A New Leaf

During my recent visit to India, I was struck by the number of “institutes.” Brand new, under construction, or carved out of a random space in a bustling small-town main street, these schools were almost unanimously technical colleges – post-high school institutions offering courses in computer science, “systems management,” or other similar-sounding disciplines. It was as if they couldn’t build them fast enough. The reason I know what programs were available is that they all used English-language signage and many even went so far as to raise enormous road-side billboards advertising happy and beautiful young backpack-toting Indians taking classes at the “Institution of IT and Management Group of Institutions” or some such convoluted name. (They all sounded alike after a while.) With all of the schools come the school buses – literally clogging the highway between Delhi and Agra.

Seeing the “outsourcing” debate from the US side of the media equation, the complaint is usually: outsourcing costs US jobs and lowers US wages and is therefore bad. I also see some of the inner workings of “outsourcing” in my capacity at a large multi-national firm: we hire more freely in “low cost centers” and think really hard before approving hires in places like the US, where wages are much higher. (The good news is that we are busily hiring on all continents, including North America.) This just makes sense, and has nothing to do with morality or ethics, nor does it involve “sweat shops” or shady practices of that nature. We want smart people, we want to make them happy (by paying and treating them well), and we want to minimize costs. So we are pleased to hire from a pool of very smart people in, among other places, India.

What is often overlooked is the transformative effect these circumstances have on the country where the workers are hired. What I’ll call the “Nike narrative” goes something like this: “Not only are Americans suffering because they lose the outsourced jobs, but the recipients of the jobs are likewise miserable. The only winner is the corporation.” This is certainly true in many cases. Based on my experience with practices in the non-manufacturing industries, however – the service and “knowledge” sectors like software, media, and customer support – employees are very well-paid relative to their peers, and the jobs are very competitive. Oster and Millet (2010) of the University of Chicago report that starting salaries at what they call “IT enabled services” firms is about twice the average per capita income. Think about that. “You can get a 100% raise if you study X instead of Y.” In the US, starting salaries twice the per capita income – about $95,000 per year – are generally available only to people who spend many years in school: doctors or lawyers, for example. (Wall Street professionals are an anomaly, in my opinion: they make out-sized salaries for no apparent reason.)

What Oster and Millet find is that the explosion in these sectors in India – from 56,000 in 1991 to 2.3 million in 2010 – is causing localized effects in the demand for education, specifically English-language education. Every time a new “ITES” firm opens, the nearby English-language schools see a spike in enrollment the next year. Though the paper does not investigate it specifically, the demand for education in India is not only localized around these IT firms: nationwide, the percentage of the population completing primary school has increased from 64% to about 86% over the past two decades. If you believe human progress is not an illusion, I think this would count as a dramatic victory.