The Hindu : Outsourcing and its fallout

Online edition of India's National Newspaper
Monday, Feb 02, 2004

Opinion

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Outsourcing and its fallout

By Sridhar Krishnaswami

IT WAS a small paragraph tucked away in a massive and overdue spending bill that had its share of politics and pork barrel projects. But what the United States Senate cleared recently by way of an Omnibus Spending measure, and the White House okayed, has ramifications for countries such as India even if the immediate economic impact is passed off as being marginal or little.

"An activity or function of an executive agency that is converted to contractor performance under Office of Management and Budget Circular A-76 may not be performed by the contractor at a location outside the United States except to the extent that such activity or function was previously performed by Federal Government employees outside the United States" read the relevant portion of the bill.

It is the first Federal Law against outsourcing and the relevant amendment came from two prominent Republican Senators, George Voinovich of Ohio and Craig Thomas of Iowa, and other law-makers who argued that it was necessary to protect unionised government jobs from being moved overseas in the same fashion as private companies have been shifting other jobs such as call centre operations and software developers.

The recently passed legislation targets only U.S. Federal agency contracts that are outsourced; and the law is valid only until September 30, 2004. But what have to be kept in mind are the political and economic implications of a precedent that has now been set. Will the law-makers eventually set their eyes on private sector outsourcing in itself? And is there a definite possibility of the present law being renewed beyond September 30, 2004?

In all this, one cannot ignore the election year environment, in which American law-makers place a premium on districts or constituents as opposed to any academic or intellectual debate on the benefits of free trade.

The federal enactment has not come about suddenly. Nor has it caught countries such as India by surprise. In fact, Senator Voinovich and others had their way last October itself with regard to the Treasury and Transportation Bill and if it did not materialise at that time it was on account of difference in the House language over the bill. And last year, several States introduced Outsourcing Bills and all of them failed to become laws.

The writing was there on the wall for all to see. But could official India in Washington have done anything to prevent this? According to one version, taking on Congress frontally and being upfront against the amendment would have risked the law becoming India-specific. Hence a strategy of working behind the scenes was devised — talking and writing to relevant officials in the Commerce Department, members of Congress, in the Senate and in the House of Representatives, and roping in the industry.

The bottom line message that was being conveyed all along was that while India stood to be affected, the interests of the U.S. would also be hurt in the long run.

In the context of the latest development on outsourcing, the economic impact on a country such as India is said to be "little" in the sense that the ban on federal contract outsourcing could be around a mere two per cent of the country's software exports.

But the larger worry is over the "precedent value." Several States — between eight and 12 — are actually trying their hand at legislation to restrict outsourcing all over again.

Those at the Federal and State levels who have anti-outsourcing as their agenda argue that the U.S. has been quite lax to the loss of technology jobs overseas since the 1990s, and marshal their case with a slew of statistics. One argument being that by 2015, more than three million white collar jobs with a value of about $136 billion would have shifted out of the U.S. to low-cost countries.

The more sensible economic message does not seem to matter either for the short or the long terms for the simple reason that politicians want to have the cake and eat it too. For example, an argument has been advanced saying the cash-strapped States in America do not want to lose track of the savings made by way of outsourcing, and, at the same time, do not wish to see jobs moving out.

The "O" word is here to stay. With this being an election year in both India and the United States, it may even become one of the contentious issues in the bilateral agenda.

The Bush administration, for all its talk of free trade and opposition to any moves to curb outsourcing, will be quite wary of taking on the law-makers at a politically sensitive time.

And at least one Democratic presidential aspirant, John Kerry, has strong views on the subject. The Senator from Massachusetts says that he is not for banning outsourcing but has vowed to "close every single loophole that gives companies incentives to move jobs abroad."

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