The outsourcing of government functions in the United States

Government Outsourcing

The Outsourcing of Government Functions: a U.S. Study

Outsourcing of government functions is one of the most highly controversial practices of the 21st century. There are several prevailing positions regarding the outsourcing of government contracts to private companies. Valid arguments exist for increasing government outsourcing and for limiting future outsourcing as well. Regardless of which side one happens to be one, once thing is certain, outsourcing is a trend that is likely to continue in the future, particularly in the face of the global economy and advances in communication that make it easier than it was in the past.

By March of 2007, the number of government contractors rose to 7.5 million, which is currently four times the size of the federal workforce itself. The job of the U.S. government continues to increase, as the population increases. The tasks that the government must take on have increased tremendously over the past several years and are expected to become even more common in the future. Government outsourcing is one of the fastest growing sectors in the U.S. economy and is expected to more than double over the next fiver years. There is not doubt that government outsourcing is a growing trend in the U.S. economy. From 2001-2006 government outsourcing reached $13.2 billion in revenue.

The U.S. government has a history of outsourcing the dates back to the early roads built in the 18th century. President Reagan played a key role in the recent trend towards increasing the role of the private sector in government functions. Of the reasons cited for using private entities, respondents replied cost savings, lack of in-house personnel and expertise, lack of state support of political leadership, flexibility, less red tape, speedy implementation, increased innovation, and high quality of service.

Who Uses Outsourcing?

Outsourcing is used to perform a number of functions with society, the U.S. government has a large list of entities that it uses. It uses private entities to help building roads. It uses them to collect tolls on roads. It uses them to build and operate water and wastewater treatment plants. It uses them to staff prisons.

There have been some cases of privatization of facilities such as State-owned Stewart Airport in New York State, which has been leased, to a private entity for a long-term lease. In some cases, facilities are leased out and in others, they are sold to private entities outright. This is what happened to a small water system in Pennsylvania that was put out to bid by a local authority and sold to a private water firm.

The U.S. Defense Department uses a plethora of private contractors in a number of positions so that is can focus on its primary mission, protecting the country. The Defense Department uses private contractors for a number of functions, including infrastructure, such as electricity, telecommunications, water and sewage treatment. The use of outsourcing in the Defense Department is perhaps one of the most controversial areas of the outsourcing area. There is a concern among many that outsourcing in this area of the government may place our country at risk. However, the Defense Department claims that outsourcing non-military roles frees their personnel to remain focused on their primary task without distraction.

The U.S. government is one of the biggest consumers of U.S. goods and services from the private sector. The government is a high consumer of technology, technical services and other related fields. The government is a consumer of food, clothing, office supplies, and almost anything that one can imagine. Policies on government procurement often dictate that the U.S. government purchases goods or services from U.S. companies, unless the product or service cannot be found within the borders of the U.S. If someone makes it, more than likely a government agency uses it.

Economics of Outsourcing

The practice of outsourcing is not what has drawn the greatest amount of criticism. Most agree that the government should support its own country and its own economy. Government outsourcing provides stimulus to the economy by providing jobs for worker and income for companies range from small to large. Most would agree that the government's support should go to its own, rather than supporting the economy of a foreign entity. From the standpoint of economic stimulus, the government often provides a source of revenue to small and medium companies that would not otherwise be able to compete.

One of the key points of contention among analysts and the public is the practice of off shoring. Off shoring poses a serious challenge to the government. With unemployment at high levels and the recent necessity to add an economic stimulus plan to the economy, it is difficult to support a practice that robs the American public of jobs and economic growth.

Off shoring is when that government hires a company to perform a task or provide a service. The company then moves operations overseas, where they can find a more favorable tax structure, or low-wage workers. Off shoring, and government support of companies that engage in this practice is the most controversial topic regarding government contracting of the private sector.

In cases, where the work, wages, and taxes are kept within the country is not controversial, especially if the goods and services are of acceptable quality. In this scenario, outsourcing to the private sector represents the best of both worlds. It represents the government taking care of its own. It is providing jobs and economic growth to those that, in turn, given the money back by means of taxes. However, off shoring does nothing to stimulate our own economy. Any taxes collected would go to foreign governments. Off shoring does not secure jobs in the U.S. For U.S. workers, instead it takes them away and gives them to someone else.

