New Delhi, December 1, 2003 --  

The decision by Dell Computers to return some of its technical support operations back to the United States from India¹ hints at the inherit limits in the trend toward outsourcing high-tech employment to the third world.

Economic nationalists in America have convinced the general population that outsourcing technical jobs overseas, and to India in particular, is a threat to the economic health of America. They paint a picture of a poor, yet educated and English-speaking Indian workforce that can undercut American wages and leave tech employment levels stagnant, as they have been for the past three years.

These perceptions are utter nonsense. Anyone travelling in India quickly sees that outside a very few tiny enclaves, the country is desperately poor, badly educated and half-literate². Even for tech workers, living conditions are relatively poor. A tech office park that I witnessed southwest of Chennai sits across the street from a riverbank piled high with garbage and human filth, with corrugated steel and thatched roof shacks descending into the muck.

It is no surprise that the tiny minority of Indians who have the very valuable skills needed to succeed in high tech jobs have no desire to stay in an environment with severe pollution, inadequate and collapsing physical infrastructure, severe political corruption, and a repressive family and religious culture. It is an environment that severely undercuts the manner in which educated, Western-oriented professions can live their lives.

The Indians working in outsourced tech jobs are therefore merely a subset of the skilled workers that either have the inability or disinclination to seek immigration to the United States or other Western countries. In the case of Dell's call centers, the company was able to keep costs down by hiring these Indians at less than one tenth the salaries of workers in America. This is possible only because of India's incredibly low cost of living. Restaurant meals cost less than $1, and townhouses can be purchased for less than $10,000.

An incredibly low cost of living is an indicator of an impoverished population. For the fifty years since British rule, there has been only scattered and limited success at building a middle class that would increase living standards in the country, and drive up costs in the direction of Western levels. This pattern successfully changed Japan in the last century, and is beginning to change China now. India, sadly, is simply not undergoing that kind of change toward a middle-class society.

In the absence of a sizable middle class, it is unlikely that newly educated tech workers will choose to remain in India. They may work for a while in relatively low-skilled operations like Dell's call centers, but as they gain experience and skills, they will find their way to the West.

A 2002 paper by a Harvard professor estimates that the one million Indians working in the United States cost the Indian government between a quarter and half a percentage point of national income,³ due to the best and brightest leaving the country. At the height of the tech boom in 1999, the paper estimates, India lost 60,000 tech workers to the United States - perhaps as much as a fifth of the Indian domestic tech workforce.⁴

With American tech spending projected to resume growth in the 2004 for the first time since the pop of the tech bubble three years ago⁵, it will be these Indian migrants that will be critical to the growth of the American economy. America, not India, is the clear beneficiary in the exchange of tech talent.

Related Web Columns:

A Severe Shortage of Common Sense
How the High Tech Industry Creates its Own Labor Shortage, April 21, 1998

Boom Times
India's Atomic Attack on the Free Market, May 19, 1998

Notes:

1. The Economist, Lost in translation, November 27, 2003

2. 2003 World Alamanac and Book of Facts, p.793: India's literacy rate: 52%

3. Desai, Mihir A. et al, The Fiscal Impact of High Skilled Emigration: Flows of Indians to the U.S., Harvard University, November 2002

4. Ibid.

5. CIO Magazine, Tech Budget Forecast Slips in November , December 2003