US dollars, Chindian collars
The
US government has recently formed a special task force in its Commerce
Department to investigate Chinese trade policies that according to the
Americans are unfair. This move comes in the wake of escalating alarm
on the loss of some 2.7 million manufacturing jobs during the past three
years since President George Bush took over, a decline last seen during
President Herbert Hoover’s tenure during the Great Depression over seven
decades ago.
Economic
recovery is very much on in the US and productivity growth particularly
is spectacular. During 1995-2000, the period of the “great boom”,
productivity increased by about 2.5% per year. Since 2000, this has
increased to 3.4% per year reflecting, in many ways, the long-hoped
for payoffs from the huge investments made in IT in different sectors
of the US economy. But the US turnaround appears to be a “jobless”
recovery.
India
is also beginning to draw flak. The growing American fear is that as
“blue collar” manufacturing jobs are being lost to China,
“white collar” service jobs are being lost to India. The loss
of service jobs has not been as dramatic as in manufacturing. Some estimates,
like that made by Forrester a leading US IT consultancy firm, are that
about 400,000 service jobs may have been offshored already. Over the
next decade, some 200,000 service jobs may be outsourced annually. India
could account for anywhere between a third and a half of these jobs.
At
least, five state governments in the US have proposed legislation to
curb outsourcing. The American media is full of alarmist reports, although
recently the Los Angeles Times carried an article on how Oracle’s hiring
of more engineers in Bangalore is good for Oracle in the US. It also
drew attention to the creation of new businesses by Indian-American
entrepreneurs in the USA. But such balanced pieces are very infrequent.
The federal government has been silent. But while announcing the special
task force, the US Commerce Secretary Donald Evans said : “American
manufacturers can compete against any country’s white collars and blue
collars, but we will not submit to competing against any country’s choke
collars”.
In
this context, a recent research report by the Washington-based McKinsey
Global Institute entitled Offshoring: Is It a Win-Win Game? is very
timely. The study estimates that of the full $ 1.45-1.47 of value created
globally from offshoring $ 1 of US labour cost, the US alone captures
$ 1.12-$1.14, while receiving countries like India capture, on an average,
just 33 cents. It also points out that mass layoff numbers in the past
have been much higher than the projected offshoring of jobs and that
the US economy is both resilient and flexible, even though new social
insurance instruments may well be needed to relieve current anxieties
and assuage today’s fears.
While
studies such as this are useful to counter growing protectionism in
the USA, India must play it low-key on job relocation-ironically, the
more we claim credit for it, the more vulnerable we will be. We should
not behave as if increased H-1B and L-1 visas are our natural birthright.
In any case, reduced visa limits will US companies to come to India.
We must also move boldly ahead with trade reforms on our own. India’s
merchandise imports from the US, that in 2002 amounted to just about
$ 4 billion (as compared to India’s merchandise exports of almost $
12 billion) must increase. US service exports to India in 2002 amounted
to $ 3 billion and this too could increase. Indian companies must begin
to acquire companies in the US particularly in the manufacturing industry
like auto components, engineering and textiles. Chapter 11 companies
(that is, companies that have declared bankruptcy but still have great
potential for revival) are a pool from which such acquisitions can be
made. More than anything else, India has to keep the US engaged intensively
on economic issues with focus on faster delivery on our part, not just
promises.