For the companies, off shoring makes sense. In a capitalist market, the name of the game is to reduce costs, improve efficiency an turn a higher profit. Sometimes this means going where labor is cheap, or perhaps there is a benefit of lower operating costs. The decision to offshore is an economic one for the companies that choose to engage in the practice. They are attempting to provide a good or service at a reduced cost so that they can retain a larger portion of the profits. Often patriotism or loyalty does not come into play in the decision. Economics are the driving factor in the decision. From a capitalist standpoint, this would appear to be prudent decision on part of the companies.

Arguing that off shoring is a prudent move from the standpoint of company profits is to take a micro perspective of the situation. From the company's perspective, off shoring may make sense. However, if the purpose of the U.S. government is to serve the American people, then the practice of off shoring is defeatist in purpose. Off shoring increases unemployment. Unemployed people do not contribute as much to the U.S. economy as those that are employed. Money from off shoring provides stimulus to foreign economies and provides taxes to foreign governments.

The only perceived advantage to off shoring is that it may help to reduce purchase costs for the government. Theoretically, if the companies can reduce costs, they can pass these savings on to the government or other end purchase. This is excellent, if it were only the case. Often prices are driven up by transportation costs, excise taxes, and other things that affect the price of commodities. The prices can be higher than those produced in the U.S. If the offshore company does succeed in reducing cost, they do not pass them onto the U.S. government, but rather take them as greater retained profits for themselves.

Current Situation

If one examines the practice of off shoring from an economic standpoint, there are few perceived benefits to the American people, or the American government. This practice reduces income, and gives any perceived benefits away to a foreign entity. One of the most controversial issues in government procurement today is that the U.S. government continues to lend support to companies that have taken their processes offshore.

There are two ways to argue this issue. On one side, the government is prudent to attempt to save money and protect its budget. If the offshore company happens to be lower than domestic competitors, there are some that feel the government should be unrestricted to hire the company that they see fit. After all, this is a capitalist market, and the rule of the game is open competition. However, there are others that feel the overall harm to the economy and the major interests of the American people should be placed first and that the government should be forced to give preferential treatment to U.S. companies over offshore competition, regardless of the initial costs.

The difference between these two opposing views is the difference between taking a macro view of the situation and taking a micro view of the situation. A macro view considers the impact of off shoring on the overall economy. A micro considers the interests and rights of the individual company as the primary concern. Both of these views are valid depending on the lens that one wishes to use. The problem arises when the government is forced to develop policies regarding procurement in this volatile debate. The government must decide whether to take a micro view, favoring the rights of companies, or a macro view that places the interest of the American people at its forefront.

Legal Implications

The issue of off shoring has several legal implications that must be considered. The first and foremost is that if a problem arise from an offshore contract, the legalities can be complex. There is always a question of which set of laws prevails. If laws in the two countries differ on key points, such as contract law, the problem arises of how to decide which law takes precedence. Off shoring makes a complex legal issue even more complex. These issues are often difficult enough in domestic courts. However, when the problem becomes an international issue, the problems are compounded.

One of the most recent issues regarding outsourcing involves polices regarding sending private information about American consumers overseas. Privacy policies in the U.S. are strict, compared to many foreign entities. Within the U.S., there are strict laws regarding who can obtain certain pieces of information and how they can be used. However, when that information crosses international boundaries, the rules change. Laws offshore may not have the same restrictions on sharing or use that protect American citizens. One example of this is the sharing of medical information or personal information that could be used to commit fraud or identity theft. This is a key concern in the practice of hiring offshore companies by government entities.

As of February 2006, no federal laws existed that regulated offshore outsourcing. There were certain laws that came into play, such as SOX for public companies, HPAA and GLB for certain types of information and data transfer. In addition, certain export laws came into play for where offshore entities are accessing onshore databases and customer records. These laws were not intended to address offshore outsourcing, but were intended to protect the rights and privacy of American citizens regardless of the circumstance. They domestic, as well as offshore companies.

The past two Congressional sessions have seen a flurry of activity regarding the introduction of new legislation concerning off shoring. This new legislation represents a trend that recognizes the problems associated with off shoring and the legalities associated with it. These new legislative introductions include contraction negotiations, licensing concerns, IP protection, tax issues, labor practices, employment practices, data protections, information security, immigration and national security issues. This new wave of interest in setting policies regarding off shoring reflects a growing concern for the issues surrounding it.

