The outcry over outsourcing: a debate rages throughout state capitols over the loss of American jobs to foreign countries.

Have you purchased a new computer lately, but couldn't figure out how to download the software? No problem. You telephone the help desk and reach a friendly, knowledgeable customer service representative. The voice on the line, however, doesn't have a Southern drawl or a sharp New England accent. The service representative is not from Atlanta or Boston or anywhere else in the United States. He is far away in Bombay. In some states, the same thing happens to people applying for food stamps or other state services. The call center they reach is in a foreign land. And it's not just call-center jobs that are going abroad, but architects, financial analysts, aerospace engineers, chip designers, information-technology support, and accountants. Last year, some 100,000 U.S. federal and state tax returns were prepared in India.

Outsourcing jobs overseas is the newest trade controversy. With to-day's technology,, goods are easily transported across oceans and information is carried across the seafloor at the speed of light through fiber optic cable. Meanwhile a debate rages throughout the country over the loss of mid-level white collar jobs to foreign countries.

At least 31 legislatures have introduced measures banning state agencies from entering into contracts with companies that would send those jobs outside the United States. The policy dilemma is equity. Is it right to spend taxpayer dollars overseas if it means savings to the states? Or is it the responsibility of lawmakers to ensure tax money stays in the United States?

Although none of the measures has passed, bills are winding their way through legislative chambers. And the U.S. Senate has passed a bill that would prohibit states from using federal money to secure state procurement contracts fulfilled outside the country.

SAVING MONEY, LOSING JOBS

Many factors have thrust this issue on legislators and the public. First, the current state fiscal crisis has highlighted the need for government agencies to save money. Second, over the past three years the United States has lost between 2.5 million and 3 million manufacturing and service jobs--highlighting the sensitive nature of outsourcing state jobs. Finally, high tech has created the opportunity to outsource information technology and service jobs to cheaper markets.

Another bind for states is that some state procurement laws have lowest bidder requirements designed to hold state spending to a minimum. State administrators are critically aware of the political need to save taxpayer money. An example of competing priorities occurred in 2003 when Indiana canceled an overseas contract that would have saved the state $8.1 million. New Jersey also reconsidered a foreign contract and hired state workers instead. And North Carolina may return an overseas food stamp call center to the state. In recent months, state agencies in Michigan and Minnesota have received directives to give priority to in-state companies.

Legislation has taken a variety of shapes. There are bills that specify state contracts be awarded only to companies that will use domestic labor. Legislation in Colorado, New York and West Virginia would limit a company's ability to obtain state contracts and would restrict grants to companies that send public or private jobs offshore. Indiana and Virginia introduced legislation offering preferences on state contracts to companies that operate in-state or in-country.

State legislation focusing primarily on private companies fits into three categories. Seven states--Arizona, Connecticut, Hawaii, New Jersey, South Carolina, Washington and Vermont--introduced Consumer Right to Know legislation. These bills require a call center to identify who they are and their location. California, Colorado and West Virginia proposed legislation requiring a company to notify the state of job losses when they send work overseas. Arizona, California and South Carolina have bills limiting confidential medical or financial information from being sent to offshore locations.

OUTSOURCING HELPS

The outsourcing dispute is rooted in the ongoing debate over free trade and jobs. Proponents argue that through outsourcing, American goods get into more foreign markets, only lower level jobs are lost and American workers move into more advanced jobs. They also argue that outsourcing is a scapegoat, that the loss of most jobs can be attributed to a poor economy and increased productivity and cyclical changes in employment.

Using overseas workers is beneficial to the United States in four ways, says a recent report in the McKinsey Quarterly, a publication released by the McKinsey Global Institute, an independent economics think tank focused on the global economy.

First is cost savings. The report states that "for every dollar of spending on business services that move offshore, U.S. companies save 58 cents."

Second is new revenues. The rise of office services in the developing world creates demand for goods that often are purchased here, including computers, telecommunication equipment, and legal, financial and marketing services. "Exports from the United States to India stood at $4.1 billion in 2002, compared with less than $2.5 billion in 1990," according to the study. These profits can be used to expand business in the United States or be returned to investors.

Third is repatriated earnings. Profits that American companies generate operating in the low-cost overseas markets are sent back to the United States through taxes on these additional earnings.

Fourth is redeployment of labor. Sending lower level, lower skilled jobs overseas permits the American workforce to move into higher paying occupations.

