Look who146;s at it

A new protectionism is in the air, and it threatens to impact the pace and gains of globalisation. A move by the US Senate to bar American companies from subcontracting government work to foreign companies will test the superpower8217;s commitment to the ideal of free trade. To be sure, the share of government business as a percentage of the total American offshoring business is rather small. Yet, its official response to gathering moves to restrict the migration of information technology and IT-enabled jobs across US borders is bound to have significant impact on the current neo-protectionist debate.

That debate, it would appear, is being conducted in three spheres: in terms of free trade, of actual economic data, and of political rhetoric in this, an American election year. To votaries of free trade, any attempt to erect barriers in services is as reprehensible as maintaining barriers in the movement of produce and manufactured goods. Falling costs of transportation and communication give certain economies a chance to cash in on their comparative advantages in the manufacturing, farming and service sectors. If the case against artificial barriers to trade in manufactures has been conclusively demolished, it really is the same, untenable case that8217;s now being sought to be rephrased in the developed world in intermittent bids to stop the flight of backroom and software work to countries like India and China. Pure financial statistics, of course, too show how myopic these bids can be. As per one McKinsey estimate, for every dollar of US spending in offshoring, the benefit to America could be in excess of 1.10 8212; and to India it could be about 0.33. That is, this is no zero-sum game.

It is, however, in the political realm that this battle against outsourcing is being waged in America. The coming elections only make the air more charged. It is interesting that it8217;s politicians, not industry spokespersons, who are attributing America8217;s so-called jobless recovery to outsourcing. Perhaps they would do well to examine a more tenable equation, that between outsourcing and the economic recovery itself.