We fix their computers

In a way, the world is adjusting, or trying to adjust, to this economic clout. The pangs have already been felt for China, and India follows. If China8217;s share of world GDP is going to increase from present 15 per cent to the 33 per cent it had in 1820, the transition isn8217;t going to be painless. Nor is the transition going to be painless for an Indian increase from 7 per cent now to the 16 per cent share of 1820. But, at a broad-brush level, China and East Asia took away manufacturing jobs. The reaction to this tends to be less visible, and certainly less vocal, than white-collar and service sector jobs lost to India.

For manufacturing, higher productivity compensated the loss and ensured US companies remained competitive. For service sector, it8217;s all about people and there are problems with education and skills. The average SAT verbal score out of 800 was 530 in 1972. In 2005, it dropped to 508. The average mathematical score was 509 in 1972 and improved to 520 in 2005. However, these aggregates mask part of the problem. From 2006, SAT changed to three segments, critical reading, mathematics and writing. The overall figures were 503 for reading, 518 for mathematics and 497 for writing. But for those who reported themselves as Asian, Asian-American or Pacific Islander a relatively small category, the respective figures were 510, 578 and 512. Barring whites, there is considerable distance between Asians or Asian-Americans and American Indians or Alaskans, Blacks or African-Americans, Mexicans or Mexican-Americans and Hispanics or Latin Americans. There is a problem therefore with the human resource base.

If US companies want access to this human resource base to remain competitive, how does one get it? One way is the student visa route, where one performs a quality control check at enrolment level, knowing perfectly well that of the 76,503 Indian students in the US, most won8217;t return. There is an issue then of India subsidising the US economy because of Indian subsidies on higher education, but that8217;s a separate matter. In a way, the student route is distinct from H1-B visas, because the H1-B cap of 65,000 doesn8217;t apply to non-profit organisations, higher education institutions or students with US graduate degrees there is an additional cap for this. In 2006, 43,000 H1B visas went to China and India, and one must remember that 6,800 out of 65,000 are reserved for Chile and Singapore. While most Indian H1-Bs went to Infosys, Wipro, TCS, Satyam, Patni Computer Systems and even L038;T, we also had Microsoft, Cognizant Technology Solutions, IBM and Oracle.

For US critics of outsourcing, the H1B route should be preferable, since positive externalities and multiplier benefits tax payments, consumption expenditure, productivity gains then accrue domestically, rather than abroad. Popular criticisms against H1Bs have doubtful empirical validity. There is no robust limited instances do exist evidence of job losses, decline in wages or bonded labour law was tightened in 2000. The evidence of disincentives for US nationals to enrol in graduate school is more robust.

A H1B cap of 150,000 if not 195,000 is more realistic; a 65,000 limit creates excess demand. And because H1B allows dual intent green cards, backlogs in permanent residency procedures create disincentives against H1Bs. Simultaneously, reforms in India have reduced transaction costs of doing business, notwithstanding unflattering ranks we get in World Bank surveys. Outsourcing and H1Bs aren8217;t quite substitute routes. But they are substitutable in the IT segment and if a disincentive is created against H1Bs, this simply moves jobs off-shore.

If one reviews the outsourcing debate, there are essentially two key elements. First, by moving jobs off-shore, US loses its technology advantage and outsourcing is therefore relatively better for India. However, since the US skilled labour constraint won8217;t disappear, this is also an argument in favour of increasing H1B caps. One can8217;t have it both ways. Second, there is the spectre of job losses. As mentioned before, robust evidence on this is rare. And when it exists, evidence is static and short-term. In a dynamic and medium-term sense, outsourcing also creates jobs, even in the US. Once elections are over, no US president can afford to ignore overall welfare gains, even if there are some losers and there is the messy business of trading off net gains against temporary losses.

Conference calls tele and video between India and US are powerful images of what has changed. Earlier, these used to be at civilised American hours and middle-of-the-night for India. Increasingly, they are at civilised Indian hours and late-in-the-night for Americans.

During the campaign, both Hillary Clinton and Barrack Obama might complain about India8217;s unfair time advantage and suggest there should be separate H1B and outsourcing caps for countries that have time differences of more than six hours. But as presidential hopefuls become more certain and circumspect and less tentative, they learn to shoot off mouths and memos a little less, be it on Mahatma Gandhi and gas stations or purdah or Punjab.

Remember the time when George Bush couldn8217;t remember the name of the Indian PM? Jay Leno once joked, 8220;President Bush welcomed the prime minster of India to the White House today. Bush said, 8216;While you8217;re here, can you look at my computer for a second?8217;8221; Increasingly, US presidents will have to remember the names of Indian PMs and those computers will need looking at. That much has changed.