What Goes Around Comes Around

Outsourcing and the circle of life

The ongoing financial crisis, and the economic downturn it seems certain to engender, is likely to bring job loss in America to the fore. Among other things, the outcry against outsourcing appears certain to rise to a crescendo over the next few months. Now, here's a new take that should make this outcy less worrisome. This comes in the form of a book called The Venturesome Economy - How Innovation Sustains Prosperity in a More Connected World.

The book by Prof. Amar Bhide, the Lawrence D. Glaubinger Professor of Business at Columbia University, argues that technological innovation is a complex, multiplayer game in which America still leads the world by a long way. American scientific, technological and economic pre-eminence are thus not going away anytime soon. The book goes on to argue that "neo-protectionist" fears are unwarranted, and shows how they will probably undermine America's economic might in the long run.

For my full review of the book see here.

As I've written in the review, the book while making its excellent and comprehensive thesis, misses out my favorite argument for why America should not discourage outsourcing. A lot of the prosperity that 'leaks away' from developed economies via outsourcing comes right back in the form of demand for products and services. As an example, Indian IT outsourcing companies are perhaps the largest airline customers in the world, as tens of thousands of workers travel each year between India and the countries where clients are located. These airlines such as United and Lufthansa are mostly headquartered in developed countries. Similarly, the same India-based outsourcers lap up the laptops, PCs, servers and networking equipment made by Dell, Sun and Cisco. They are huge buyers of software produced by Microsoft, IBM, Oracle and SAP. These companies (and their employees) can safely be assumed to have an insatiable appetite for the latest cellular phones and so forth from the likes of Apple, Nokia and RIM. These companies also employ legions of workers at or close to client locations - workers who pay taxes and pump money into local economies. Many of these companies are listed on US and European stock exchanges, allowing people there to participate in their wealth creation. Thus, prosperity 'leaking' abroad contributes to prosperity in the developed economies - not in some nebulous, long-term sense but in a way that is direct and almost immediate.

Another piece of reassurance for those exercised over job losses in America thru outsourcing come from this Booz study released on Oct. 21, 2008, which found that the U.S. was the leading recipient of R&D investment from abroad. So, other nations are outsourcing large amounts of R&D to Americans!

Clear evidence that what goes round does come around.