The Anti-Outsourcing Bill: Obamic Mercantilism

By Chhaya and Sagun/ 3.1.2012

Back to River Rouge?
“Outsourcing is a Scourge"

Whilst the world economy teeters on the brink, positive US job figures appear illusory like the proverbial lull before the storm, especially so because of the lid on government spending. A band of 16 million out of permanent full-time jobs is certainly not a treat to the agile eyes peeping through the White House, that too in politically delicate times. It was essential that some dextrous drills were demonstrated to step up offensive against the job-exporters (outsourcers).

Hail the US 'Call Centre Worker and Consumer Protection Bill' commonly dubbed as ‘The Anti-Outsourcing Bill’ which aims to stem the tide of jobs directed elsewhere. It clamps down on most preferred call centre destinations like India, China, Philippines, Latin America and Australia that ensure better cost arbitrage. The bipartisan bill was tabled in the House of Representatives by Tim Bishop, a Democrat Congressman from New York and Republican representative, David McKinley in the first week of December.

The Bill, if passed (though a highly improbable proposition) would put some aggressive mandates on call-centre activities.

  1. US based firms, that offshore call centres will be penalized by making them ineligible for federal grants and guaranteed loans.
  2. U.S. consumers are given a right to question the call centre representatives regarding its location and can even demand US-based representative as an alternative.
  3. Secretary of Labour will have to maintain a list of employers located overseas.
  4. A 120-day advance notification has to be provided by the companies to the US Department of Labour before moving a call centre overseas, failing which a penalty of $10,000 per day would be imposed.
Communications Workers of America (CWA), a union that represents 1,50,000 call centres in the U.S. came out with an unflinching support for the bill. This action demonstrates the ‘kite’s tail’ position of such unions. The concept is well expounded by George Novack.

‘In the initial phase of independent labour politics the mass labour parties may have organisational autonomy but pursue class collaborationist policies, like the American Labour Party in New York. This is inescapable under the given conditions of development. Here we find that labour politics have an independent form but no essential independence because they identify themselves with or yoke themselves to capitalist parties, just as the ALP was the tail to Roosevelt’s kite.’

Such a stance by individual unions (based in different nation states and which base themselves upon these nation states) though protect the interests of their own national bourgeoisie, but are not symmetrical with the interest of the international working class. This policy if advanced, would eclipse their own interest even if the ‘Workers of the world unite’ literally. Consider this. TATA steel union workers from India, UK, New Zealand and Australia are bracing up to form a transnational union whose rudimentary meet was recently held in Jakarta. The bone of contention was ostensibly disparate interests. In September, Tata Steel employees in Jamshedpur (for the record these workers NEVER went on a strike in their century long history) got an 18.5% bonus pay-out (an additional expense of Rupees 171 crore). Simultaneously, hundreds of Tata Steel Europe employees in the UK bore the ignominy of factory closure or temporary shut-downs. Not surprisingly, when the idea was to ‘restore good relations’, Raghunathan Pandey, President of TATA Workers’ Union refused to comment on the ‘need’ of such a union.

The 2004 US presidential election drama is all set for a 2012-replay. At that time democratic candidate John Kerry had mounted aspersions against "Benedict Arnold corporations"(the firms which outsourced jobs and hence did not pay their ‘fair’ share of taxes). Once again the stage is ready for a combat between the unrelenting mercantilists (advocates of the view that trade should be regulated to enhance economic power) and the belligerent industrial lobby. Slogans such as ‘protectionism’ and ‘free trade’, not to mention ‘national self-determination’ are like SOS pills in the bags of nation states, to be swapped for each other when necessary or be taken ‘according to ailment’. Corn Laws in Britain were only scrapped when the production had become robust enough to be internationally competitive. Manchester couldn’t have flourished wasn’t it for the state shielded industrialization in its budding years. From the classic rich states of Europe to the neo-rich of Asia, free trade was only embraced after the domestic industry had acquired vigour and resilience to be able to cut the rivals.

The Story Till Now

Let’s trace back outsourcing as a process, following its footprints down the dusty lanes of the yore.

About 5,000 years ago, Southern Mesopotamia cradled one of the earliest urban societies, the Sumerians. By the end of summer, most of their land used to bake rock-hard in the want of rainfall which was scant. Cultivation hence required irrigation which tremendously increased food production. This had a twofold impact, firstly it jacked up the population and secondly it allowed some to ‘specialize’ in tasks other than farming (initially allied activities like fishery and hunting and later, post the invention of writing-cuneiform, mathematics and astronomy). This was one of the first observed instances in human history of division of labour.

However the first ‘conscious’ note was not taken until the 17th century when William Petty demonstrated its existence and utility in Dutch shipyards. Two centuries later, Karl Marx would refine the concept. Alienation was seen as a logical consequence of the repetitious nature of specialized jobs. He would go one step further and distinguish between economic and social division of labour, the former being a technical necessity and the latter, a product of class division. Any conflation of the two would obscure the truth and lead us to conclusions similar to Plato’s (that division of labour is attributable to the ‘natural’ inequality of humanity). The chase for surplus value would be another key driver in the coming epochs.

