India's jobs gain could boost UK jobs too

Written by Malcolm Bruce MP and published in The House Magazine on Mon 1st Mar 2004

This week I am leading a delegation of Liberal Democrats to India. Among other aspects of the sub-continent's rapidly changing economy we will see first hand the operations of companies who have relocated some of their services there.

Liberal Democrats have stepped clear of the knee-jerk reactions to the displacement of jobs, which some have urged on us. I prefer to focus on the real issues: will this lead to high levels of unemployment in the UK; will it damage British competitiveness long-term; will the quality of services provided diminish; are third world workers being exploited?

Offshoring of business services to other countries is not a surprising development in an increasingly global economy. Advances in information technology allow a call to national rail enquiries, for example, to be answered as quickly and as precisely in Bangalore as it would in Bangor. Britain cannot take a King Canute approach to such developments; the tide of international trade is turning.

Protectionism is not an option. It simply does not work. Liberalism was founded on a strong belief in free trade. Businesses are more likely to prosper and expand in open economies and if Britain promotes open competition at home it can fairly press for it abroad.

The UK has succeeded on the global stage because of its promotion of low tariffs and the easy movement of trade. This is reinforced by being in a favourable time zone, having a flexible and hard working labour force and English as our mother tongue.

The UK is second only to the US when it comes to Foreign Direct Investment and is itself a location for offshored business (largely from the US).

The popular press can spot an easy headline when it is offered to them, Offshoring certain services will mean shedding of some existing jobs, there is no denying that.

Cost savings in one area however allows a company to drive revenues and invest in other areas of its business, meaning the potential for expansion and a recruitment drive.

It can provide products and services at lower prices. Consumers' real incomes are boosted which increases their spending power which in turn creates more jobs - in retail, for example.

Higher productivity and a lower cost base also allow businesses to compete more efficiently internationally. McKinseys estimate that for every $1.00 of offshored labour costs the US economy gets $1.14 in return. A significant reason for the extra revenue is the increased buying power of inhabitants in countries that are benefiting from foreign companies setting up operations there.

This leads us to the ethical dimension of the issue. Is it morally acceptable for a developed nation to prevent vital investment streams to countries which have populations stricken by poverty? The Tory position on offshoring suggests they didn't waste time with a crisis of conscience over this, but for a party wishing to freeze international development spend it is hardly surprising.

However it gives the lie to Tory pretence to be the party of either business or free trade. Rather they are a party of protectionists little Englanders, fearful of real markets and clutching at opportunist straws.

Call centre jobs are still growing in the UK and many companies have made it clear that there are good reasons to keep most of these operations within the UK.

Of course, where jobs are moved offshore there is clearly a negative impact on those whose jobs are threatened. This is one of the reasons the Liberal Democrats are pressing the UK Government to introduce legislation on informing and consulting the workforce as soon as possible. Unlike the Conservatives we do not believe in bribing a company to keep jobs in the UK but we do believe in involving its workers in its future.

The Government also has a role to play in minimising the negative impact of offshoring on communities which rely disproportionately upon call centres for employment.

DTI Secretary Patricia Hewitt has been right to resist calls to try and prevent companies making offshoring decisions or introduce back door protectionism. These are management decisions. Many will choose the UK. Some will burn their fingers saving money for a reduced service and some will add value and release resources to invest in other parts of their business. In these cases the jobs created in India may help to protect or create jobs in the UK.

The traditional patterns of trade are shifting and the UK is adapting to secure our future prosperity as a trading nation.