more on US firms that outsource are "Benedict Arnolds": Kerry

[Dave Farber <dave () farber net>]

-----Original Message-----
From: Suresh Ramasubramanian <suresh () hserus net>
Date: Sun, 08 Feb 2004 07:52:52 
To:dave () farber net
Cc:"Jon M. Powers" <powers () fogglaw com>
Subject: Re: [IP] more on US firms that outsource are "Benedict Arnolds": Kerry

Dave Farber wrote:
> From: "Jon M. Powers" <powers () fogglaw com>
>
> One thing that I have not seen analyzed very much in the off-shoring
> discussions I have seen is the question of why there is so much excess
> labor capacity in the countries to which US jobs are being off-shored.
> Having excess labor capacity in these countries drives/keeps wages
> down, even the wages of so-called high-skill jobs.

What is the reason for excess labor capacity, you ask?  Well, India has 
just about the largest pool of educated, english speaking middle class 
people in the world.  And an exchange rate which makes an Indian rupee 
worth just about 2% of a US Dollar in the currency market, but where the 
purchasing power of a rupee is far more than that of a dollar.

Out of a salary of forty thousand rupees a month (yes, less than a 
thousand dollars a month), I can buy a vicks cough drop for my sore 
throat for a rupee.  I can rent a large three bedroom apartment in a 
nice part of town for INR 7000.  I can buy a Suzuki subcompact car for 
INR 300,000.  On the other hand, a 512K broadband internet connection 
costs me INR 3500 a month - about 10% of my salary :)

So, any system where a company in India gets paid in US Dollars for 
contracts for work, they can afford to pay their employees far higher 
than the going rate in rupees, but still a fraction of the going rate 
for a similar job in the USA.

> I heard the economist Robert Pollin talk about this issue on the
> Progressive Radio.
>
> (link http://www.progressive.org/radio/radioarc3.html)
>
> He suggests that one of the root causes of excess labor in these other
> countries is the role of US, EU, and Japanese ag subsidies that

There is a significant amount of crossover from rural / farming 
communities to urban communities, but agriculture in India is 
traditionally heavily subsidized, even without US / EU subsidies,

This is because India is still nominally a socialist country in its 
politics and as per its constitution, and because over 75% of the Indian 
population still lives in villages and works on farms - sometimes the 
same way their ancestors used to work, with an ox drawn plow and lots of 
manual labor ...

Plus, thanks to the high salaries that software jobs fetch in India, a 
lot of people are motivated by a perfectly natural urge to earn far more 
than what they do, and increase their standard of living.  That, in 
itself, is a strong impetus to push them into computer science courses 
in India's several hundred universities.

And let's not forget computer software courses at the hundreds of 
thousands of "software training centers" around - ranging from 
nationwide chains like NIIT and APTECH to hole in the wall outfits that 
teach whatever the current "fad" is ... back during Y2K they were all 
teaching JCL, CICS, DB2 etc.  Later, "web technologies" and then 
"m-commerce" ... now?  I guess software QA seems quite popular.

> Seems to me that the farmers in the developing countries would prefer
> to stay on the land and not migrate to urban areas where they add to
> the labor pool.  This is probably why the developing countries are

You know something?  A lot of the farmers in India depend entirely on 
rain.  They are small / marginal farmers who would basically go bankrupt 
and/or heavily in debt to the local banks (or worse, the local loan 
shark + pawn broker) if the rains failed, or if their meager crops 
failed for any other reason.

So, when this does happen, they move en masse to the nearest city, where 
lots of new offices and apartment buildings are being built (quite a few 
of them to house new software companies, and more programmers / QA 
analysts etc), and start working as bricklayers, masons, etc.

> I think any efforts to solve the off-shoring "problem" must address
> US/EU ag subsidies and their effects of driving people off the land in
> other countries.

It is a facile theory, but just that.  A theory.  Sure looks great on 
paper though.

        srs

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