Come industrial revolution (1750 to1900) in the Europe and the profits expanded like never before. Sales figures breached all records and markets widened. The unprecedented affluence encouraged firms to divide the work and outsource (used loosely in this context) non-core tasks to firms within the same country. Note that the trend was confined within the boundaries of Europe and was not yet ‘global’. When it crossed the land of opulence, its nature was malevolent. Furthermore, this odious nature was not just confined to the manner in which business operations were conducted but got overwhelming support from the state and its apparatus. For instance, the Indian farmers were coerced into providing raw materials like cotton and indigo for the British companies when they would rather produce food grains.

In the mid-20th century, the final stride was taken. Technological (improved means of transport and communication) and political (independence of several Asian peoples) provided the much needed impetus to the process of outsourcing. The newly liberated states were courting many challenges-faltering growth, low levels of literacy, employment and income, insufficient infrastructure and the greatest stumbling block-there was a general lack of capital to be invested in these ventures. Outsourcing (along with FDI and FII) held the golden promise of the century, the hope of the hopeless, or so it seemed.

The IT revolution of 1990s catalysed this development and globalized it. The corporate honchos began offshore outsourcing to countries on a lower rung of the ladder of growth, the primary motivation being a comparative advantage or enhanced surplus value, both absolute and relative. This was due to substantially lower costs, lower pay, a regulatory framework designed to attract such business and other incentives offered by the governments(like the building of IT parks). As skill development accelerated the process of human capital formation in these countries, ‘strategic partnerships’ emerged under which even core tasks were outsourced to maximise profits. It is interesting to note that in contemporary times even war is being outsourced. It is corroborated by the fact that US employs more contract fighters in Afghanistan than regular troops.

The Anti-Outsourcing Sentiments

The assault on outsourcing is neither a new phenomenon nor one confined within US’ frontiers. The ‘shared vision’ belongs to all venerable states which stand at the crossroads in the wake of the crises which drove companies into extreme cost-cutting initiatives. Craving for precedents? Post the Great Depression nation states abandoned free trade and embraced protectionism to ramp up their embattled economies.

Before we turn to the classic example of US, let us consider the case of European Union. Central Europe, presently the Knowledge Processes Outsourcing (KPO) hub might soon be edged out by its Asian and bit later African counterparts. The Acquired Rights Directive, though implemented in different ways in different states, attempts to safeguard the rights acquired by employees with the former employer when they are transferred to another employer (the contractor). [See decision of the European Court of Justice in Christel Schmidt v. Spar und Leihkasse der früheren Ämter Bordesholm, Kiel und Cronshagen, Case C-392/92 [1994]]

A similar function is discharged by the Trade Adjustment Assistance Act in the United States which seeks to compensate workers directly affected by international trade agreements. The issue of the degree of security provided by this legislation to employees in reality is controversial. Let’s dig a bit deeper into the US outsourcing story. Back in April 2003, a development had sparked political furore and convulsed the call centre business in New Jersey. The Scottsdale, Arizona-based eFunds, a firm that processes electronic card system for some 200,000 New Jersey welfare recipients, had decided to shift its business from Green Bay, Wisconsin to Mumbai, India. The decision raised a ruckus in the state with 6% unemployment. It was finally resolved when the government went overboard and took an ‘exemplary’ initiative to underwrite the extra cost ($74,000 a month, 20% more than the cost of running it from India). Subsequently, the centre was brought back to New Jersey. On being questioned on the rationale of spending taxpayers’ money to retain a firm and pay its bills, Mercer declared the government was responding to a ‘higher calling’. Andy Williams, a spokesman for the New Jersey State Department of Human Services which signed the deal with eFunds, conceded that after the company's contract expired in August 2004, it would have had to compete at a disadvantage with other firms (which would have kept the jobs in the US). However this was definitely ‘not’ an incidence of arm-twisting or so Williams believes.

To retool the message, the US Congress passed a Border Security Bill (August 2010) that doubled H-1B visa fee to over $4,000 a visa. No doubt, the move which quite conspicuously engendered an anti-globalisation sentiment was decried ‘protectionist’ by the Indian IT industry. “H-1 B/L-1 visa rejection rates have doubled from 4% to 8% for larger companies. Rejection rate is even higher for smaller companies. A CEO of an Indian tech firm indicated that they lost up to 1% Q-o-Q growth in the second half of calendar 2010 on visa issues," said Nimish Joshi and Bhavtosh Vajpayee of CLSA. The issue came to the fore over Infosys’ alleged misuse of short term business visas to perform long term projects.

