BPO Threat to US

Six percent is, to me, quite a bit when it was barely on the radar screen two years ago," said Ron Friedmann, the president of Prism Legal Consulting, an Arlington, Va., company that guides law firms on technology issues, including offshoring. The trend is under measured and sure to grow, George Hefferan said. In 2001, he left a law firm to help pioneer offshoring of legal services. Now his Chicago company, Mindcrest Inc., operates a subsidiary with 25 lawyers in the Indian city of Mumbai.

They handle such responsibilities as document drafting and legal research that surveys all 50 U.S. states. The work is considered administrative and, thus, fit for junior lawyers. "We can do that work at much lower costs," Hefferan said. He's doubling his staff in India next year. Does offshoring service-sector jobs threaten American competitiveness? After all, if junior accountants, lawyers or architects tend to be overseas, how do Americans rise to senior positions? Experts are divided. "What we have is a vibrant economy that's redeploying people, and if you can move them away from activities that can be done cheaply elsewhere, you are creating opportunities for value creation here," said Diana Farrell, the director of the McKinsey Global Institute, a pro-business research center.

The liberal Center for Economic and Policy Research disagrees, fearing that offshoring is a threatening trend."It's at a low level now. It will grow rapidly from its small percentage," said Dean Baker, the center's codirector.The risk for American workers, he said, is "Wal-Martization," in which some large company aggressively offers U.S. corporations a large menu of service-sector jobs abroad at rock-bottom prices."That would be what really starts to change the nature of the market in those sectors," Baker said. BPO, of course, benefits us significantly. As Jagdish Bhagwati argues in his recent book In Defense of Globalisation.

"Trade enhances growth and...growth reduces poverty...I have always argued for freer trade, not as an objective but rather (in the context of the poor nations such as India, from where I come) as an often powerful weapon in the arsenal of policies that we can deploy to fight poverty. " Whatever the economic logic of offshoring, the bigger worry about its prospects is not the political backlash in the US but whether we ourselves will nip the growth in the bud through our foolish policies and actions. If this happens, it would not be the first time that we manage to snatch defeat from the jaws of victory. We did that once in textile exports in the 1950s -- a field in which we then had natural advantage -- and then later the manufacturing industry had to suffer because of reservations and labour-insensitive businesses. (Incidentally, we may repeat our performance in textiles once again even as the quotas are about to be abolished, through an exchange rate which makes us uncompetitive with China.)