Since the Ohio state governor Ted Strickland declared a ban on the outsourcing of government projects in order to keep jobs in Ohio, there has been a tremendous amount of discussion on the implication of both the action and the pronouncement. US President Barack Obama followed this up with a move to equalize tax on earnings of US companies between income from domestic and overseas operations. That in itself might even be the right thing to do, but the attendant rhetoric on outsourcing and job loss has left the media agog with speculation on what it all means to the Indian IT industry.
The quantum of government contracts that comes to Indian IT companies is a fraction of the nearly $57 billion of export business we do all over the world. So, whether Ohio or some other US state bans outsourcing, there would be miniscule impact on Indian companies. But, on the other hand, the rhetoric could mislead the American people and create a “whipping boy” mentality that blames the Indian IT industry that has become synonymous with the term “outsourcing.” In addition to making outsourcing feel “unpatriotic,” it could create fear in the in the minds of the American private sector. What is extremely disconcerting is the fact that any opinion coming from the US President becomes the overall sentiment, the official line on any subject. That alone is bound to affect the US law enforcement and border agencies. We are beginning to see isolated, though serious acts of unfriendliness. Unchecked, such posturing can hurt the complex supply chain process in which bits and bytes that travel by ether need a substantial free-flow of human beings between the two countries. So far, the industry has acted with restraint in the face of US utterances but continued silence could signal servility. Hence, a few key issues need to be raised by us ahead of the US President’s proposed visit to India later this year.
First of all, the perceived and the real job loss in the US have nothing to do with outsourcing. They stem from a generation of economic neglect. Jobs get created, not by large companies and governments, but as the result of grassroots level entrepreneurial activity.The American people have somewhat lost their legendary enterprise building capability. While no significant new enterprises have emerged in the last couple of decades, many American big businesses have grown by swallowing smaller ones. The idea behind such acquisitions has invariably been to downsize to the bone instead of creating greater value with newer products and services. Newer, viable businesses have simply not come up.
Is it not interesting that in the last couple of decades no new, memorable American company other than Google has come up? At the same time, bloated, ill-managed companies like Lehman Brothers and dozens of others have collapsed. On the one hand, Citibank is tottering; on the other hand, Mohammad Yunus’s Grameen Bank is deploying the equivalent of $8 billion in micro-credit. If American companies do not nurture, grow from within, innovate, globalise, do not give up non-sustainable cost structures, do not create newer products and services and newer business models for a world of tomorrow, how on earth can they create jobs?
There are other very deep-rooted problems with the US economy. It is a credit-driven economy. How can you endlessly borrow to consume? With an extremely poor savings rate, how does a country produce real surplus that can go into investing into newly formed businesses? How does one create and back new entrepreneurs? If there are no new entrepreneurs, how can there be new jobs?
Additionally, most large businesses are saddled with declining power of innovation. They are usually bloated and do not come up with newer products and services. But then again, even if they did, to whom would they sell these? Every economy has a finite ability to consume newer products and services. The American people are clearly saturated as a consumptive economy. Only in the developing economies of the world can more products and services be consumed.Many American companies simply lack the global outlook needed to step out of their own comfort zones and engage with the emerging economies. As a result, they keep harvesting a depleting source of domestic demand.
We need to understand that the essence of a global economy is free flow of trade and services. The US has been the vanguard of free economy and now it is the same US that is in essence speaking the language of protectionism. A global, free economy means jobs must go to more efficient, more competitive points of origin. This is evident when you open a brand new Apple iPad from its packaging; you see inscribed on it, the words, “Designed in California” and nothing else. But if you look at the complex supply chain behind the iPad, you will see dozens of international locations where everything has been produced and assembled, from the packaging to the printed circuit board, from chips to cables.
The world of services is no different today. A software product may be conceptualised in the Silicon Valley, architected and coded in India and then distributed, monitored, tested, updated and supported from locations in Melbourne and Madrid and Minnesota. In the manufacturing world, Nike may own the brand but not the factories; the same is true of many software and hardware companies around the world.
There is another interesting angle to the entire controversy.The protagonists of American job loss have overlooked a critical NASSCOM-McKinsey study that most Americans have no knowledge of. The study cites a rapidly changing demographic profile of the world by the year 2020. The report indicates that the US economy will actually be short of 17 million people by the year 2020. The declining population trend over decades means that America will need people that it simply will not have.
In addition to that fact, today’s average American kid is not pursuing mathematics and science and engineering. There is progressive decline in intake of students in these disciplines in the USA and it is a well known fact. The truth is that companies like IBM, Accenture, Microsoft and Intel do not have the hands they need to meet the global demand (read, not just American demand) and to remain competitive, they must engage with and acquire qualified talent wherever they may be. With no amount of retraining can high-tech jobs absorb mill- and farmhands, or the laid-off workers of bloated financial corporations of New York City.
