It matters what’s made in Montana

SUMMARY: "Outsourcing" is anything but a threat to Montana’s economy.

The irony was inescapable in the recent Missoulian news story pointing out that some of the work done to maintain Montana’s official Web site (www.discoveringmontana.com) is done by private contractors in Poland. After all, we live in an economically challenged state fixated on generating jobs, a state where the "Made in Montana" program is central to government economic development efforts.

http://missoulian.com/articles/2004/11/30/opinion/opinion6.txt

However, this actually is a good example of the economics of "outsourcing" and why buying goods and services from whomever offers the best value at the best price is a good thing to do, government institutions included.

Montana isn’t entirely lacking in freelance Web designers and computer programmers; some of them might wish they could pick up some work on the state’s Web site. But even more plentiful in Montana are citizens who aren’t interested in paying taxes and fees that are any higher than necessary. They have other uses for their money. Whatever they spend their money on helps pay the wages of workers in Montana and elsewhere. And many of the things they buy are used to do and make things that get sold to generate even more money.

Maintaining a Web page isn’t the state’s primary function – no more than maintaining a phone system or computer network is. So, it makes good sense for the government to contract for at least some of the services. Choosing a contractor based on price and quality helps ensure Montanans get the best value for their money. In this case, the contractor chosen by the state has some local employees, but also subcontracts some of the work, and some of that goes to workers in Poland.

All of this, done right, gives state government a better Web site for the money than it could produce on its own and taxpayers get better value for their taxes. A better Web site makes interacting with government agencies easier and more efficient, which can only be good for the economy. And whatever money is saved gets spent in other ways, which also contributes meaningfully to the economy. Ostensibly disadvantaged might be a few Montana computer programmers. But, really, competing with low-wage workers in Eastern Europe or other developing economies for piecework is no path to prosperity.

Look at this from the other direction: Much of Montana’s economy is based on companies (and sometimes governments) elsewhere "outsourcing" work to Montanans. People elsewhere pay Montanans to grow wheat and beef, to produce wood products, to write books, to build machines – naming just a few of the things made by workers in our exporting industries. We even "export" our scenery to the movie industry. People elsewhere look to Montanans to provide many goods and services for the same reason Montanans shop elsewhere for some of our government’s Web work – value.

As a state of scarcely 900,000 people, our productive capacity far exceeds our capacity to consume what we produce. If people elsewhere only bought goods and services locally, Montana’s economy would collapse. And if Montanans attempted to produce locally all the goods and services they buy, we’d wind up spending far more to get far less.

"Made in Montana" is a great concept. But it matters what we make. Our economy will fare best if we make more of the things we make better or more profitably than others elsewhere can, and get the best value for the money we spend – "outsourcing" to the ends of the earth if that’s what it takes. This is nothing more than the tried and true formula for getting ahead: buy low, sell high.