America’s Has-Been Economy

A country cannot be a superpower without a high-tech economy, and America’s high-tech economy is eroding as I write.

The erosion began when U.S. corporations outsourced manufacturing. Today, many U.S. companies are little more than a brand name selling goods made in Asia.

Corporate outsourcers and their apologists presented the loss of manufacturing capability as a positive development. Manufacturing, they said, was the "old economy," whose loss to Asia ensured Americans lower consumer prices and greater shareholder returns. The American future was in the "new economy" of high-tech knowledge jobs.

This assertion became an article of faith. Few considered how a country could maintain a technological lead when it did not manufacture.

So far in the 21st century, there is scant sign of the American "new economy." The promised knowledge-based jobs have not appeared. To the contrary, the Bureau of Labor Statistics reports a net loss of 221,000 jobs in six major engineering job classifications.

Today, many computer, electrical and electronics engineers, who were well paid at the end of the 20th century, are unemployed and cannot find work. A country that doesn’t manufacture doesn’t need as many engineers, and much of the work that remains is being outsourced or filled with cheaper foreigners brought into the country on H-lb and L-1 work visas.

Confronted with inconvenient facts, outsourcing’s apologists moved to the next level of fantasy. Many technical and engineering jobs, they said, have become "commodity jobs," routine work that can be performed cheaper offshore. America will stay in the lead, they promised, because it will keep the research and development work, and be responsible for design and innovation.

Alas, now it is design and innovation that are being outsourced. Business Week reports ("Outsourcing Innovation," March 21) that the pledge of First World corporations to keep research and development in-house "is now passe."

Corporations such as Dell, Motorola and Philips, which are regarded as manufacturers based in proprietary design and core intellectual property originating in R&D departments, now put their brand names on complete products that are designed, engineered and manufactured in Asia by "original-design manufacturers" (ODM).

Business Week reports that practically overnight large percentages of cell phones, notebook PCs, digital cameras, MP3 players and personal digital assistants are produced by original-design manufacturers. Business Week quotes an executive of a Taiwanese ODM: "Customers used to participate in design two or three years back. But starting last year, many just take our product."

Another offshore ODM executive says: "What has changed is that more customers need us to design the whole product. It’s now difficult to get good ideas from our customers. We have to innovate ourselves." Another says: "We know this kind of product category a lot better than our customers do. We have the capability to integrate all the latest technologies." The customers are America’s premier high-tech names.

The design and engineering teams of Asian ODMs are expanding rapidly, while those of major U.S. corporations are shrinking. Business Week reports that R&D budgets at such technology companies as Hewlett Packard, Cisco, Motorola, Lucent Technologies, Ericsson and Nokia are being scaled back.

Outsourcing is rapidly converting U.S. corporations into a brand name with a sales force selling foreign designed, engineered and manufactured goods. Whether or not they realize it, U.S. corporations have written off the U.S. consumer market. People who do not participate in the innovation, design, engineering and manufacture of the products that they consume lack the incomes to support the sales infrastructure of the job diverse "old economy."

"Free market" economists and U.S. politicians are blind to the rapid transformation of America into a third world economy, but college-bound American students and heads of engineering schools are acutely aware of declining career opportunities and enrollments. While "free trade" economists and corporate publicists prattle on about America’s glorious future, heads of prestigious engineering schools ponder the future of engineering education in America.

Once U.S. firms complete their loss of proprietary architecture, how much intrinsic value resides in a brand name? What is to keep the all-powerful ODMs from undercutting the American brand names?

The outsourcing of manufacturing, design and innovation has dire consequences for U.S. higher education. The advantages of a college degree are erased when the only source of employment is domestic nontradable services.

According to the March 11 Los Angeles Times, the percentage of college graduates among the long-term chronically unemployed has risen sharply in the 21st century. The U.S. Department of Labor reported in March that 373,000 discouraged college graduates dropped out of the labor force in February—a far higher number than the number of new jobs created.

The disappearing U.S. economy can also be seen in the exploding trade deficit. As more employment is shifted offshore, goods and services formerly produced domestically become imports. No-think economists and Bush administration officials claim that America’s increasing dependence on imported goods and services is evidence of the strength of the U.S. economy and its role as engine of global growth.

