Predictions For The Economy & Offshoring, Part I

According to a recent article in the Pittsburgh Post-Gazette, a Pennsylvania State Senator is preparing legislation that would “prevent large, nonprofit institutions from outsourcing work to foreign countries” with offenders being stripped of their non-profit status. Though this legislation is in its early stages, aimed at non-profits, and isolated to Pennsylvania, I predict that legislating “hiring American” for for-profit companies is going to be an emerging political theme in the months ahead.

Sure, there was opposition to offshoring over the past few years. But when the unemployment rate in the USA is 4% and American consumers are enjoying low prices on the products they buy, the opposition doesn’t have much force. However, in today’s economy, when the unemployment rate has been flirting with double digits for an extended period of time, the argument for bringing millions of offshored jobs back is starting to look more persuasive.

As I see it, there are only a few things that can bring jobs back:

• Legislating more taxes for organizations that offshore
• Legislating tax relief for organizations that bring offshored jobs back to the USA
• An economic recovery where the unemployment rate will drop to historically normal levels
• Voluntary efforts on the part of American employers to restructure their workforces to be composed of a greater percentage of US citizens

Let’s discuss the likelihood of these things happening in reverse order:

• Employers volunteering to hire more Americans? At higher wages? As great as a branding strategy this may be, I don’t foresee employers doing this in today’s uber-cost-competitive environment.
• An economic recovery? What is going to spur that? What is that magic industry that is going to emerge that will suddenly create demand for all of these workers? I don’t see one without some really bad problem to solve (e.g., a terrorist attack, a cyber-crime outbreak, etc.) which would likely kill more jobs than it would create.
• Legislating tax relief? I believe that labor cost arbitrage would still offer more margin than the government would have available to reimburse.
• Legislating more taxes? As unpleasant as that sounds to me as a business owner, it seems the easiest way to make a difference. And politicians seem to prefer things being easy rather than fair.

There are some other implications of the economic situation that I’ll cover tomorrow.

To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
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