Rising To India's Challenge

It is easy to lose sight of India's remarkable achievements in information technology amid the cries of alarm from Silicon Valley about America's jobless recovery. No less an authority than Intel Corp. (INTC ) founder Andrew S. Grove warns that American information technology could follow the path of steel into decline. With virtually every major U.S. corporation offshoring operations to India -- especially such services as law, accounting, design, and medicine -- a growing chorus is asking whether India's high-tech success is a direct threat to American prosperity.

We think not. But even as the U.S. benefits from the low-cost brainpower that an Indian high-tech workforce provides, it must also rise to the challenge that India poses. Just as America reacted to the Soviet Union's sputnik in the 1960s and Japan's manufacturing prowess in the 1980s, so, too, the U.S. must today put into place new education, research, and innovation policies that move it to a higher competitive plane. How India affects jobs in the U.S. ultimately depends as much on America as it does on India.

The remarkable high-tech rise of India is a much-less-told tale than the ascendancy of China. Yet its impact may be greater. India may soon bring to services the kind of deflation now seen in manufacturing. Thanks to global broadband connections, the tens of thousands of English-speaking professionals graduating every year from India's first-rate universities are plugging into the U.S. economy. Broadband arbitrages cost across global time zones, and India's high-tech workers and service providers are paid a fraction of what Americans get.

The good news is that Corporate America can boost its productivity and innovation by tapping into India's best and brightest at relatively low cost. That's what General Electric (GE ) Co. is doing at its John. F. Welch Technology Center in Bangalore.

The downside, of course, is the potential loss of American jobs. Manufacturing, China's strength, accounts for just 14% of U.S. economic output, while services, India's forte, make up 60% of the economy, employing two-thirds of American workers.

India represents a new internationally competitive environment for America. The U.S. needs a public policy that recognizes this reality and improves science and engineering education, from elementary school right up through graduate education. The U.S. must also reverse its long decline in academic research spending. It must keep its venture capital and financial markets healthy to fund the startups that are essential to innovation and growth. And, despite terrorist threats, it must remain open to the best immigrants, students, and businesspeople from around the world. India's rise can threaten America or push it to a higher technological and economic level. That is up to America.

Before it's here, it's on the Bloomberg Terminal.