The developed market economies of the world are about to be turned on their head.
A hundred years ago, all of them had the bulk of their population engaged in agriculture. The great change in the first half of the twentieth century was that their peasantry more or less disappeared, dropping to barely 5 per cent of the population in most cases.
The even more significant change in the last quarter of the century was that almost all the developed economies also became service economies. Some (like the United States) have even debated whether they should have a manufacturing base at all.
This second change has been pushed along by extreme automation of factories: even 20 years ago, Japan's automobile companies like Toyota had entire factories where no human hand touched any stage of the production of car engines.
So blue collar workers have been (or are getting) reduced to roughly the same share of the population as farm workers. Net result: the overwhelming majority of workers are now in the service sector.
It could be low-value service sector (restaurant waiters) or high-end guys like lawyers and doctors. And because these are wealthy societies, services are expensive.
But these expensive service economies are being under-cut by the digital and telecom revolutions. You pay a Los Angeles barber $10 (or Rs 470) for a hair cut because you can't access the hair cutting saloons of Delhi, where you can get the same service for Rs 100 or less.
But the digital-telecommunications revolution makes it possible to get all manner of other services from distant lands. For instance, a hospital in Berlin can send scan data for analysis to Bangalore, where a radiologist costs barely 10 per cent of his German counterpart.
Law firms paying enormous fees in New York can set up offices in Hyderabad or Mumbai and hire fleets of back-office lawyers to prepare briefs and draft contracts, at a fraction of New York's cost.
So it is not just medical transcription or call centres or data management or pay-roll accounting; the term 'business process outsourcing' can encompass almost any activity in the service economy, the exceptions being those where you need a personal interface with the provider of the service, like the barber.
When Michael Dertouzos (the late MIT professor who was one of the pioneers of the digital revolution) came to India a few years ago and forecast that India could create millions of BPO jobs, he seemed a bit way out at the time but he was speaking a fundamental truth.
While China built its economy by catching the wave of outsourcing manufacturing, India can do it by exploiting the outsourcing of services.
What this means is that the service economies of the West are now under serious threat. This is the perspective with which we should understand the slow upsurge of protest over the BPO tide.
Many of the initial protectionist measures may come to nothing, and the competitive pressure that companies face could make them lobby hard against protectionism. But at the end of the day, if jobs are under threat, the politicians will listen to voters.
We've seen this in Europe, where the French president told a delegation of Indian businessmen who called on him that he had to save farmers' jobs, and therefore could not reform France's agricultural policies and open up the market.
Asked how many farmers' jobs were at stake, he said 38,000. That story has now been repeated in New Jersey, where the state legislature has thought it worthwhile to spend millions of dollars to stop outsourcing and in the bargain saved 12 jobs.
President Bush has moved to protect the American steel and textile industries in the same way. So countries like India should not under-estimate the extent to which politicians in the richest societies will go to save a few jobs.
The only way in which the protectionist tide can be made to ebb is by doing deals, where India concedes ground in trade negotiations in order to win open markets in services.
Today, for every dollar that India spends on imports from the US, India earns three dollars through exports to the US. Imagine how protectionist we would be if the sums were reversed, and the way ahead becomes clear.
India and Outsourcing: Complete Coverage
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