The laws of the United States are designed to protect U.S. citizens from exploitation by domestic and foreign entities. The crux of legalities regarding offshore entities lies in contract law and the specifics of how the contract is written. One of the key controversies in the practice of off shoring is that although contracts are written to comply with U.S. laws, there may be local laws that prevent enforcement of the law in the foreign country. In addition, enforcement requires cooperation of the foreign entity. This may not always be possible to obtain. In this sense, offshore outsourcing essentially strips the American citizen of the protections and rights afforded them by U.S. laws.

If the offshore company commits an act that is illegal according to U.S. law, they may have no recourse from a legal or practical standpoint. In the event that they can force enforcement of the legal issues, international lawyers are expensive. The average person cannot bear the costs of such litigation. This means that even if protections against exploitation exist, they may be out of reach from a practical standpoint. There is the potential that offshore entities may exploit these weaknesses and use off shoring as a way to engage in exploitative practices against American citizens. This leaves the citizen with little that they can do to protect themselves. Current proposed legislation is aimed at closing gaps that could potentially be exploited in the future.

Federal Acquisition Regulation (FAR)

The above regulations involve laws that affect actions by companies engaging in offshore activities. They are laws that are designed to protect individual U.S. citizens from illegal activities by offshore companies. Another set of legislation affects specifications that govern economics and public administration of procurement activities. The principle law regulating procurement is the Federal Acquisition Regulation (FAR). This legislation governs the primary procurement system for the government, otherwise known as the Federal Acquisition Regulations System. This system regulates acquisition process used by the government to purchase goods and services that are needed by the various government entities. It does not regulate purchasing activities of the private sector.

FAR is codified in Title 48 of the United States Code of Federal Regulations. It was an extension of the Office of Federal Procurement Policy Act of 1974 (Pub. L. 93-400 and Title 41 of the United States Code), Chapter 7. FAR is given the "force and effect of the law" by the Federal Court system, as decided in Davies Precision Machining, Inc. Vs. U.S. (1995). Certain government entities are exempt from FAR such as the U.S. Postal Service, Tennessee Valley Authority, Federal Aviation Administration, and the Bonneville Power Administration. These entities can make their own purchasing rules. However, government personnel in other areas cannot deviate from these regulations when making purchases.

The purpose of FAR is to provide uniform policies and procedures for acquisition of goods and services. FAR has been amended as needed since its inception in 2004. FAR regulates all areas of the contract process from the bid procedure to contract issues. FAR is meant to make certain that the government procurement is process fair and that is does not demonstrate unfair favoritism towards entities. For instance, there are specific regulations to provide protection against making monetary "favors" for the purposes of obtaining an advantage in the process.

FAR is the presiding document that governs procurement. With the exception of those listed agencies that make their own rules regarding procurement, the policies and procedures contained within the law must be adhered to in all government procurement, regardless of the size of the contract. Agencies do not have the option of deviating from these policies and procedures.

Key Issues Regarding Outsourcing

There are several key issues surrounding the topic of outsourcing that provide support for further investigation of the practice of off shoring. One of the key issues is that companies will use foreign workers to fill positions. Foreign workers can be hired at a much lower rate than American employees. This takes jobs away from American citizens and increases unemployment. This generates a greater need for public assistance for those displaced by off shoring. The company can gain by off shoring. A few corporate executives are the ones that have the most to gain by outsourcing to obtain lower costs. For every job that goes overseas, one American loses their job in return.

The United States is typically a net importer of jobs, rather than a net exporter. This places the above statement in perspective. It is true that exporting of jobs does take away jobs from Americans on a one for one exchange, but this does not result in the mass extinction of American jobs that opposition to off shoring would have one think. This opposition cites other factors as being responsible for the net loss of American jobs. They claim increased efficiency and technology are the culprits in the disappearing jobs in the American Workforce. These are the two perspectives that demonstrate the disparity in opinion regarding the practice of off shoring. Loss of jobs, whether it is due to off shoring or other factors, remains an important issue in the debate over government outsourcing.

Another issue that concerns those who question the practice of government outsourcing is whether the public entity has the expertise to administer outsourcing. This issue has as rhetorical answer, as the reason for outsourcing is often because the entity does not have the expertise to carry out the required task. One example of this is the large amount of outsourcing that takes place in the technology sector. Entities hire outside contractors that have the expertise to carry out the task when they do not have the internal expertise within the department. The need to acquire skills for a particular job that the department lacks is a primary reason for outsourcing.

Another key question is whether public entities can adhere to procurement principles in the process of outsourcing. According to Sidney Shapiro, outsourcing has the potential to either improve government performance or to potentially cause government failure. In several cases, the government has even outsourced the responsibility of regulation to and outside entity. Certain industries were allowed to write their own regulations and policies. This makes these agencies self-regulating, a practice that draws a high degree of criticism.

