Posted on 03/20/2005 8:11:01 AM PST by A. Pole
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.
COPYRIGHT 2005 CREATORS SYNDICATE, INC.
No, you can thank President Bush. He could revoke that Executive Order just as easily as Clinton invoked it, if he desired to.
Please, explain. Or do you think a better option would be to plow hundreds of thousands of dollars into a bioinformatics degree, only to find out that the market for it has dissolved after 5 years?
The healthcare either needs to be paid somehow (and added to the total costs) or reduced. The most efficient way to reduce costs is to establish national health care system (single payer). This would FREE American business from this burden, enable American workers to be more mobile etc ...
US healthcare would cost a lot less if we weren't paying for illegal aliens the free traders love to use in their businesses.
Has anyone asked him?
It is much easier to switch low skill menial jobs.
How many surgeons trained in the law and electronics do you know?
So we should all get English degrees? Okay, I will give you the benefit of the doubt if you can tell us how our economy will absorb that many English degrees.
If you look at a 50 year graph of home equity, you see that Americans had a considerable amount of it until about 1996, when the graph line on removal of equity from homes heads up like a NASA launch. If you look at the rate of personal bankruptcy, you see frightening numbers. When you look at personal savings rates, you see historic lows. When you look at our current international account, you see we have gone from being the largest creditor nation to accounting for a supermajority of world debt. Combining our trade deficit and federal deficit, both of which foreignors have been financing, we have been pumping about $750 billion per year out to the world. That's why the dollar has fallen steadily for three years against all major currencies. This year our trade deficit alone will be about $800 billion.
Foreignors are tired of funding our spending spree. The central banks are announcing one after one that they will "diversify their holdings." Translated, they are dumping dollars and dollar denominated assets. OPEC is starting to dump dollars and buy gold. The amount we pay out in debt service to the rest of the world is going up year after year, and faster than our economy is growing. The day of reckoning is near.
I was with you up until that. Isn't that a bit of an exaggeration? Most families can spend $100 at chain restaurants several times a week?
RE: ". . .slaving away at some factory job. I'm thinking these "factories are going away" alarmists listen to too many Bruce Springsteen albums."
I remember the 1940s, 50s and 60s. It weren't that bad. Low taxes. Twice a day mail delivery by the only Fed you'd ever meet in your life (besides doing military duty), low taxes so that the little wife didn't have to work, secure jobs promised to most high school graduates, retirement and mortgage burning -- and NO damn Bruce Springsteen.
Someone above suggested that those days were an anomaly. Maybe so but slaving away at 'dem factory jobs weren't that bad for most.
Our economy, initially more capitalist than not, has been tweaked and re-tweaked and meddled-in again and again over 200 + years, all in the name of the common good. We are living in a more socialistic than capitalistic economy. You think we need more "monitoring and tweaking" ? More government worker bees = less private business. In the case of corporate ceos, did you know more than a few of them vote democrat and give money to socialist causes ? That's what they see as good for their corporations. Do you know why ? Because we have placed so many restrictions on business that the easiest way to get anything done is to legislate it in Washington. Yep, let's monitor and tweak some more, seems to be working so well.
What is the common good ? It's something that cannot be defined, because what is good for you might not be so good for me. Adam Smith said it best - ...every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good.
I have a project for you. Go try to start a business - say, a steel plant. Then report back here with your insight into how much the monitoring by the EPA, OSHA, the US Dept of Labor, the IRS, the state and local governments etc etc ad nauseum are telling you how to run your business and affecting your ability to stay in business. That's why we are outsourcing manufacturing. Only large companies can afford to hire full-time workers to comply with all the regulations we have placed on businesses. Have you ever tried to win a contract from DOD ? I have. You need full-time compliance personnel to handle all the paperwork, not to mention all the thousands of work rules and tax issues.
To heck with strategic and defense-related matters - we have enough material stockpiled to defend our own country, and enough capacity to manufacture more when necessary. In WW II we started plenty of businesses to create war material. Maybe we don't have enough to police the world, but I'm getting tired of my taxes going to "make the world a better place".
Go read "Atlas Shrugged" and you'll understand more about the mindset of those who cannot produce but who feel they should regulate those who can.
BTTT!
Never go to happen. All of those people with employeer paid insurance would march on Washington to take their congress person out and lynch them if they took away their health insurance and then expected them to pay taxes to get what they were getting more or less for free.
Those are astonishing numbers.
But the "free traders," pro-migrant "cheap" labor folks are likely to believe that you are supporting their position.
No, "free traders." Slavery is not suppose to be good.
I find it amusing that so many people assume that it is the "greedy, evil corporations" that want to leave the USA behind for cheaper places at which to manufacture their goods.
It is ALSO (and probably largely) the fault, however, of government regulation and interference that is doing it. With city, county, state and federal taxes on everything they do, with restricting regulations and with the ancillary costs such as defending against scum bag lawyers and unions, they spend so much of their efforts and capital dealing with this stuff that they eat into their profits horribly.
We could make the USA business friendly again, for one thing. That would keep a lot of corporations from leaving.
Exactly. The problem with the uS business model is it has become obsessed with quarter to quarter performance, and this has harmed the long term performanmce of many US based companies from Union Pacific Railroad, to GM to HP. There has to be a change in the very corporate culture of US companies, or the bad long term implications of this system will come home to roost from a "health security" payroll tax down the road enough new rules and regulations to make even the Carter era seem quaint by comparison when the US electorate has no more economic ground to give, votes in those people who promise to ease their economic burden.
It will happen. Free trade will FORCE the introduction of national health system. Mark my words.
" The problem with the uS business model is it has become obsessed with quarter to quarter performance, and this has harmed the long term performanmce of many US based companies from Union Pacific Railroad, to GM to HP. "
Jesus.....ONE person on this threwad knows the truth! Not a good ratio, as we tend to be more intelligent, and more aware of most things. Looks like the quarter to quarter execs are safe to continue to do their damage. By the way, HP is now in Malaysia.
thread that is : )
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