Outsourcing Saves Money: Sending Jobs Overseas Can Increase the Productivity, Profitability and Competitiveness of U.S. Companies

Article excerpt

Within the first three months of 2005, more than 112 bills to restrict "outsourcing" already had been introduced in at least 40 states, an increase over last year at the same time. Why has this trend to restrict international trade in services persisted? Are these proposed restrictions a good idea? Are they unconstitutional?

In 2004, only five anti-outsourcing bills became law. Republican governors in California, Massachusetts and Maryland vetoed anti-outsourcing bills, though outgoing New Jersey Governor Jim McGreevey issued a highly restrictive executive order to prevent state work from being performed offshore.

The reasons for the impulse to restrict offshore outsourcing are understandable, though misguided. Economic factors that created anxiety about jobs moving offshore--global competition, increased productivity, and new job creation distributed unevenly across sectors--have not changed in the past six months. In addition, as with other issues, bill sponsors may possess political motivations, such as putting members of the other party in a difficult position.

Most state bills to restrict outsourcing fall into two categories: restrictions on state contract work performed offshore and measures to limiting offshore call centers. Several state legislators also are attempting to prevent personal data from being sent outside the United States, even though federal law already permits sharing data among affiliate entities regardless of geography and provides for recourse against U.S. companies that don't take appropriate safeguards.

On the most practical level, limiting competition for state contract work increases procurement costs. This year, Colorado Senator Deanna Hanna withdrew her bill to prohibit state contract work from being performed overseas after an official budget analysis showed it would cost between $28 million and $73 million in the coming year.

In 2003, criticism erupted when a subcontractor for a call center for New Jersey state unemployment services used workers in India. The state re-worked the contract to place more individuals in New Jersey. The result? New Jersey taxpayers paid--on top of the original contract costs--an additional $900,000 for 12 jobs. "Saving" 1,400 such jobs would cost the state an extra $100 million.

Many anti-outsourcing bills are probably unconstitutional. A legal analysis for the National Foundation for American Policy performed by the law firm Alston and Bird, concluded that state contact bans "are legally suspect ... since courts would likely find that such measures improperly intrude on the federal foreign affairs power and violate the U.S. Constitution's Foreign Commerce Clause. …