Outsourcing & Protectionism

Dan Drezner has a boatload of posts about outsourcing and protectionism over at his site. First, there's this LA Times article about rebuilding the Bay Bridge, which go over budget by $2.7 billion:

This week, officials announced that the suspension tower alone would cost $1 billion more than originally expected.

One reason, they said, is the state's "Buy America" rules, which dictate that Caltrans can use foreign steel on the bridge only if its cost is at least 25% less than domestic steel. In this case, the difference is only 23%, so the state must go with domestic steel. That added $400 million to the price tag.

Now, this is obviously a big deal by itself for a state with a huge budget deficit. $400 million more for domestic steel. But the larger point is all protectionism acts the same way, costing the end consumer more. The problem is usually one of diffuse costs – we all pay $20 more here, $100 more there – and concentrated benefits – these three inefficient steel mills get to stay open another year. This giant public works problem just neatly aggregates the costs so we can see them all at one time. And they're huge.

Luckily, some states are thinking through the costs before they pass the bills:

When Kansas officials learned that food stamp questions were being answered by workers in India under a contract with an Arizona company, state senators added language to the budget requiring the work be done in the United States.

But the language was deleted when negotiators learned it would boost the state's costs by $640,000, about 38 percent.

The last thing that government projects need is legislation to make them even more costly.

Posted by richard at June 8, 2004 07:07 PM