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  Drucker on outsourcing, India and China

Peter Drucker is not just a management guru as it is commonly supposed. He is the very inventor of management as a subject. Plus some more: he is an economist, sociologist, historian and visionary. At 94, he still teaches, consults, writes—and, envisions. Recently he gave an interview to Fortune magazine. In it he blows away a lot of myths. It also has a glimpse of how Drucker’s very original mind views the current hysteria over US jobs outsourced to India and other countries.

What follows is a summary of a private mail sent by Ram Narayanan who runs a very influential newsletter on Indo-US relations. The full Drucker interview may be read by following
this link
, but you need to be a paying subscriber to do so.

Although the early parts of the interview deal with issues that only concern the American economy, there are many insights here about economies in general. Drucker says that it’s not true that manufacturing jobs are leaving US shores. Labour costs are such a little part of many advanced products, and US labour is so very skilled and flexible, that the only jobs that are leaving, are the labour intensive --like say, textiles-- and the knowledge oriented ones. Manufacturing in the US has in fact doubled in the last decade. US still has more than enough ‘good’ jobs on offer and every college graduate finds one. There is a mismatch only with regard to insufficiently trained labour. It is not so much that there aren’t jobs; it is just that the unemployed seem untrained for the jobs that there are. Many immigrants arrive on US soil “qualified for yesterday’s jobs, which are the kinds of jobs that are going away.”

What about the anti-outsourcing hysteria that’s getting shriller now? Drucker exclaims: “Thank God, we’ve discovered outsourcing. I believe you should outsource everything for which there is no career track that could lead into senior management.” His reason? While labour productivity in a plant can be --and has-- improved, productivity of an in-house knowledge worker has grown dismally. That is inherent in the way of knowledge-work. But companies have persisted with a 19th century notion that a great corporation must do all its work in-house. On the other hand, “when you outsource to a total-quality-control specialist, he is busy 48 weeks a year working for you and a number of other clients on something he sees as challenging. Whereas a total-quality-control person employed by the company is busy six weeks a year and the rest of the time is writing memoranda and looking for projects,” says Drucker. Therefore outsourcing is a win-win trend for both America and India.

For India, Drucker has great praise: “India is becoming a powerhouse very fast. The medical school in New Delhi is now perhaps the best in the world. And the technical graduates of the Institutes of Technology, are as good as any in the world. Also, India has 150 million people for whom English is their main language. So India is indeed becoming a knowledge center.”

He also feels that India has a decisive edge over China and that is not only because of the greater number of university graduates it has or the English language advantage. Drucker --at his very insightful best-- says that with China, “the likelihood of the absorption of rural workers into the cities without upheaval seems very dubious. You don’t have that problem in India because they have already done an amazing job of absorbing excess rural population into the cities�its rural population has gone from 90% to 54% without any upheaval.” And again, “Everybody says China has 8% growth and India only 3%, but that is a total misconception. We don’t really know. I think India’s progress is far more impressive than China’s.”

He might have added that it is democracy that made all the difference.

Ram Narayanan