world benefited, most of all white-collar workers in the US who not only retained their high-paying jobs, but found they had to pay less for their clothes and toys and computers.
But with the coming of the Internet, a slew of jobs in the services sector too are under threat, ranging from software programming to telemarketing. And this time, it's affecting white-collar workers, whose high wages are under attack.
In a recent news conference in Washington DC, Carly Fiorina, CEO of HP, declared "There is no job that is America's god-given right anymore." Morgan Stanley chief economist Stephen Roach labels the process 'labour cost arbitrage' and mourns that "Cross-border labour transfer -- long accepted as one of the mainstays of globalisation -- is now encroaching on the sacred ground of the white-collar worker. That wasn't supposed to happen."
Not all the voices are negative. Alan Greenspan and Bill Clinton have criticised the US ban on the offshoring of federal government contracts.
A McKinsey paper says that by moving service industry work to countries with lower labour costs, US companies can focus on creating higher-value jobs. A recent critique by Catherine L. Mann of the Institute for International Economics points out that America remains a big net exporter of services.
On the other hand, a paper by Ashok Deo Bardhan and Cynthia Kroll, researchers at the University of California at Berkeley, calculates that a total of 14 million jobs in the US are under 'outsourcing risk'.
Market research firm IDC estimates that in the US alone, the value of IT services provided by offshore labour will double to $16 billion next year and triple again to $46 billion by 2007.
And while IT research company Forrester forecasts that only 3.3 million US business processing jobs will shift overseas by 2015, the Berkeley researchers contest that figure, pointing out that "Services outsourcing is structurally simpler than manufacturing outsourcing in terms of resources, space and equipment requirements and thus may proceed much more quickly."
Historically, America and Western Europe have survived the offshoring of manufacturing by creating high-skilled jobs and by expanding the service sector. With much of the service sector now in danger, the usual answer is that the US needs to move up the value chain.
The question is -- where on the value chain? To accountancy and medical services? We can supply those at a fraction of US costs. Software engineering and design? We're world leaders there. R&D? Intel's working on the successor to the Xeon chip at Bangalore.
Legal work? It's already being outsourced. Biotechnology? Hargobind Khurana was an Indian. Space technologists and nuclear physicists? We have those as well. As for the American competition, Intel CEO Andy Grove points out that more than 50 per cent of graduate students in the US are foreign nationals.
Won't the money earned by Indian and Chinese professionals and the profits earned by US MNCs lead to more demand for goods and services? Of course it will, but that'll be of precious little help to the West if most of those goods and services are made in Asia.
What's more, India and China are the world's most populous nations, and their supply of cheap skilled and educated labour is practically inexhaustible. This global 'reserve army of the unemployed' can be counted on to keep wages down.
Aha, but what if they ban outsourcing? If they do that, they'll see US companies lose competitive advantage speedily to Japanese, Korean, Chinese and Indian firms, which is the reason why the business lobby in the US is so solidly behind offshoring.
With the western economies caught in this Catch 22 situation, it's no wonder that outsourcing was the staple of conversation at the recently concluded World Economic Forum.
As a prescient young man called Karl Marx pointed out a hundred and fifty six years ago in the Communist Manifesto, "Modern bourgeois society… . ... is like the sorcerer, who is no longer able to control the powers of the nether world he has called up by his spells."
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