The US president, Barack Obama, has repeated his campaign pledge to save jobs at home, and proposed that US firms which outsource jobs lose their tax benefits. This is dangerous logic, and deserves to be roundly criticised, for it shows a fundamental lack of understanding of modern business. Outsourcing does not refer just to software or BPO work, though these two sectors have been the focus of much comment; companies outsource parts manufacture and after-sales service, and everything in between, and have been doing so from the time the modern industrial system was born. Outsourcing also works two ways. A company that assembles computers in India may have “outsourced” the supply of the chips in the computers, or the operating software; so should the government in India put a corporate tax disincentive on such a company? If so, what it means is that any trade of any kind will face tax disincentives. This is the road to economic ruin.
Everyone knows that bad ideas get an airing in difficult times. And politician in such times can be expected to make some populist moves. In the US, Democrats are more prone to such posturing because they have their voter base in the working classes. While all of this may make it understandable that bad ideas get bruited about, none of it can be considered a valid defence of a self-defeating and counter-productive approach to trade issues, especially when the United States is supposed to have been one of the foremost advocates of free traded. That the protectionist impulse is gaining strength in Washington is especially ironic when there has been so much talk of having learnt the right lessons from the experience of the Great Depression, and the need to not repeat the protectionist mistakes of that period. It would seem that when push comes to shove, no lessons have been learnt, politicians will be politicians, and there will be enough people in the system rooting for the wrong kind of action.
That this should be the experience with an American president on whom so many had placed such high hopes is beside the point. Mr Obama made enough protectionist noises during his campaign, albeit juxtaposed with statements on his commitment to free trade; he has a voter base that is facing unusually difficult times; and he is running a country where job losses have been massive in recent months. But if Mr Obama wants to get protectionist, countries like India should test the effectiveness of the World Trade Organisation, the soundness of its rules and the effectiveness of its dispute settling mechanisms. Indian business has to focus on effective lobbying in Washington, because there is a case to be made against protectionism and it should not go unmade by default.
