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April 2004



Regulations on Outsourcing: Hamstringing Our Economy Won't Help Us Compete


by Amy Ridenour
 

H.L. Mencken, the iconoclastic Baltimore newspaper man, once defined democracy as "the art and science of running the circus from inside the monkey cage."

How else to explain the protectionist pieces of legislation now rumbling through the U.S. Senate that threaten to treat an economy well on the way from recovering to robust with twin doses of cyanide?

One proposal was attached to a trade bill earlier this month by liberal Sen. Chris Dodd (D-CT), aided and abetted by - of all people - Senate Majority Leader Bill Frist (R-TN) and 24 other Republicans.

At a time when booming overseas sales in such areas as banking, computer programming, legal services and telecommunications are running a large trade surplus, the Dodd amendment would prohibit the federal government from awarding contracts to U.S. firms that outsource part of the work abroad and snap similar handcuffs on federal funds spent by states.

Only a few years ago, American firms offering such services vigorously complained that they were shut out from bidding for foreign contracts in both the public and the private sector.

Today, data from the Commerce Department's International Trade Administration indicates a vast sea change. A host of U.S. service-sector business sold $131.1 billion worth of goods and services overseas last year - up by $8.2 billion from 2003.

So slamming the door shut on U.S. companies that outsource some jobs overseas likely could prove the law of unintended consequences by spurring foreign governments to respond in kind.

If Dodd looked at the big picture, he'd understand that America's economic growth depends on expanding trade - not shrinking it.Americans, after all, comprise only about five percent of the world's 6.3 billion people. And two of the fastest growing economies - those of China and India - have populations more than three times that of the United States. To truly prosper in the years ahead, U.S. firms must count millions and millions of Indians and Chinese among their very best customers.

A second bill moving through the Senate - the Jobs for America Act - is equally protectionist and also would have an adverse effect on the U.S. economy.

Sponsored by Senate Minority Leader Tom Daschle (D-SD) and Massachusetts Democrat Ted Kennedy, and co-sponsored by John Kerry (D-MA), the bill would require employers to notify about to be laid-off employees 90 days in advance instead of the current 60 if their jobs are being outsourced. It would also lower the threshold - applying the notification to 15 workers compared to the current 500.While this sounds like a humane requirement and is obviously great election-year politics, it would slow the ability of U.S. firms to respond quickly in the fiercely competitive global arena.

The 90-day requirement, for example, is more onerous than such restrictions in France, which requires a two-month notice, and Germany, which requires a month. Those restrictions combined with other tax breaks and regulations to protect native workers simply haven't worked for the French or the Germans. The two nations have unemployment rates well over nine percent - or close to double the current American rate of 5.6 percent.

If Dodd, Daschle and Kennedy really think outsourcing is "anti-American," perhaps they should check with the American auto workers employed at the Mercedes factory in Vance, Alabama; the Nissan plant in Smyrna, Tennessee; the Subaru factory in Lafayette, Indiana; the BMW plant in Spartanburg, S.C. and the Honda plant in East Liberty, Ohio. All of those factories are prime examples of flourishing outsourcing - not by U.S. companies, but by carmakers from Germany and Japan. And they are just a handful of the hundred of production facilities operated in the U.S. by foreign firms.

As hard as it may be for politicos to accept, the fact is that productive jobs are created by private companies, not the federal government. Hamstringing U.S. firms with protectionist measures employed by socialist welfare states in Europe won't help them compete with their counterparts in China or India or Singapore.

Maybe it's time that Dodd, Daschle and Kennedy - as well as the senators co-sponsoring their misguided legislation - signed up for a refresher course in Economics 101.

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Amy Ridenour is president of The National Center for Public Policy Research. Comments may be sent to [email protected].



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