This claim ignores that the United States is paying for its outsourced goods and services by transferring its wealth and future income streams to foreigners. Foreigners have acquired $3.6 trillion of U.S. assets since 1990 as a result of U.S. trade deficits.

Foreigners have a surfeit of dollar assets. For the past three years, their increasing unwillingness to acquire more dollars has resulted in a marked decline in the dollar’s value in relation to gold and tradable currencies.

Recently, the Japanese, Chinese and Koreans have expressed their concerns. According to a March 10 Bloomberg report, Japan’s unrealized losses on its dollar reserve holdings have reached $109.6 billion.

The Asia Times reported on March 12 that Asian central banks have been reducing their dollar holdings in favor of regional currencies for the past three years. A study by the Bank of International Settlements concluded that the ratio of dollar reserves held in Asia declined from 81 percent in the third quarter of 2001 to 67 percent in September 2004. India reduced its dollar holdings from 68 percent of total reserves to 43 percent. China reduced its dollar holdings from 83 percent to 68 percent.

The U.S. dollar will not be able to maintain its role as world reserve currency when it is being abandoned by that area of the world that is rapidly becoming the manufacturing, engineering and innovation powerhouse.

Misled by propagandistic "free trade" claims, Americans will be at a loss to understand the increasing career frustrations of the college educated. Falling pay and rising prices of foreign made goods will squeeze U.S. living standards as the declining dollar heralds America’s descent into a has-been economy.

Meanwhile, the Grand Old Party has passed a bankruptcy "reform" that is certain to turn unemployed Americans living on debt and beset with unpayable medical bills into the indentured servants of credit card companies. The steely-faced Bush administration is making certain that Americans will experience to the full their country’s fall.

To find out more about Paul Craig Roberts, and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate web page at www.creators.com.

Now where do you stand on:
1. The education system is all about social engineering not electronic engineering?
2. Union activism has brought down the steel and most manufacturing industries.

3. Lawyers and environmentalists have made it prohibitive to build new power plants and refineries, never mind drilling for oil.

True, True, and True. All of the above are correct.

One of the problem with the "market" solving itself is that it assumes that globalization will create harmony in the world and we'll all just get along. History shows otherwise; both with periods of internal strife as well as external. My concern is if the U.S. continues to shift strategic manufacturing and brainpower overseas to supposedly "friendly" countries, who at some point in the future decide not to be friendly, where do we turn in a hurry to provide us with basic manufacturing needs, such as steel, etc. Last time I checked, any country that ends up being reliant on other countries (unnecessarily in our case, given U.S. business is only doing it to maximize it's bottom line without other important goals in mind)for certain strategic and/or basic commodities, well, you are in trouble, it's a matter of degree.

A run amok pure capitalist system is not in everyone's interest; they caused unions to rise and socialism to become attractive. Common sense with a touch of what is best for the common good needs to be also understood by our corporate titans. Otherwise, the short-sighted mentality of what the next quarters earnings report will look like (at any cost) vs. what's the long-term objectives of the company is in relation to the society/country/world it serves, becomes suspect.

That's why the service sector is growing so much.

What's your position on the booming population in America? Where do the millions to be added to the country's population fit in with your model? What are they to do for a living? Do you think everyone is capable of being a doctor, lawyer, nurse, CPA (shudder)? Are there going to be enough rich people to provide service jobs for the masses?

You may despise manufacturing and those that do those jobs but they have been the backbone of our economy for generations.

Why do we care about being the world's reserves ? If other countries want us to buy from them, they have to take dollars. Period. No dollars, no trade. So, they then have to buy things from us in order to get rid of their dollars. Yes, we are financing our current spending by having foreigners buy T bills. So what ? We are still the safest place to stash money. If our economy sinks, so does the world's. The euro may be rising, but the economies underlying the euro are in big trouble. Would you want to invest in socialist countries like France, Germany, Belgium, England, Holland etc etc ? What do they produce but high unemployment and big welfare lines ?

China ? Would you invest in a Communist country ? India ? Still reeks of socialism and regulated markets.

If we'd just cut the domestic deficit, cut tax rates, and lighten up on regulation, this economy would rival anything China and India could produce.

Lawyers and environmentalists have made it prohibitive to build new power plants

You can thank President Clinton for this one. He signed an executive order in 1994 which allowed environmental groups to sue power plant owners and other land owners even if they weren't materially harmed by anything the land owner was doing on his land.

