JUNE 30, 2003

TESTIMONY


What I Told Congress
[Page 2 of 2]


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The simple fact is that the driving purpose of technology is, and always has been, the reduction and elimination of human labor. And as technology eliminates time and distance, it becomes ever more efficient. While we try to reduce the impact of issues like outsourcing, there are already systems on the production line ready to create the next wave of upheaval. This so-called creative destruction ensures that the definition and mix of jobs that comprise the American economy will continue to change -- unless we decide we want to forestall technological innovation altogether. The process certainly creates new jobs along with each new technology, as well as a burgeoning industry of training. But whether it leads to net increase or a net loss in jobs I think is largely unknown.


Since we are forced to manage rapidly changing symptoms, I believe we need to act consistently, according to a set of fundamental principles. That's where I believe the true debate lies. The first principle I believe we should focus on is building parity in the standard of living among nations rather than building walls to prevent encroachment on our own.

I do believe in a role for the government in many areas of regulatory policy, but I think the creation of trade barriers to prevent outsourcing would be costly, problematic, and ineffective. I'd rather see efforts geared toward leveling the playing field among competing nations. There are serious issues that make outsourcing unnaturally attractive, including the manipulation of currencies by foreign governments, the suppression of workers rights and the absence of environmental regulations in foreign countries. Although the gap between the standard of living in other nations and our own has created an opportunity for cheap labor today, I believe that focusing our trade policy on eliminating those gaps provides the greatest benefit in the long run. I believe such an approach is consistent with our role as a world leader, in this case leading other nations to a better standard of living, rather than simply focusing on protecting our own.

The second principle I'd like to suggest is to differentiate between outsourcing for organizational efficiency and outsourcing for innovation. This is a fundamental difference between large and small businesses, and I think we need to explore how regulations may cause unintended consequences for small businesses. Small businesses provide much of the energy in our economy, driving innovation and pushing larger businesses to evolve. Small businesses also play important roles in the success of larger businesses by providing critical support services and expertise. While I can see problems -- and indeed some abuses -- among large businesses pursuing ever lower costs and higher margins, I think any policies designed to mitigate those abuses should be examined for their impact on small businesses. While larger companies use reduced development costs in global labor markets to improve margins, small companies use the opportunity to innovate in ways that would otherwise require increasingly costly investment capital.

If history is any guide, the next major innovation that creates new jobs and a spark in the economy will come from a small business, maybe a business that is only able to innovate by utilizing the global communications infrastructure to maximize every dollar of investment. We should guard against the unintended consequences of job protection that would stifle that opportunity. Thank you, Mr. Chairman, and members of the committee.

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Christopher Kenton is president of the marketing agency Cymbic
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