The Hindu : Where have all the jobs gone?

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Wednesday, Mar 24, 2004

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Where have all the jobs gone?

By V.S. Arunachalam

Unless India becomes visible through its industries and institutions in American establishments, it will continue to be treated with some suspicion.

TO INDIA, of course, if you are persuaded by the assertions of radio and TV talk-show hosts across the United States. Newspapers there are full of jobs vanishing in the U.S., and surfacing in Bangalore. Even the stoic New York Times found it necessary in a recent weekend edition to devote four very long articles on `outsourcing' to assure its readers, and probably itself, that it is not a real threat to the U.S. economy. But many politicians, seeking election, do not see it that way. Senator John Kerry, the Democratic Party's presidential nominee, branded the Chief Executives of corporations who go out for foreign workers as Benedict Arnolds; an insulting comparison if you recall Arnold's treasonous act during the early years of the American Republic. Overnight, a few State Legislatures and the Senate are also erecting protectionist barriers against such jobs going ahead, substituting the American slogan for free trade with their versions of fair trade. One may dismiss the present complaints as mere posturing in the election season which would vanish come November, or start searching for assuaging options before outsourcing balloons into a national hysteria in the U.S.

A cursory analysis is enough to show that these fears are vastly overblown. For starters, outsourcing has been a tool of the U.S. companies for decades, and offshore outsourcing is only a recent variation. Many more jobs were displaced through technology and productivity increases. The U.S. trade balance with China is some 15 times more negative, so why the outcry over India? Is it that now white-collar jobs, which pay more than the minimum wage, are at stake? Is this a slippery slope, whereby today's modest programming jobs might lead to cutting edge engineering design jobs being lost?

A recent optimistic estimate by a consultant firm puts the shift of IT services jobs abroad at only 500,000 over 11 years. The large U.S. workforce of about 140 million should easily be able to withstand this shift of jobs. The estimates are that the economy will add 20 million new jobs over the next decade. If we remember that the U.S. software industry employs over 2.4 million people, the Indian figure of a few hundred thousand is small indeed, compounded by the stark difference in value of the jobs (measured, crudely, by wages).

If the figures are so propitious, why is there such a hullabaloo? Blame it on economics, if you like. The traditional theory of economics describes that goods alone are tradable and services are not. Fast computers and instant communications have removed this separation between goods and services, or at least parts of it. The surgeons who operate on you or the hairdressers are still to be found within and not outsourced. But many service jobs can migrate.

By and large, the economists are more sanguine. Starting from George W. Bush's Economic Adviser, Gregory Mankiw, who unfortunately had to modulate his strong support for outsourcing because of the outcry it created in the U.S. Congress, all have taken the trend in their stride and see it as an inevitable and desirable part of globalisation. Joseph Stiglitz sees this as a call to the U.S. to improve its education system and an opportunity for the developing countries to concentrate on human development. Paul Krugman, you guessed it right, blames joblessness on President Bush's economic policies! There are a few dissonant voices though, complaining that the only jobs left behind in the U.S. would then be largely low-paying ones — not everyone can be a neurosurgeon or rock musician.

While such outcries from the U.S., the evangelist of free trade, may be new to us, other countries have experienced these before. In the late 1970s and 1980s, the U.S. found its automobile industry — its favourite and the world's largest — challenged by Japanese imports. Japanese cars were cheap and had enviable service records. The American industry cried foul fearing that its almost captive market would be wiped out by the competition. The criticism of the so-called unfair trade practices by Japan was so loud that the U.S. Government was pressured to impose quotas on the number of automobiles that could be imported, and it also threatened more trade sanctions unless Japan worked to assuage the U.S. industry's concerns. The corrective steps that both countries then took to prevent the disagreements escalating into full-blown trade wars have many lessons for us to learn. The U.S. industry, and more specially its academia, began serious studies on what made the Japanese industry so competitive, and its products so good. Japanese manufacturing innovations and practices such as `concurrent engineering', `lean manufacturing' and `just-in-time' became popular mantras in all U.S. plants, and the U.S. auto industry also reengineered itself for better productivity.

