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IT outsourcing to India: a blessing to Indians but a problem for Australians?

By Ray Marcelo - posted Wednesday, 30 April 2003

Revelations that Telstra is importing IT contractors from India to work in Australia has ignited an industrial dispute over job losses from global outsourcing. Australian unions claim that Telstra is paying the Indian contractors one fifth of the pay of an Australian IT worker. But as India strives to make outsourcing more attractive, the issue is far from resolved.

India's global competitiveness is founded on its infamously low wages. A manufacturing worker's wage for example, is little more than Aus$1 an hour. Global companies are now beside themselves trying to get into India and hire skilled (yet cheap) workers.

Over the past few years, Indian IT workers have shown that using new technologies, they can now work as efficiently as their counterparts anywhere else in the world - and do it cheaper. Some estimates say between 50 and 70 per cent cheaper.


It's no surprise that these low costs now appear to have lured Telstra. The Community & Public Sector Union (CPSU) says IT contractors from India are being paid $12,000 Australian dollars to work in Australia. Both Telstra and the Indian IT contractor have denied the claims.

But what's at stake here is not just an ordinary pay dispute, but the willingness of corporations to cut jobs in rich countries and send them to cheaper places like India. A salary of $12,000 appears cut-price for Australians, but it is around six times more than the salary of an office worker in New Delhi (exchange rate effects help).

Of course, if Telstra is breaching Australian industrial laws by paying these wages in Australia, they should be prosecuted. Nonetheless, my guess is that the Indian IT contractors will send much of that money back to India and help ease some financial hardship for their families.

The fact is that there are thousands more highly skilled Indian IT workers looking for work. India's government and Indian IT corporations see outsourcing as a key to India's development and global status. Corporate cost-cutting in rich countries is indeed driving India's outsourcing industry. Some Indian IT outsourcing companies claim they have never stopped hiring.

Many corporations hype (and many unions worry) that outsourcing of services represents the new era of globalisation. It is not. Outsourcing is part of the same urge to locate production in the lowest-cost location. It's the evil genius of capitalism.

Outsourcing is creating new wealth in India. It's offering thousands, young people especially, new job prospects. Some perspective: thousands of new jobs from outsourcing is creating islands of affluence amid grinding poverty. India needs at least 450 million new jobs to help (mostly unskilled) poor people earn more than a dollar a day.


It is, however, immoral and plain unfair for Australian workers to compete with Indian wages in order to keep their jobs. Australian workers are entitled to feel insecure and angry as global outsourcing grows.

But if an Australian IT worker loses her job, or can't get a new job because it is outsourced to an Indian IT worker, there is still arguably a net rise in global equality. The comparatively poorer Indian worker and his family gains an opportunity he would not otherwise have had. Admittedly that's not a soothing thought for Australian workers and their families.

So what can be done? The Australian government could mandate that no Australian jobs can be outsourced (echoing similar legislative attempts in America) but this solution sadly tends to appeal to base prejudice and easily leads to the charge of "foreigners taking Aussie jobs".

Government-owned companies can decide against outsourcing, as the CPSU has demanded. But under competitive pressures, even state enterprises may not be able to afford such a policy. It's better to employ people by staying solvent than to risk jobs by going under. Other market interventions may help; where private investment fails, the government can be a "buffer" employer, for example.

But in developed economies like Australia, the only immediate help for workers that comes to mind is to rely on a very deep safety net. If political (and trade union) pressure makes job cuts so odious and unpopular as they ought to be, then there is no reason why governments shouldn't be able make unemployment payments, and retraining and job placement schemes, very very generous.

On an international front, it's in the interests of Australian unions to support rising wages in poor countries. Apart from the obvious effect of helping such workers buy more of the things they produce, it also helps restrain capitalism's restless urge to shift production to low-cost regions. For unions, simply opposing more trade that actually creates jobs in poor countries will not help workers in developing countries earn more money. Supporting ways for low-paid workers in poor countries to unionise will.

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About the Author

Ray Marcelo is an Australian journalist based in New Delhi and a correspondent with the Financial Times. He plays cricket (poorly) on weekends with the Australian High Commission.

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