Introduction

Mr. Chairman, Members of the Assembly Labor Committee, thank you for the opportunity to submit testimony today on high-tech business concerns surrounding the phenomenon of offshore outsourcing and its affect upon the State of New Jersey. I speak specifically on the bill presently before this committee, A2133, and its counterpart in the Senate, S494.
My name is Linda Klose, and I am the Executive Director of the New Jersey-Pennsylvania Council of AeA, formerly known as the American Electronics Association. In representing AeA throughout New Jersey and Pennsylvania, I have responsibility for AeA’s public policy initiatives here in New Jersey. By way of background, AeA is the nation's largest high-tech trade association and represents over 3,000 high tech companies, which span the high-technology spectrum, from software, semiconductors, medical devices and computers to Internet technology, advanced electronics and telecommunications systems and services. In the state of New Jersey, we represent over 40 technology businesses, such as Anadigics, Brother International, DRS, and Sensors Unlimited to name just a few. Complete information on AeA and its mission is available on our website at www.aeanet.org.

AeA commends this committee for seeking out information from all comers on the important issue of offshore outsourcing, including labor groups, the business community, and specifically, the high tech industry – an effort that will surely result in the best outcome for New Jersey’s workers, the businesses that employ them, and the taxpayers who live in the Garden State. As I mentioned earlier, AeA represents large, medium and small businesses not only in New Jersey, but also all across America. It is for the sake of the small and medium businesses that I am here testifying today.

AeA would like to express its strong concern regarding A2133/S494, legislation prohibiting U.S. companies from competing for state contracts if they utilize foreign citizens through overseas operations, subsidiaries or sub-contractors to fulfill the term of a state contract.  We are concerned, however, that policies like those proposed by A2133/S494 will cause more harm than good to New Jersey businesses and end up costing New Jersey taxpayers hundreds of thousands of dollars in wasted tax funds.  

One of our top priorities is the creation of technology jobs in the United States.  We acknowledge that some technology workers are being hurt by the practice of offshore outsourcing.  In addition, we believe it is important to recognize that the primary cause for recent job losses in the U.S. is not simply the practice of offshore outsourcing, but rather a combination of factors, including the distressed world economy and significant gains in worker productivity. However, restricting access to markets and adopting policies that place U.S. companies at a competitive disadvantage with their foreign competitors puts U.S. workers at risk and threatens the U.S. economic recovery at the very time when the economy is improving.  Over the last twelve months, the U.S. Bureau of Labor Statistics reports that the U.S. economy created some 2.4 million in new jobs, more than 260,000 of which were created in February 2005. In New Jersey, the unemployment rate for the past 12 months ending in December 2004 dropped from 5.6% to 4.2%, the lowest it has been since July of 2001. The unemployment rate has dropped substantially and job projections over the next 8 years show double-digit job growth for some high-tech professions.  The outlook is good for U.S. job growth to continue, but not if U.S. companies are unable to compete in the global economy.

Legislation such as A2133/S494 will unnecessarily overcharge New Jersey taxpayers and cut into already tight governmental budgets. When a legislature insists on prohibiting services provided by US companies who perform part of the contract abroad, they are, by statute, precluding contractors who have taken advantage of cost saving measures and economies of scale. Businesses that have a multi-national presence are often able to lower their costs upwards of ten percent, passing the savings on to the end user – in this case, the state’s taxpayers.  Because these businesses cannot bid for the contracts, the state is then forced to entertain much higher bids, devaluing the buying power of every budget dollar.  The net result: local taxpayers are forced to pay a premium for services that can be had for much, much less. When a single state contract can be worth tens of millions of dollars, eliminating bidders who can save the state upwards of 10% on a contract is just plain wasteful, even in this period of economic recovery.

Not only will the impact be felt by New Jersey taxpayers whose tax dollars are now devalued, but this will directly harm New Jersey businesses that are dependent upon state government contracts – and inadvertently thwart their ability to grow and hire New Jersey residents.  Many Garden State businesses are able to open and remain viable by performing some tasks offshore; their ability to do so in the short-term helps them to grow in the long-term, increasing the number of New Jersey citizens they employ – as well as the amount of tax dollars they remit to the state coffers.  By precluding contracting businesses from taking advantage of certain economic efficiencies in the name of protecting local jobs, the state inadvertently imperils local business growth and the subsequent increase in local jobs.

We commend the New Jersey Legislature for its concern for the Garden State worker; we in the high-tech industry are fighting vigorously to increase the number of American businesses – and American jobs – that succeed in this increasingly global marketplace.  If we are to do this, industry and the government must work together to increase jobs locally, nationally, and ensure our place in the world economy.  We in the high-tech industry respectfully make the following recommendations; the New Jersey Legislature should:

• Continue to champion dramatic improvements in our educational system by altering the attitudes of young people towards careers in high-tech, and improving math and science at the K-12 level to adequately prepare New Jersey students with the necessary background for degrees in science and technology;
• Support research and development by promoting basic research, and by increasing grants and funding for college and university research to support academic R&D and facilitate graduate education; and
• Promote technology diffusion by providing industry the incentives to promote broadband and cellular penetration.  Efforts such as streamlining rights-of-way petitions and allowing municipalities to offer broadband connectivity to rural and underserved populations will help to create economic development zones right here in New Jersey and create jobs.

I have copies of our report, Offshore Outsourcing in an Increasingly Competitive and Rapidly Changing World: A High-Tech Perspective and copies of the executive summary from our newer report Losing the Competitive Advantage?: The Challenge for Science and Technology in the United States for each of you. I would be delighted to send full copies of the second report to you. I encourage you to read these reports and the recommendations we offer to ensure that the U.S. and U.S. workers remain competitive in the worldwide economy.  Additionally, both reports are available as a download from our AeA’s website at http://www.aeanet.org. We believe that proactive measures that improve the competitiveness of U.S. companies – not protectionist policies that thwart competition – are the only appropriate answer to ensuring continued job growth both in New Jersey, and in the U.S. 

Conclusion

Thank you for your consideration regarding our request to not pass A2133/S494.  I believe the last thing the Committee wants are unintended consequences. We believe this bill would do more harm to New Jersey than good; at the very least, AeA respectfully recommends that this legislation be tabled until the State Treasurer can complete a review of all State contracts that would be affected by this legislation and determine its fiscal impact and the magnitude of such impact. We would very much appreciate the opportunity to work with the New Jersey Legislature in creating legislation that focuses on policies that will improve the business climate in New Jersey by streamlining regulations, advancing economic development, and building a competitive workforce. 

Chairman Egan, thank you for the opportunity to testify on A2133/S494.  I look forward to working with the Committee on this issue.  In fact, all of AeA would like to work with you to increase New Jersey’s and the United States’ ability to create jobs.  And as always, I will be happy to answer any questions or concerns that might arise.  I can be reached at (9

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