Brain Drain has helped …
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Indian IT: Brain gain from the brain drain
By MARCELO RINESI and EDWARD HUGH
FOR THE STRAITS TIMES
ARTWORK BY ADAM LEE
THE IT outsourcing issue is no longer new news. Openings in information technology-related positions flying to India in ever-increasing numbers have become an almost daily occurrence, to the point that it is hard to remember that a few years ago, people worried about the influx of Indian technologists into America, and the impact of that brain drain on India’s development.
Yet it now turns out that the country has enough of a workforce to get contracts from the likes of the Massachusetts Institute of Technology, SAP and IBM. There seems to be a paradox here, and to understand it, maybe the best thing to do is relax for a bit in a very Latin American way: let’s watch soccer.
Check out any of the big European soccer leagues, like England’s or Italy’s. You’ll find, along with the ‘natives’, a host of players coming from countries like Argentina and Brazil, some of them among the best in the world. These players are international stars that bring championships and publicity to their teams, and the salaries they command are accordingly high.
What talented striker from a low- or middle-class family in a small Latin American town could resist the lure of Europe’s multi-million-dollar contracts? Very few do, and the majority of truly talented players routinely end up playing in Europe.
PELE EFFECT
YET even with this enormous ‘leg drain’, so to speak, Latin American soccer teams are still among the best in the world (witness, for example, Argentina’s Boca Junior win over Italy’s AC Milan in the last World Club Cup final in Japan).
The places vacated by the emigrating players are immediately filled with promising young talent, some of whom even end up erasing the memory of their predecessors. It would seem as if a sort of talent cornucopia were at work here, always creating new talent to replace that taken away.
In fact, that is exactly what is going on. Most soccer matches in Latin America are not played by high school students trying to get a passing grade in physical education. They are played in empty lots and lazy town streets, with old soccer balls and bunches of clothing marking the goal posts. Soccer is played by everybody, and in a continent plagued by poverty, most players are poor people in a poor country, their futures a bleak promise of struggles, wants and violence.
Unless, of course, they are good at soccer. Then they can end up playing in Europe, with yearly salaries that could buy entire blocks in their neighbourhoods of origin. Is it such a wonder, then, that there is so much talent at play in Latin American soccer? It is the game of the continent, the habit, sport, spectacle, custom, pride and, as long as Europe’s demand remains, the only honest way of making it big for a talented young boy in a poor town. Call it the Pele effect.
Now where does all this sporting talk lead? Well now, let’s look at India. Hasn’t the same thing happened, perhaps on a different scale, certainly in a different context, there? Skills in IT once became the ticket out, a chance of getting ahead, and the always academically powerful India really took the challenge to heart.
Soon, Indian workers were using H1B visas in record numbers to go to the United States, to the point that lawmakers finally began to seek ways to restrain them: to protect ‘American jobs’. Then the bubble crashed, and there seemed little point in going to the US.
Between the dot.com crash and the growing restrictions to enter the country, huge numbers of skilled IT workers in India found themselves ready, set, and with nowhere to go. They looked around, and there was not enough local demand for their talents. They looked at the US, and saw that while there was little demand from IT companies for workers at American wage levels, they were quite ready to hire at salary levels that - my, what a coincidence! - seemed acceptable in relation with what was being asked in India.
And with the Internet in the middle and computers everywhere, not being in the US actually seemed advantageous for both sides.
So it was that major Indian IT firms emerged, like Infosys, which has added 2,689 new employees (its largest quarterly recruitment ever) in the last quarter; or Wipro (2,872 in the last three months); or Satyam (where 1,087 more have just joined the bench). And then even the US multinationals themselves saw the opportunities and joined the gold rush. This process has now gone so far that an industry which was once limited to certain key centres like Bangalore and Hyderabad has now got cities and towns across the nation working night and day to get in on the act.
This has now gone so far that those very jobs which were once being done in Hyderabad or Bangalore are now, in their turn, outsourced internally - to places like Vishakapatnam and Mysore - as IT entrepreneurs seek to leverage India’s huge labour pool in an attempt to restrain what are now increasingly rising labour costs.
What is the moral of this story?
Well, there once used to be a debate which revolved around the migration of persons from the less developed parts of the world (once upon a time this used to include even Europe) to the more developed parts, and in particular to the US. This movement had a name: the ‘brain drain’. Now the brain drain is a topic which has produced a larger literature than anyone would wisely want to spend their time reading, but some stylised observations could possibly be usefully extracted.
One starting point for this might be an old foreign affairs essay by the influential Indian economist Jagdish Bhagwati. He argues: ‘The reality is that borders are beyond control and little can be done to really cut down on immigration’, so ‘a realistic response requires abandoning the ‘brain drain’ approach of trying to keep the highly skilled at home’.
The question he presents us with is this: Given that the movement of persons is hard to control in a democratic environment, and given that many of the most talented inevitably seek to study abroad, how should we realistically assess the real impact of the brain drain?
Traditionally, commentators assumed that the loss of qualified people is a pure liability for the society which produces them. We think this view is oversimplified: After all, the soccer exodus seems to raise, not lower, the number of good soccer players.
SPARK FOR GROWTH
ARE we arguing that having a brain drain is good for you? Well, yes and no.
Obviously you lose talent, which is bad. But the success of this talent may well encourage others, perhaps more than compensating for the effect of the exodus. In the long term, from very small beginnings, you can generate a very big process where everyone copies everyone else, and the society being ‘drained’ ends up being the overall winner.
This seems to have happened in India, with even people from relatively small villages saving money to send their children to college to learn about IT. An enormous education and training industry developed. When the crunch came and the Nasdaq crashed, down went the H1Bs.
But back home in India, there was a river of people as big as the Ganges training up and ready to go. So what happened? The water in the river ‘backed up’, and got diverted into tributaries locally. India became an IT powerhouse, and the face of the global economy was changed irremediably. Indeed, one might almost ask whether history will one day see this as the major long-term impact of the dot.com bust.
Now there is one more lesson here, and it is one concerning the nature of poverty, on why it is that poor countries are poor. Nobel laureate and economist Robert Lucas once famously remarked that having stumbled upon this problem, it is hard to let a day go by without returning to it.
Perhaps another Nobel laureate, Professor Kenneth Arrow, can help him a bit towards the answer to the conundrum. For while Prof Arrow is known in economics for many ideas, among them there is one which is central to our topic today: learning by doing. Maybe the answer to the question why poor countries are poor revolves around the problem of what poor people do, and how what they do today influences what they subsequently learn to do.
And it may be that, ironically, it is all that loss of talent, by facilitating a ‘doing experience’ and by impacting on the process of role model creation which, at the end of the day, turns out to be the asymmetric shock that permits India (and others like her) to finally escape from the grips of the poverty circle.
Edward Hugh is an economist at the University of Barcelona. Marcelo Rinesi is a mathematics student at the Universidad de Buenos Aires.
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