Bangalored and Shanghaied during the US presidential campaign
26 August 2008
Well strictly speaking the title should read ‘Shanghaied’ and ‘Bangalored’… as the reference to jobs moving to Bangalore is of more recent origin, whereas we all know the background to the original ‘Shanghaied’.
I must admit I started on this piece when the campaign for the primaries of both the leading US political parties were in full swing, but then went on to write a piece on another matter arising out of attendance at a conference in Stockholm. (Electronics, energy conservation and the hypocrisy of ‘sustainability).
During the recent run up to the primaries pretty nearly every candidate was railing against outsourcing and overseas manufacturing and how this was leading to US jobs going to China and India by the ‘thousands’. The previous Presidential race of Bush vs John Kerry had even stronger comments. Who can forget Mr. Kerry’s famous lambast about Benedict Arnold CEO’s sending jobs to Bangalore at pittance wages? To Mr. Kerry’s credit however, during a recent visit to India, he promptly ascribed that comment to misguided US political rhetoric.
Barrack Obama, who now professes to be a ‘desi’ (a true son of India) and a lover of Indian food, apparently a taste acquired from an Indian roommate at University, said at an election rally: “…We’re here because there are workers in Youngstown, Ohio who’ve watched job after job after job disappear… and have been taken away by offshore companies in places like India and China.” Now I cannot speak for China but having known Youngstown somewhat, I sincerely doubt if a single job has moved from that part of the ‘rust belt’ to Bangalore or for that matter, any IT centre in India.
Mr. Obama perhaps got carried away somewhat when he ‘promised’ that he would bring into legislation a ‘Patriotic Employer Act’ that would give tax breaks to companies who create good jobs with decent wages in America. Mrs. Clinton, in similar vein pledged: “We are going to end every single tax break that ‘…gives one penny of your money to anybody who exports a job.’
One of Mr. Obama’s campaign documents claimed that President Bill Clinton had accepted
$300,000 in speaking fees from Cisco Systems; ‘a company that moves hundreds of American jobs to India’. Mr. Obama, for the record did subsequently apologise for this statement, blaming it on an uninformed campaign manager.
Hillary Clinton had earlier pitched in with her own rhetoric. “I will fight for every single job in America, we can’t save them all, but we are going to save a lot more of them then have been lately. Then we are going to create millions of new, high paying jobs that cannot be outsourced.”
To Mr. McCain’s credit, possibly under the influence of his economy advisor, Carly Fiorina the former CEO of HP, the benefits to the US economy of outsourcing seem to have been better appreciated and so he has pretty much towed the line of the current Bush administration on the issue.
Such rhetoric and invective for narrow, short term political gains, unfortunately tend to give a very distorted picture to the average US voter who is prepared to believe the worst in these hard times. According to Nayan Chanda of the Yale Center for the Study of Globalization: “With rising unemployment, record foreclosure of homes and a growing trade deficit, the US economy is headed south and international trade is increasingly seen as the main culprit. Eight out of ten voters in troubled Ohio believe that international trade is taking away more jobs from the state than it creates. A nationwide poll in November 2007 found 60% of Americans agree that foreign trade was bad for the US economy as it reduced demand for American made goods and cost jobs at home.”
Short of political hype and election rhetoric, let us establish the real truth. Kyle Usre, writing in the publication Yale Global puts it succinctly. “Outsourcing, like globalisation, is a pervasive economic reality. These forces cannot be stopped, but they can be managed to maximise benefits while reducing undesirable consequences. Sound policy decisions require a robust dialogue based on research and actual ‘evidence’. Yet, political leaders and election strategists seem intent on telling voters that ‘outsourcing’ is a zero sum game, with losses accumulating only to the United States.”
William Bernstein in his masterly book, A Splendid Exchange: How Trade Shaped the World, writes how the desire for international trade is one of the oldest of instincts and the cause of many of the most important developments in the history of the world. He cites, amongst many others, the example of Sumerian farmers in the third millennium BC who traded their surplus grain to obtain copper from distant Sinai to make superior weapons to defend themselves against raiders. William Bernstein comes to the conclusion that: “International trade has yielded not only a bounty of material good, but also of intellectual and cultural capital, an understanding of our neighbours, and a desire to sell things to others rather than to annihilate them.”
Proposed ‘tax measures’ aside, the fact remains that US companies, to remain competitive, do and will move production and services to overseas locations where fully loaded costs are lower for equal quality. Nayan Chanda elaborates: “The historical fact is that factories and jobs move with changing markets to locations offering the most efficient access to labour and capital. In the 18th century, America’s industrial revolution began with textiles in the North Eastern States before higher wages, land prices and availability of resources drove manufacturing to States in the South and in the West.”
It is well known that importing superior and lower cost products does affect an inefficient domestic producer anywhere in the world. Robert Lawrence in his book Blue Collar Blues states that a significant amount of what the US imports is no longer produced in that country, and as prices of these imports drop, consumers benefit: “Without putting downward pressure on US wages or causing layoffs.” Lawrence further postulates that declining investment in manufacturing and productivity growth brought about by technological and managerial innovation play a more significant part in economic change than just competitive trade. A major problem in the US job loss issue is not ‘offshoring’ but the reduction in overall available jobs as a direct result of increased productivity due to labour saving automation. This, for those of us in the Electronics sector is a fact well known.
It is also pertinent to highlight the aspect of the numbers of jobs that are created in the United States by countries accused of taking away US jobs. According to the US Bureau of Labor Statistics, over 6.5 million jobs have been created by foreign firms in the US and such ‘insourced’ jobs are rising at a much faster rate than US jobs lost to outsourcing.
According to a report prepared by the US India Business Council, Indian companies are creating thousands of US jobs. The top 12 Indian companies have created more than 30,000 new jobs in the US. Indian small and medium sized companies establishing themselves in the US either as ‘Greenfields’ ventures or ‘buy outs’ have created an additional 65,000 jobs. Significantly, large US Corporations outsourcing to India, such as IBM, Microsoft, and Oracle have actually been able to add to their US payrolls on the basis of the support work being done in India. One suspects that a similar scenario would be the case for the many companies doing chip and system design in India for their US parents or other US based entities.
According to Lawrence, official US data indicates that of the some one million jobs lost in 2004, only 7% could be ascribed to ‘outsourcing’ and of these only 30% were sent abroad, the others going to lower cost States of the US or possibly Mexico (taking advantage of NAFTA). Furthermore, it would be extremely pertinent to point out that a recent McKinsey Global Institute report estimates that for every dollar spent on foreign outsourcing to India, the US receives at least $1.17 in benefits. So much for being ‘Bangalored’!
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