Often laws are passed to prevent or contain the undesirable effects of an economic activity. But sometimes the laws are more motivated by political considerations than economic benefits. The perfect example of this is outsourcing laws. The U.S. introduced outsourcing laws in 2005 in most of its 50 states in order to check the growing trend of outsourcing.

The most common argument against outsourcing is the resultant loss of jobs. These laws were passed to ensure that businesses kept their operations mainly in the U.S. and laid off fewer people. Instead of helping the businesses, these laws have cost local governments millions of dollars to ensure that their businesses did not leave the country. New Jersey and Indiana have paid amounts close to a million dollars more than necessary to ensure that their work is not outsourced in order to appease the anti-outsourcing lobby.

The first attempt at blocking outsourcing was made in 2004 when the Senate passed the Consolidated Appropriations Act which provides for statutory spending by different government departments. Section 233 of the act is entitled “Impact on Jobs in the United States” and requires that none of the funds appropriated by the act may be obligated or expected to provide financial incentive to a business enterprise to relocate outside the country if it is likely to reduce the number of its employees in the U.S. The act further provides that an activity or function of an executive agency that is converted to contractor performance under Office of Management and Budget Circular A-76 may not be performed by the contractor at a location outside the U.S. except to the extent that such activity or function was previously performed by federal employees outside the country. This meant that a government contract acquired by a private corporation could not be outsourced or relocated to a legal entity outside the U.S. if such inducement is likely to reduce the number of employees in the U.S. This rationale for the act is that the source of government projects is public money.

Leaving emotional issues aside, the main question is: Is outsourcing so undesirable that the government has to introduce laws to prevent outsourcing?

The answer is no.

Outsourcing has not resulted in Americans loosing jobs. When the laws against outsourcing were passed, more Americans were employed since the recession ended in 2001 and unemployment was also falling. Outsourcing represents less than 1 percent of gross job turnover.

Preventing outsourcing is an attack on economic freedom of U.S. businesses. Economic freedom is necessary for economic growth, new jobs, and higher living standards. Outsourcing means efficiency – more final output with lower cost inputs – lower prices for all U.S. businesses and Americans in general. Lower prices lead directly to higher standards of living and more jobs in a growing economy.

The situation today is different from the time these laws were passed. Today the U.S. economy is on the verge of recession. However it would be wrong to blame outsourcing for its woes. The subprime crisis, housing and stock market crisis were not caused by outsourcing. Outsourcing has virtually nothing to do with the increase in gas prices. Jobs are being lost in all countries including those the opponents of outsourcing say are stealing the American jobs.

Instead on concentrating on emotive issues, had the government paid more attention to the real economic issues facing the nation, maybe the economy would not have been in the state it is in today.

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