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.
Well no, put that way.
Right now about the only jobs protected by the government with the approval of the movers and shakers are soldier, sailor, Marine, airman, and coast guardsman.
Otherwise Americans have "no right to a job," I suppose is the argument.
How the low wages, unemployment, trade deficit and transfer of manufacturing capacity abroad promotes the technological progress?
Which is correct. Last time I checked there is no right to work clause in the Constitution. Funny these doom and gloom articles only appear when a gop is in office. I never seen these type articles when slick was in office.
This is the technological progress you are talking about?
What about tariffs, promotion of common welfare and domestic production?
Roach is correct. The american "productivty miracle" is not a miracle at all - its simply the result of offshoring lower productivity jobs to lower wages locales. American Express still employs the same number of call center jockeys, in fact they probably employ more to do the same job as they did when they were US based, but each of them work for only $20K now.
Business waves the Flag when Americans go off to fight to protect them but business waves hands full of employment applications from around the world when Americans return from combat looking for a job. Go figure.
RE: "I never seen these type articles when slick was in office."
The phrase "jobless recovery" was used to describe the first Clinton term. Some things are not entirely partisan.
Yes. Some where in the U.S. there is a "free trader" who will admit that it is not automation alone that explains all the job loses. Some where in the U.S. there is an honest "free trader." Last I heard he was in St. Louis.
The erosion began when U.S. corporations outsourced manufacturing.
Lost me here. If it can be manufactured by anybody, it's not high-tech.
and I didn't mean by my example that this is the ONLY means that american productivity is improving - the "real" kind of productivity increases are also taking place. in fact, we could have more of those if not for offshoring - if $20K call jockeys were not available in India, AMEX would be investing is better natural language technology for call centers. that's the kind of productivity increases we want. its a similar analogy with migrant farm workers - no one bothers to invest in machinery to harvest crops when workers from Mexico are available to pick them at ultra low wages.
no, that's not true. why don't we have fully automated factories in the US to make toys (for example)? answer: when labor to assemble toys in china is available for $120 per worker per month, who would bother to invest in an american automated toy manufacturing factory? now toys is a bad example vis-a-vis "high-tech", but its the same model for other things - the availability of ultra cheap labor thwarts what should be investments in automation. that's the difference between real productivity increases, and productivity increases that corporations can show by offshoring labor to low wage markets. instead of investing in automated natural language call centers, AMEX offshores to India, etc.
My only purpose was to cite replies from some of our "free traders" claiming that automation is the only reason for productivity gains and reduced need for workers. Ditto some talk show hosts. It is they who at one time denied that jobs were being sent offshore.
Yup. Same here. 3 years ago, Sr. Systems Admin at $45/hr. Now, looking for a new career. Employers look at the resume or the rate and drop me like a hot rock, no matter how low I go. Low level employers look at the resume and the rate and can't figure why i'd take their jobs at $10/hr.
I'd go back to school, but what to train in that can't be outsourced in the next 5-10 years.
Working to start my own, but it's danged difficult living in rural Iowa.
The people who are saying this isn't happening are just self-centered. It hasn't happened to them or anyone they know, so it must not be happening.
Giving away our innovation is the death-knell though. That's just plain suicide.
I don't want to sound callous, but maybe the problem is living in rural Iowa. Why not move?
To Mumbai?
BMW South Carolina exports cars. I'm sure other auto plants do as well.
The market is doing wonders to the dollar. We are coasting on credit and the dollar is in decline as a reserve currency, as the pound was, over 100 years ago.
BUMP
Of the recent graduates in my department, 75% of them went home after graduation, to Turkey, India, China, Romania, etc. Of the U.S. graduates, one went to law school, three enrolled in MBA programs, one got a job as a security guard at a local car sales lot, one went to work in his father's machine shop, and the most highly-paid U.S. graduate went to work for, you guessed it, the government, as a patent examiner. None of the U.S. graduates are working in the areas they were trained in.
I don't know, call it anecdotal if you want, but at one time when this country was a leader in manufacturing and technological innovation, people who could work in R&D were highly sought-after individuals. Employers would beat a path to the door of the best and brightest of our young scientists, who were more than eager to take on the challenge. With the departure of those manufacturing and technology industries to foreign shores, the R&D functions have withered away here.
Nowadays, I see in the classroom every day, among the sea of foreign nationals (who are, by and large, very fine individuals, obviously valued by their governments and societies), those few U.S. students who, while capable, are quite despondent and pessimistic about their chances for a long-term career in their chosen fields, and are almost resigned to being a kind of wandering gypsy in their careers if they hope to have any kind of work doing what they are trained to do. That kind of lifestyle is fine if you're young and footloose and fancy free, but is hell on family life and putting down any kind of roots and building a decent life for you and your loved ones.
Three years of roofing in the Louisiana sun did the trick for me.
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