There seems to be no end in sight for the IT crash. Nonetheless, the IT boom of the last decade has created possibilities in other sectors that American corporations are rushing to exploit. There is a boom in outsourcing many business activities to developing countries, India most of all. Indians in India are answering phones, doing accounts, and doing other kinds of office work over the wires for American corporations.

The slowdown in the U.S. economy has actually driven American corporations to cut costs through outsourcing. The volume of this trade is now very small, so it will be years before it has a measurable impact on the U.S. economy. But the impact will come. As we have seen the globalization of factory work, we are now starting to see the globalization of office work. Many analysts believe that the potential in the next two decades for international trade in office work is larger that that of the software industry.

76eba815127c680f546616b1e5be22ba-1The rise of the Internet and other communications technologies has made it very cheap to transmit across the globe the large volumes of information that flow in offices. Further, the ’90s saw the rapid growth in India of the middle class, technical colleges, and private companies specializing in technical vocational education. In short, India learned how to produce quickly large volumes of human capital for the global service sector.

American corporations accessed Indian human capital in the last decade by bringing Indians to this country on H-1B visas. The new technology and management expertise allows them to set up large subsidiaries in India and to import large volumes of software and services from Indian companies. Indians will remain in India. A string of leading American companies have announced plans to double or triple work forces in their Indian operations within the next two years.

The expatriates of the ’90s sent money back to their families. India is getting over $12 billion a year in remittances. This exceeds exports in software and business services. This new flow has been the main factor in taking India’s foreign exchange reserves from $1 billion in 1991 to $60 billion now. But remittances will now stagnate. The next big flow will be in service exports and wages of the employees of American multinationals in India.

This shift will have profound consequences for both American and Indian societies. The majority of the U.S. labor force is employed in services. Most of their jobs cannot be outsourced abroad. But the vulnerable office workers probably exceed in number all American factory workers. Outsourcing office work to India will be the next great globalization controversy in America.

There will be some benefits to Americans from the outsourcing boom. Creative destruction, as the great economist Joseph Schumpeter called it, will continue. Market competition will destroy some livelihoods, but in the process, create others. The ratio of creation to destruction in America was far better in the ’90s than in the two preceding decades. In the new globalized and wired U.S. economy, this favorable ratio may continue. If corporate profits recover, they will seek to expand their businesses and some of the hiring will take place in America. New kinds of jobs will emerge.

Also, as profits rise, stock markets will follow. This will have major social benefits in today’s America and offset some of the damage from job losses. Many will be able to retire sooner, opening most of their jobs to younger Americans. The stock market boom of the ’90s generated buying power that helped raise the wages of even the poorest Americans. It is realistic to expect similar benefits from the next one, even if at a less exuberant pace. Americans, and anyone earning in dollars, form a kind of aristocracy. The high value of the dollar means that for little effort or learning, dollar-earners are served lavishly by skilled and hardworking people throughout the world. Unfair as this is, it is still the shortest route to prosperity for the largest number of Third World people.

For India, the outsourcing boom will be a relatively unmixed blessing. While the service export workers in India will earn a fraction of what expatriates do, they earn it all in India. They pay taxes in India. All supporting employees will be Indian. Further, they will teach other Indians their skills far more rapidly than do NRIs.

An outsourcing boom will have a deep impact on Indian-Americans. First of all, there will be fewer of them than previously expected. But they will also have a head start at intermediating between Indian human capital and the U.S market. Their role can be similar to that of overseas Chinese in relation to Chinese manufacturing. Indian-Americans played this role to a small extent during the last boom. The wave of entrepreneurship among this community in the last decade has left its members far better placed to build service connections between India and America.

As always, the capitalist process will unsettle what has been taken for granted. As always, this will not be an entirely good thing. Many Americans will rise to resist outsourcing. But the capacity of electorates, especially in developed economies, to block profit-seeking market processes has declined further in the last decade. Indians and Americans together must find a way to make the outsourcing boom work for both societies.

Sanjoy Banerjee teaches International Relations at San Francisco State University.
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