September 09, 2004 | Jeff Wall

Outsourcing – a big issue in the US, why not here?

ONE of the issues really making an impact in the United States elections (although the polls might not indicate it) is the “outsourcing” of job in areas such as call centres to overseas countries, notably India.
John Kerry has promised to impose taxation penalties on US companies that outsource jobs overseas. I expect the Bush-Cheney Team will have to address the issue before the first Tuesday in November, even though its record is one of supporting outsourcing, and sustaining tax breaks that actually encourage it.
The level of outsourcing in Australia and the US is high, but clearly nowhere near as bad as it is in the United Kingdom. At least one of the appalling managed, privatised train operators in the UK has its call centre in Mumbai, India.
That means if a “Little Old Lady” living somewhere in Cornwall wants to check on the train timetable to London, or the fares, her call is answered in India!
The practice is mushrooming here in Australia. Everyone will have experienced either a telemarketing call from a very Indian sounding gentleman, or lady, telling them about some new product, or new communications option. But it gets worse when you ring a major Australian company seeking information and your call is answered in a foreign country.
The practice is a major source of annoyance to radio “open line” callers. That begs the question – how much damage do these overseas call centres actually cause businesses that use them as a cost saving measure?
But there is an even more important question – how many Australian jobs have been lost, or not created, as a result of the outsourcing overseas of call centres and similar activities?
In the US the answer to that question, according to the Democrats, is hundreds of thousands…and that’s why the issue has gained traction in the Presidential and Congressional campaigns.
The main outsourcing in the US is to India and the Philippines, but there is also some outsourcing to companies in the West Indies, China, and, apparently, Ireland.
The Bush Administration is on very dangerous ground on this issue. The current Treasury Secretary, John Snow, was previously head of a company that closed a factory, costing 325 jobs, and outsourced the work to India and the Philippines. Only last week, Labour Secretary, Elaine Chao said outsourcing created jobs!
George Bush has planned to appoint a particular businessman to head a new office to help the struggling US manufacturing sector, until it was discovered the company he headed had outsourced manufacturing work to China, and closed down a factory in the US when it did so.
The issue may have greater traction in the US for two reasons. Firstly, the US labour market has basically stalled after two years of significant job loss, making unemployment an election issue. Secondly, the US apparently grants tax breaks to companies that actually outsource jobs overseas.
The Australian system may be different in that I suspect the main incentive to outsourcing is the lower cost, through lower wage rates in particular.
Kerry has promised to end the tax breaks that encourage the shipping of US jobs overseas, and give the savings secured to companies that create employment in the US.
This must not be seen as a racial issue at all, even though some talk back callers do so. It must be about providing incentives for Australian companies not to outsource service such as cal centres, and to close any loopholes that encourage it.
It needs to be managed carefully, because some of the countries benefiting from outsourcing are major trading and investment partners with Australia.
But it is an issue that needs to be addressed. Unemployment may be at historic low levels today, but that might not always be so.
The challenge for the major political parties is to come up with policies that reward businesses that create jobs here rather than resorting to outsourcing. If they want to ignore these incentives and continue to outsource, that’s their call.
But we need even a modest incentive to restore some balance.
What I find particularly unacceptable is when Australian owned or based companies move their call centre and other high labour content operations overseas to take advantage of low wages and inferior work place conditions, while keeping other operations here just to gain taxation and other benefits such as preferences for local supplies not widely used by federal, state and local governments.
The issue is not a simple one…but it ought at the very least be on the agenda in our election campaign.

Posted by Jeff Wall at 6:39 pm | Comments (2) |
Filed under: Australian Politics


  1. A troglodyte in the ranks

    Graham Young, who operates the group blog Ambit Gambit and prominent Australian e-journal Online Opinion, is a classical liberal in the finest sense. One of the manifestations of his studious liberalism is enlisting co-bloggers whose opinions differ ma…

    Comment by Troppo Armadillo — September 11, 2004 @ 10:19 am

  2. Unemployment is not at historic low levels today, unless you count the last 20 years as the whole of history. It’s been down to less than a percent in this century a number of times.
    Remember, too, that govts have been getting better at fudging the figures following periods of high unemployment, such as in the 80s, by recasting employment as, say, working 5 hours a week — doesn’t have to be a living wage, or anything — see how the figures improve! There is massive hidden unemployment and under-employment, created and exacerbated by the ‘flight of capital’, businesses going offshore — proving that isolated decisions made by individual decisions to their advantage end up disadvantaging the whole community. Still, we’re inadvertently lifting India, China and anyone else who wants to play out of ‘developing country’ status — it’s like an involuntary charity cost borne by all workers.
    By the way, you can outsource *inside* a nation too, it doesn’t mean going offshore at all, this is a conflation of 2 ideas, I could run an in-house factory in China, or an outsourced operation in Australia, for example. One form of outsourcing for instance is asking IBM to supply and manage my PCs and mainframe installation for me, because I don’t want my company to have to be an expert at doing this — it’s just specialisation. Govt often outsources in order to reduce costs, though, assuming that all its workers are bludgers, that there’s too many of them, and that the private sector can do it leaner and meaner than they can, as they’re just inherent softies or something. Sometimes it works, sometimes it backfires, cos govt does everything in voodoo management style, never in a sensible considered way.

    Comment by Sean Reynolds — September 15, 2004 @ 2:47 pm

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