America, Stop Blaming Outsourcing for Your Economic Mess!

When I last read about globalization, what I understood is that, this is about dismantling trade to promote trade and services across the globe. When the Russians were going gung-ho about their socialist economy, America and Britain worked overtime preaching about capitalism and its benefits. The twin oil shocks of the 70s, the Vietnam War, the gold crisis and the recession, all resulted in balance of payment defaults resulting in a bigger push for globalization. All the Asian countries, African nations (who got liberated around that time) were lured into agreeing that “Globalization” is that magic pill which will ease away all of their pain.

The UN trusteeship council was criticized as it only facilitated the freedom (choice of self rule in the American and European colonies) and did not ask for economic aid till such countries become politically stable or reach a certain level development. The new economies were left on their own, with high expectations and very little resources and hence Globalization was adopted as a bitter pill to cure underdevelopment.

Those who argued in support of it said, it will encourage FDI, involve transfer of technology, sharing of business practices, create new jobs and strengthen the economy. Those who disagreed said, it will make a nation more dependent, harm domestic markets and will lead to more inequality. Both the arguments were justified. The problem behind this concept was the genuinity of the intention.

The MNC (Multi National Companies) fiercely propagated this idea as they wanted more people to consume their product hence reduction in trade barriers. Moreover, they wanted to be more profitable hence the work traveled to those locations where people did it at throw away prices. Now this is important. Earlier, people used to migrate to a place for work, now work gets migrated to locations wherever it can be done cheaply. That’s how outsourcing was born.

It created jobs, it led to the emergence of happy middle class and a sense of prosperity in the country where these jobs went. Now understand, they (MNCs) took their work to these locations because the work of (more or less) same quality was being done cheaper. So, it improved their profitability. This in return, made them more competitive.

It did not stop there. Whatever these youngsters were paid, which was certainly high as compared to what they used to earn before, created a huge market. So another idea was born. It was, when they were giving them money in form of salaries, why not cash upon it further. How? Through their peers, by making this middle class wear their clothes and shoes (American apparels), eat what their fast food outlets sell (McDonalds, Pizza hut etc.), making them buy American songs, movies, mobiles, laptops etc. In short, they made them live the great American dream right at their doorstep and created another gateway for more profits. So, after the year 2000, when the outsourcing boom came (to India or elsewhere), a flurry of malls with all the American and European brands mushroomed all over.

Everyone was happy, the companies, the people whom they recruited and the markets. But, a certain section in America or even UK was getting mauled over by severe economic crisis. Why? The companies were making profits by getting their work done overseas and selling their stuff too but the ones whom they fired were rendered jobless, homeless and hopeless. This started the battle of 1% of those who had all the resources vs 99% of those who had nothing or were on the verge of it.

A legitimate question is – What did these companies do for the welfare of those who they fired. Forget the benefit, despite of having best of economists and analysts, did they have a plan to contribute a certain percentage of their profits in the American economy to create more jobs? The answer is No.

Greed makes you deaf and dumb and the MNCs are no exception. When these companies became super profitable, they wanted to make more money. Hence, investment bankers were recruited. That is where their wheel of fortune came in full circle. The sub prime crisis unfolded, thanks to some callous decision making of these so called investors. One after other many investment banks went bust, filed for bankruptcy or cried to be saved, after all they were too big to fail. This triggered the wave of recession worldwide. The profits sunk, more employees got fired and the great American Dream looked like a distant history.

Indian workers faced the wrath of American citizens/workers (it was quite easy to pitch them against each other) and Indian companies were forced to create more jobs in America as they wanted to remain in business. When all this too did not stop the American economy from getting into recession, they took the next predictable step. The same propagators of free trade, started creating barriers. Visa reforms, immigration reforms, anti outsourcing bill and what not.

Critiques argue, the essence of the Globalization was not welfare of the world but to strengthen the economies of the developed world. When the MNCs got terrified, their profit sunk, they started the blame game. The easiest route was to blame outsourcing. “Indian companies took away all your jobs” made for an easy understanding instead of “We did not do anything despite of huge profits and ended up as jokers in the hands of investment bankers”.

Make no mistake, Outsourcing is important, it helps companies remain competitive in the global arena. If you stop outsourcing, an economy will deteriorate at a much faster rate than anyone can ever anticipate. As far as the jobs are concerned which you lost and we gained (because of outsourcing), let me remind you – “They do not belong to anyone”. They just belong to anyone who can do it at a cheaper rate.

The question is not about job loss, the question is about who is profiting from it and are they using these profits to revive their economy. Shouldn’t Americans start asking their own big corporates some tough questions?