Can anti-offshoring legislation really help?

As a result of our government's attempts to keep nature from running its course, I have a new motto: The bigger they regulate, the harder they fall. I was reminded by this InfoWorld story that it isn't just the Federal government that's trying to use legislation to keep a lid on offshoring.

As a result of our government's attempts to keep nature from running its course, I have a new motto: The bigger they regulate, the harder they fall. I was reminded by this InfoWorld story that it isn't just the Federal government that's trying to use legislation to keep a lid on offshoring.  The states are involved too.  According to the story's author Nancy Weil:

Bills attempting to stymie the outsourcing of American jobs were introduced this year in nearly all 50 states, as well as in the U.S. Congress, and there is no indication that the legislative trend will stop......Of the bills that have actually become laws, most seem to lack teeth and in some cases have had negative consequences by costing states millions of dollars more to pay for contracts with call centers in the United States rather than in other countries.

In the bigger picture, I find this sort of regulation to be laughable.  Arranging this sort of artificial protection from the inevitable for specific sectors sets those sectors up for a much more devastating fall off the cliff. The government is doing the same sort of thing for telcos by trying to re-intermediate the Baby Bells into the loop of Internet telephony.  But, much the same way that nature has a way of eventually beating our medications, innovation has a way of working around regulation and the telcos are about to be devoured by the sort of high speed wireless broadband (eg: WiMax) that bypasses their government-granted right of way (also, see Dan Gillmor's Telco's Attacking the Open Web). What's next? Will the government begin to regulate bandwidth in supposedly the unregulated spectrum space? Uncle Sam is like the Dutch boy at the leaky dam.  Just when he plugs one hole, another one springs a leak.  

One net effect (no pun intended) when certain businesses are given this sort of jury-rigged protection is that they lack the motivation to really innovate their way out of the 6-foot deep hole they're about to be buried alive in.  Back to the Dutch boy at the dam: at some point, the configuration of holes becomes incompatible with the anatomy of the hole-plugger and the dam gives way in an instant, irrecoverably dragging employees, stockholders, politicians, lobbyists, and customers into the hole that someone swore couldn't be dug.  Oh, and miraculously (not!), the dirt mound sitting beside the hole falls right into place.

Don't get me wrong.  When it comes to outsourcing, I'm very sympathetic to the today's suffrage.  But, history proves that adaptation is a much healthier long term approach to changing business models and real economic force than is legislating the erection of highly questionable artificial protections whose benefits are short term at best.  I don't profess to have the answers either.  But, at a recent New England TechNet dinner that I attended, Brian Keane, the chief executive of IT consultancy Keane & Co. noted that he is hiring in India and that his ability to do so was making it possible to create more jobs here in the US. His comments drew nods of concurrence from other chief executives at the table including RSA president and CEO Arthur Coviello. 

During that dinner, we talked about long term outsourcing trends and discussed how innovation in information technology is what helped the US come up with a substitute for all the manufacturing that's been offshored over the last century.  But, when it came to answering the question of what stood a chance of being that substitute for IT should IT ever get offshored to the extent that manufacturing is, there were no clear answers. This is particularly so since IT's ability to take over where manufacturing left off was largely based on intellectual property that was protectable on an international level for a variety of reasons (one of which was lack of a scalable conduit like the Internet through which trade secrets are easily leaked). 

Not only is some of the development of US IP being moved offshore, it's not clear whether the replacement for IT (as a significant local contributor to the US gross domestic product) will be able to enjoy the sort of IP protection that both manufacturing and IT have historically enjoyed.  Paul Denniger, CEO of Broadview Holdings in Waltham, and co-chair of TechNet New England, suggested that alternative fuel or nanotech could be the next industries to get in line behind manufacturing and IT.  The comment caused me to openly lament the short-sightedness of the Nixon and Ford administrations to use politics rather than innovation (with the encouragement of big oil, of course) to manage the US's way out of the 1972 oil crisis.  I agree that alternative fuel would have been a great industry -- one that had it been mandated in the 70's much the way Kennedy mandated the space program in the 60's -- would have been well underway right now, yielding significant benefits (not the least of which might be improved national security). That crisis should have been a clarion call heard by all.  This of course raises the question:  Now that we may have missed the window of opportunity on alternative energy, what *is* the clarion call of today?


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