Japan, then the largest trade partner of the U.S., also learnt some important lessons. It first had to change the mindset of Americans who saw Japanese workers as workaholics with no innovative capabilities to call their own, but adept at imitating the West. Various Japanese social, economic and trade institutes such as KEDANREN and JETRO ran many programmes to promote dialogues between the U.S. and the Japanese professional leaders, including exchange of visitors to familiarise the Americans with Japanese history, customs and culture. Such programmes are still active and continue to provide an influential lobby of people who understand and explain Japan better to the U.S. audience. Japan also began participating in various international scientific and technological cooperative programmes such as the International Space Station and nuclear fusion. The Japanese industry also established endowments for professorships in U.S. universities. And when the U.S. insisted that automobile manufacturers provide information on the amount of imported parts in every vehicle, Japan was more than ready with its building of auto manufacturing plants in the U.S. itself. Toyota or Honda became as much American as General Motors and Ford are.

What are the lessons for America and India to learn from this outsourcing crisis? Not much really for the U.S., except that it must practise what it preaches on free trade. It also has to recognise that in a globally competitive market, if it does not utilise offshore talent, its competitors will. And, fundamentally, American consumers benefit from lower price goods and services, and the beneficiaries today are largely American companies: software and banking are dominated by U.S. firms. But India has a lot to learn.

It must first build a respectable sized national market for Information and Communications Technology (ICT) systems and services. The vast majority of this sector is geared towards exports, and the impact of ICT on human development has been minimal. Building a national network and establishing computers as a ubiquitous element in all national transactions are going to need only a tiny fraction of the investments the country is making in building the Golden Quadrilateral; but the benefits are going to be as impressive. And this growing market will also provide the necessary cushion when exports become difficult.

It is a common complaint from all who have studied the Indian ICT industry that Indians are not innovative enough. In a recent perceptive and empathetic article on Indian outsourcing in Wired, writer Daniel Pink noted that in his discussions with Indian professionals, not one mentioned innovation, creativity or talked of bolder leaps of possibility, reminding him of the Japan of the 1980s. Herein resides an opportunity for the country. For instance, why should Indian software corporations not initiate a few serious developmental programmes like automating the call centre itself? Such a programme will have all the ingredients of cutting-edge computer technology: speech recognition, language translation, cognitive reasoning and artificial intelligence. Of course, it is not going to be practical at the present time to automate all call centre transactions, but some are ripe for automation. From being mere under-employed operators in call centres, young professionals will become designers, fabricators, testers, and maintenance engineers of autonomous call answering systems. India shall not then lose the call centre jobs that are anyway getting commoditised; instead, it would provide value additions through technological innovations. And these are not easily emulated in other developing countries that are presently competing with India in the call centre market.

Many areas in ICT still remain unexploited, and with some diligence it is possible to identify such topics that offer intellectual challenges and commercial possibilities. Indeed, much of the world lacks ICT, and instead of a trickle-down of solutions from the West, India can spearhead solutions that are radically different in their usability, cost, and features.

The third suggestion is for India to participate in collaborative science and technology programmes. There are more fellowships available for Indians to visit the U.S. than for Americans to visit India and spend some months studying areas that interest them. Indian industrialists or the Government have not funded programmes or chairs at American universities as Japan has done. Unless India becomes visible through its industries and institutions in American establishments, it would continue to be treated with some suspicion, especially when it comes to bilateral exchanges in technology, commerce and trade.

The coming year is going to be challenging to the indigenous ICT industry and the country itself. Our techies have their work cut out: they should become technology drivers, and the country should learn to become street-smart in the global marketplace.

(Dr. V.S. Arunachalam is former Scientific Advisor to Minister of Defence in the Government of India. vsa@cmu.edu)

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