As a reaction to the Enron and other accounting scandals, the government decided to disallow the accounting profession to write their own auditing procedure and reporting regulations. This was a reaction to a known scandal, but it also makes one suspicious of other self-regulating industries. It is likely that when entities are allowed to dictate their own governance, they will write it in such as manner as to make it advantageous to themselves. They will not be as concerned about the public interests as a third-party government agency. Companies that are allowed to self-regulate are not as likely to be as hard on themselves as a third party who has the well-being of the public in mind.

In terms of self-regulation, there is another argument that places this practice in a different light. It can be argued that the industry itself is the best candidate for writing the policies that will govern it. This standpoint embraces the idea that the government is not an expert in every field. Policy makers and regulators are in the business of making policies and regulations. They are not the ones in the field working in the industry on a daily basis. Often an industry already has a set of standards that it adopts through professional organizations that represent state of the art in their field of endeavor. The government can look to these standards and state of the art practices as a basis for official regulations. One example of this occurred when the Occupational Safety and Health Administration (OSHA) adopted 428 protective health standards. Most of these standards were taken verbatim from consensus standards written by the American Conference of Governmental and Industrial Hygienists (ACGIH).

In addition to setting their own standards and writing their own policies, the government will sometimes place a private entity in charge of making inspections and enforcing compliance with the regulations. This is an even more highly controversial practice than allowing them to assist in writing their own regulations. In some cases, the government assists in these enforcement actions. However, in many cases, the government does not possess the staff necessary for effective enforcement. Therefore, they must rely on private entities for enforcement activities.

The ability to effectively write and self-regulate differs from entity to entity. Some are highly effective in their ability to set standards and to enforce policies. However, others tend to be lenient and the government must intervene in order to restore order within the entity. Many industries that adopt their own policies and become excellent in enforcing them do so to avoid government intervention. In some cases, the private entity may have sufficient lobbying power to prevent government intervention in their affairs. They may be able to defend their position in being able to retain self-regulation, even after an incident where they are discovered to have broken this trust. This is one of the most controversial aspects of outsourcing for self-regulated industries.

Monitoring of Contractors

Contract administration for the Federal Government is a highly labor-intensive endeavor. Once the bid process is complete and the candidates are selected, the government now has the obligation to monitor these contractors to make certain that they are fulfilling their obligations. When a contractor does not fulfill their obligations, it becomes necessary to take remedial actions. This means even more time spent on the contract.

Government contract administration is a highly specialized field. There are many legal and regulatory issues that do not affect civilian contractors. The government offers seminars to help potential contractors better understand their obligations, rights, and other aspects of the process. There are also specific regulations that apply to contractors in certain departments. Many contractors are used to dealing with contract law under the Uniform Commercial Code, with common law applied to the terms.

Contracting for the government has many unique regulations that apply to the process. For instance, the contractor must comply with many socio-economic obligations in its hiring process. Contractors must comply with Affirmative Action, minimum employee wages, and they must adhere to drug-free workplace policies. Employers must still comply with these policies in their general practice, but the government imposes even more obligations than are found within the bounds of common law. Not only must the contractor adhere to these policies, the government must oversee contractors to make certain that they are in compliance.

The question regarding outsourcing is whether the government spends more money and time administering contracts than they would be if they were to direct hire their own employees. This is a difficult question to answer and there are many hypothetical factors that cannot be determined precisely. One of the key concerns regarding the outsourcing of government contracts is that making certain that contractors are competent and reliable in fulfilling the contract.

The government has many procedures in place to make certain that the contractors they choose are qualified and capable of fulfilling the requirements that are being asked of them. The job that is being asked determines what factors will take the highest priority. In some contracts, price and the time of completion will play a major factor in the hiring process. However, in others price will be a minor factor in the hiring process.

FAR is the key regulatory instrument in determining who will get the contract. The FAR requires that the prospective contractor have adequate financial resources to perform the contract. It requires that the contractor adequately demonstrate that they will be able to comply with the proposed delivery and performance schedule. It requires that they have a satisfactory performance record on similar contracts. They must have an excellent record of integrity and business ethics. Violations or excessive Better Business complaints will not result in securing government contracts. The government requires references and will check them in order to award a contract. The prospective contractor must have a sufficient good record to demonstrate that they are likely to be able to complete the contract.

