Outsourcing Angst

The mother of all issues this political season, it seems, is outsourcing, or rather the problem with it.

All the Democratic presidential candidates have been banging up on it, although it does seem that Sen. John Kerry, the presumptive nominee of the party, is the least protectionist among them. President Bush, like on just about everything else, does not quite know what to think.

But it is abundantly clear that outsourcing will be the stuff of political football this presidential cycle. And that means one should expect that restrictive rules will emerge over the next few months.

As India is one of the principal destination for outsourcing companies, we need to be attentive to this debate.

There is immense irony in seeing Americans bent out of shape over the consequences of outsourcing to its domestic labor force.

For years, successive American governments have preached the gospel of free trade to the rest of the world as that has suited their economic interests.

But free trade, thus far, has meant principally a supply of low-priced raw goods from the developing world and the sale of high priced finished products by developed countries to them in return.

There were some hiccups in this lopsided system, like when the manufacturing base of the West began to slide and was lapped up by countries like China, South Korea, Taiwan, Malaysia, Singapore and Hong Kong.

But that cycle passed, because it was also tied to the logic of Western economic systems and lifestyle issues.

Indeed, Western economies quickly adapted cheap manufacturing labor as an intrinsic component of their economic hegemony.

But the transfer of white collar jobs, high tech jobs as a matter of fact, has the potential for seriously undercutting the advantages that the West has calculatingly enshrined into the global trade system for decades. Hence this uproar.

The West has never accepted the idea of open trade of labor, even as it has enforced its model of free trade of goods.

It has occasionally purchased this labor through limited immigration, which it modulates and controls, often in ridiculous ways. At the height of the tech boom, for instance, the U.S. tripled its quota of H-1 visas, which trades in high technology professional assets.

But the policy lapsed in October 2003, just as the dot coms fizzled, so the quota is now back to 65,000. But this quota for 2004 was fully exhausted by mid February.

Ironically, this shift to outsourcing would be reduced if the H1 visa expansion program were still operational. But reason and logic are not the stuff of political theater.

In general, Democrats tend to be more protectionist on trade, which is actually in sync with the needs of most developing societies, who feel the urge to protect their domestic markets.

However, now that America and the West have effectively browbeaten developing societies, such as India, into prying open their markets, the new American imperative to close down its own market could be devastating to both the United States and the outsource capital, India.

The one relief is just how short term American public memory really is. Should the economy sputter back, this outsourcing hoopla will likely pass.

Whatever these temporary diversions, ultimately, outsourcing will be driven by its inevitable economic logic, which seems, at least at present, irrefutable.

But then, there is the next big thing.