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America Eyes Punching Bags

No politician likes to be perceived as one who does not help create and protect jobs

In recession-hit America, protectionism is on the rise. A bill has been introduced in the Senate which, if it becomes law, will severely restrict employers engaging the services of foreign workers on H-1B visas. It has predictably made India’s information technology (IT) and business process outsourcing (BPO) industry unhappy.

Amplifying the intent, the President of the United States of America, Barack Obama, said on May 4 that he intended to fulfill one of his pre-poll promises by hiking taxes on profits of those companies that create jobs, “in Bangalore, not in Buffalo” 

Current law states that “any income earned outside America is not taxed until such time it is brought back”. Obama’s proposal aims at altering this provision of the law with the intention to raise tax revenues. Interestingly, many Indian companies providing IT services do not appear perturbed by this development. Their spokespersons argue that Obama’s proposal would not adversely affect firms headquartered in India, such as TCS, Infosys and Wipro, but instead hit American companies like  IBM, HP, Intel, and Microsoft, which have substantial foreign operations.

However, no matter how loudly free-market economists might shout about the benefits of offshoring and about how protectionism might end up benefiting American companies’ foreign competitors, and eventually endanger employment opportunities there, political compulsions of such a move are predictable. No politician worth his salt would like to be perceived as one who does not help create new jobs, or protect existing ones. Republican or Democrat, no American president would have acted differently when at least five million Americans have lost their regular jobs over the last 15 months. 

Indubitably, many IT-adept Indians perceive America as a land of milk and honey. But even they are no longer rushing to catch the first flight to a country where free enterprise/capitalism was supposed to offer unlimited opportunities to the talented and the enterprising. The evidence is in the form of a sharp fall in the number of applicants for H-1B visas this year.

H-1B visa holders can be “temporarily” hired — usually for three years, extendable by another three — by American employers provided they are in “specialty occupations”. American  Immigration & Nationality Act defines this kind of a job as one requiring theoretical and practical application of a body of highly specialized knowledge in a field of human endeavour, including, but not limited to, architecture, engineering, mathematics, physical sciences, social sciences, biotechnology, medicine and health, education, law, accounting, business, theology and the arts.

The bill in the Senate proposes that American employers first make an attempt in “good faith” to recruit local workers before hiring a foreigner. Further, the bill proposes that employers be prohibited from hiring H-1B visa holders unless at least half its total employee strength comprises American citizens.

The most-commonly voiced criticisms of the H-1B policy over the years has been that it replaces American workers, depresses salaries and is a form of subsidy to corporate bodies. It is claimed that the objectives of the policy are subverted by companies engaging foreign workers through contractors.

The rising tide of protectionism in a country that has traditionally advocated free movement of goods and capital, but baulked at similar norms governing the movement of people, should not have come as a surprise.