THE state senate recently passed a bill to prohibit the state government from contracting with foreigners to perform services. Maryland, Missouri, Wisconsin and Connecticut are contemplating similar legislation. Long on sentiment but short on sense, such bills deprive states of a powerful tool for saving money and undermine their economies.

The New Jersey bill materialized after a contractor hired by the state to manage a welfare and food-stamp program moved its customerservice operations to Bombay from Wisconsin to cut costs. The grandstanding began almost immediately. "We shouldn't be sending taxpayerfunded jobs for state contracts to foreign countries when our citizens need work." said Senator Shirley Turner, a Mercer Democrat who introduced the bill.

Never mind that the jobs were not based in New Jersey in the first place. After a member of Congress, Representative Thomas M. Barrett of Wisconsin, asked the federal government to look into the situation, the health and human services secretary, Tommy G. Thompson, tactfully replied that although the practice of sending work offshore made him uneasy, it lay outside the jurisdiction of the federal government.

But since when does buying from foreigners make America uneasy? Tell that to the Toyota assembly workers in Kentucky and the Honda employees in Ohio. Consider the private sector. G E Capital and American Express together are said to be saving more than $450 million a year by using offshore outsourcing of services. For the banking industry, reports say that outsourcing to India has resulted in $8 billion in savings over the last four years. With some 82,000 employees, and an annual budget of nearly $24 billion, New Jersey could achieve similar savings if it undertook even a modest offshore initiative. With the savings, the state could increase education and job training programs or, if it is really concerned about economic development, lower taxes on business.

Innovative governments are catching on. The Greater London Authority awarded a $10 million contract to an offshore software company, Mastek, to develop the software and run the back-end of the radical new program in London that charges tolls for driving within the city during rush hours. Data show that buying services offshore saved the city $4 million to $5 million. Efforts to stop local government from buying abroad run afoul of numerous commitments made by the United States in such accords as the General Agreement on Tariffs and Trade, or GATT, and Nafta, the North American Free Trade Agreement. And they run counter to national policy. For more than a decade, the United States has been preaching liberalization of tradein services, adopting policy to force countries to allow American banks and insurance companies to operate abroad. That is because services is an American strength.

Instead of trying to stop market forces by legislative fiat, New Jersey should take a cue from some of the companies that are based in the state. The telecommunications companies Lucent, AT&T and IDT are investing to take advantage of a simple economic fact: services can be imported and exported over phone lines just as easily as goods can be shipped by boat. What's next? Will New Jersey outlaw purchases of computers and cars that are made offshore?

Because most products are no longer pure goods or services anyway, enforcing the law could require some strenuous exercises in metaphysics. As much as 60 percent of the value in an average desktop computer is represented by software. That includes driver software produced in Taiwan, the soft component of memory current fiscal year. Bills like New Jersey's certainly won't help close the gaps. In fact, such bills benefit no one: not poor people, workers, taxpayers or state economies that, like it or not, are deeply enmeshed in global trends in technology and trade. Choosing political grandstanding over sound economics does, however, ensure that states will pay above-market rates for services. Arjun Saxena and Douglas Lavin are consultants at Inductis, a strategy consulting firm in New Providence.