Brad DeLong muses on IBM and outsourcing

Brad DeLong writes:


IBM Outsources…

The spread of outsourcing continues:

Another blue chip changes color – Managing Globalization – Blogs – International Herald Tribune: Daniel Altman, the IHT’s global economics correspondent, offers a look at the day’s economic news with an eye to how individuals, companies and governments are coping with the challenges of globalization.

IBM announced Tuesday that it would invest $6 billion in India over the next three years. That is a stunning amount of money, almost enough to raise India’s gross domestic product by a full percentage point. And as the article linked above tells us, IBM has hired 34,000 people in India in just the last two years.

Soon quite a few American household names may have more employees outside the 50 states than inside. Gillette already does, as I wrote last week. So who will be left working for IBM in the United States?

The answer probably consists of executives, marketing specialists and a bunch of tax lawyers. Yet this might not be such a bad thing for Americans. Just as India is a target for the outsourcing of customer service, programming and manufacturing, the United States could be the world’s outsourcing destination for management expertise. In some ways, it already is – witness mammoth consulting firms like McKinsey and Accenture. As those guys know, there’s nothing wrong with being an outsourced worker… when you’re getting paid so handsomely.

So what will the U.S.’s comparative advantage be? And how will it use that comparative advantage as a base to keep upgrading the productivity of America’s workers?


The answer to the last questoin, I think, is rather obvious: capital goods. India needs a massive infrastucture upgrade almost in every area imaginable: from water and electricity to air traffic (except, perhaps, telecommunications, where India has made enormous strides in recent years).   Add to it a badly undercapitalized agriculture, and the picture is complete.   As to who is going to work for IBM in the U.S., the answer is equally clear: sales people and implementation specialists…

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