Obama’s outsourcing rhetoric

“I will stop giving tax breaks to corporations that ship jobs overseas, and I will start giving them to companies that create good jobs right here in America.”

Barack Obama, 28th Aug 2008 at Denver

These are the words that caught the attention of media, IT industry and even some commoners in India among 4600 and odd words that the democrats’ nominee Barack Obama uttered in his acceptance speech on Aug 28 this year at Denver. His speech was one of the best I have ever heard from a politician to the electorate. If he is to honour the promises he had made in his speech, as a president, then surely America will witness a big change. I like his emphasis on social policy changes and refocusing the war on terror. He may turn out to be the right man for the job as far as the American middle class is concerned.

Let us now turn our focus to the quoted words. Four years ago Senator John Kerry assailed the outsourcing policy of US corporations and launched a tirade against it. It was almost like a promise of ‘war against outsourcing US jobs’ if he becomes the President. It can be equated to the ‘freebies’ that Indian politicians throw at electorate during their campaigns. But John Kerry’s jingoism failed to win him votes. He didn’t even run the republican hawk close as did Al-Gore, some eight years ago. Why? Simple, majority of Americans saw through the economic logic as well as social benefits that outsourcing brings to their economy. Then why did Obama touched it in his speech?

Obama, very cleverly focused his speech on Bush’s grand failures, the war, the economy and raising ‘living and healthcare costs’ of American middle class. In a small way, in the short run, Americans do get affected by outsourcing and Obama probably didn’t want to keep that segment out of his purview and hence the rhetoric. There is this picture that outsourcing benefits only the corporation that outsource and goes against the welfare of the society, especially when an overseas party is involved. This is the most prevalent feeling and may well strike the chord with many based on immediate and direct evidence.

A job is outsourced only when a company feels it is uneconomical to perform on its own or lacks the necessary skills, in-house. A country’s economy is largely carried by the industry, agriculture and natural resources. Industry plays a huge part in a country’s prosperity. So what is beneficial to the industry will be beneficial to the economy and in turn to people living in that economy. Certain initiatives do not bear fruit immediately as they do take time to trickle down.

By outsourcing a company improves its profits and in turn the tax outgo as well. The economy benefits with increased tax collections. Why would any reasonable man other than a communist want to discourage such an activity like outsourcing? Also I am not aware of tax sops for outsourcing in the US. If there are any then they make no sense. It is in the interests of a company to outsource and even without tax sops they would go for it. Tax sops are only for things and projects in the interest of nation building and supporting the economy. May be the US President in waiting might have referred industries under tax sops that outsource jobs. They may be few and even there I don’t think the economic prudence and common sense supports discouraging outsourcing.

Discouraging outsourcing fails the economic logic as well as the social logic. By this, I mean, neither the society nor economy benefits from discouraging outsourcing in the medium to long run. Companies outsource only non-critical jobs and will continue to do the critical jobs in house even if they are costly to do so. Therefore they will focus more on value creating jobs by shipping lesser jobs to cheaper destinations. It also means more demand for higher skilled and high knowledge jobs. As a result the society is pushed upwards in the knowledge strata.

Just like the British, who made their clerks out of Indians, intelligent societies will get lesser jobs done by the cheaper sources and drive themselves up the knowledge and skill curve. This is an inevitable consequence of outsourcing in developed economies as the ball rolls on. Take for example the cries for upgrading the maths and science skills of US students. We didn’t hear them in the past. There is more need for higher skilled and specialized knowledge people in the US than before because there is more focus on research and development and on critical jobs. There is only so much that the foreigners can fill up due to Visa quotas and that leaves a big hole of high value jobs to be filled by Americans. This will only grow in the years to come.

America as a society and as an economy will gain more from outsourcing and of course most of the Americans know that. My guess is more Indians are caught by those 20 odd words than the number of Americans. They have real problems that stare at them. So we need not worry until the American economy further slows down and that is something that Obama is promising to halt and even turn up.