US 2004 Electoral Backlash on the outsourcing work: Chanda’s Solution

The rise of protectionism at the expense of the poorer countries became an unfortunate effect of the US 2004 election campaign. As Nayan Chanda of Yale Centre for the Study of Globalisation points out, tough immigration policies have kept millions of job-seekers from developing countries out of the developed world’s labour market, but the challenge of a global, virtual labour force will require new global strategies. The use of outsourcing work in third world countries can help their economy

Building protectionist walls may be attractive as a quick election-year fix, but post-industrial age problems cannot be addressed by solutions devised for another era,” he says.

Chanda suggested that the US needed a whole new approach to make its workers more competitive. Therefore reliance on technological invention must become imperative if new industries and spheres of jobs for Americans in the future, are to be created. So that the developing countries may grow, pushing up wages and their demand for US products, thus creating more jobs for the US exports sector.

Another critic of the fear of outsourcing, Dresdner Bank chief economist Michael Heise, said that in the 1980s Germany also faced intense competition in manufacturing, even in sectors where it had been a world leader.  Some branches, like consumer electronics, virtually disappeared.

But rather than retreating into protectionism, German industry was made more competitive, with only those firms and products that could compete internationally surviving.  Germany’s adjustment process was painful but ultimately worked out.

“The US is now being tested not only to see whether its actions match its rhetoric, but whether it can take politically difficult steps that will ultimately benefit its economy, and its claim to global economic leadership.”

The then, Secretary General of the UN Conference on Trade and Development (UNCTAD), Rubens Ricupero said that, outsourcing had opened up new trade avenues for developing countries.

Outsourcing was a legitimate part of global trade liberalisation and this enabled developing countries to leverage their comparative advantage - abundant, competitive labour and lower cost environment. 

He also quoted the British Trade Secretary Patricia Hewitt (on the myth behind outsourcing fears in the UK) who had said: “We cannot argue liberalisation abroad and practice protectionism at home.   However strong the short-term costs appear to be, the long-term costs are greater - for consumers and for jobs”.

Despite much excitement about its significance to North-South trade, the share in offshoring of frontline countries like India (3 per cent of global IT spent) in this business is small and fears of a big wave of offshoring to poorer countries swallowing up richer countries’ high skilled jobs appear misplaced.

The approaches suggested by Chanda, Heise and Ricupero are certainly more enlightened than knee-jerk protectionist measures.  But they were not given the chance to be considered in the election year in which Kerry attempt to win votes through populist promises to protect jobs.

Furthermore President Bush played the blame game as well in the same attempt to amass votes.  When his chief economic advisor made a statement that there should not be concerns about outsourcing work since it would on balance benefit the US economy, it did not go down well with public opinion, and he was pressurized to withdraw that view. 

As can be expected, India is not taking the outsourcing phobia lying down.  When the US Trade Representative Robert Zoellick visited Delhi in mid-February, the then Indian Commerce Minister Arun Jaitley raised his concerns about the protectionist tide against outsourcing.

He also told Zoellick that India cannot be expected to open up its markets further through the World Trade Organisation talks if the US were to practice protectionism in outsourcing. A very justified stance if the US, Western and developed countries continues to insist on protectionist measures while demanding an open door policy from developing nations.

The Outsourcing of Jobs an Unfair Victim of the US 2004 Elections...Read More
UK Anti-Outsourcing Legislation ‘Bound to Fail’...Read More