The contractor must demonstrate that they have the necessary organization, experience, accounting and operational controls within their business to be able to meet their obligations. The company must also demonstrate that they have the technical skills to complete the contract. FAR dictates that the company must also demonstrate that the company has sufficient equipment for production, construction, and technical tools necessary to complete the contract. In addition to these requirements, the contractor must demonstrate that they are qualified and eligible to receive the contract award under applicable laws and regulations.

As one can see, the federal government does not take the contracting process lightly. They have a responsibility to provide the American public the best possible contractor for the job. Federal regulations have strict regulations to make certain that the American public is not duped by a contractor that cannot meet the obligations. The regulations dictated by FAR are not guidelines, as in civilian contracts, but are the law that must be followed. Contractor must be able to meet all of the legislated requirements. There are very few circumstances where exceptions could be made and this requires an act of Congress in many cases. The reason for these strict regulations is to protect the American public from contractors that cannot fulfill their obligations.

It is difficult to argue that the government takes its responsibilities to the American public lightly in terms of outsourcing. The potential contractor must meet excessive background checks and be able to demonstrate a proven track record for performance. The FAR does not allow those that have bad marks against them to become Federal contractors. Even with these regulations in place, there is still no guarantee that a contractor will not make a mistake. However, even government entities make mistakes sometimes as well. However, the contractor hiring procedure is an excellent safeguard that will help to eliminate those contractors that are unlikely to meet their obligations most of the time. The government procurement process is not perfect, but it is a reliable method for safeguarding the public against faulty contractors.

The amount and types of regulatory hoops that the federal contractor must jump through to meet eligibility requirements far exceed what is required of civilian contractors. Contractors that wish to work for the Federal Government are under stricter scrutiny than they would be to be eligible for a civilian contract. They must provide information to the Federal Government, concerning finance and other private matters, that a civilian contractor could not legally force them to provide. The contractor that wishes to provide services for the Federal Government is under greater scrutiny than they would be if they wished to enter into a private contract.

The requirements for government outsourcing are strict in order to protect the American public. The contractor must have a nearly perfect track record and must be able to adequately demonstrate it. While performing the contract, the contractor is under constant scrutiny. Contracts for the Federal Government are competitive, but price is not the only factor that determines competitive advantage. The government cannot willingly make exceptions to the rule and must adhere to FAR explicitly in the contract administration.

There are few concerns about the quality of work or the competency of contractors in terms of government outsourcing. FAR makes certain that individuals that wish to contract for the government are qualified and capable. This is still not a 100% guarantee, but it is a reasonable guarantee that the contractor is at least capable of performing their job. There are always cases where contractors do not perform as expected. However, there are also cases where federal employees do not perform as expected. The world is not perfect, but the FAR is a reasonable assurance that the most obvious problems can be eliminated in the contract process.

Shifting the Skilled Workforce from Public to Private.

As government jobs are shifted from public to private, it has an impact on many government workplaces. There is a concern that the skilled workforce will shift from the public sector to the private sector and that the government will lose its ability to perform required tasks at a minimal standard. This is a key concern of those that oppose government outsourcing. There are many concerns as public companies go private. One of the key concerns is the quality of work received.

Government entities are not the only ones concerned with the quality of service that they will receive when public entities are sold to private for-profit firms. In many cases, the people that will be performing the work are the same ones that performed the work when the entity was public. The only difference is that someone else signs the person's paycheck, right?

In a study conducted by the Canadian Centre for Policy Alternatives, there were significant differences when a public entity decided to go private. Canada is currently facing some of the same dilemmas as the United States in terms of increasing outsourcing of public jobs. The report investigated how outsourcing affected government services and the economic security of workers involved. The study investigated two cases where public entities went private. They investigated the impact on customer service and the impact on the employees themselves.

The Canadian Study had similar parameters to what happens when U.S. companies have privatized and can be considered a harbinger of things to come as U.S. The trend towards privatization continues. The study found that there was a wide disparity between what the policies look like in theory and what they looked like in reality. This is also one of the key concerns about outsourcing in the United States. There is concern that the practical realities do not resemble the theories that are driving this trend.

In the Canadian study, privatization promised to being innovation, technological improvement, and intelligent reorganization and re-engineering. These advantages, supposedly would still allow the contractor to make a profit. However, in reality, these schemes for innovation amounted to cost minimization, de-skilling of staff, surveillance, and increased hierarchical control. This meant that employees had to work harder, rather than smarter. Employees were de-skilled so that the company would not have to pay as much for their services, saving on wages and benefits.

