By itself, a shift from outsourcing to insourcing would be bad news for government contractors but not necessarily for the Washington economy. After all, a job insourced from SRA International to the Transportation Department is still a local job.
Unless, of course, it isn’t. For at the same time that the government is restructuring how and where work is done, there’s a very real possibility that both the government and contractors will decide to shift work away from Washington. The reason: Thanks to all that recent growth, Washington is now a very expensive place for government and businesses to operate.
Steven Pearlstein is a Pulitzer Prize-winning business and economics columnist at The Washington Post.
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Even as some of the country’s biggest contractors (SAIC, CSC and Northrop) have moved their corporate headquarters to Washington, they have quietly shifted lower-level work out to take advantage of lower living costs and pay scales elsewhere in the country. Some, like CGI, have expanded into southwestern Virginia. Others have moved along with federal clients whose offices were transferred to other regions as part of the Defense Department’s base realignment process. As the number of contracts declines and contractors come under even more intense pricing pressure, it’s a good guess that even more work will be relocated.
None of this is news to Washington’s contracting firms, which are scrambling to come up with new strategies for bolstering revenue and profit in the face of all these budgetary head winds.
As in the past, the first instinct of the big public companies will be to try to pump up their numbers through mergers and acquisitions. To the extent they are successful, that inevitably means fewer jobs overall.
It’s also only a matter of time before the Beltway boys start talking of moving into the “commercial space” and competing for private-sector contracts. Over the decades we’ve seen earlier versions of that movie, and let’s say it rarely has a happy ending.
It’s time to acknowledge that the Washington economy can’t continue to grow and prosper by hitching its wagon to the federal gravy train. That train has reached the end of the line. If we want to make further progress, we’ll finally have to hitch our fortunes to other economic engines. Some ideas on that next week.
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