The New York Times published a Page 1 story showing how protectionism is on the rise worldwide in response to global economic pressures. Picked up from a piece of analysis by author Paul Collier’s book, The Bottom Billion: Why the Poorest Countries Are Failing and What Can Be Done About It. He points out that the last period that the world went protectionist in a big way was the years 1914 to 1945. We can see what a raging success that was!
When the mob gets tired of pursuing AIG and Madoff, it will look for other targets to bay after. India is at risk. Inciter Lou Dobbs keeps pounding away at the foreigner and immigrant. Meanwhile, US Senators Richard Durbin and Chuck Grassley are crafting new legislation aimed at further tightening H1B and L1 visa rules. It’s expected to be submitted to Congress by April 3. Visa reform is legitimate, if there are abuses. But it becomes dangerous if the legislation ignites an angry broadbased backlash against India and offshoring.
Don’t get me wrong. I think a measured dose of protectionism can be useful at times of crisis or in response to abuses by other nations. It’s legit if it’s done rationally and in a carefully targeted way. It’s not okay if it erects major barriers to trade.
It could harm both nations if the US goes after India. For starters, where’s the harm or unfairness? Stats from the Bureau of Labor Statistics show US employment in the category of computer systems design and related services at 1.463 million in February. That’s down just 5,000 from a peak of 1.468 million last November. This is the category of employee that would be most affected by IT offshoring. Yet it’s just off an all-time high—and at a time when Wall Street has fired thousands of techies because of its own mistakes, not anything the Indian tech industry has done. I tried to get business process outsourcing-oriented job stats from the BLS, but they mix up BPO-type jobs with janitors and security guards, so it’s impossible to connect shifts there with offshoring.
Nasscom, the Indian software/service trade association, hired McKinsey & Co. during the last recession to do an analysis of the impact of Indian outsourcing on the US economy and jobs. The results showed a positive impact—more jobs created. The argument is that by making American companies more efficient, offshoring makes it possible for them to grow and hire additional employees. There’s logic to that, but, since the Indians hired McKinsey to do the study, the conclusions aren’t as credible as they would be if the study was independent.
The best argument I’ve heard recently for not demonizing the Indians came from Nandan Nilekani, co-chairman of India’s Infosys, who is in NYC promoting his new book, Imagining India. He points out that, unlike China, India does not have a trade surplus. It needs to export more if it is to keep GDP at a healthy rate. (And it needs to continue to grow at a healthy rate or risk an uprising by people left out of the tech-led boom.) Concerning the potential for US visa restrictions, he says: “Trade is a two-way street. We need to keep the movement of people open.”
That’s a key point. Trade isn’t just about merchandise. It’s about labor and capital, as well. And if American pundits and policymakers fail to realize that, trade between the US and India will be neither free no fair. That’s something people on both sides of the globe need to be concerned about.