In the 2001-03 economic downturn, the aftermath of the technology bust resulted in hundreds of thousands of software engineers and assorted high-tech workers losing their jobs. A jittery public was vulnerable to influence from isolationist politicians, with the likes of Lou Dobbs and Pat Buchanan fanning the flames in the media. As a result, the simple business practice of moving certain components of daily operations to a lower-cost location, if only to keep up with competitors already doing the same, became a dirty word - 'outsourcing'.
The cover story of Wired Magazine's February 2004 issue was on the outsourcing of software jobs to India. Within the article, a core theme was the supposedly tremendous hardships that white-collar Americans were about to experience due to a 'giant sucking sound' of jobs going to India. In the same month, then Presidential candidate John Kerry screamed about the practicies of "Benedict Arnold CEOs" who outsource American jobs to India, hoping to gain the support of isolationists and the economically ignorant. Elsewhere, very uncharitable things were said by leftists about brown-skinned Indians, due to their rapid adoption of capitalism and globalization at the expense of the leftist plantation where Indians were required to symbolize Gandhian non-violence, zen spirituality, yoga, curries, and the glorification of poverty.
Let's call February 2004 as time when fears of 'outsourcing' reached a fevered peak.
A quick glance at a few economic indicators from the Bureau of Labor Statistics since then reveals the following :
So 5.4 million jobs were created in this short time, the unemployment rate is lower than it has been for 32 of the last 35 years, and wages have risen while real GDP has grown at a 3.5% clip. That has been the extent of the damage to the US economy. Take that, Lou Dobbs, Pat Buchanan, John Kerry, Dennis Kucinich, and other assorted demagogues, who have no ability whatsoever to truly grasp the trends that shape our world.
India, in the meantime, has benefited greatly as well. GDP growth has averaged 8% a year over this same period, and political ties with the US have strengthened in a manner unlike any previous period in the last 50 years, as evidenced by the groundbreaking US-India nuclear deal, something that seemed unthinkable even as recently as 1998. The faster these ties broaden, the better the world will become. A prosperous India is a critical component to the US achieving favorable outcomes in both the War on Terror and with China, as seen from where India resides on this particular map. Anti-Americans become apoplectic when they learn that India is the most pro-US country in the world.
What does the future of outsourcing hold? Is there still a risk of jobs vanishing from the US at a rate faster than they can be produced, as pessimists still maintain? Unlikely, even though Internet backbone bandwidth has quadrupled in the last 3 years, and many more people in India have PCs and Broadband connections today than in 2003. This is because aggregate demand growth has saturated even India's vast labor pool. Salaries in India have been rising at over 12% a year due to labor shortages, causing their cost advantage to erode. India itself has started outsourcing to Bangladesh and Eastern Europe, which are much smaller labor pools and will also saturate quickly. If anything, the trends favor more job creation in America and India.
The next time there is a recession, this could emerge as a phony issue again. But other than a few pessimists, socialists, and racists, it is unlikely to gain much traction, as Americans have seen that the benefits have outweighed the costs by a handsome margin.