(March 12, 2004) State and federal legislative efforts to forbid or limit offshore outsourcing stem from short-sighted protectionist attitudes that ultimately will hurt California jobs.
Outsourcing is a centuries-old tool that enables a business to provide products or services more efficiently or cost-effectively by using the capabilities of another entity.
Job Loss Certain
Protectionist legislation that blocks a business from using outsourcing to control costs is certain to cause a net loss of jobs in the industries covered by the restriction and lead to retaliation by our trading partners. The negative impact of such retaliation will be significant, considering that a quarter of California’s economy depends on trade.
Policymakers also should note that protectionist legislation violates provisions of the World Trade Organization (WTO), the only global international group dealing with the rules of trade between nations. That violation should not be taken lightly, given that the WTO has a huge impact on how California producers of goods and services compete overseas and domestically, and creates jobs and growth through expanded trade and investment.
Symptom of Bad Jobs Climate
As the California Chamber of Commerce pointed out in testimony to a Senate committee this week, worldwide outsourcing is just a symptom of the anti-business, anti-jobs climate in California.
A competitiveness report released recently by Bain & Company found that although a significant number of the companies surveyed planned to move jobs out of state, 60 percent of the planned relocations were going elsewhere in the United States with Texas attracting the largest share.
In fact, the percent of planned relocations to Texas was greater than India and China combined.
The competitiveness report made clear that a major reason companies are moving out of state is the cost of doing business in California and the high degree of regulatory “hassle” here.
Added to California’s highest-in-the-nation workers’ compensation rates are higher costs for electricity, property, taxes and dealing with regulations, to name a few. The report quantified regulatory “hassle” and determined that the uncertainty of regulations and the complexity and time involved in meeting them are far higher in California than any other state.
In practical terms, the higher costs mean that a typical small manufacturer with operating income of $200,000 in California could boost its income by moving, earning $1.4 million in Nevada, $1.5 million in South Carolina, $1.8 million in George and $1.9 million in Alabama.
Improve Economic Climate
In today’s global economy, the best approach to keeping jobs in California is providing a competitive business environment, not punishing the companies that are using the few tools available to them, including outsourcing, to provide services and goods at reasonable costs for consumers.
Making California competitive means passing comprehensive workers’ compensation reforms to bring California costs in line with other states. It means reforming unemployment insurance to restore the system to solvency and eliminate the need for the emergency tax hike on business.
Above all, it means legislators should do no more harm to business and its ability to create the jobs California needs.
Allan Zaremberg is president and chief executive officer of the California Chamber of Commerce.