SPEAKING
FREELY The flip side of outsourcing to
India By Rabindra P Kar
Speaking Freely is an Asia Times
Online feature that allows guest writers to have
their say. Please click hereif you are interested in
contributing.
In recent years,
there has been a vigorous, sometimes acrimonious,
debate about whether offshoring (also referred to
as "outsourcing") is positive or negative for the
United States and the other developed Western
economies. Underlying this debate is an unspoken
assumption - that offshoring has been very good
for the
developing
countries where the jobs have moved. India is
widely regarded as the prime beneficiary of this
phenomenon. Consequently, it seems like a
rhetorical question to ask whether offshoring is
good for India.
If we consider the recent
past, since the early 1990s, the general consensus
is that offshoring has been a big positive for
India. It has been a big factor in changing
India's image from a land of poverty and social
"backwardness" into a potential economic
superpower. It has spawned an information
technology industry with exports of more than
US$10 billion annually. It has greatly slowed, if
not reversed, the "brain-drain" of educated and
talented Indians to the West.
Of course,
there have been negatives too. The sudden influx
of companies and jobs into a few urban areas,
notably Bangalore and New Delhi's suburbs, has
overwhelmed the existing poor infrastructure,
leading to impossibly congested roads as well as
water and electricity shortages. The huge
inflation in land and housing prices in urban
areas has hit the common man hard because the
average Indian's income is puny compared to what
the nouveau-riche techies earn. On balance
though, the offshoring wave has benefited India,
both psychologically and economically. At least so
far.
Can India ride this wave to economic
stardom in the next generation? Long-term, is
offshoring good for India?
The central
premise of this article is that while offshoring
has been good for India in the short-term, the
long-term negatives will outweigh the positives.
Since that is both a counter-intuitive and
controversial assertion, the rest of this article
will deal with the pitfalls of offshoring as a
driver of India's socio-economic destiny.
Let's start by looking at offshoring's
employment potential. Estimates in the US media of
the number of jobs currently outsourced to India
range between 400,000 and 700,000. The most highly
publicized outsourcing estimate, by Forrester
Research (2004), predicted that 3.3 million US
jobs would be offshored by 2015. Even if (a big
if) India got a big majority of them, that amounts
to at most 2.5 million jobs. If in the same period
the European Union, Japan, Australia and Canada
combined outsourced twice as many jobs as the US,
that would total 7.5 million jobs in 2015.
Now consider that India's population in
2015 will be nearly 1.2 billion people, which
implies an adult workforce of 300 million or more.
Thus even the optimistic predictions are that no
more than 2.5% of India's workforce will be
employed in offshore services. Yet today, both
India's central government and many "progressive"
state governments are obsessively focused on
attracting offshore work - spending precious
resources to create technology zones, offering tax
incentives and lavishing time and attention on
pitches to multinational corporate executives. If
India's population were similar to South Korea or
Taiwan (in the tens of millions), providing
offshore services could have been a big part of
its future employment plans. But a nation
containing one-sixth of humanity cannot achieve
prosperity by taking jobs from other nations with
much smaller populations. That is simply not a
long-term, sustainable strategy.
A more
subtle problem with the offshoring boom, is that
it is giving urban Indians unrealistic
expectations and distorted goals. The middle-class
in India and China now believe that as the jobs
move to Asia, they will be able to enjoy the
consumption-heavy living standards of middle-class
Westerners - two cars, a big, single-family,
centrally air-conditioned home; all the electronic
gizmos that their hearts desire, and so on. Their
dreams of gizmos galore are achievable, since
electronic goods keep getting cheaper and more
plentiful. But there are some huge obstacles in
the way of the other expectations - namely
population size, population density, energy
constraints and environmental limits.
First consider the effects of widespread
automobile ownership. If just one-third of China
and India's combined population could afford the
US norm of one car per adult, that would be 800
million more cars in these two countries alone.
With the world now struggling with oil at more
than US$60 per barrel, what would the price of oil
be then? If the 200 million cars in the US produce
such damaging levels of pollution and
global-warming, can our planet withstand a three-
or four-fold increase in automobiles?
We
have to recognize that living standards are not
merely a function of national income levels. They
are bound by the limited natural resources
available within a nation's borders. India's
population density is nine times that of the US.
Hence the average Indian can never enjoy the 2,500
square foot single-family home with front and back
yards, which is so commonplace in American
suburbia. Indians may think that they will be able
to buy a bigger home if their income rises. But if
the average income in a city or region doubles,
the price of good housing often more than doubles.
It isn't just housing that's
resource-constrained. Clean water and energy are
very finite resources, at least in the foreseeable
future. To achieve a living standard comparable to
the West, Indians will need access to much more
fresh water and electricity per capita. India's
water situation is precariously dependent on the
monsoon even at the current levels of consumption.
As for electricity, India's massive fossil-fuel
dependence throws it between the devil (of
pollution from coal-fired plants) and the deep
blue sea (of high oil prices and coming oil
shortages).
