Term Paper: Outsourcing of Government Functions a US Study

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Government Outsourcing

The Outsourcing of Government Functions: a U.S. Study

Outsourcing of government functions is one of the most highly controversial practices of the 21st century. There are several prevailing positions regarding the outsourcing of government contracts to private companies. Valid arguments exist for increasing government outsourcing and for limiting future outsourcing as well. Regardless of which side one happens to be one, once thing is certain, outsourcing is a trend that is likely to continue in the future, particularly in the face of the global economy and advances in communication that make it easier than it was in the past.

By March of 2007, the number of government contractors rose to 7.5 million, which is currently four times the size of the federal workforce itself. The job of the U.S. government continues to increase, as the population increases. The tasks that the government must take on have increased tremendously over the past several years and are expected to become even more common in the future. Government outsourcing is one of the fastest growing sectors in the U.S. economy and is expected to more than double over the next fiver years. There is not doubt that government outsourcing is a growing trend in the U.S. economy. From 2001-2006 government outsourcing reached $13.2 billion in revenue.

The U.S. government has a history of outsourcing the dates back to the early roads built in the 18th century. President Reagan played a key role in the recent trend towards increasing the role of the private sector in government functions. Of the reasons cited for using private entities, respondents replied cost savings, lack of in-house personnel and expertise, lack of state support of political leadership, flexibility, less red tape, speedy implementation, increased innovation, and high quality of service.

Who Uses Outsourcing?

Outsourcing is used to perform a number of functions with society, the U.S. government has a large list of entities that it uses. It uses private entities to help building roads. It uses them to collect tolls on roads. It uses them to build and operate water and wastewater treatment plants. It uses them to staff prisons.

There have been some cases of privatization of facilities such as State-owned Stewart Airport in New York State, which has been leased, to a private entity for a long-term lease. In some cases, facilities are leased out and in others, they are sold to private entities outright. This is what happened to a small water system in Pennsylvania that was put out to bid by a local authority and sold to a private water firm.

The U.S. Defense Department uses a plethora of private contractors in a number of positions so that is can focus on its primary mission, protecting the country. The Defense Department uses private contractors for a number of functions, including infrastructure, such as electricity, telecommunications, water and sewage treatment. The use of outsourcing in the Defense Department is perhaps one of the most controversial areas of the outsourcing area. There is a concern among many that outsourcing in this area of the government may place our country at risk. However, the Defense Department claims that outsourcing non-military roles frees their personnel to remain focused on their primary task without distraction.

The U.S. government is one of the biggest consumers of U.S. goods and services from the private sector. The government is a high consumer of technology, technical services and other related fields. The government is a consumer of food, clothing, office supplies, and almost anything that one can imagine. Policies on government procurement often dictate that the U.S. government purchases goods or services from U.S. companies, unless the product or service cannot be found within the borders of the U.S. If someone makes it, more than likely a government agency uses it.

Economics of Outsourcing

The practice of outsourcing is not what has drawn the greatest amount of criticism. Most agree that the government should support its own country and its own economy. Government outsourcing provides stimulus to the economy by providing jobs for worker and income for companies range from small to large. Most would agree that the government's support should go to its own, rather than supporting the economy of a foreign entity. From the standpoint of economic stimulus, the government often provides a source of revenue to small and medium companies that would not otherwise be able to compete.

One of the key points of contention among analysts and the public is the practice of off shoring. Off shoring poses a serious challenge to the government. With unemployment at high levels and the recent necessity to add an economic stimulus plan to the economy, it is difficult to support a practice that robs the American public of jobs and economic growth.

Off shoring is when that government hires a company to perform a task or provide a service. The company then moves operations overseas, where they can find a more favorable tax structure, or low-wage workers. Off shoring, and government support of companies that engage in this practice is the most controversial topic regarding government contracting of the private sector.

In cases, where the work, wages, and taxes are kept within the country is not controversial, especially if the goods and services are of acceptable quality. In this scenario, outsourcing to the private sector represents the best of both worlds. It represents the government taking care of its own. It is providing jobs and economic growth to those that, in turn, given the money back by means of taxes. However, off shoring does nothing to stimulate our own economy. Any taxes collected would go to foreign governments. Off shoring does not secure jobs in the U.S. For U.S. workers, instead it takes them away and gives them to someone else.

For the companies, off shoring makes sense. In a capitalist market, the name of the game is to reduce costs, improve efficiency an turn a higher profit. Sometimes this means going where labor is cheap, or perhaps there is a benefit of lower operating costs. The decision to offshore is an economic one for the companies that choose to engage in the practice. They are attempting to provide a good or service at a reduced cost so that they can retain a larger portion of the profits. Often patriotism or loyalty does not come into play in the decision. Economics are the driving factor in the decision. From a capitalist standpoint, this would appear to be prudent decision on part of the companies.

Arguing that off shoring is a prudent move from the standpoint of company profits is to take a micro perspective of the situation. From the company's perspective, off shoring may make sense. However, if the purpose of the U.S. government is to serve the American people, then the practice of off shoring is defeatist in purpose. Off shoring increases unemployment. Unemployed people do not contribute as much to the U.S. economy as those that are employed. Money from off shoring provides stimulus to foreign economies and provides taxes to foreign governments.

The only perceived advantage to off shoring is that it may help to reduce purchase costs for the government. Theoretically, if the companies can reduce costs, they can pass these savings on to the government or other end purchase. This is excellent, if it were only the case. Often prices are driven up by transportation costs, excise taxes, and other things that affect the price of commodities. The prices can be higher than those produced in the U.S. If the offshore company does succeed in reducing cost, they do not pass them onto the U.S. government, but rather take them as greater retained profits for themselves.

Current Situation

If one examines the practice of off shoring from an economic standpoint, there are few perceived benefits to the American people, or the American government. This practice reduces income, and gives any perceived benefits away to a foreign entity. One of the most controversial issues in government procurement today is that the U.S. government continues to lend support to companies that have taken their processes offshore.

There are two ways to argue this issue. On one side, the government is prudent to attempt to save money and protect its budget. If the offshore company happens to be lower than domestic competitors, there are some that feel the government should be unrestricted to hire the company that they see fit. After all, this is a capitalist market, and the rule of the game is open competition. However, there are others that feel the overall harm to the economy and the major interests of the American people should be placed first and that the government should be forced to give preferential treatment to U.S. companies over offshore competition, regardless of the initial costs.

The difference between these two opposing views is the difference between taking a macro view of the situation and taking a micro view of the situation. A macro view considers the impact of off shoring on… [END OF PREVIEW]

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