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Saturday, August 28, 2004

Outsourcing Jobs

We are hearing lately about job loss due to "greedy" U.S. corporations contracting for IT services with workers in India at low wage rates. John Kerry has stated "… I want to repeal every tax break and loophole that rewards any Benedict Arnold CEO .. for shipping American jobs overseas". However, Bush chief economist Gregory Mankiw calls outsourcing "… probably a plus for the economy."

California joint legislative hearings in early 2004 reviewed possible options for dealing with this latest perceived crisis. One action considered was to deny state contracts to those companies which outsource jobs to foreign lands. It is clear that the California Legislature holds the interests of California taxpayers in very low priority.

The two questions I first would ask are, - Is this a real problem? If so, what did government do to cause the problem? My answer to both questions is - it is only a problem to the extent that government is causing the problem.

In my view, market trends based on freedom of choice and self interest are never a problem. Cheap foreign labor boosts American prosperity, whether the labor comes here (immigration), or whether the jobs go there (outsourcing). Free trade benefits both us and our foreign partners, whether the trade is in goods, services, labor, or capital.

Expect the outcry about outsourcing to evaporate once job creation recovers. Meanwhile, state government could (but won't) help, by ending some of the policies that reduce the competitive advantage of our California workforce; policies such as - minimum wage laws, payroll taxes, worker's comp, mandated unemployment insurance, work practice regulations, environmental regulations, and healthcare coverage mandates.

Technology and capital spending have made U.S. workers among the most productive, and therefore the best paid, workers in the world; misguided government attempts to forcibly "help" workers serves only to create unemployment and to drive jobs abroad.

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