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 Americas 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 doesnt manufacture doesnt 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, outsourcings 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. Its 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 Americas 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 Americas 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 Februarya 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 Americas 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 dollars 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, Japans 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 Americas 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 countrys 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.
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The US steel industry employs the most productive technology on the face of the planet.
Minimill operators, such as Nucor, are capable of productivity levels exceeding 1000 tons/employee.
The national average is reduced only by the necessity of larger, integrated mills which produce steel from ore instead of scrap metal. Unlike the minimills, this provides us the ability to produce more sophisticated alloys with greater control over the quality.
America's enemies undermine our national security with trade policies that emphasize importation of cheaper, crap steel.
Huh??
http://www.csmonitor.com/2005/0201/p07s01-woeu.html
http://europa.eu.int/rapid/pressReleasesAction.do?reference=IP/03/1594&format=HTML&aged=0&language=EN&guiLanguage=en
Can you share your proposals for the first Five Year Plan?
Igoring your sarcasm, no - national policy should be worked out by the Congress and President and with the public debate.
Maybe GM deserves to die. No company should be "too big to fail", particularly if "saving" it requires tax dollars taken from more profitable businesses.
Economic central planning has failed everywhere it has been tried.
This is not true. Pragmatic (not ideological) national policy combining market and well calibrated government intervention usually worked very well. This is how USA, Japan, China and many other countries grew their economies.
Radical free market is almost as harmful as Soviet style central planning.
"How is this going to fix the problem with trade/budget deficits, with rising costs of health care and with the workers losing ground?"
I think that I already addressed how the FairTax would help alleviate the trade deficit. As for the federal budget deficit, the primary factor is that economic growth has declined. The most effective way to reduce the (federal budget) deficit would be to accelerate the rate of economic growth. That is exactly where the FairTax comes in. The primary study conducted on the economic impact of the FairTax indicates that GDP growth would be a smoking 10+% in year 1, gradually declining in subsequent years, until the economy is 1/4 to 1/3 greater than it would have been under a continuation of the current system. That would go a long way toward alleviating the budget shortfall.
If you are suggesting that we should not address the tax system because there are other contributing factors relative to the trade and federal budget deficits, I think that is a difficult position to sustain.
Do you recognize the difference between monetary policy and central planning?
Where?!
If you are suggesting that we should not address the tax system because there are other contributing factors relative to the trade and federal budget deficits, I think that is a difficult position to sustain.
I said we SHOULD address the tax system. VAT is being used as disguised tariff by the other countries, that is why USA must to imitate it in order to compete or to restore tariffs to the comparable degree. (Tariffs are the form of taxation and the main one established by the Founding Fathers).
National sales tax is not going to reduce trade deficit because it will be applied equally yo the American and foreign products.
Yes. Do you recognise the difference between national economical policy involving market mechanisms and Soviet style central planning?
"National sales tax is not going to reduce trade deficit..."
Incorrect.
"...because it will be applied equally yo the American and foreign products."
Exactly! IOW it totally eliminates the bias of our current tax system which actually favors foreign producers over and above our own. It puts US producers on a level playing field and, unlike a tariff, could not be opposed by the WTO or our trading partners since it is not discriminatory (unlike a tariff).
Using tariffs to mask the bias in our corporate income and payroll tax system is a very inefficient way to go.
Walmart Greeter, Walmart Cashier, Walmart Stockboy.
And if all else fails...you'll always have a stable job as a diversity trainer.
Then why do you need to protect them from less productive producers?
America's enemies undermine our national security with trade policies that emphasize importation of cheaper, crap steel.
So, you'll protect steel consumers who want "cheaper, crap steel" because you're smarter than they are? If the cheaper steel is lower quality, some consumers will accept that price/quality trade off and some won't. You know, the free market. People coming together to voluntarily trade goods and services. Without Willie standing between them saying, "Wait, I don't think this is good for America"
Now please explain again, if you can, how expensive steel is good for America?
Yeah, how well has that worked for Japan since 1989?
That's just assembly. The parts still come from overseas.
What is the purpose for the society to have its own state and government if they are not to be biased in the nation's favor?
It puts US producers on a level playing field and, unlike a tariff, could not be opposed by the WTO or our trading partners since it is not discriminatory (unlike a tariff).
And it puts US workers on a level playing field with China or India. Producers will manage fine in short term as they will fire Americans and move production where the cheap labor is.
If WTO is so sacred that it is more important than national interest than VAT can be used to substitute for the tariffs (other countries use VAT for this purpose).
100% come from overseas? 80%? 50%? Do you have a source for your theory?
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