Charles V. Zehren


February 29, 2004 

The trouble with banning outsourcing


Outsourcing is a serious problem.


So why is Albany treating it like such a joke?


A couple of weeks ago, Democrats and a few Republicans in the state Assembly and Senate followed lawmakers in 20 other states and proposed legislation aimed at preventing companies from moving workers.


As sweeping as it is simplistic, New York's hot-button bill would ban any business that shifted jobs out of the state from receiving any form of state aid or economic assistance, ranging from tax breaks and industrial development bonds to worker training grants and loan guarantees.


And that's whether the jobs are going to India or Indiana.


As defined in the measure, outsourcing would mean "to relocate or move employment, jobs, positions from the state of New York to an outside locality," i.e. anywhere outside the Empire State, including the nation's other 49 states, 12 territories and outlying areas, and any other spot on the globe where economic activity just might take place.


At a time when IBM is transferring 5,000 programming jobs overseas and J.P. Morgan Chase is moving 1,000 New York-area call positions out of state, such a measure may prove popular. But the complex process of keeping America competitive shouldn't begin by ignoring the reality of how corporations operate in a modern international economy. Instead, opponents advocate K-12 education reform, opening up immigration, corralling employee costs and cutting taxes.


Still, "it's one thing for a CEO to claim free market theory to move jobs to a low-wage environment and another thing to forget about free market theory and ask for a state handout," said Richard L. Brodsky, casting the outsourcing debate as a choice between corporate welfare and worker welfare.


Brodsky, the sponsor of the legislation, is a Democrat Assemblyman from Westchester who has a flair for political self-promotion on a par with Sen. Chuck Schumer's, if that's possible. And Brodsky's caught a good wave here, surfing the rising tide of anti-outsourcing sentiment along with other state officials and the Democratic presidential candidates, Sen. John Kerry of Massacusetts and Sen. John Edwards of North Carolina.


Corporations continue to cut jobs despite receiving state benefits, and the total subsidies far outstrip the economic benefits of lower overseas and out-of-state labor costs, Brodsky says. "We may not be able to stop outsourcing, but New York State should certainly stop paying for it."


Of course, the assemblyman assures us, this doesn't mean he's anti-business, or anti-capitalist, for that matter. "Sure, companies can move jobs," Brodsky said. "But you can't take our money and then move the jobs. You have to choose."


For their part, national, state and local business leaders; liberal and conservative economists; White House economists, and Federal Reserve Chairman Alan Greenspan already have made their choice. And they've chosen not to listen to politicians like Brodsky.


It's highly unlikely this bill will ever pass. Critics dismiss it as election-year pandering, made all the worse by playing on Americans' most heartfelt economic anxieties. Outsourcers, the argument goes, already are using their savings to hone their competitive edge, post higher profits, invest for the long haul, grow, and hire more skilled workers at higher wages.


Yet, if lightning struck and Brodsky's bill became law, the intended - and unintended consequences - would be profound, and extremely negative, critics say.


Companies would flee and avoid New York even more than they do now, triggering a spiraling loop of unemployment, wider deficits, deeper education cuts, higher taxes, falling real estate values and a worsening overall economy.


Tax dollars would be wasted paying for contracts that were not awarded to low bidders.


States already discriminate against each other by putting local purchasing preferences in contracts. But this bill would spark interstate trade wars and copycat foreign trade measures. "Protectionism will do little to create jobs, and if foreigners retaliate, we will surely lose jobs," Greenspan has said.


The law could force companies to reach back in time and reimburse the state for every prior tax credit and benefit they've received.


The state already requires that companies create jobs to keep their aid. And this bill lacks proportion - a company that employs 10,000 people would lose all of its aid because it sent one job across state lines.


But ultimately, as many in the business community see it, this bill would penalize companies without stemming today's inexorable ebb and flow of jobs throughout the world. American companies will do what it takes to stay competitive, and if that means moving workers or giving up programs designed to help them, they will do it.


"You simply can't legislate against outsourcing," said Stuart Anderson of the National Foundation for American Policy, an Arlington, Va.-based think tank. "And if you do, you can end up doing it in such an extreme way that it sets off retaliation or distorts the marketplace with unintended negative consequences."

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