House committee begins examination of offshore outsourcing's impact

Hearing, first in a planned series, focuses on shift of research work overseas

WASHINGTON – A congressional committee hearing held Tuesday on the impact of IT offshoring began with a stark warning from the panel's chairman, U.S. Rep. Bart Gordon (D-Tenn.), that "the best jobs may soon be found overseas."

“If current trends continue, for the first time in our nation's history, our children may grow up with a lower standard of living than their parents," said Gordon, who heads the House Committee on Science and Technology.

The hearing, which included testimony from a four-member panel of policy analysts and industry representatives, was the first in a planned series of what Gordon called "fact-finding explorations" on offshore outsourcing's impact on U.S. workers and the domestic economy. The focus of the initial hearing was on the offshoring of work that often requires the highest level of skills: research and development.

Offshoring isn't an out-of-the-blue interest for Gordon or his committee. Last year, when the committee was under Republican control, Gordon pushed for release of a U.S. Department of Commerce study on offshore outsourcing, claiming that the Bush administration was suppressing the report -- an incident he alluded to at today's hearing.

The report, which was compiled in 2004 but wasn't publicly released at its full length of about 200 pages until last July, provides an overview of offshore outsourcing and cites a need for more data -- something that Gordon said is still needed.

Gordon's concerns about offshore outsourcing were echoed by the science and technology committee's ranking Republican, Rep. Ralph Hall of Texas. Hall said that if the U.S. keeps outsourcing its research and development work to foreign countries, "we will have a very steep hill to climb to keep our economy growing."

Among those testifying was Alan Binder, a Princeton University economics professor who said that the offshoring of IT services jobs is still in its infancy. And although the broader trend is little different from what has happened in manufacturing, the impact of services outsourcing is hitting a group -- white collar workers -- that isn't accustomed to having to compete with lower-cost labor overseas. "This strikes me as potentially potent political group," Binder said.

He added that there's little correlation between the pay or education level of a job and the potential that it may go offshore. The only thing that protects a particular services job is whether the service it provides is personal and involves face-to-face contact, according to Binder.

Binder said the U.S. government will need to adopt policies to make the transition easier and ameliorate the downsides of offshoring. The actions he recommended included improving the so-called safety net – unemployment pay, health insurance and job training for displaced workers. The U.S. currently provides "disgracefully little help" to people who are affected by offshoring, he contended.

In addition, Binder said, the U.S. must adapt its educational system to the ongoing changes and emphasize innovation as a matter of public policy. For instance, the U.S. developed the television manufacturing industry but then that industry migrated offshore as TVs became a commodity. "The leader must constantly innovate and move on . . . and that's what we did in this case," he said.

Martin Baily, who was chairman of the Council of Economic Advisers during the Clinton administration, said the U.S. is benefiting from the migration of talented scientists and technologists who want to study and work here. But in a reference to the heightened security measures adopted following the Sept. 11, 2001, terrorist attacks, he said such foreigners are not treated well by the U.S. government.

The U.S. also needs to do more to strengthen its educational systems and encourage students to major in science and technology, said Baily, who now is a senior fellow at the Peter G. Peterson Institute for International Economics in Washington.

Thomas Duesterberg, president and CEO of the Manufacturers Alliance/MAPI trade group in Arlington, Va., said that offshore outsourcing of research and development has been modest thus far and that many foreign-based companies do their research in the U.S. "The U.S. maintains a commanding presence in research and development activity," Duesterberg said.

Copyright © 2007 IDG Communications, Inc.

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