Its the Environmental Justice EO,and it is the reason that the lawyers and environmentalists can sue.

Americans should ask their lawmakers to revoke this EO, its sole purpose is to take profitable private use from the land and give authority over private property to the government.

You'll find the reason Clinton did this was to further the agenda of sustainable development, which has at its core trade philosphy, social justice. The sustainable developers team with the free traders to use trade , by outsourcing and eliminating a nations industries exacting penalties for tariffs, actually have created a method to redistribute wealth from "rich" nations to "poor." By supporting outsourcing you are supporting the underlying global socialist philosphy that rich nations must pay poor nations to raise the living standard of poor nations, that rich nations must pay to develop the infrastructure of poor nations (and neglect their own) that rich nations must downward harmonize their laws and regulations that provide for example, food safety for their citizens, because the poor nations call those laws trade barriers, and that rich nations must allow unlimited, unfettered immigration from poor nations(open borders--illegal immigration), and that rich nations must grant competitive advantage to poor nations in their trade agreements.

This is NOT free trade, it is national suicide. It is indefensible by liberty loving Americans, but they don't seem to have a say in the process.

You've probably read NAFTA, the agreements brokered by the WTO and the about to be implemented FTAA. You'll see the language of marxism showcased in the organizations promoting the agreements and the language of marxism in some of the agreements themselves. When a trade agreement or group talks about equity or social justice or infrastructure development or capacity building they are talking about a marxist redistribution of wealth not forced by "free trade" but by government and business.

Americans came to expect the employer to provide workman's comp, unemployment insurance, social security taxes, health insurance, retirement benefits, while at the same time satisfying OSHA, EPA, and etc.

Then we went through several rounds of GATT, so we have 3% tariffs. Chinese workers don't expect $10 per hour or any benefits. The natural result, as Adam Smith would have predicted, is that manufacturing concerns moved to where labor was cheaper and more abundant.

If we are going to continue to expect our employers to provide all those benefits, we are going to have to protect those benefits with tariffs. It is either that or lose the jobs.

With regard to this "new economy" I remark that all the factories have closed in my home town, population is declining, property values are declining, the quality of life is going south (or should I say east?).

"You may despise manufacturing and those that do those jobs but they have been the backbone of our economy for generations."

The key words there are "has been". Economies and civilizations change. Before manufacturing, agriculture was the backbone of our economy.

Change happens. Feel free to scream at the top of your lungs, for it matters not.

"After all, the chief business of the American people is business." - Calvin Coolidge

A run amok pure capitalist system is not in everyone's interest; they caused unions to rise and socialism to become attractive.

Capitalism makes the same mistake that socialism does. It attmepts to negate the human part of the equation. In order for true socialism to work it must negate individuality, creativity, the quest for excellence and personal satisfaction from its equation. On the other hand, true capitalism doesn't take into account greed, man's inherent need to dominate, Darwinism and the lack of society.

Each tenet is destructive to a society. They just attack from opposite ends. Neither a truly capitalist society nor a socialist society can survive the needs of humanity. Capitalism has just as many non-human traits as does socialism.

Anyone who thinks that capitalism can solve all problems thinks that he is the biggest bear in the river. He will get all the salmon and survive and to hell with everyone else.

Lots of cars, for one example. Toyota, Nissan, Honda, BMW, and Mercedes-Benz all come to mind as manufacturers with significant American operations.

Those cars are manufactured here using exclusively foreign made parts, except maybe for the bodies. Yes, workers are employed, but only so many can be employed in auto assembly.

With all the components on the cars being foreign produced, each time a man buys a car, the lion's share of what he pays for it must go to those foreign countries. The amount of profit made on the cars is heavily taxed from the manufacturer to the consumer and most businesses in between is are subject to costly regulations.

Thereby, very little of the money traded for these durable goods actually enter the American economy. Much of it enters the economy through government payouts to the welfare system, which is the money taxed from income, FICA, corporate taxes on the amount paid for the product sold.

It's reasonable to assume that the more money entering the economy via welfare disbursements strengthens and expands the socialistic systems in place and demand will create new ones.

Not a good picture, as far as I am concerned.

