India Lowers Taxes as Employment in Message and Dataprocessing Services Rises
The Indian government has introduced new tax breaks designed to head off any threat of firms withdrawing business process outsourcing (BPO) operations and moving them to cheaper offshore locations.
Do you, with the rest of us in North America, hear the 'hush, hush' in the front offices as ever more jobs are being eliminated and shipped offshore? Quote after quote cites business planners advising their colleagues to keep a low profile at home while negotiating contracts in India or China for doing work abroad at a 50% bottom-line savings compared to what you/we cost them. (The wages are often 90%-plus lower there.)
Imagine for a second that these jobs were being outsourced from the US to Canada. Call centres in the Maritimes are an example of this. Well, under these circumstances such as under the North American Free-Trade Agreement (NAFTA), you would hear shouts of indignation from Congress that three or four key factors in Canada constitute unfair competition with Americans.
The US threatens trade war with Canada in sectors where powerful interests south of the border claim that the northern neighbour is not playing ball on a level field. Softwood lumber is just the tip of the iceberg here. Trade-conflict pressure and the resolution mechanisms both put downward pressure on Canadian living standards in three key areas: a) Canada's socialized healthcare system, b) relatively higher unemployment insurance benefits, and c) federal and provincial tax breaks and incentives to entrepreneurs and owners to increase employment. (Subsidized housing and welfare would fall in here as well if both were not already greatly reduced well before NAFTA was proposed.)
In the case of BPO outsourcing to, say, India, there is not as strong an effective outcry in Congress (despite media attention and trade union whimpers and whines). One suggestion for the low profile -- the enormous savings (largely in wages) for big businesses that outsource services, data programming and related processes. In the ballpark of 50% cost reductions, it is not just a question of competition it is a question of corporate survival -- if the competition can lower significant portions of their wage bill by 50%, then "your own company" could well bite the dust, and pronto.
India and China may have to cover their own backs as potential beneficiaries for increased investment in the Business Process Outsourcing sector. Mauritius and the Philippines are starting to offer sweeter deals. But in the long haul keeping the big outsourcers happy requires the sort of social investments in education and infrastructure that the more populous and economically sophisticated nations are able to mobilize rationally.
How any commentator, and plenty of them do, could look at all this and not see the process as a thorough attack on wages in the industrialized world is beyond me. Admittedly, the whole process flows into economic development outside the Western metropole and brings jobs to the second tier. But socially BPO does not export the sort of social security system we inherited from social democratic experiments of the past. Job outsourcing is part of the destruction of the cradle-to-grave social security safety net. (You could convincingly ask whether the logic of BPO argues that Reaganite economics failed to reduce real wages low enough for the investment capitalists. Isn't the conclusion staring us in the face that the high-tech stock market bubble was a counter-productive blip on the road toward lowering wages in order to increase profits in information technology?)
It may prove interesting, though maybe it is just an exercise, to look at individuals who move from advanced industrialized nations to places like China, India or even African nations. Already you pick up anecdotal tales of Silicone Valley expats living in the Caribbean, women and men who keep their hand in the Information Technology labour market or who search out investment opportunities abroad. The reason I mention these folks as interesting is not because it seems romantic to live in the Third World. What is pertinent here is the economic shift this mobility represents and indicates.
For individuals, with the downward pressure on wages at home, one response is to relocate where things like shelter and food cost less. Well, today those places are also potential sites for outsourced jobs.
The whole process is somewhat circular. But it is also similar to the low-end phenomenon of neighbourhood gentrification. What I mean is that people picking up and moving out of continental Europe and America and carrying their high-tech employment with them (even serving as consultants and investors in innovation) are part and parcel of the attack on wages in their industry. They don't fight back (which appears impossible) but they scurry and in the process expand the opportunities for outsourcing even more jobs abroad.
In the future, it may turn out that the bodies -- the living, breathing people -- that relocate in order to lower their cost of living while keeping one hand in the Internet-connected job market constitute a new motor force for change wherever they land outside the industrialized West. It is complex, but follow one thread. We say that knowledge and information is the key to the new economy. The very simple noumenon of knowledge that the expats have learned and that they carry with them to 'foreign lands' is the knowledge that the natives newly employed in the business services for the West are being paid one-tenth of what the expat was being paid for the same work back home.
These little human encounters could be the spark that ingnites the powder keg . . .
NOTE: Since posting the above, I have seen another take on the issue. I will POST on it soon, but here is the pertinent reference:
Creative Class War http://www.washingtonmonthly.com/features/2004/0401.florida.html
How the GOP's anti-elitism could ruin America's economy.
By Richard Florida
Washington Monthly
