Outsourcing’s unseen pitfall

I am no economist. I can’t believe I am writing yet another post on the areas of interest to economists!

Look at this globalization and outsourcing phenomenon.

  1. Some countries (somehow) became more prosperous
  2. That means more people of those countries had higher standards of living
  3. This led to aspiration of further higher standard of living in those people – in somewhat accelerated fashion
  4. This led to low birth rate
  5. This led to labor shortage in those countries
  6. This pushed wages higher in those countries
  7. This created the cost arbitrage
  8. This created the outsourcing boom
  9. The hope is that destination of outsourcing like India and China, will also become prosperous and their cycle will start from point #1 again, with countries like South Africa and others gaining in the next turn

However, there is a key difference in the second cycle. That has to do with where point  #1 for China/India is and where point #3 could be.

For example, fatalist attitude and caste-ridden structure of Indian society may lead to a situation where a part of society never dreams higher. [I have some experience of such people from the Eastern side of the Kanpur-Chennai line.]

If large enough part of Indian society doesn’t dream big, it would defeat point #3. Then as a result, population never decreases (#4), labor shortage never happens (#5) and economy activity may become a hostage of Indian society. Once economical gains become limited to a section of a society, modern thinking goes for a toss.

Is it me or you also think this way?

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3 comments on “Outsourcing’s unseen pitfall

  1. Brilliantly deduced.
    Regarding ‘ fatalist attitude and caste-ridden structure of Indian society may lead to a situation where a part of society never dreams higher.’ – Agreed completely.

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