Backshoring And The Government

An earlier post discussed about how some states were conflicted between trying to buy the most services for their dollars while protecting American jobs. Now over at BNET Intercom, Stefan Deeran, writes that the downturn in the world economy has led to companies considering "backshoring". This term describes when a company moves jobs back to the location of their primary customers from oversea locations.

Certainly with Federal contracts, especially defense ones, the various "Buy American" provisions and requirements drive jobs to U.S. sites especially with service related contracts. Manufacturing contracts may be able to utilize parts and assemblies from foriegn sources but in general most U.S. Government contracts make it desirable for the contractor to maximize the number of U.S. workers and locations. With a defense contract creating jobs in a U.S. Congressional district gains support for the program and helps assure it may stay funded.

The primary reason offshoring occurs is to reduce labor costs. As the economy in England and the U.S. has declined wages and costs overall have also come down. When unemployment is ten percent and half-a-million a month are losing their jobs it tends to put downward pressure on wages. This makes it easier for companies to provide the necessary services in the U.S. or with U.S. companies. Anecdotal evidence from localities letting road maintenance or construction contracts is showing more companies bidding at lower prices as they need the work. There is no longer the commercial or home construction business available requiring them to try and get government contracts.

Backshoring may become more prevalent as the Federal and State government contracts continue to become a larger part of the economy. Already States are becoming more reliant on Federal stimulus and aid funds to balance their budgets. The Stimulus bill has Buy American provisions in it subject to the various trade treaties the U.S. has signed. Not all those effect the states or localities if they let the contracts. These requirements will drive more jobs to America as they limit the ability of companies to offshore.

Stefan Deeran doesn't think that backshoring will become a big movement. There are two many jobs still flowing to China and India. Perhaps the U.S. governments can force more jobs here through requirements to buy American made products and labor but until there is a real decline in costs in the U.S. compared to overseas there won't be a major shift back to domestic work.