In this study, the economic security of the workers involved was affected. They had reduced bargaining power, as these workers were no longer a part of the public workforce. They now have a fear of future job loss, for fear that the company will bring in low-wage employees from foreign companies to replace them. Their companies all assured them that this would not happen and the jury is still out as to whether this is an unrealistic fear or whether this is something that they should be concerned about.

One of the companies in the Canadian Study was not facing the threat of off shoring due to privacy concerns. However, this is not always the case, and the threat of off shoring must be evaluated for its own merit. Several differences emerged between the two cases. However, some common themes emerged as well. For instance, in both cases, employees indicated a sense that they were less valuable as the result of outsourcing. Stress was increased at both places as a result of increased surveillance and monitoring.

Increased surveillance and monitoring has a negative impact on employee morale and satisfaction, According to the Canadian study, privatization decreased employee morale to a point that was incredibly low. The workforce was highly demoralized by the apparent "lack of trust" of the parent company. Employees indicated that they felt quality was suffering because of low work morale.

This study shed light on the outsourcing and its impact from a practical standpoint. It went beyond the theories to explore what actually happened in two different case studies. The results of the study were disturbing from the standpoint that theorists claim there are no realistic concerns and that there are no real impacts from privatization. This study indicated that the affects of privatization go beyond the name on the paycheck. This study found that privatization had a negative impact on the quality of work by reducing morale and job satisfaction among workers. Theorists did not account for these affects in their projections, but they are very real and have a real dollar impact on the profitability of the company and the quality of service that the public receives.

This research is focused on the affects of outsourcing from the perspective of economics. However, these economic affects can be divided into tangible and intangible effects. The direct impact of economic loss from off shoring results in a direct negative economic loss. However, as the Canadian study revealed, not all of the affects of outsourcing and privatization can be measured directly in dollar amounts. However, this is not to suggest that the effects of these items are negligible. Poor job satisfaction and morale have an impact that can be measured indirectly in terms of quality reduction, losses due to sick leave, and other indirect expenses associated with poor job satisfaction. Workers that are happy are much more productive then workers that are unhappy. This represents a negative impact of government outsourcing.

Real Impacts of off shoring

This research has attempted to examine both sides of the issues surrounding the outsourcing question. Thus far, we have discovered that there are valid arguments on both sides of the issue. Many of these arguments are theoretical in nature. However, several credible studies have been located that measured the real-world affects of privatization. Much of the evidence is weighted towards the negative impact of outsourcing, rather than supporting it. Yet, outsourcing continues to be a growing trend in the public sector. Now, let us search for evidence to support the government's continuation of outsourcing practices that would appear to be detrimental to the economy for many reasons.

Global outsourcing has an impact on protectionist attitudes among the U.S. workforce and consumers. As more jobs are shipped overseas and the economy continues to erode, business leaders are become apprehensive about their spending habits and their job security. Whether the fear is realistic or imagined, it is real in the minds of the American consumer. Outsourcing may not be the real culprit in a down economy, but in the minds of the American consumer, it is the real cause and it is cause to curtail their spending habits. This fear is having the effect of slowing growth in the economy by creating a culture of fear in the American consumer.

Fear of losing jobs to off shoring has a destabilizing affect. According to a University of California study, it is estimated that nearly 14 million white-collar jobs are at risk of going overseas. That is one out of every nine workers in fear of being displaced by foreign labor. This research suggests that by 2015 nearly 3.4 million jobs will be lost from the U.S. And transferred overseas. Estimates vary, but another study suggests that nearly 12 million jobs will be lost. These estimates vary, but they paint a bleak picture for the American worker and the American economy, regardless of the size of the loss. Many of these jobs lost are expected to be white-collar works from banking and securities, to corporate back-office jobs. The it sector is expected to suffer the greatest losses in terms of manpower. Reuters News is hiring 1,500 staff members in Bangalore, which represents 10% of its total workforce. This means 1,500 American jobs that are no longer available.

The U.S. healthcare industry is outsourcing the reading of X-rays and MRIs to India to be read by foreign radiologists. It is expected that in 2005, 400,000 U.S. tax returns were produced in India. English-speaking Indian software developers earn approximately 20-30% of what the typical American worker earns. This was reflected in a 20% decrease in college enrollment in U.S. computer science courses. The loss of one job results not only in the loss of that one job, it also results in the loss of related fields as well. The web-effect of off shoring is often not considered in the cost. This makes the estimates of jobs lost to off shoring an extremely low estimate of the real impact of job loss. Off shoring results not only in the loss of one job, it results in the loss of jobs in related jobs as well. Support industries suffer, in addition to the primary jobs lost.

