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January 07, 2005
View from an outsourcer
Visit any Indian city and you will see beggars. Not the handfuls of beggars that used to populate American cities, but hundreds of thousands of people futilely asking for a few rupees. Even if you give just one rupee each, you'll run out pretty fast.
Visit any of the hundreds of thousands of small rural villages in India. See farm laborers earning Rs 25 (about 50 cents) a day, for a 16-hour day. They have no electricity. Their house is a shabby hut that can't keep out the rain. The well behind their house is filthy with human and animal waste, but that is all they have to drink.
Why don't their greedy landowner-employers pay them better? Because even the landowners don't have the money to feed the multitudes. Even if India's entire GDP were distributed equally, that would still amount to just Rs 200 (US$2) per day. That's not enough to provide anything remotely resembling a decent standard of living.
Many farm workers flee to the cities, hoping to find industrial jobs there. Around all of India's major cities are vast shantytowns, where people live in sheds and shacks. Some find jobs, but even these jobs pay poorly. Not even the most enlightened employer can pay well unless he has money to pay with.
Companies make money by selling goods and services. But to whom? Few in India have the money to buy much more than basic necessities. There is not enough money to build good roads, reliable telephone lines, farm equipment, and other investments in technology to enable India to produce more.
In short, India is in a poverty trap. It is poor because it is poor.
But there are rich countries in the world. Could they not be prevailed upon for aid? On occasion, yes, rich countries will grudgingly dole out aid, but they invariably pile on so many conditions on how it is to be used to render it almost useless. Or, worse, they demand high interest rates on their loans, leaving the poor country worse off than before.
Another idea. Why not try to find some good or service that can be SOLD to rich countries? They wouldn't be so stingy if they were getting something in return.
What a brilliant idea. And India has found two things (so far) it can sell - telephone call-center services and computer software. Funded by rich-country customers, wages climb to stratospheric heights. The child of the 50-cent-a-day farm laborer can pull in ten times that sum in a call center. Those who make it into IT pull in a mind-boggling Rs 2,500 a day or more. Instead of struggling in cramped sweatshops like their parents, they work in clean, spacious, air-conditioned offices.
Money, money, money. India pulls in US$3 billion a year from call-center work - as much again as from foreign "aid". Software draws in another $7 billion a year and the total is rising exponentially. The money-multiplier works its magic - well-paid IT workers and profitable IT companies spend money locally, their customers spend money locally, and so on. The poverty trap is turning into a prosperity circle.
As recently as 1996, 42 percent of India's population lived on less than US$1 a day. By 2001, that number had dropped to 35 percent. That is 70 million people lifted out of a state of poverty most Americans couldn't contemplate in their worst nightmares.
India might be said to be in the position China was in in 1990. The history here is even more extraordinary: 33 percent of China's people had incomes less than $1 a day in 1990; by 2001 the figure had fallen to just 17 percent. With China's huge population, that works out to nearly two hundred million people.
Together, China and India are achieving the largest-scale reduction in absolute poverty in the history of the world.
How are they doing it? Simple. They are using of the only advantage a poor country has over a rich one: its lower wages. They sell goods and services to rich countries at lower prices, and take home the profits. Japan did it. South Korea did it.
This issue strikes home for me because my parents are from South Asia. My father and mother know what it is like to go to bed, every day, hungry. To have no social services, no food stamps, no Medicaid, no public hospitals.
So when I hear liberals bashing outsourcing, I get angry. Yes, low wages undercut higher wages in America. So what? Those same "low" wages are raising the standard of living in India. As a liberal, I strongly believe in any and all measures to reduce poverty in the developing world.
I believe in generous foreign aid, lowering trade barriers to poor countries, and encouraging as much investment in possible there. To me, that is a moral necessity. It trumps everything, and if I have to choose between that and taking some job losses in the United States, I'll do it.
Why should that be so unnatural for a liberal? Do you really think the poor can rise without some sacrifice by the rich? Here at home, we are the first to call for wealthy individuals to pay higher taxes to fund social programs. Why do we object when the same thing happens on a global scale?
Consider also that during the 1990s, India was experiencing a brain drain. Many of its best people took advantage of the H1-B program to work in America, and many settled permanently. Now it's payback time, but Americans gripe. Why should rich countries be the only ones to benefit from globalization? Why do liberals join in the nativist hoarding?
Should I feel sorry for IT workers in America? Well, for starters, IT is a relatively high-paying profession. Even now, after the dotcom downturn, it is far from unheard of people just out of college to pull in $60K (compared to $40K in Europe or Canada). Experienced software developers make six digits.
These people are not poor. They are not even middle class. They are upper class. And we're supposed to take jobs away from the poorest people on earth and give it to them?
That's supposed to be a liberal position???
I'm pushing the company I work for to open offices in India. We won't lay off any of our existing staff, but we can open a QA operation there that we might not have been able to afford at all otherwise.
And as an aside: open-source software undercuts wages in retail software companies, and nobody complains about that. Would you give up Linux or Apache so Sun or HP employees can keep their jobs? I didn't think so. Why then should you try to hold back Wipro or Infosys?
Posted by Tyrone at 06:02 PM | Comments (3)