Inventing a villain

The decision by the US state of Ohio to ban the outsourcing of government information technology work to companies outside the country is the latest in the series of US actions to stem the outward flow of US jobs. New Jersey and Virginia have already resorted to similar measures.

They have been accompanied by claims by President Obama that the US has given billions of dollars in tax breaks that helped companies to export jobs and keep their profits abroad. He has raised the rhetorical level against outsourcing in the recent past. The US had also recently raised the cost of H1B visas through legislative action which was clearly intended to raise the cost of outsourcing and thus reduce the scope for US companies shipping out their jobs.

Though the federal and state governments in the US claim economic rationale for their offensive against outsourcing, the reasons are predominantly political. Obama’s popularity has been waning and the Democrats are jittery about their prospects in the coming Congressional elections in November.

Populist measures can give a boost to the party and the president, but they can also do harm to the economy in the medium to long term. US companies actually save billions of dollars by outsourcing their jobs and many of them stay competitive because of this. They cannot afford to pay for their jobs according to American wage standards.

In fact there are not enough qualified persons available for the jobs. Outsourcing is therefore a rational and sensible economic device but the continuing failure of policy prescriptions to lift the economy has forced the US establishment to conjure up political non-remedies. The US economy has shown signs of a turnaround but growth is still weak.

Unemployment rules at about 10 per cent and therefore an obvious villain who can be invented is outsourcing. Obama even claimed recently that the nascent American recovery is on account on the fall in the outgo of jobs. The claim however is not supported by facts. The drive against outsourcing also exposes the hypocrisy of the claimed US commitment to the free play of economic forces. It is openly protectionist.

The worldwide consensus in the wake of the economic slowdown was that no country should adopt protectionist policies. It is an economic truth which cannot be falsified by appeals to nationalist sentiments and recourse to rhetoric. The US may have to learn the lesson the hard way.