The costs of global outsourcing are difficult to estimate. There are many factors that could affect the figures, such as unemployment benefits that must be provided for displaced workers, retraining costs, lost income-tax revenue, downward pressure on wages, and other effects that are often left out of estimates designed to support the practice of outsourcing. It is easy to support the argument that estimates that minimize the impact of off shoring miss many factors that make the impact greater than presented.

During the decade ending in 2008, it is expected that revenue from offshore software exports is projected to rise $50 billion from #2.7 billion in 1998. In 2003, a major outsourcing firm in America estimates that from 2000-2003, more than 5.3 million U.S. workers were displaced by offshore jobs. By January of 2004, only 65% of these displaced workers had found full or part-time jobs to replace those lost. One third of these workers had to accept a pay cut of at least 20%. These estimates represent real U.S. worker that suffered real job losses and suffered real economic hardships because of it.

These lost wages and lost jobs are well-documented in the private sector. The focus of this research is on outsourcing by government entities. However, in some cases, the government itself engages in the practice of outsourcing to cut costs. However, even when the government does not directly engage in outsourcing, it has little control over how American companies that outsource their goods and services will conduct their business. FAR has several clauses that prevent foreign companies to engage in provision of certain goods and services. However, many of these prohibitions are in high-security areas. Recent trends have seen a loosening of these prohibitions, even in areas that are vital to our nation's infrastructure and security.

According to Morgan Stanley, cheap imports from China have saved U.S. consumers $600 billion since the mid-1990s. This may represent a savings in our of pocket expense to the consumer, but it also represents $600 billion of merchandise that did not help to support the American worker, or the American tax base. These numbers would appear to be appealing, if not for the losses that they represent. It is easy to present only one side of the issue, depending upon where one's interests lie.

Problems and Solutions

The real impact of off shoring is difficult to measure, but if current estimates are accurate, the practice of off shoring has a significant impact on the American economy. The losses occur as direct job loss, and in all of the other areas that are affected by the loss. Lost taxes and lower realized wages are another affect that compounds the impact of off shoring on the American economy. However, recent trends indicate that the practice of off shoring is on the rise. This can be interpreted to indicate that the companies are more concerned about their own profits, than the negative impact of their actions on the economy in general.

Wages, benefits and health care expense are cited as the greatest contributors to the move offshore. Wal-Mart represents one of the largest employers in North America. The average Wal-Mart worker earns $8.00 per hour. At $8.00 per hour they do not have the extra income to feed the economy. They have little, if any, discretionary income available to spend on goods and services. In order to compete with offshore wages, American would have to lower the prevailing wage so that it was competitive with the foreign competition. However, this would not result in economic growth, as these workers would not be major contributors to the economy and economic growth. Creating a nation of workers with wages comparable to those in third world countries would result in a stagnant, if not declining economy.

It is difficult to ignore recent concerns about stagnation of the American economy. There are as many theories as to the causes of this stagnation, as there are analysts to give their opinions and theories. Off shoring cannot be blamed, as the single cause of economic stagnation, but it cannot be ignored as a contributing factor. We have demonstrated that off shoring by the public or private sector has a negative impact on the economy. The affects of the jobs lost go farther than the workers directly displaced by the foreign company.

With wages and rising healthcare costs as a major contributing factor in the trend towards higher levels of outsourcing. It is nearly impossible for companies to find competitive wages to those that they can find in countries such as India, South Africa, and China. These former third world countries have a smaller, albeit expanding, economy compared to the U.S. The U.S. worker could not even pay for basics, such as food and shelter on the wages paid to offshore workers. Healthcare costs continue to rise for a variety of reasons, but they are not likely to decline anytime in the near future. Therefore, it would appear as if more and more jobs will be shipped overseas, if these trends cannot be reversed.

If the companies could source competitive wages and low-cost healthcare in the U.S., the prospect of remaining in the United States would appear more attractive. However, one cannot simply lower wages and resolve the problem, without creating a plethora of other problems. Creating a country of unhappy workers that can barely survive is not the way to build an economy. It would appear as if solutions to the problem of continued outsourcing are too complex to devise a single remedy. It would appear that the problem associated with keeping domestic jobs from going offshore are complex and the remedies are scarce.

