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Thoughts on the BPO backlash

Omkar Goswami


In the past year, 12 state legislatures of the US introduced anti-outsourcing bills. Yet, none passed muster in both houses. Indiana’s cancelling a $15 million contract with TCS in November 2003 seems like a thing of the past. The Democratic presidential candidate, Senator John Kerry, no longer lashes out at traitorous “American companies that are exporting jobs overseas. And, while he introduced a federal bill in November 2003 which would require call centres to identify their physical locations, it seems unlikely that it will become the law.   


Some people, therefore, some have begun to believe that the political heat against BPOs in the US just a part of the 2004 election rhetoric. After November 2004, the anti-BPO sentiments will get a quiet burial.


I don’t think the matter is so simple. No doubt, the pre-election shrillness will die down; and Republicans will be loathe to pass trade restrictive, anti-BPO bills. However, to believe that the protests against BPO will disappear by next spring is naïve.


Let’s understand why. The US has gone through two major structural transformations. The first began with the Civil War, when the Union decisively proved the economic superiority of the factories of the North, which subsequently forced agriculture to give way to manufacturing. This transition occurred over six decades. The slowness of it — coupled with benefits of phenomenal US economic growth up to the Great Depression — hid the pains of this evolution.


Then came the second transition, whose end-game is still being played out in interior USA. This was the change from manufacturing to services. It began independently in the Eisenhower era, but intensified with the growth of Asian manufacturing and the oil price shocks in 1973 and 1979. Initially the Japanese, then the Koreans and finally the Chinese showed that in a globalised world, the US did not enjoy comparative cost advantages across a vast range of manufactures.


This transformation was more painful. Throughout the 1980s and 1990s, factories after factories shut down; and thousands of blue collared workers found it almost impossible to be re-trained as service sector professionals. Two demographic factors lessened the pain. The first was the college-going baby boomers, who went straight into service sector employment. The second was the country’s open immigration policy, which ensured plentiful supply of labour, and kept the job market flexible and efficient.


Today, the same logic of globalisation and competitiveness is forcing a third wave on the US — one in which growing segments of the service sector is being farmed out to significantly cheaper destinations abroad. Economists are going blue in their faces trying to explain why this increases US corporate productivity and profits, and why that must be eventually beneficial to the economy and the people. It isn’t cutting any ice in the social, political and emotional domain. People who were trained in services now fear that their skilled jobs will go to equally or more proficient Asians, who will offer these at a fraction of the US prices.


To them, it looks like the end of the line — because what is left after services go away? As the Federal Reserve chairman Alan Greenspan told the Congress, “The capacity of [displaced] workers to find a new job that will eventually provide nearly comparable pay most often depends on the general knowledge of the worker and the ability of that individual to learn new skills.” Greenspan is no anti-BPO activist, but he realises the enormity of the challenge facing the US. It’s all very good for economists to discuss the long term economic benefits of trade. But these arguments ring hollow for those who are getting unemployed, or are having lower standards of living while waiting for the long term to come.


The logic of outsourcing is irresistible. And it will happen — just as agriculture gave way to manufacturing and then to services. Which is why it would be foolhardy to believe that the anti-BPO sentiments will blow away after US elections. It is also the reason why we in India need to speak softly, crow less about our IT abilities, develop counteracting strategies, open investment to US companies and dramatically reduce our own trade barriers. These won’t eradicate America’s fears; but they could assuage them.


Published: Business world, April 2004


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