‘Creeping Protectionism’: Study by National Foundation for American Policy
By Charles Isaac

An analysis of U.S. state and federal legislations aimed at restricting firms and government agencies from outsourcing work overseas has found that such laws stifle innovation, reduce the competitiveness of U.S. firms and cost American taxpayers money. The study by Arlington, VA-based National Foundation for American Policy (NFAP), titled ‘Creeping Protectionism: An Analysis of State and Federal Global Sourcing Legislation,’ said anti-outsourcing bills shared the same false assumptions that free trade in services is bad and protectionism is good and without costs.

“Putting an end to the type of protectionism these measures represent would benefit Americans and the U.S. economy overall,” said Stuart Anderson, author of the study and NFAP executive director. Columbia University economist Jagdish Bhagwati is a member of the advisory board of NFAP.

The study cited an example of the manner in which a state government’s effort to prevent a call center for unemployment services from re-locating to India resulted in New Jersey taxpayers paying, on top of the original contract cost, an additional $900,000 for 12 jobs. “Saving 1,400 such jobs in the future,” the study noted, “would cost the state an extra $100 million. A similar cancellation of a state contract by Indiana Governor Joe Kernan will likely cost Indiana taxpayers more than $8 million and result in fewer services provided for the unemployed.”

“Global sourcing allows U.S. companies to remain competitive by concentrating on core functions, innovating and developing new products, lowering costs, and limiting risks. In addition, outsourcing globally enables an American company in information technology or financial services to operate 24 hours a day to meet the needs of a worldwide customer base, something that wage rates and work practices generally make prohibitive with U.S.-based employees alone,” the report said.

It said that the U.S. legislation against global outsourcing has taken three forms. The first one pertains to restrictive state laws enacted in North Carolina, Indiana, New Jersey, and Michigan, where legislators have sought to restrict overseas call centers by regulating calls that involve residents of their states.

According to the study, a patchwork of state laws would make employing overseas call centers prohibitively burdensome and expensive. It further said that according to the telemarketing industry, a ‘Do Not Call’ legislation passed by a near unanimous vote of the U.S. Congress may eliminate up to 2 million U.S. call center jobs.

The second category pertains to legislation at the federal level that requires federal contractors to perform work exclusively, or almost exclusively, in the U.S. In this context, the study cited an amendment by Sens. Craig Thomas (R-WY) and George Voinovich (R-OH) that would prohibit any private company awarded a federal contract under the revised Office Management and Budget Circular A-76 to perform any of the work outside the U.S.

In the third category, bills have been introduced in Congress aimed at restricting U.S. firms from using L-1 visas under the belief that some L visa holders have been involved in outsourcing that affected U.S. jobs.

“This protectionism threatens to interfere with the technological revolution and international division of labor that have led to new products and services to improve the lives of Americans and others around the world,” said Anderson, adding: “The more we try to protect certain jobs, the more we stifle job creation and make U.S. businesses less competitive and less able to be sufficiently profitable to employ individuals throughout their companies.”

(Compiled from a press release)