NO NATION ever likes job loss or movement of business activity outside its borders. It is one of the duty of the rulers of the day to ensure prosperity of its subjects by way of keeping them employed and to conduct affairs of the state in such a way that cash flows inwards instead of outwards.

Outsourcing emerged in modern times underpinning the principle of division of labor first advocated two centuries ago by Adam Smith. Its origin, however, predates Smith. Ever since human being left the caves to live in human societies, he learnt to outsource. The division of labour within prehistoric societies is a testimony of human ingenuity at distributing work towards increased productivity and profiting from the economic benefits of the process. Replace the human being with a modern day firm and you have understood the concept of outsourcing. As individuals we outsource each day such mundane tasks as plumbing and haircutting apart from education, travel, and clothing. As firms we outsource accounting, transport, logistics, banking and training. In developed countries, firms like Nike outsource their entire operations through a complex web of outsourcing relationships that spread over several continents.

That outsourcing, founded on the principle of specialization, division of labour and improved productivity is beneficial to any economic system is hardly contested, however, as the pace of specialization increases new industries emerge which attract people from the same labour pool. Thus one industry loses jobs at the expense of emerging newer industries, very often creating better-paying and higher value jobs. This benefits the individuals, the firms and the country as a whole, however, it creates disruption in employment patterns leading sometime to socioeconomic problems.

Closed economies kept work and jobs within national boundaries until David Ricardo postulated through his theory of comparative advantage that the world would gain by specialization and trading more ? not less. He however assumed that factor costs between trading nations are constant. Offshoring is all about leveraging on factor cost differentials especially labour costs which offset the conventional barriers to international trade, transport and communications costs several times.

As developed nations deploy their labour force towards higher value service jobs they push manufacturing to cheaper locations preferring to buy rather than make. Outsourcing is credited with fuelling the dramatic expansion and integration of world economy in the post World War II era. Wealth was created in Japan, China, Mexico and the Far East at the same time increasing developed countries wealth several times.

Outsourcing worked well with manufacturing industry and by the same logic it works for services as well. Only difference: pace of services activity is multifold. Whereas it took three decades for manufacturing to move overseas, services could move overnight. While decades of relocation of manufacturing activity provided enough time for newer industries to develop leveraging on the economic gains of outsourcing, sudden disappearance of jobs without adequate time for creating replacement jobs is giving rise to a crisis situation in the developed countries like USA and UK.

Without doubt, the global reallocation of jobs promises to be a powerful source of world economic growth over the next two generations. John Kerry, the Democratic US presidential candidate, is however unhappy about this new phenomenon. He does not want New York City to digitize tickets and send them to Ghana for processing. New Jersey politicians on the other hand want public sector contracts limited to US-based processing centres that employ US workers.

Focusing on opportunitiues

Is one country?s gain another country?s loss? Is this global movement of jobs a zero-sum game?

As early as 1900, people everywhere knew that if they grew crops or worked in factories they were competing with workers two continents away ? and if the dynamics of comparative advantage shifted, they could lose their jobs, their incomes and their livelihoods. Globalization and technology are at the heart of this drastic shift over the last thirty years. That industries outgrow nations is a process of natural selection well known to economists and social scientists.

Today?s largest outsourcing market, the US, owes its industrialization to the European traders who sent work there in the sixteenth century to be done cheaply and more efficiently.

An interesting parallel emerges between recent developments in the US and Mauritius; two countries at different cusps of economic development yet grappling with the same issue ? job losses. Not unlike US where outsourcing industry is shifting to cheaper, more efficient locations taking jobs with them and creating redundancies, Mauritius, in large part, a beneficiary of outsourced manufacturing of textiles from developed countries is experiencing the flight of its textile industry to cheaper locations like India, Bangladesh and Madagascar.

Should Mauritius relinquish its low value jobs that its people abhor to other countries and free its manpower to undertake higher value jobs that would be able to pay for higher cost of living accumulated over three decades of prosperity? Peter Senge, the management guru advocates a policy of planned abandonment by a process of ?letting go?.

Instead of devoting excessive amounts of energy on solving problems the more famous Peter Drucker suggests focusing on opportunities. Policy makers face a tough choice of allocating scarce resources towards saving dying industries and jobs that not necessarily appeal to people or ramping up national effort towards creating new economy industries that provide challenging and meaningful jobs.

John Kerry and his democratic cohorts wants to save low value, low productivity and frustrating call centre jobs that Americans have done for last two decades and are unwilling to do any more. Is this what Mauritius wants to do with its jobs in the textile sector.

Cries of protection are growing. In US, protection of local market and in Mauritius protection of external markets. A century ago, in that phase of globalization, American steel-masters sought protection against British producers, boosting steelworkers? standard of living and helping to enlarge the fortunes of steel magnates like Andrew Carnegie. But protection came at a price: it was more expensive to construct America?s railroads, so America?s farmers and ranchers paid higher shipping costs and some of what would have been their incomes went instead to subsidies.

History tells us that job growth is seldom seen in established and mature industries, it always comes from new sectors, new industries and new economies. The earlier new economies of agricultural and industrial revolution created serious disruptions and brought profound changes in the way of life and work. We are currently living the third new economy. Typical of revolution, the environment is dynamic and unpredictable. Outsourcing opportunities in services sector can provide Mauritius the opportunity to leap-frog into the next stage of economic development.

However, these opportunities come with short life spans and may not be approached by the old methods. Exploiting them would require a quantum leap in not just opportunity-seeking ability but also an extraordinary response to infrastructure and manpower development at the national level.

Conventional risk-averse, protectionist, predictive policy making that worked very well till now can be certain only about one thing in the future- it will not work. Neither in the US, nor in Mauritius.

?Sudden disappearance of jobs without adequate time for creating replacement jobs is giving rise to a crisis situation in the developed countries like USA and UK.?

Baljinder SHARMA