Rage against off-shoring is off target
By David Kirkpatrick
(FORTUNE.COM) -- Seldom have so many had such strong opinions about something they understand so poorly.
The topic is off-shoring -- and the anger over it is hard to avoid. Politicians are shocked and outraged at the prospect of U.S. service and back-office jobs going to places like India. Democratic presidential candidates condemn off-shoring and blame it on George Bush's policies.
Economic Cassandras warn that as many as ten million U.S. jobs could be at risk. New York Democratic Senator Charles Schumer recently co-wrote a New York Times op-ed confessing that because of off-shoring, he's doubting the whole concept of free trade.
Legislators in Washington, D.C., and a number of states are pushing to restrict off-shoring. Indiana's governor this past fall canceled a contract to pay India's Tata Consultancy Services $15 million for processing, ironically, state unemployment claims. The next-highest bidder, a U.S. company, reportedly wanted $8 million more for the same work. When you're willing to pay a 50 percent premium -- well, that's real anger.
Or is it just real stupidity? The fact is, we can't stop off-shoring -- and we shouldn't try.
For all the handwringing, off-shoring is inevitable, frequently makes business sense, and might even be beneficial.
A recent study by the McKinsey Global Institute, an economics think tank, calculated that for every dollar spent on a business process that is outsourced to India, the U.S. economy gains at least $1.12. The largest chunk -- 58 cents -- goes back to the original employer.
But there are many other benefits. For instance, 30 percent of Indian off-shoring is performed by U.S. companies, so money returns home as earnings. Additional benefits accrue from freeing U.S. workers to do other tasks. A good example is the much-fretted-over idea of sending X-rays to India for analysis. Diana Farrell, the institute's director, says doing so reduces the cost of health care and can free up money for medical innovation.
By focusing on India, politicians are ignoring basic economics. Job turnover, after all, is a sign of a healthy economy. The U.S. has lost two million jobs due to global trade over the past 20 years, says Farrell, but in just ten years has added 35 million new jobs.
Many of the same jobs politicians are trying to protect may end up disappearing anyway, as automation in business intensifies.
Michael Fleisher, CEO of the Gartner research firm, put it this way at the recent World Economic Forum in Davos, Switzerland: "Much of what's being outsourced using technology today will be completely eliminated by technology tomorrow."
We need to rethink our views on the global workforce. First, we should realize that the boom in part proves how much the U.S. economy achieved in the roaring '90s.
Nandan Nilekani, CEO of big Indian outsourcer Infosys, pointed out in Davos that American technology companies -- think fiber-spewing Global Crossing -- made Internet-driven outsourcing possible. In addition he notes that the U.S. for years has pushed nations like India to free up their markets; now we're just seeing the result.
The U.S. is helping the rest of the world work its way into wealth. That is in all of our interests. And it isn't a zero-sum game. American productivity, again fostered largely by intelligent use of technology, remains the highest in the world. That's likely to ensure we stay wealthy.
Nonetheless, displaced workers have legitimate gripes. What they ought to be demanding is not an end to off-shoring but better education and retraining to compete in a global marketplace, as well as social programs to cushion the blow of inevitable job losses.
Increasingly in the Internet Age, we will all rise, or fall, together.
E-mail David Kirkpatrick at email@example.com.