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National Security: Off The Radar

By Larry Dignan  |  Posted 2003-09-05 Print this article Print

The loss of high-paying jobs to other countries isn't viewed as a national security issue yet, but that may change.

The loss of high-paying jobs to other countries isn't viewed as a national security issue yet, but that may change.

If information technology is increasingly moved offshore, the Department of Defense may take a closer look, say analysts. Why? The U.S. military is increasingly relying on information systems and if that technology can't be procured domestically, it may raise issues.

Lt. Col. Ken McClellan, a Pentagon press officer, says the military is looking at the issue, especially when partners use offshore outsourcing. Offshore workers will also need to pass security tests. McClellan says the National Security Agency is examining the topic. The NSA declined to comment.

With high-value jobs moving elsewhere, the government could lose an estimated $13.4 billion in tax revenue over five years, according to Economy.com. The Department of Homeland Security's estimated 2004 budget is $41.3 billion, including the homeland portion of the defense budget.

On an annualized basis, that $13.4 billion works out to about $2.7 billion—or nearly two-thirds of the $4.22 billion that the Bush administration has proposed to spend on aviation security in fiscal 2004. It's twice the $6.6 billion the Coast Guard estimates it would take over 10 years to protect U.S. ports from terrorism.

Ronil Hira, associate professor at the Rochester Institute of Technology, says defense interest in offshore outsourcing would reshape the debate. The military has a long history of protecting technologies it sees in the national interest, such as chip manufacturing, encryption software and supercomputers.

Unlike those technologies, the Pentagon would have to deem specific roles or jobs such as engineering in the national interest. It could also limit partners' offshore activities, says Hira.

"It's interesting that the defense department hasn't been paying more attention here," says Hira.

Gartner Inc. analyst Richard Hunter says if the U.S. loses its leadership in critical technology it would cause concern, but downplays the national security significance. Hunter says the Pentagon would still be able to procure technology even if it was developed offshore.

"If we assume the only way it's absolutely safe is to have leadership in every critical technology, then offshore outsourcing may become an issue," says Hunter. "But that argument is unproven at this time and assumes everyone in the world is out to get us." Hunter says it's unlikely the U.S. would become dependent on one nation for information technology. Unlike oil, controlled by a few countries that happen to have good geography, the U.S. could procure technology from anywhere.

If India became dominant in technology, it would be in its economic interest to cater to the U.S. "The day India's technology was seen as a weapon, America would stop buying it," says Hunter.

Instead of being hampered by such a move, the U.S. could use the global supply chain. "Information technology is an international language and it has to be, in order to be usable," says Hunter. "There would be a large cadre of resources available in other countries. If you can speak C++ you can be a supplier. It's not like oil. Technology by definition doesn't have borders."

Business Editor
Larry formerly served as the East Coast news editor and Finance Editor at CNET News.com. Prior to that, he was editor of Ziff Davis Inter@ctive Investor, which was, according to Barron's, a Top-10 financial site in the late 1990s. Larry has covered the technology and financial services industry since 1995, publishing articles in WallStreetWeek.com, Inter@ctive Week, The New York Times, and Financial Planning magazine. He's a graduate of the Columbia School of Journalism.
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