Manufacturing as a percentage of the workforce is dropping pretty much everywhere. Why? Automation and other productivity gains means that we can make more with less labor. That trend is hitting the Chinese even more than us. For ever modern plant making Western consumer goods, there's a bigger state run plant being shut down or receiving massive subsidies. Look at the steel industry -- big massive plants with tens of thousands of workers are dying out or are big money losers throughout the world. Small mini-mills with extensive automation and the capability to make a wide variety of products are the new low cost manufacturers of steel. The only way for those huge dinosaurs to compete with the mini-mills is for their governments to subsidize them. Which means that those governments are taking money from profitable enterprises and wasting it on losing one's. In the long run, it's not a winning proposition.

You have to get beyond strict job descriptions. Much of the service economy involves constant change in what the workers do. Getting a minimal education and working for your entire life at one plant making the same product is a fantasy. It only happened for a while in the US because the rest of the world was a smouldering wreck after WWII.

Side note -- agriculture was the backbone of our economy in 1800. Are you going to argue that we were better off then? Change always comes. Either learn to adapt or become extinct.

I'm with you. I've been hearing these same naysayers for decades now. I'm thinking that 300 years from now they might be right about something and then they will chortle "We told you so!" But in the meantime, they've got a bad luck streak longer than Daryl Strawberry and Dwight Gooden rolled together.

Somehow, amid all this "disastrous" outsourcing, the U.S. continues to have one of the lowest unemployment rates in the world. This is despite the fact that virtually all of our women have entered the workforce as well.

Sure, the naysayers will respond that "But, but...all these jobs are in restaurants and retail stores...blah, blah, blah." So then I retort, "Well I guess that means there's got to be a whole bunch of people eating in all these restaurants and shopping at all these retail stores."

I remember growing up as a kid that it was big deal for a family to go to a "sit-down" restaurant. Now the majority of families eat in places like Applebees, Chilis and Outbacks several times a week! It ain't cheap to take the family to places like this. I dropped over $100 just last night taking my family to a chain Mexican Restaurant, where the "minimum-wage" girl taking my order got a $25 tip at my table along. You can make good money working at these restaurants. But then again, you need to be making good money to be eating in them too.

So I'm getting sick and tired of these "service" jobs being demeaned by those who believe that we were better off when we were slaving away at some factory job. I'm thinking these "factories are going away" alarmists listen to too many Bruce Springsteen albums.

Seen this alot, especially in St. Louis. Have been trying to find a new career now that the IT industry fled. The big 3 employers in St. Louis are full of Hindu's and Pakastani's who work for next to nothing.

My new venture is as a Loan Officer and the outlook is not good. I spend 3 hours a day prospecting to Real Estate agents and this will be the next sector to see a dramatic downturn in housing prices. The jobs have been fleeing and the RE prices are about to take a downswing.

It goes to the old analogy - no bucks, no buck rodgers.

Chinese workers don't expect $10 per hour or any benefits

Correct, they don't even expect to get paid! How many millions of farmers forced off their land in China to go work in the construction industry in Shanghai and other cities did not receive payment for their work for 10 years? Oh thats because in China, slavery is OK. What moral American would have a slave to do his labor? Didn't America make the great moral decision to outlaw slavery 140 years ago? The Einsteins negotiating "free trade" deals think that slavery is wrong in the US but not in China, India or the Sudan? Or maybe they want to bring slavery back to the US in due time? Oh wait, but they already have! The free trade lobby going after the illegal immigrant labor force has actually reinvigorated slavery in America!

Sex slaves hidden victims in trade

The actual number of US slaves (forced to work without pay as farm workers, domestic servants and prostitutes) is unknown. The State Department estimates that between 14,500 and 17,500 people are trafficked into the US each year, far lower than some calculations.

"Maybe half that annual number, or more, become sex slaves," says Kevin Bales, president of Free the Slaves, a Washington-based non-governmental organisation. "It's a very hidden crime. And it's one in which the crime is not an event, like a mugging reported to the police, but a process."

Yes, we have only ourselves to blame.

While the little guy was working his ass off to make ends meet, the rich kids in Congress were recklessly spending and implementing suicidal new laws.

Congress should be restricted to 6 month sessions every 2 years and their salaries should be cut in half tomorrow.

They are the "kings" that need to meet with the guillotine fast!!

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