Bruce Bartlett

 To the extent that GE has outsourced, it is mainly for low-level operations.  "Our outsourcing has largely consisted of obtaining commodity products and services from low-cost countries in order to remain competitive," it states.

 The GE statement goes on to note that despite outsourcing, its U.S.-based employment has remained stable.  The cost savings have helped finance additional domestic investments in "high-tech, high-value jobs in areas such as healthcare, digital entertainment, energy and water technologies, renewable resources and research and development."

 Another company, Genworth Financial, has warned its shareholders that restrictions on outsourcing could threaten profits.  In a January filing with the Securities and Exchange Commission, it said, "The political climate in the U.S. also could change so that it would not be practical for us to use international operations centers, such as call centers.  This could adversely affect our ability to maintain or create low-cost operations outside the U.S."

 This warning proved prescient.  On March 4, the Senate adopted a measure that would bar federal contracts to companies that outsource any job previously done by an American.  Additionally, it would prevent state and local governments from using federal funds for outsourcing.

 While it is unlikely that this amendment will become law and is probably unenforceable even if it does, it sends a bad signal to the rest of the world.  U.S. Trade Representative Bob Zoellick has warned that it will endanger relations with India and undermine world trade talks.  It would also invite retaliation from other countries and reduce foreign investment in the U.S.

 But even if the legislation is defeated this time around, undoubtedly it will be back in some other form shortly.  Democrats have decided that pandering to the unemployed by railing against outsourcing is their ticket to success on Election Day.  Although their proposals wouldn't do much good--the Washington Post calls them "1 percent solutions"--they get people worked up and put the Bush Administration on the defensive.

 The administration essentially brought this on itself by backing away from Council of Economic Advisers Chairman Greg Mankiw after he was attacked for defending outsourcing a few weeks ago.  Its enemies immediately saw weakness and pounced on its "evident confusion," as the Financial Times put it.  It would have been better for the administration to stand behind Mr. Mankiw and make the case for free trade, as Bill Clinton was successfully able to do.


Bruce Bartlett

Bruce Bartlett is a former senior fellow with the National Center for Policy Analysis of Dallas, Texas. Bartlett is a prolific author, having published over 900 articles in national publications, and prominent magazines and published four books, including Reaganomics: Supply-Side Economics in Action.

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