Offshore Regulation - Regulations: What to Worry About

The simmering debate over offshore outsourcing boiled over on Feb. 9, when the chairman of the president’s Council of Economic Advisers, N. Gregory Mankiw, blandly asserted that offshoring was good for the economy. And while Mankiw’s statement may be defensible, or at the very least arguable, its timing and tone revealed a political ear of the purest tin. Not surprisingly, his quote landed on the front page of newspapers nationwide, along with charges that the Bush administration was advocating sending American jobs overseas.

Senate minority leader Tom Daschle, for example, citing Mankiw’s remarks, suggested that the White House would have to explain its support of outsourcing to millions of unemployed Americans. And Republican Rep. Don Manzullo of Illinois?where a lot of manufacturing jobs were lost due to offshoring?even called for Mankiw to resign. (He didn’t.)

In any event, offshoring in general, and the Mankiw quote specifically, will more than likely be central to most every campaign this fall?including the presidential, especially given that the media has been raising a hue and cry over the exportation of U.S. jobs offshore. (For more on how the media and companies are wrangling over outsourcing, see Trendlines, Page 22.)

And the legislating and politicking have already begun. By the end of February, state legislatures had introduced 27 bills designed to restrict offshoring. Two bills giving preference to state contractors have recently become law. And while such measures may have a minimal impact on the general profile of offshoring as practiced today, they may be considered the opening salvos in a battle that will only heat up.

"My personal view is that [the debate] won’t end until the day after the election," says Bruce Josten, executive vice president for government affairs at the U.S. Chamber of Commerce, by many accounts the most powerful pro-business lobby in the country. "It is hard to imagine this being kicked off the front page."

Cutting costs by hiring cheaper foreign labor may help the economy in the long run, but that’s a hard position for elected officials to take. If voting for laws that restrict offshoring helps politicians win elections, overwhelmingly they will do so. However, as is often the case in politics, many of those votes are more about posturing than policy making. Richard Shell, a Wharton School professor of legal studies and management, suggests that offshoring is the type of issue where lawmakers vote in favor of a bill and then use parliamentary techniques to kill it after the fact. "To be able to say that they proposed or voted for [an antioffshoring bill] is a very responsive thing to do," he says. "Actually limiting outsourcing is very hard."

Groups on both sides of the issue are drawing lines in the sand. The business community has made preserving the right to offshore a top priority. On the labor side, activists are lobbying for measures that restrict offshoring (mostly at the state level) with hopes of establishing a precedent and foundation for national antioffshoring legislation.

And once again, CIOs are caught in the middle. Public-sector CIOs and those whose companies have state or federal contracts face the most immediate risk from legislation limiting how they can source their work. Health-care and financial services CIOs face some elevated risks because of the sensitive nature of the data they handle. The legislation that could affect most other CIOs, however, is in the form of disincentives and obstacles, not outright bans. The U.S. Chamber of Commerce, the Information Technology Association of America (ITAA) and other organizations that oppose antioffshoring legislation acknowledge that they cannot stop all antioffshoring efforts from materializing. Therefore, CIOs need to start preparing for the inevitable and thinking about how to mitigate (or possibly eliminate) the effects of the legislative highballing down the political road.

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