Chicken Little, Pollyanna, and the Unintended Consequences of Political Grandstanding

Due to the controversial and emotional nature of offshore outsourcing, the discussion of the issue has hardly been characterized by balanced and reasoned debate. Web pundits have tended to coalesce around two major and diametrically opposed camps: the “chicken littles” and the “pollyannas”. Just like the character in the famous children´s story, the chicken littles are hysterically claiming that the “sky is falling” and that offshore outsourcing will usher in the largescale exodus of highly skilled jobs to the developing world, particularly India. The pollyannas of the world, like their literary namesake, frame the issue in overly optimistic terms and predict that offshore outsourcing is the best thing since sliced bread and will be a boon to both multinational corporations (and their shareholders, of course) as well act as a motor for the economic development in the developing world.

The truth probably lies somewhere between these two extremes. The always keen Daniel Drenzer tackles the issue in an article in Foreign Affairs, “The Outsourcing Bogeyman” and offers a reasoned and coherent analysis on the subject. The evidence thus far, although preliminary, doesn´t bode well for the strident opponents of outsourcing. According to a recent article in the Wall Street Journal (subcription required), the recent increase in offshore outsourcing hasn´t led to massive job losses in the United States.

Recent reports in the U.S., too, have argued that the number of jobs being lost to new operations abroad is relatively small. A U.S. Labor Department survey released this month said 4,633 jobs were moved overseas in the first three months of this year. The number represents less than 2% of the total 239,361 layoffs for the quarter, the report said. Critics charged the report picked up only a fraction of the total number of jobs lost to outsourcing, and the issue could well remain contentious as the U.S. presidential campaign heats up this fall. But such findings -- combined with a pickup in job growth in the U.S. -- have in recent months blunted concerns in Washington to some degree.

Unfortunately, however, as the article points out, the issue of offshore outsourcing has produced a significant uptick in the incidence of ill-informed politicians eager to proclaim the many evils of offshore outsourcing. For exmaple, as Drenzner points out,

Last Labor Day, President Bush pledged to appoint a manufacturing czar to get to the bottom of the outflow of manufacturing positions. In his stump speech, John Kerry bashes "Benedict Arnold CEOs [who] send American jobs overseas."

What then has this political backlash to outsourcing wrought? Well, if the anecdotal evidence in the Wall Street Journal article is any indication, the spotlight of the recent political battles have, oddly enough, served to further the cause of the proponents of offshore outsourcing.

The pace of outsourcing work to India is picking up, in part because the controversy in the U.S. over the trend has publicized India's low costs and expertise.
In the high-technology hub of Bangalore, two to three Western companies areng operations in the city every week, say officials at Software Technology Parks of India. More companies are turning to India to do everything from software development to back-office work.
Revenues for call-center businesses grew by 46% to nearly $4 billion, or about €3.3 billion, during the year ended March 31. And the number of workers in India's technology sector is projected to have jumped by 23% to more than 800,000 in the period, according to the National Association of Software and Service Companies, or Nasscom, the Indian technology industry's trade body. Nasscom expects India's exports of software and services to jump more than 30% to $16 billion in the current year ending next March, about the same growth rate as last year.
Many Indian and American executives say the U.S. criticism of outsourcing is generating important buzz for Indian technology companies, highlighting their low costs and expertise. "During the last six to nine months, we've received hundreds of millions of dollars of free advertising," said Vikram Talwar, chief executive officer of Exlservice Inc., a New York company that processes financial claims for U.S. banks and insurance companies in India.