Trouble with TARP

May 4, 2009

I once happened to watch a TV programme that showed Japanese children in kindergarden set out in the freezing cold in nothing more than their undies! The idea, as I discovered later is to harden toddlers against adversity. Those Japanese sure know a thing or two about the competitive human spirit.

If you want to bring out the best, don’t hunker down, pit yourself against the best. I can understand why the pressure to resort to short-term, protectionist measures must be high on President Obama, but knowing his caliber, and his capacity for strategic vision, one is disappointed to note that he chose not to bite the bullet.

In one fell swoop, the US government’s $787 billion stimulus plan has made it difficult for U.S. companies on Troubled Assets Relief Program (TARP) to seek H-1B visas for offshore workers. The government has promised a tax rebate of $5,000 per employee per year to companies that keep jobs in the US, prompting Sun Microsystems, a company that outsources a bulk of their work to India to laments that this could seriously impact competitiveness in the industry.

The move undoubted hurts India more, where the IT sector contributes nearly $63 billion (almost 7%) to the country’s GDP, but let their be no doubts in your mind that it would eventually also hurt the US economy, particularly in areas where there is still acute skill shortage, such as IT programming, IT sourcing management and business process transformation.

Dubbing TARP restraints as “mad” politics, one blogger says,“We could create many, many more jobs with that bonus cash than we’d ever had “saved” by blocking a small minority of H1-B applicants.” True and for evidence, log on to one of our earlier blog posts. TARP restrains effectively fritter away all the positive gains from outsourcing — time to market, transformation of businesses, integration of processes, reduce costs and enhance efficiency. “The US will see bigger job losses, if it raises protectionist barriers, as most of its top companies derive a major chunk of their revenues from foreign markets,” says Duke University professor and Harvard researcher Vivek Wadhwa. Agreeing with him another professor of economics, Kenneth S. Rogoff laments “The U.S. is in such great danger of backing away from free trade. The next two years could be a disaster for free trade.”

Already there are signs of such retrogressive measures emerging from other countries that are following the example showed by the US. And the price of this could be heavy as a McKinsey study indicates that during the last recession, the impact of Indian outsourcing on the US economy and jobs, was extremely positive — it actually created more jobs!

Perhaps good sense will prevail. In any case, reversal of a few tax provisions is NOT likely to reverse the benefits of global sourcing, points out one expert, when economic logic is so strongly in favour of it.


2 Responses to “Trouble with TARP”

  1. Beem on May 4th, 2009 5:45 pm

    I’m glad President Obama is cracking down foreign tax shelters. I’m sure it will help US to cut-down the deficit and punish companies evading the taxes.

    President Obama moves to capture lost tax from US multinationals

  2. CNN on May 6th, 2009 8:07 am

    Cracking foreign tax shelters are definitively good for US; in fact, it should have been done long-time back. However, giving tax credits to companies that create jobs in US will not help. Generally, companies outsource jobs not based on tax credits but based on what is appropriate for their short-term and long-term goals.

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