Outsourcing State Government
By Christian Schneider
In the 2008 presidential election, the economy featured prominently among the issues debated by the two candidates. The collapse of the housing sector interjected itself into the campaign, and swung the electorate solidly in favor of eventual winner Barack Obama. Obama was able to sell his message on the economy more ably than John McCain, capably reassuring American workers that their jobs were safe.
One of Obama’s primary economic talking points dealt with the outsourcing of American jobs, and what could be done to prevent it. One of the cornerstones of his economic plan was repealing “tax breaks” to “companies that shipped our jobs overseas.” Naturally, workers who already fear for their jobs want to do everything to make sure that job stays on American soil – and in an economy in collapse, that message resonates even more strongly.
Yet, as is the case in most campaigns, the truth became a casualty amid lofty rhetoric, shifting plans, and political charges. In reality, this campaign rhetoric is already light years behind the times - in an age of digital information and instantaneous delivery of data worldwide, jobs can be created in places like India and China at a fraction of the cost. Armies of Indian college students graduate every year, anxious to shed their native accents and join the global economy. They staff call centers helping Americans fix their computers, get credit cards, and order pay per view movies. They read ultrasounds sent to them digitally by American doctors and do legal research for American attorneys.
And, in many cases, they make American business more viable by holding down costs. Outsourcing allows many American companies to stay in business here in the U.S. by making profit possible. So while their customer service call center may be in Bangalore, their headquarters may employ hundreds of Americans here at home. And the cheaper they can run one arm of the company, the more they can offer the domestic employees. Furthermore, outsourcing allows companies to sell their goods cheaper, which benefits American consumers. Without it, we would pay more for virtually every good and service – as a result, American companies would sell fewer products and be able to hire fewer workers. This is why, even as jobs have been fleeing to other countries en masse, the unemployment rate in America has remained low.
While outsourcing is a worldwide issue, it has deep roots right here in Wisconsin. With an economy heavily dependent on manufacturing, Wisconsin workers are especially sensitive to the threat of their jobs being outsourced to a foreign country. As such, it has become a viable talking point for state politicians.
For the past two legislative sessions, Wisconsin State Representative Mark Pocan and State Senator Judy Robson have introduced what they have named the “American Jobs Act.” This proposed legislation would prevent state government from contracting for services performed outside the United States. For example, the State of Wisconsin contracts with JP Morgan Chase to provide food stamp recipients with electronic bank transfer cards (the Wisconsin QUEST card). When a recipient has a problem with their QUEST Card and they need to call a service center, they are not speaking to somebody in Wisconsin or the United States, but rather somebody from India or Mexico, whose wages are paid by Wisconsin taxpayers.
According to the bill’s authors, when state government outsources work, “we lose the income from those jobs, which support families and communities, pay for government services through taxes, and fuel the American economy. It is especially egregious when taxpayer dollars pay for those jobs in other countries.”
The Pocan/Robson jobs bill is illustrative, but perhaps not in the way the authors intended. It is clear state government contracts with businesses that outsource jobs, in order to keep costs down. If Wisconsin were to limit contracts to businesses that operate wholly in the U.S., it would likely substantially increase the cost of running the state programs those contracts support.
As has been shown in previous WPRI reports, Wisconsin currently has an imbalance between the taxes it collects and spending it conducts. For years, the state has had to use damaging budget gimmicks and schemes to keep state government afloat, as elected officials haven’t had the fortitude to scale back programs – in fact, at times when Wisconsin carried large deficits, the Governor and Legislature actually created expensive new state programs.
This brings up a provocative, and somewhat uncomfortable question. Would it be in Wisconsin’s best interest to outsource more of its services? If the Legislature isn’t willing to control costs by reining in spending, can the state follow the example of the private sector and utilize cheap labor to control costs?
The following points come to mind:
- Outsourcing more state government work wouldn’t necessarily affect Wisconsin jobs – much of the work is likely done in other states, anyway.
- Holding costs down in some areas through more extensive use of outsourcing allows the state to reallocate funds to programs with a higher priority. For example, money saved by shifting a call center overseas may allow the state to fund Medicaid or public schools without having to raise taxes on citizens.
- When developing countries get American jobs, it creates new markets for American products. As India and China expand, so do the potential consumers of Miller Beer, Harley-Davidson, and Fox Valley paper companies – which helps retain Wisconsin jobs.
- Wisconsin currently participates in the World Trade Organization Government Procurement Agreement. Under the agreement, preferences in favor of the United States over a certain dollar amount are forbidden. Limiting outsourcing would actually put the state in violation of this trade agreement.
When the Legislature convenes to begin addressing the current $5.4 billion budget shortfall faced by the state, it will debate whether to cut spending or, more likely, which taxes to raise. One thing that likely won’t be discussed at length is how to stretch our tax dollars further to avoid tax increases or service cuts – which could be accomplished by finding cheaper ways to pay for routine state operations. If we can stop pretending there are such things as "American jobs" anymore, we can help keep money in the pockets of Wisconsin workers and help the state's economy get moving again.
-December 3, 2008