Notwithstanding the passage of the first federal law against outsourcing by the US Senate last month, key economic advisors to President George W Bush have suggested that outsourcing to India and other countries in which they have a comparative advantage is a win-win for both the exporter and importer.
The Council of Economic Advisors in a report to the President said that it made no difference whether outsourcing in India, for example, is in comparatively low-skilled jobs or high-skilled ones.
Giving an example of a job like radiology, Council Chairman N Gregory Mankiw said in the report if India had a comparative advantage in radiology and the services of radiologists could be transferred over Internet or fiber optics, fewer radiologists would be employed in the US, but American healthcare services would become cheaper and doctors would specialize in other skills.
"Whereas imported goods might arrive by ship (or by air)," said the council, "outsourced services are often delivered using telephone lines on the Internet. The basic economic forces behind the transactions are the same, however. When a good or service is produced more cheaply abroad, it makes more sense to import it than to make or provide it domestically."
Some services can be provided at a distance, such as software services. For others, such as tourism, the customer must come to the location of the service provider, the council said.
For others, such as some consulting works, the service provider must come to the customer. The liberalisation of services trade involves the movement of individuals as well as the regulation of investment and other business activity, the council said.
For American banks to sell many of their services, they must open branches in their target markets. As a result, negotiations to liberalise trade in services have moved beyond broader measures such as tariffs (taxes on imports) to deal with subjects that have traditionally been the domain of domestic regulation, it said in the report.
The council also pointed out that the services trade is growing in importance to the world economy. The service-providing sector is the largest component of the private economy in the United States, providing more than 86 million jobs in 2003 and accounting for over half of the total gross domestic product, it said.
Besides Mankiw of Harvard, the council consists of Kristin J Forbes of Massachusetts Institute of Technology and Harvey S Rosen of Princeton.
More from rediff