The bottom line is that money
earned from offshoring cannot significantly raise
the living conditions of the average Indian, but
it definitely raises expectations. The yawning
lifestyle gap between the small, techno-savvy
class and the rest, simply creates resentment and
frustration, not progress.
Despite its
population and limited natural resources, India is
not doomed to poverty and shortage. If India's
awesome collective brainpower is directed toward
developing and utilizing technologies and
strategies appropriate to India, it could
dramatically raise its own living standards and
that of much of the world. The areas of intense
focus should be:
(a) Renewable,
low-polluting energy sources: India should be
investing a lot more in the development and
deployment of solar, wind and waste-biomass power.
Consider solar power. Being a tropical country it
gets much more solar power per square meter per
year than Europe or Japan. Moreover, since Indians
have not become "used to" central
air-conditioning, even current levels of
solar-panel efficiency generate enough electricity
for the average Indian home. Or consider hybrid
(gas-electric) automobile technology. Given its
huge oil-import bill, India should be
concentrating on research and development
(R&D) and manufacturing of hybrids or
fuel-cell technology instead of taking pride in
the explosion of gas-guzzling foreign car models
on Indian roads.
(b) Water purification
and conservation technologies: Most Indian rivers
have undrinkable water because raw, untreated
sewage is dumped into them by towns and villages
upstream. Sewage treatment is not a "sexy"
technology, but it is far more important to
India's well-being than software or automobiles.
Most Indians have neither toilets nor showers. But
the fortunate few who do are unaware or
unconcerned with installing devices such as
low-flow shower heads or dual-action flush tanks.
(c) Biotechnology and pharmaceuticals are
making great progress in India, but how little of
it is oriented toward the diseases that affect the
poor majority of Indians. India doesn't need
better cholesterol-fighting drugs. It needs
vaccines against malaria, cheap medicines against
dysentery, cures for intestinal parasites. But
most of all India needs cheaper and simpler
contraceptives. If India's population growth is
not controlled, the current economic boom will
make no long-term difference whatsoever.
Unfortunately, India's dynamic
private-sector companies are doing very little in
the areas mentioned above. Instead, the lure of
foreign investment and the great offshore services
boom have them focused on products and
competencies that serve wealthy, consumerist
Western markets. After struggling to gain
political independence after 150 years of colonial
rule, India is "willingly" surrendering its
economic independence to the agendas of Western
corporate shareholders.
The final irony of
the offshoring saga is that it is pushing Indian
industry headlong into, what I call, the great
intellectual property (IP) trap. Indians are
swallowing self-serving Western "advice" that
"strengthening" IP protections will encourage
research and innovation. In truth, the Western
patent regime is completely dysfunctional. Huge
companies such as IBM and Microsoft are granted
thousands of patents each year, not because they
have made that many big "intellectual strides",
but because the US patent office, deluged with
applications, grants patents to minor improvements
that are both obvious and trivial. Worse, a large
number of "IP law firms" have come out of the
woodwork, to profit from aggressively (sometimes
abusively) enforcing these patents. Instead of
encouraging innovation, this IP regime stifles it
because individual inventors and small companies
cannot afford expensive lawyers to defend
themselves against predatory patent litigation.
Since R&D in developing economies such
as India, China, Brazil and others, is often five
to 20 years behind the "cutting edge", almost
anything developed independently in these
countries will run afoul of some Western patent.
If the developing world honors all the patents
filed in Western countries, its precious resources
will be sucked dry paying royalties, or it will
remain in permanent technological bondage. (Look
at it from another angle - how much in royalties
did the Western world pay India for inventing the
zero?) Indians know in their hearts that IP
protection is a game stacked in the developed
world's favor. They know that no country becomes a
great power while playing by some other great
powers' rules.
But the CEOs and chairmen
of India's budding companies - the Wipros, the
Infosys, the Ranbaxys - are not going to speak up
in India's interests because they fear that would
be the end of their "partnerships" with Western
multinationals. How could Indian Business Process
Outsourcing (BPO) firms bid for offshore contracts
from GE or Intel, if they don't sign on the dotted
line with regard to intellectual property?
And what happens when they win the BPO
contracts? Thousands of smart, educated Indians
then become the intellectual slaves of a foreign
company, for a fraction of the wages they pay
their own employees. Every line of software code,
every engineering drawing, every new molecule,
every revolutionary idea now becomes the property
of a Western corporation. Naturally, these
advances will be duly patented or copyrighted. The
supreme irony will be that future generations of
Indians will be forking over royalties to
Americans or Europeans for the intellectual output
of their own countrymen. And that will be
offshoring's enduring "legacy" to India.
Rabindra Kar was born in Bombay
(now Mumbai), India, and now lives and works as a
computer software developer in Austin, Texas. He
has been an activist on work-visa and offshoring
issues since the early 1990s. Rabindra holds a
bachelors degree in electrical engineering from
the Indian Institute of Technology, Bombay; a
masters degree in computer engineering from the
University of Notre Dame; and an MBA from Portland
State University, Oregon, USA.
(Copyright 2005 Rabindra P Kar)
Speaking Freely is an Asia Times
Online feature that allows guest writers to have
their say. Please click hereif you are interested in
contributing.