Had it not been for the Indian high-tech industry, the US economy would have lost its shine a little earlier. We work quietly so we do not get noticed but walk around in Bangalore city alone and you would know how a committed and involved workforce keeps IBM, Accenture, GE, Intel and countless other American bellwether companies ahead of their global competition.
In the 1990s, when the Indian economy was just opening up for the world, GE Chairman Jack Welch was one of the early entrants. He had his eye on India, thinking to sell everything from MRI machines to aircraft engines. But he also had a more far-reaching thought. He asked his executives to engage with Indian talent before others did because he saw that talent would become the new competitive advantage in the 21st century, and he used the term “talent lock-in” as a matter of corporate priority. In the new world, he said, GE must lock-in talent ahead of its competition wherever they may be. Jack got it right two decades ago. Many politicians refuse to learn their Economics 101 even today.
In the malls of Gurgaon and Bangalore, the Indian kid is queuing up to buy burgers from Mac Donald’s, we buy aircrafts from Boeing, cars from Ford and insurance from AIG. Guess what is weaning buyers away from the traditional Himachal apples? It is the branded Washington apple imported from halfway across the world. And then we have Kellogg, (from Ohio, incidentally), HP and IBM products or Accenture services. The US cites domestic unemployment to create barriers. But what about a developing country whose unemployment, is in reality and in net terms, a much bigger problem because neither alternative livelihood nor social security exists? How is it that we are expected to open our boundaries from agriculture to healthcare, manufacturing to entertainment, media to financial services? What would happen if local politicians in India were to repeat the Ohio rhetoric and whip up a frenzy against American products and services? The viral effect of Ohio will not be only on other American states; it would, like any virus, cross international boundaries. That is why politicians must understand that rhetoric is not a substitute for resolving fundamental problems on the ground. By using this rhetoric, they create a lose-lose situation.
I understand that the American politicians have a huge problem. They have an electorate to answer to. But then, Peter Drucker, the Austrian-born American management guru, once said, we should shift from solving problems to courting opportunities. Problems love attention. The more you give them your attention, the more they demand. Meanwhile, the opportunities simply go someplace else. That is happening in Ohio. The Governor is trying to solve a problem that will soon engulf him. The reality is that the jobs that have gone away will never come back. What Ohio needs is new jobs that do not yet exist. Jobs are like people: they must die if they are born. You cannot couple a living man with a dead job. You need a paradigmatic shift to create jobs for the future, jobs that will have a life for the foreseeable future. America did that admirably forty or fifty years back and has reaped its benefits since. But today, it is at a loss because new economic models, new enterprise, and newer ways to bridge the distance between lab and land have been neglected as successive American presidents have been distracted from the task of nation-building to policing the world.
Now let us turn to the subject of Indo-US relationship. The US administration must realise that we are not only the largest democracy in the world; that, after Germany, we are the only one still standing on a bedrock of diversity and tolerance. The US administration says we are critical to the values of freedom and the fight against terror. But in the very next moment, even the US President does not mind pitching Bangalore against Buffalo in his crusade against outsourcing, as if Bangalore is growing at Buffalo’s expense! It is a sad deflection meant to buy time from an electorate that is expecting a miracle in a mature economy that has the answers within but it is not willing to change. After that rather sensational utterance, the US President now must skilfully avoid visiting Bangalore because it would be politically sensitive back home. He is thereby missing a great opportunity to emotionally lock-in Bangalore’s burgeoning talent, which Jack Welch considered a globally competitive weapon.
Back in the 1970s, when Indira Gandhi was India’s Prime Minister, she blamed “the foreign hand” for every problem India had. As I grew up, I realised that the so-called foreign hand was a ghost. Then we entered the ’80s and India started opening her economy. Today, no one talks about the foreign hand. We have grown up. We do not blame others for our structural problems; we have learnt to take responsibility for our own failings and limitations. We have exorcised ourselves, and I am amazed that politicians of the world’s most powerful country are going back in time and allowing themselves to be possessed by a ghost that does not exist.
Finally, the real issue is not American job loss. The real issue is American job creation. And American politicians need to stop skirting the real issues behind the declining American economy; they need to stop blaming the foreign hand for a problem that is largely internal to their own country. Working with India and other emerging economies can help strengthen the US economy; indeed, in the next ten years, they will need human capital from other nations to supplement their own diminishing workforce. Rather than bandy about appealing but damaging rhetoric for the sake of a few votes, American leadership will do well to focus on leveraging the immense pool of talent that India has to offer.