As firms like TCS and Infosys battle out increased immigration scrutiny, the work done traditionally onsite is being offshored and done over high-end video conferencing via telepresence technology. Although onsite projects are billed 3-4 times higher than projects delivered out of offshore destinations such as India, yet they are less profitable owing to the relatively higher wages in countries such as US. Hence only 25-30% of work is done at customers’ premises while the rest is offshored to cheaper destinations. Outsourcing firms like Aegis and Wipro seek to re-align activities by preparing a portfolio of onshore, nearshore and offshore locations with the objective of minimizing costs.

Outsourcing businesses are no longer tiny units catering to the demands of foreign conglomerates. These behemoths, sometimes owned by conglomerates themselves have acquired considerable influence in the market. Genpact (India’s largest BPO Company) sits on a cash pile of $400 million and is eyeing mergers and acquisitions as reported by its CEO N V 'Tiger' Tyagarajan. He further revealed that Genpact was closely working with Bangalore based Quest Global for aerospace and defence engineering. Aegis (Essar's BPO arm) is expanding into Virginia.

Bob McDonnell, governor of the US state of Virginia said while on an exploratory mission to India in 2010, “The state is focusing on creating more jobs, cutting spending and attracting foreign investments and not on running any anti-outsourcing campaigns.” Even if we were to believe his benevolent intentions, he’s telling only half-truth. What he didn’t say was that the only way ‘he’ could do the former was to do the latter, even though he may never have initially intended to mothball jobs elsewhere.

Where Do We Go From Here

We live in an age of integration and interdependence. “IT companies from India support approximately 98,000 jobs in the US and in creating new jobs have sustained a CAGR (Compounded Annual Growth Rate) of 35% in the last five years. Jobs created in 2006 numbered 21,774 and 97,135 in 2011. Around 7% of the total global workforce of Indian IT companies work in US centres," said Nirupama Rao. Moreover, outsourcing is not only done by the developed world, but jobs are also shipped offshore by developing nations to countries such as Kenya. Anwar Shaikh dwells in great detail on the rationale of such a shift. In commodity (production/industrial) sector liberalisation forces firms to increase productivity to remain competitive. The necessity of cut in margins gives way to outsourcing. However employment growth need not concur with the growth in productivity. In the service sector productivity may be stagnant, may marginally rise or may be negative. Besides, in this case, employment growth depends on the effective demand.

Outsourcing has accelerated the process of globalisation of productive forces while consumption (albeit globalised geographically but not socially) still stays atomised in several pockets. Even as the late Kim Jong il and other ruling elite of North Korea could feast on McDonald's Burgers flown from China, the masses were left to languish in starvation.
TPI pegs the annual worth of outsourcing contracts signed worldwide at $100 billion.
However the value fell by 18% in 2011 primarily dragged down by dismal data from the US where such contracts fell by 50%. The uptick in legal disputes as well as disasters ascribable to outsourcing will let us infer that capitalism is no longer a facilitator of growth and is too incapacitated to deliver any more. When Boeing decided to outsource grunt work on its 787 Dreamliner to contractors abroad, it had to put up with undue delays and the aircraft could only be rolled off years behind schedule.

Not long back, Moore, the former Director General of WTO had made an assertion ‘The surest thing to do to help the poor is to open up the markets.’ However history would tell us otherwise. Neoliberal globalisation began to be implemented in 1980s and garnered force in the 1990s. The development was harmoniously accompanied by an increasingly skewed income distribution in the countries which adopted it. At other end of the spectrum when Bishop said, "Outsourcing is one of the scourges of our economy and why we are struggling so to knock down the unemployment rate," (as quoted by The Hindu) perhaps he wanted to revert back to the River Rouge model (where Ford employed 1,00,000 workers to do the ‘entire job’ beneath one roof (rather than outsource some part of it).

Nonetheless, for all the accusations that may be made by nationalists against outsourcing, productive forces are bursting at their seams with nothing potent enough to jettison them. Yes ‘they’ (the nationalist-mercantilists) can retard the pace, try to freeze these forces so much so that they grow only at a Dickensian speed.
Hence we may safely deduce that neither the advance or retreat of capitalism (assuming it to be a possibility) nor its sustenance at current levels (which itself implies a backward sprint as it presupposes zero acceleration, again assuming it to be possible) can offer any respite to mankind.
Can the jobs lost in the downward spiral be restored in a rebound? Can the faltering fortunes be revived? If this is to be construed as a fundamental geo-political shift then how will the void be filled or will it ever be? The cauldron is broiling; the cinders float freely in the air; the sand incandescent, blazes forth inklings, that retraction is impossible. What if the powerhouse shifts to the east? Alas! It shall never. Before wages equalize in accordance with market’s mechanisms, the battle knell will have rung. History never advanced at a gradualist pace for long. And we’ve travelled far enough. We hinge on the edge of the precipice, the ‘edge of chaos’. Punctuated equilibria are historically doomed to be tumultuous!

1 comment:

  1. Fascinating article on this issue. We need to pay more attention to this. As Indian owned 'outsourcing' call centers start opening now in the US, it becomes vitally important.

    David W.


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