Proponents of outsourcing fear bans could hamper state government. How are the bans going to be administered? If a state has a contract with a computer company that conducts portions of its work overseas, is this company banned from doing work with states? Would legislation banning outsourcing impede a company's ability to provide quality products to a state? What about cost considerations: If a state agency can save money through outsourcing could that money be used for other services? Of course questions regarding trade and government contracts cut both ways.

OUTSOURCING HURTS

Opponents of outsourcing believe that it is bad for states and bad for the American worker. Their primary argument is simple. Losing white-collar jobs to cheap overseas labor is bad for families and bad for states' economies. And there is no proof that outsourcing results in the creation of higher level jobs for displaced workers.

According to MBG Information Services, a business information, analysis and forecasting firm based in Washington, D.C., the net private sector loss over the last three years is close to 3 million jobs. And the predictions for further job loss, especially in the service sector, are high. Forrester Research Inc. predicts that domestic employers will move 3.3 million white collar service jobs overseas in the next 15 years. In the past, the economy typically shed jobs during a recession and rehired when the economy turned around. This was true when the United States had a very strong manufacturing sector. A factory would suffer slow periods, lay off a portion of its workforce and then rehire that workforce when production expanded. But, if job loss is the result of offshore outsourcing, the people who have lost their jobs are not going to receive a call to come back to work. Those jobs are gone forever.

Other concerns are more specific to outsourcing. If states are contracting with companies that operate overseas, they also should be aware of the problems associated with these operations. Companies that outsource can save large amounts of money on labor, but if it's not done right, outsourcing can cost money. Labor savings could be offset with hidden costs, such as in the general operations of the facility and the cost of closing domestic facilities. Companies that have moved their overseas operations back to the United States cite problems of culture, language and expertise differences.

And what are the social service costs to states? If a state calculates unemployment insurance, worker re-training and other related costs for people whose jobs move over seas is it still saving money? California Senator Liz Figuora believes states should be responsible for their own citizens. "The California state government should be working for the health and welfare of California citizens," she says. "I do not believe that using state funds to outsource public sector jobs is looking out for the best interests of the thousands of unemployed workers in this state."

Free trade enthusiasts often cite the benefits to U.S. workers because outsourcing encourages retraining to higher paying jobs. Retraining can help dislocated workers find and prepare for new jobs. But is that true? Opponents of outsourcing see no guarantees that a laid-off employee will find equivalent and secure work, even with retraining. They ask: What exactly will the new jobs be and will they pay as much as the displaced jobs?

LOOKING BACK

Controversial trade issues are not a new phenomena to state legislatures. The South Carolina legislature passed the Ordinance of Nullification on Nov. 24, 1832, in response to federal tariffs intended to support northern manufacturing. Northern goods were far more expensive than what South Carolina could import from Europe. The ordinance declared federal tariffs on foreign goods as null and void in South Carolina. This statute was soon repealed, but free trade continues to be a contentious issue.

Will any of these anti-outsourcing bans pass? Time will tell. One thing is certain, technology adds a new dimension to trade, but trade politics are as sensitive today as they were in the earliest years of our nation.

RELATED ARTICLE: Congress has its say on sending jobs offshore.

As the U.S. Senate wrapped up its work on the transportation/treasury appropriations measure for FY 2004, senators Craig Thomas of Wyoming and George Voinovich of Ohio included an amendment that prohibits the federal government from outsourcing any job currently done by a federal employee to a contractor if the contractor plans to send the work offshore. The language was later incorporated into the omnibus appropriations package (HR 2673) that Congress passed and the president signed in January.

Senator Christopher Dodd of Connecticut successfully introduced an amendment to the Jumpstart Our Business Strength (JOBS) Act that prohibits federal funds from being used for a state contract performed overseas. The JOBS Act is still being hotly debated in the Senate and could see further floor action in the next few weeks.

A number of other anti-offshore outsourcing bills introduced in 2003 and 2004 are pending further action. Senate Democratic Leader Tom Daschle introduced S. 2090 requiring companies intending to send 15 or more jobs overseas to give at least three months notice to the Labor Department of their intentions to offshore. Daschle also worked with Democratic presidential candidate Senator John Kerry to introduce legislation requiring call centers to disclose their physical locations. Other recent legislation seeks to limit or repeal powers under the foreign worker visa programs. For a table outlining all federal legislation visit the Web page for NCSL's Standing Committee on Economic Development, Trade and Cultural Affairs www.ncsl.org/stand-comm/scecon/scecon.htm

--Nick Steidel, NCSL

SENATOR

LIZ FIGUORA

CALIFORNIA

Justin Marks covers labor and workforce issues for NCSL.