Protectionism Vs Globalization


“We will restore a sense of fairness and balance to our tax code by finally ending the tax breaks for corporations that ship our jobs overseas,” President Obama said in his first address to the joint session of the US Congress.

American firms will no longer get any tax breaks if they move their jobs to India.

Is this a right decision on the part of the American President ?

Many people in India feel it is a negative step on the part of the U.S. to go back in the globalization efforts, where the main beneficiary has been the U.S. itself. Indians rightfully feel that they have helped America remain competitive by reducing their costs – these are the folks in the major Indian IT Services and Outsourcing Companies.

But, let us think more intensely. If the positions reverse, do we expect the Indian Prime Minister to act like President Obama ? The answer is ambiguous at best, but it is probably yes. It is not protectionism that is a dominant theme here. It is not anti-globalization.

It is “how to ensure my people have the jobs necessary to sustain a productive economy ?”. It is “how to ensure my people have a roof over their heads and enough to eat three meals a day ?”.

Is that a strange proposition ? I think not.

What President Obama is doing is actually the right thing that any right-thinking leader will do. It is not “how do I save Indian jobs and companies”. It is “how do I save Americans and American jobs”. Is that protectionism ? I think not.

Is President Obama so foolish to issue a decree to stop all imports ? No. He is just saying that he will not give tax breaks to companies which ship jobs overseas. Why will American Taxpayers support such companies ? It beats me. The usual Indian response that the U.S. is going against its own interests and shooting its own feet in terms of competitiveness, does not weigh in well.

The Indian Government’s response was as follows : “We have to ensure what they (US) are doing is WTO compatible when we are talking about trade, movement of goods, movement of people and movement of services,” Commerce and Industry Minister Kamal Nath said.

Well, that may please be checked. But no one can blame here that America is violating WTO rules. America is not stopping outsourcing. America is not banning movement of goods and services. America is not insisting that American companies should only employ Americans.

I think what India should do is pure introspection. There are many markets in the world, the U.S. being the biggest for most companies. Indian Outsourcing Companies should take outsourcing to the shores of the U.S. and other markets, many are already doing it. President Obama wants to create new jobs in the American Economy, and if he sees that the Indian companies are actually helping that cause, may be at lower salaries to Americans (which should just be fine rather than no jobs at all), his sense of fairness would go towards helping India in the medium and long term horizons.

Nothing wrong at all, and Indian companies will actually gain market share in the U.S. And, what about India ? There is enough and more work in India which could be for Indian customers, other global customers, and it could even be sharing of work between the U.S. and India. There are many new things that could be achieved if your biggest client is also your largest partner. Let us get global like what the large American companies have done. This is the right time and it is a great opportunity to be tapped rightaway.

Cheers, and Have a Great Week Ahead,

Vijay Srinivasan
01 March 2009
Mumbai

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