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Outsourcing in India and the US Election

by JYOTI SARASWATI

When Romney criticized outsourcing in his election campaign, he broke with Republican tradition.[i] Outsourcing had been one of the few topics in which both parties appeared to genuinely disagree on, the one issue in which the underlying class dynamics of the pro-business Republicans and labor-backed Democrats were laid bare. By taking the lead in condemning outsourcing, Romney has been able to shift the contours of the debate, from the issue of class interests within the US, to the notion of a zero-sum affair between nations. Obama has quietly acquiesced to this new framework.

But how valid is this shift? Can the outsourcing of an American call-centre or software job to Bangalore in India, or a US manufacturing job to China, really be understood in the simple terms of a net loss for the US and a net gain for India or China? Is there a better framework for understanding the process?

There are several ways of answering these questions. One approach, usually overlooked, is to go beyond a US-centric analysis and examine the wider implications of outsourcing for a country considered to be a leading beneficiary of it. The findings of any such analysis would provide not only an interesting corollary to the current debate over outsourcing in the US but might also proffer a number of contributions to it.

The high-profile outsourcing industry in India – centred on the provision of software services and IT-enabled services such as call-centres – provides as good a case as any.

First, let us examine the benefits of the industry for India.

Most notably, the industry has generated significant levels of well-paid employment. The industry directly employs approximately 2 million persons, a workforce described pejoratively in the West as cyber-coolies despite many being highly-skilled and carrying out complex, knowledge-based services. The figure rises to around ten million if indirect employment is factored in. Even in a country as populous as India, such employment generation is highly welcome.

In addition, the industry has helped to transform the image of India internationally. As one New York Times columnist noted, it is the principle reason why the perception of India globally has changed, from being a ‘synonym for massive poverty to the brainy country’.[ii] As a positive perception of a country can go a long way in securing inward foreign direct investment, as well as facilitating export contracts for domestic firms, these wider, albeit intangible, contributions to Indian development cannot be discounted.

Others, including the Nobel laureate Amartya Sen, point to the confidence that the global success of Indian firms specialising in outsourcing has imbued amongst India’s wider capitalist class, encouraging them to see globalisation as an opportunity rather than a threat, overcoming decades of pessimism and insecurity regarding their ability to compete internationally.

And, finally, an emerging literature also points to the positive effects the industry is playing in gender relations. Over half the workforce in call-centres and around a third in software service provision – the two key areas in India’s outsourcing industry – are women. This, it is claimed, has had positive effects in terms of female empowerment, a key driver of development.

But there is another side to this story.

It can be argued that whatever the wider economic and societal benefits emerging from the industry, they accrue only to a thin layer of Indian society: the upper-middle class who comprise the owners, managers and workers of the industry. The vast majority of the Indian population remain untouched by the industry’s rapid development and global success, unable to enter it due to a lack of access to the education such jobs require. It is this view that has prompted professors Jayati Ghosh and C.P. Chandrasekhar to label the industry as an ‘exaggerated development opportunity’.

More controversially, it is possible to go one critical step further and make the case that the costs of the industry outstrip its benefits, and that the majority of the Indian population are not so much untouched by
the industry as disadvantaged by it.

This argument centres on a political economy analysis of the industry, and in particular the political influence and character of the National Association of Software and Service Companies (NASSCOM), the high-profile association of the outsourcing industry in India.

Commensurate with the industry’s rapid development over the past two decades has been the growing leverage NASSCOM has been able to exert over the Indian state. It enjoys a virtual monopoly over policy advice to the Indian government. And armed with significant funds from its members, and backed by the ideological appeal of representing a ‘knowledge-based industry’, it has been able to carve out a formidable arsenal of influence in both central government based in New Delhi as well as in various states.

This has allowed it to successfully lobby for the diversion of scare government resources to support its continued growth, including massive investments in physical and human infrastructure, while simultaneously applying pressure to retain a whole array of tax breaks and subsidies. What this has meant is that the industry’s net contribution to the state’s coffers has been far less than what would be expected of an $80 billion industry, even with the recent rescinding of certain tax breaks.

Moreover, despite branding itself a ‘national’ association, it is anything but. The association’s membership criteria allows for the subsidiaries of international corporations in India to become participatory members as long as they are engaged in some way, shape or form with the outsourcing industry. As subsidiaries are not independent of their headquarters, this has meant that major corporations such as IBM, Microsoft and Accenture dominate NASSCOM.

This has allowed Microsoft – via NASSCOM – to ‘convince’ the Indian government in New Delhi and state governments with IT hubs to procure for expensive Microsoft software over free open-source software as well as well as to zealously enforce anti-software piracy legislation. As the promotion of free software and a government blind eye to software piracy are the chief mechanisms by which developing countries can and do promote the uptake of information technology in firms, schools and other institutions, the result of this has been low levels of IT diffusion across India.

Thus, throughout the 1990s and early 00s, while the outsourcing industry in the country grew annually at double-digit rates, India’s international ranking in IT diffusion plummeted, from an already shockingly low 136th in 1997 to 146th in 2003.[iii]  Moreover, within India, the states with the major Indian outsourcing hubs, such as Karnataka (home to Bangalore) and Andhra Pradesh (Hyderabad), have seen their ICT diffusion rankings fall vis-a-vis other Indian states.[iv] As the uptake of IT across economy and society is considered a key facilitator of broad-based development, NASSCOM influence over Indian government policy can be argued to be impeding wider development.

So what does this mean for current US discourse on outsourcing?

First, it shows that the outsourcing issue should not be located in a nation versus nation context as Romney and, increasingly Obama, have done. This is overly simplistic. The outsourcing industry in India is growing at the expense of other sectors of the economy and is, in the process, benefitting some Indians while disadvantaging others.

Second, once the nation versus nation goggles are removed, the class dynamics of the whole process of outsourcing are laid bare. In India, it is the upper-middle class that benefit from the outsourcing industry, with the masses disadvantaged by it. In the US, the beneficiaries are the managerial and rentier classes while the workers face job losses and growing insecurity.

Third, both the above points suggest that Obama, by adopting Romney’s nation versus nation framework, has allowed himself to be outmanoeuvred. It has paved the way for Romney to downplay the issue of class conflict which lies at the heart of outsourcing in favour of a jingoism-fuelled critique.

If Obama is to win a second term, he will need to challenge, rather than endorse, Romney’s narrative on outsourcing. And the outsourcing industry in India provides an interesting platform upon which to demonstrate the problems of the nation versus nation parameters of the debate and the relevance of a class-based analysis of it. In this case at least, the connection between the US and the outsourcing industry based in India is loud and clear.

Jyoti Saraswati is the author of Dot.compradors: Power and Policy in the Development of the Indian Software Industry (Pluto Press).

Notes.

[i] What the politicians actually mean is transnational outsourcing and offshoring whereby facilities and jobs are transferred from the US to overseas countries. Technically, outsourcing can occur between firms within one country and usually does.

[ii] Thomas Friedman, The Great Indian Dream, New York Times, 11 March 2004.

[iii] Using data from the United Nations Commission for Trade and Development (UNCTAD) available at http://unctad.org/en/Docs/iteipc20065_en.pdf

[iv] Bhibunandini Das, Across Indian States: Diffusion and Determinants of Information and Communications Technology, Workshop, Chennai, India, 19 March 2010 available at  http://www.mse.ac.in/Frontier/ppt/6%20bibhunandini.pdf

 

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