India is
Not a Country to be Picked as a US Strategic Partner
By
John Laxmi
THE
RAGING debate on outsourcing of high-tech jobs to India misses
the most important point: national interests and security. The
problem with outsourcing is not with the efficient invisible hand
guiding the economic decisions of individual corporations or governmental
units. The American economy is resilient and will eventually replace
these jobs with new and better ones. That is not the main issue.
The
main issue here is the particular type of functions being outsourced
predominantly to one specific country (India), which makes this
a phenomenon of national importance, even national security to
the United States. Outsourcing could become a blind race to the
bottom, one that
could potentially compromise American interests.
First,
some important disclosures: I have significant investments in
the stocks of GE, Intel and IBM, companies benefiting from 'outsourcing'
high-paying technical jobs from the US to countries like China
and India. Two of my siblings are senior professionals in large
American corporations, directly engaged in outsourcing of technology
jobs to India.
I
live in New Jersey and shop at Walmart and Dollar Stores without
bothering to see where the merchandise is produced. I am a free-market
supporter, a former investment banker and teach a course on bond
markets at New York University. My teaching job at NYU is not
threatened by
outsourcing. I am an American who leans towards the Republican
party on economic issues.
All
this should make me a wholehearted supporter of Outsourcing. Right?
Not quite. Our national interests must be aligned and synchronized
with countries which supply products and services to us. After
all, we don't outsource medical services to Cuba.
On
principle, without regard to economic costs, we boycotted South
Africa during its apartheid years. Recently, we refused to use
our tax dollars to outsource Iraq reconstruction contracts to
French, German or Russian firms. We didn't buy oil from Libya.
Our oil dependence on sheikdoms turned out to be a disaster.
In
the same vein, as we careen forward on the freeway to creative
destruction, we must take a closer look at India, the nation contending
to supply us with everything from call centers to computer security.
Superficial
observers like Tom Friedman of The New York Times gush about young
Indian women newly 'empowered' by call center jobs. Indian women,
in jeans and eating pizzas, are supposed to make us feel good.
Sure. But, a closer examination reveals the potential perils of
appointing India as the sole supplier of vital software and services
to our business and
government.
First,
let's deal with the cost saving arguments. The cost advantages
claimed are neither permanent nor fair. The Indian government
lavishes generous tax-breaks on outsourcing and IT industries,
(zero income tax on most IT outsourcing operations) tax-breaks
of a magnitude neither deserved nor needed by the IT industry.
These
tax subsidies from the Indian government come at the expense of
the most basic governmental services critically needed by the
two-thirds of India that is mired in shameful poverty, samples
of which can be readily seen in the silicon gullies in Bangalore,
just a few miles from the glittering offices of Infosys and Intel.
In Chennai, another major Indian OutSourCity, no drinking water
is available even to vast sections of the middle class.
More
importantly, these cost advantages are not guaranteed to last.
India's labor is free and mobile; American and foreign purchasers
of this labor compete in a free market, which means there is no
ceiling to Indian wages except those set by world markets.
You
might ask: What's wrong with exploiting these cost savings as
long as they last; we can always move these operations to other
countries or even back to the United States when cost advantages
narrow?
These
types of service jobs, even those involving call centers, cannot
be shuffled around. Indeed, the types of jobs going overseas are
not limited to simple coding but increasingly involve higher-level
design and development tasks. These skills, especially those customized
for specific customer applications, are not likely to be readily
available in Indonesia, Philippines or elsewhere once these jobs
become entrenched in India.
This
means that the current outsourcing stampede could make American
government and businesses permanently beholden to critical technology
services and support from India, just as we have become dependent
on energy from the Middle East.
But,
you say, India is not Saudi Arabia or China. India is a democracy.
Indians speak English; they eat pizza and wear jeans. Once we
get past these superficialities, however, we find that India is
not a country we would readily pick as our strategic business
partner.
Although
India has been coddling up to the West in recent years, Indians
have long been inimical to Western ideas, technology, liberal
principles and modernity. Allying itself with the Soviet Union,
India labeled itself the leader of the so-called nonaligned movement,
and habitually hectored the US at the United Nations.
India
continues to tolerate large-scale piracy of intellectual property,
from books to movies to high technology products. India is praised
for its English-style laws, but the Indian government
blatantly reneged on its contract with the largest power plant
built by American investors. The Indian government has failed
to distribute equitably among its own citizens the large extortive
penalty collected from Union Carbide for the Bhopal accident.
In the 1970s, India drove IBM
and Coke out of the country for refusing to pay political ransom.
If
you dismiss all this as irrelevant baggage from India's past,
the current Indian government shows no clear principles either.
The leading party in India's governing NDA coalition is the Bharatiya
Janata Party, which rose to power by blatantly exploiting and
advocating virulent and
fanatical Hindu-first sentiments. The people of India are poised
to give this party a larger mandate at national elections scheduled
this month.
Having
started a non-winnable nuclear-race in the sub-continent with
Pakistan, India continues to refuse to sign the nuclear non-proliferation
treaty. Indian politicians are trying shake down Coke and Pepsi
through 'investigations' of contamination in beverages marketed
by these American corporations in India.
Just
last year, when the US sought international support for action
against Saddam Hussein, India went AWOL, hiding behind domestic
politics. The Indian parliament went so far as to pass a resolution
condemning the US-led action in Iraq. Even after the fall of Saddam
Hussein, the Indian government would not offer even token support
to the Coalition's peace-keeping efforts in Iraq. India is much
more closely aligned with the French and the Germans than you'd
guess.
This
is the India that we are outsourcing our guts, lungs and brains
to. Whether we are buying oil or software, the principle remains
the same. We must make sure our suppliers' interests are closely
aligned with ours. Let's not kid ourselves. If we went looking
for business partners, India
would not be the ideal choice.
As
critical functions of the American economy are outsourced to this
antagonistic nation, Americans will grit their teeth, and bear
the costs and consequences of keeping global markets free. But,
as citizens of the only nation championing democracy and free
markets, should Americans just shut their mouths and march to
the unemployment office? I think not.
We
must make vigorous investment in our own educational system and
keep our borders open to immigrants to restore critical skills
and capabilities. Meanwhile, we can do more. We could demand that
our government ask India to change and reform its ways.
First,
we should demand that India must send a meaningful contingent
of troops to help the coalition in Iraq and Afghanistan, meaningful
in size and commensurate with the global power Indians think India
is becoming.
Second,
the US government should demand that the Indian government must
source preferentially from American contractors and manufacturers
for the ambitious infrastructure building effort under way in
India. India's roads, ports, power and water facilities are woefully
underdeveloped. American technology and know-how can help speed
India's development
process while strengthening the commercial ties between the two
countries.
Third,
the US must demand that the Indian government level the playing
field between American and Indian technology firms. This means
India must phase out its tax subsidies to the IT industry and
agree to subjecting Indian firms to the same consumer protection
laws and other legal liabilities governing American firms in like
businesses.
Finally,
the US must demand that the Indian government will sign the nuclear
non-proliferation treaty if Pakistan agrees to sign the treaty,
paving the way for a more peaceful subcontinent.
A peaceful Indian subcontinent, aligned closely with American
interests, is vital if we are going to rely increasingly on Indians
providing services to the American economy.
The
writer teaches a course on bond markets at New York University.
He is also a board member of the South Asian Journalists Association
(SAJA)
