October 2004

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Guest Commentary

Allan Zaremberg is president of the California Chamber of Commerce. The California Legislature has adjourned the 2003-04 session. However, the outsourcing issue is likely to remain a major policy topic in the 2005-06 session.

Unfortunately, fear – not fact – is guiding the debate about worldwide outsourcing. Proposed under the label of “job protection,” bills considered by the California Legislature to limit or restrict free and open trade could actually result in a net loss of California jobs and negatively impact the economy.

That’s because one in four manufacturing jobs in California is related to trade. These measures could result in trade retaliation from our trading partners, jeopardizing nearly two million California jobs.

Worldwide outsourcing is nothing new. For decades, companies have been outsourcing tasks or product inputs to others who can perform those functions more efficiently and less expensively. And when companies are able to use resources most effectively, they are able to provide workers with additional benefits, pass savings along to the consumer and expand and create new jobs.

For example, in exchange for our trade and investment abroad, foreign companies invest in the U.S. Increased foreign direct investment, or insourcing, means more factories, more research and development and more jobs being insourced to the United States and California. Consider these facts:

• California leads the nation in the number of insourced jobs with 713,500 in 2003.

• California also ranks first in the nation with 193,600 insourced manufacturing jobs.

• According to the latest government data, California’s insourced jobs grew by 156,000 between 1997 – 2001, an increase of 28 percent.

• New foreign direct investment in the U.S. increased in 2003 by $82 billion, over twice the amount from the previous year. Overall, 6.4 million Americans work for U.S. subsidiaries of foreign companies.

Also, California trade and exports translate into high-paying jobs for more than one million Californians. We export everything from manufactured goods, technology products, services, entertainment, and agricultural commodities.

• Our state is the largest exporting state in the nation.

• Trade accounts for approximately 25% of our state’s economy.

• Export-supported jobs account for more than 10 percent of California’s private sector employment.

• One in four manufacturing jobs in California is related to trade.

If California had enacted the protectionist bills introduced this year in the Legislature, we’d have invited trade retaliation resulting in lost jobs, slower economic growth and reduced job creation potential. Workers and their families would be on the losing end.

We are starting to see renewed economic growth at the national level and especially in California. There is no doubt this dynamic, worldwide economy has contributed to the U.S. and California’s overall economic prosperity. In the long-term, allowing free and open exchange of goods and services is a key component to ensure our state and our nation can continue to create jobs and to thrive.

Passage of any one of the bills restricting worldwide outsourcing would have have a detrimental direct or indirect impact on job creation and California’s economy. Their collective impact would be far worse. Unfortunately, proponents of these measures are unlikely to stop pushing as the Legislature gears up for the 2005-06 session.