Alexander Hamilton Institute
International Trade

Outsourcing Jobs
Terminating U.S. Jobs?

By Lou Dobbs
July 9, 2004

California has devised a new plan to help solve its ongoing
budget crisis. But while that plan might save California millions of
dollars in the next fiscal year, there's a good chance it will leave
some of the state's own residents waving goodbye to their jobs.
California recently signed a contract with a Canadian-owned
consulting firm, which could recommend that the state export some
taxpayer-financed government jobs to cheap foreign labor markets.
Gov. Arnold Schwarzenegger declared shortly after his inauguration
that he would not rest until California was "a competitive
job-creating machine."

To be fair, the governor never specified for whom those competitive
jobs would be created. If he meant those jobs would be created for
the people of India, then the governor is well on his way to
delivering on his jobs promise.

California's latest plan to cut back government spending has put it
in business with a rather strange bedfellow. The state signed a
multi-year deal with CGI-AMS, a company that specializes in
streamlining purchasing operations.

California spends nearly $5 billion per year buying goods and
services, and now a foreign company will be in charge of
recommending how the state of California spends all that money.

There is no guarantee that exporting jobs will be a part of
CGI-AMS's recommendations. And the state reserves the right to make
any and all final decisions. But CGI's Web site openly boasts its
global delivery centers in Mumbai (Bombay) and Bangalore, India, and
with the contract structured so that the company receives a
percentage of any savings it recommends, it seems all but likely
that California will lose some of its government jobs to overseas
labor markets.

Many state legislators are concerned that this deal signals a move
towards outsourcing its jobs. Democratic Assemblywoman Carol Liu
believes this development to be an inappropriate way to save state

"I know the governor is looking for ways to reduce spending, but we
are very concerned that he is trying to outsource jobs," Liu said.
Before California's recent decision, Liu introduced legislation that
would ban state agencies from using government funds to contract for
services unless the work is performed in the United States. And Liu
is not alone.

Thirty-five states have introduced legislation aimed at curbing the
practice of outsourcing American jobs, according to Justin Marks,
policy analyst with the National Conference of State Legislatures.
Unfortunately, many of those bills have failed or are still pending.
Only one state in fact, Tennessee, has enacted such a measure.
Jamie Court, author of "Corporateering," told me that no state
should be legitimizing a taxpayer-paid bounty to a company wishing
to send jobs abroad.

"I think this is an unprecedented attempt to use power to offer a
bounty to an outsourcing firm to downsize Californian taxpayers'
jobs, using their own money," Court said.

The exporting of American jobs by state governments is not exactly
unprecedented. At least 40 states have contracts with companies that
use overseas workers rather than Americans to staff state call
centers, Marks said. But hiring a foreign company to possibly ship
government jobs abroad at the expense of the taxpayer is certainly a
new strategy.

California said it aims to save hundreds of millions of dollars per
year through this partnership. But the state is most likely failing
to account for the lost income tax revenue and higher costs of state
services that come with outsourcing jobs.

As Court said, "If you save hundreds of millions of dollars by
outsourcing California's jobs, you're also depleting the tax base.
... It's sort of a circuitous reasoning."

He added, "I can probably lose a little weight by chopping off my
arm, too, but it's probably not the most effective way to lose

As the world's fifth-largest economy, California should be setting a
positive example by keeping American jobs at home.

Despite any cost savings that may arise, it is more important for
the state to provide good jobs and good wages to its citizens than
unemployment benefits and job training.


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