What Support Does the Government offer for the current trend?

The key problem addressed by this research is to explore the impact of privatization, outsourcing of government work, and the effects of off shoring. A portion of this research studied off shoring in the private sector. However, this issue is directly related to off shoring in the public sector as well. When public entities outsource to private contractors, there is a possibility that this company will chose to outsource their contract, or portions of their contract to an offshore participant. In this case, the impact of off shoring directly impacts a government entity, much in the same manner that a private company off shoring does.

Off shoring could render a provider of services ineligible, according to FAR. If the company becomes ineligible after the contract is already underway, it creates a difficult situation for everyone involved. They may no longer meet the wage and hiring standards that are considered necessary under FAR. There may be industry specific regulations that prohibit off shoring by certain entities, particularly where it could pose a security risk. However, there are few regulations that prohibit off shoring altogether. There is nothing against general government policy that mandates that they use American workers. If they use workers in America, these workers must be eligible to work in the United States, but there is nothing to prohibit them from using foreign workers in another country to perform work for the U.S. government.

The detrimental effects of outsourcing on the U.S. have already been demonstrated. Companies that engage in offshore outsourcing reap many benefits for themselves, but they do to at the expense of the American economy as a whole. There is little that the government can do in a free market system to keep companies from making decisions that are in their best interest. However, they compound the issue when they continue to promote outsourcing, without any restrictions on the ability to increase profits by shipping part or all of the work overseas. It simply does not make sense for the U.S. government to engage in an activity that is detrimental to the economy, while at the same time, issuing policies to help build an emerging economy.

The global market for outsourcing of government services is currently growing faster than outsourcing in the commercial sector. There must be an explanation for the rising trends in government outsourcing. According to an independent research study, the government cites many reasons for its rationale in outsourcing. One of the key assumptions is that it is economically driven and an attempt to reduce costs, just like many commercial entities. However, there is more to the trend than meets the eye.

Several key processes are considered critical to outsource, including procurement, finance, accounting and human resources. It is not only the U.S. government that is turning to outsourcing as a key to their success. Twenty three governments from Asia, Europe, South American and North America indicate that they utilize outsourcing as a key resource that is critical to their mission to deliver services to their citizens. The main reason why governments outsource is to improve the speed and quality of their services. Cost was not found to be the key driving factor behind this trend, as we found in the private sector.

The study also revealed that some governments outsource in order to be able to have access to new technology or to centralize or standardize operations. These were the goals of outsourcing, but the real question is whether the governments met their goals by outsourcing, or whether they would have been better off using their own internal workforce. According to those interviewed, the governments report that their objective were met by outsourcing. In a similar study, only half of private sector executives reported that they were as satisfied with their outsourcing experiences.

There was an apparent disparity in the outcomes of outsourcing experiences in the private and the public sectors. The study gave no reasons for this apparent disparity, but it can be surmised from this research study that FAR may be a significant factor in the ability of the government to achieve more outsourcing success than the private sector. The government has the ability to conduct more thorough pre-hire investigations than the private sector. Screening of the proper candidates for the contract is more thorough than in the private sector. Due to the strict regulations that govern outsourcing in the public sector, the government is less likely to hire a contractor that is unable to perform the job, based on past experience. These are important factors that help to distinguish outsourcing by the government from outsourcing by the private sector.

It was found that governments that use outsourcing to change the way that they operate were more inclined to engage in business processing outsourcing than those that used outsourcing to cut costs. More then 2/3 of the respondents reported that they achieved their desired changes by their outsourcing endeavors. The Department of Homeland Security is a high user of outsourced contractors. This was surprising due to the perceived risk to our national security. However, the office states that they use outsourcing because they are under pressure to move rapidly and they currently lack the in-house skills and technology to provide solutions and get up and running smoothly. This is a key to understanding the reasons behind the outsourcing trends.

One of the key points that this examination of the government's reasoning for using outsourcing brought out was that there are vast differences in the reasons why the U.S. government outsources and the reasons why the private sector outsources. Cost reduction is a major driver in private sector outsourcing. Cost was a factor in government outsourcing as well, but it was a much lower factor than other desired results of their efforts. The government placed its emphasis on proving for the public's needs, rather than considering its own profits as a driving factor. The reason for these differences in priority is obvious. The government is a not-for profit entity that exists to serve the people. The private company is for profit and exists to line its own pocket. This difference in purpose is a key driver of their philosophies regarding the hiring of contractors.