So far the rhetoric against outsourcing has been worse than the any legislative action. The main vehicle against outsourcing has been restrictions on government contracts. Earlier this year, Congress enacted a temporary ban on certain contracts with companies that would outsource the work abroad, and 30 states including Michigan are considering similar language for state con-tracts. Those restrictions on government procurement would come at a high price for the few jobs that would be saved.
First and most obvious, imposing anti-outsourcing restrictions on state contracting will waste state resources. Limiting the bidding for state contracts will only limit the state’s ability to find the best deal for taxpayers, resulting in higher costs for state services. Restrictions on state contracts will force taxpayers either to pay more for the same services or to receive fewer services for the same cost. Taxpayers in several states are waking up to the fiscal impact of restrictions on outsourcing. A proposal in North Carolina would cost an additional $1.2 million to repatriate 30 modestly paid call center positions, at an extra cost of $40,000 per job “saved.” The state of New Jersey spent an extra $1 million to hire even fewer domestic call center workers. Lawmakers in Kansas wisely reconsidered an outsourcing bill when the full cost became apparent. According to a recent news report, “When Kansas officials learned that food-stamp questions were being answered by workers in India under a contract with an Arizona company, state senators added language to the budget requiring that the work be done in the United States. But that changed when negotiators learned it would boost costs by $640,000 — about 38 percent.”
In Michigan, Governor Jennifer Granholm signed two such directives last spring. One of them prohibits state departments and agencies from spending state or federal funds to provide a financial incentive to induce a business located in the United States to relocate outside the country, if shifting production offshore will reduce jobs for U.S. workers. The other directive gives preferences to Michigan-based job providers in the state-government contracting process and, for the first time, requires the state’s Department of Management and Budget to consider whether or not a bidder is engaged in exporting jobs or in using an offshore tax shelter when determining if that bidder’s proposal provides the best overall value to the state. Similar provisions had existed in state law but had not been actively enforced.
Second, restrictions on outsourcing will invite retaliation against the juicy target of U.S. service exporters and make a mockery of the U.S. government’s calls for more opportunities for U.S. companies to bid competitively for government contracts abroad. Restrictions on out-sourcing make the United States look even more hypo-critical to the rest of the world. How can we urge other countries to lower their trade barriers and open bidding for government contracts to U.S. companies when we are trying to close our markets and government procurement to foreign suppliers?
Third, state restrictions on outsourcing may violate the U.S. Constitution and international law. Such laws could be challenged in court for usurping the power of the federal government to determine U.S. foreign policy and regulate international commerce. Similar state purchasing laws that had banned contracts with companies that do business in Burma (Myanmar) were nullified after be-ing successfully challenged in the U.S. Supreme Court. As one recent legal study concluded, “Proposed state and federal legislation to restrict outsourcing may violate the U.S. Constitution and jeopardize U.S. obligations under international trade agreements.”
Fourth, restrictions on outsourcing will reduce demand for U.S. products abroad. It will hinder development in countries such as India, slowing the expansion of a middle class able to afford U.S. goods and services. It will also deprive people outside of the United States of the additional dollars they could use as foreign exchange to buy U.S.-made goods and ser-vices or to invest in the U.S. economy. A barrier to imports is really a barrier to exports.