The first offshoring by a UK local authority – good idea or madness?

If you're a free marketeer, which I fundamentally am, then you should of course welcome the news that Conservative-controlled Birmingham council - via their partnership with Capita - are potentially offshoring around 100 jobs to India, as Computerworld explains.

Now, Ricardo's theory of 'comparative advantage' says that trade benefits all parties (basically). Not sure that argument will play well politically though; I suspect that a lot of even the traditional Conservative supporters in Birmingham will feel unhappy about this. Based on my sample of one fairly traditional (but Liberal) Tory supporter, the response was "it's ridiculous, jobs in local authorities should be for local workers ".

And, even as a conceptual supporter of offshoring and free trade, why do I feel so nervous about this announcement? Well, for a start, trade isn't perfect and free. India protects its auto industry for instance from imports. So the thought that this off-shoring has a nice friendly reciprocal benefit of more exports to India doesn't necessarily hold.

Perhaps people made redundant will find jobs in areas where the UK has this  "comparative advantage"? Well,  I don't know how the market looks in Birmingham at the moment, but the latest economic figures don't suggest that it will be particularly easy for these 100 folk to walk into another job. In which case, that's another 100 benefit payments to be funded by the national taxpayer, so that Birmingham can save a few quid locally.

Finally, it is interesting that the deal with Capita was extended last year for a further 5 years - meaning it runs to 2021 - without going to competition. Birmingham was entitled to do this under the original terms of the contract, but with such a long-term deal I wonder how Birmingham ensured they were and are getting best value for money (anyone from Birmingham's procurement team like to comment?)

And while Capita are a great firm in many ways, their margin is over 14%, as we reported here, pretty impressive by any standards.  So here's an idea.

100 people outsourced to India might save around £12,000 a head - that's £1.2 million.

If the Capita deal is worth £60 million a year (which I believe is the case), just a 2% reduction in Capita's prices (reducing their margin perhaps from 14% to 12% in effect) would also save Birmingham £1.2 million.  And no additional cost for the taxpayer in additional unemployment benefits.

So how about that as an alternative?

Voices (2)

  1. Gary thomas:

    India isn’t manipulating its currency; you’re thinking of China. Labor rights are a common scapegoat and detracts from the reality that Indians can provide comparable labor at the fraction of the cost. Give them maternal leave and flex-time, and they’ll still provide labor at a fraction of the cost.

    Saving 60M pounds per year is an enormous sum. I don’t think one ought to wait for India to open its auto market to take advantage of the cost savings.

  2. R. Lawson:

    “…Now, Ricardo’s theory of ‘comparative advantage’ ”

    What free traders on your side of the pond, my side of the pond, and even Ricardo himself didn’t count on is what manner that comparative advantage is gained.

    If other countries can out-compete us on a level playing field I can’t complain about free trade – if I want to compete I must become more competitive.

    If however countries gain an advantage through currency manipulation, disparities in labor or environmental laws, through subsidies, or other nefarious behavior that we have decided should not occur in our society I do take issue with that.

    In the case of India, they are abusing our immigration laws in the United States, there are tax advantages to sending work offshore, they have fewer labor protections, and finally they undervalue their currency through manipulation.

    The only way to win in the “free trade at any cost” model that you seem to espouse is to roll back our environmental protections, labor rights, and so on. What you need to understand is that, at least in the case of my country, we are a nation first and foremost. We are a nation with a market, not a market that happens to be a nation.

    Trade needs to be considerate of our national interests. Absolute free trade is not. If India doesn’t want to protect their environment, labor, or play fairly more power to them. But don’t expect us to endorse free trade with a nation such as that.

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