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America’s Has-Been Economy
Chronicles ^ | Friday, March 18, 2005 | Paul Craig Roberts

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.


TOPICS: Business/Economy
KEYWORDS: 19thcenturyidiots; crybabyluddites; deficit; despair; economy; freetradeatanycost; globalism; grapesofwrath; hateamericaright; india; itsover; jobs; market; nohopenohope; outsourcing; paleocongarbage; paulcraigroberts; priceofglobalism; suicidesolution; trade
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To: Toddsterpatriot
It's some sort of myopia. If you follow their argument (I'm being generous) to it's logical conclusion, they contradict themselves.

2000 National Productivity of Steel Production
Country
 Steel Production 
(million metric tons)
 Employment 
(thousands)
Productivity
(tons/employee)
Australia
8.5
21
404
Austria
5.7
12
475
Belgium
11.6
20
580
Brazil
27.9
63
443
Canada
16.6
56
296
Finland
4.1
8
512
France
21.0
37
567
Germany
46.4
77
602
Italy
26.7
39
684
Japan
106.4
197
540
Luxembourg
2.6
4
650
Netherlands
5.7
12
475
South Korea
43.1
57
756
Spain
15.8
22
718
Sweden
5.2
13
400
United Kingdom
15.2
29
524
United States
101.5
151
672

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.

201 posted on 03/21/2005 9:53:09 AM PST by Willie Green (Go Pat Go!!!)
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To: chimera

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


202 posted on 03/21/2005 10:05:44 AM PST by dervish
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To: A. Pole
Next step would be national debate on the creating intelligent long term national economical policy.

Can you share your proposals for the first Five Year Plan?

203 posted on 03/21/2005 10:17:02 AM PST by malakhi
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To: malakhi
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.

204 posted on 03/21/2005 10:34:49 AM PST by A. Pole (Proverbs 26:11: "As a dog returneth to his vomit, so a fool returneth to his folly.")
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To: oceanview
While GM is dying.

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.

205 posted on 03/21/2005 10:41:17 AM PST by malakhi
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To: A. Pole
national policy should be worked out by the Congress and President and with the public debate.

Economic central planning has failed everywhere it has been tried.

206 posted on 03/21/2005 10:47:47 AM PST by malakhi
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To: malakhi
national policy should be worked out by the Congress and President and with the public debate.

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.

207 posted on 03/21/2005 10:52:43 AM PST by A. Pole (Proverbs 26:11: "As a dog returneth to his vomit, so a fool returneth to his folly.")
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To: A. Pole

"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.


208 posted on 03/21/2005 10:55:25 AM PST by phil_will1
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To: A. Pole

Do you recognize the difference between monetary policy and central planning?


209 posted on 03/21/2005 10:57:02 AM PST by malakhi
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To: phil_will1
I think that I already addressed how the FairTax would help alleviate the trade deficit.

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.

210 posted on 03/21/2005 11:05:24 AM PST by A. Pole (Proverbs 26:11: "As a dog returneth to his vomit, so a fool returneth to his folly.")
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To: malakhi
Do you recognize the difference between monetary policy and central planning?

Yes. Do you recognise the difference between national economical policy involving market mechanisms and Soviet style central planning?

211 posted on 03/21/2005 11:06:51 AM PST by A. Pole (Proverbs 26:11: "As a dog returneth to his vomit, so a fool returneth to his folly.")
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To: dervish
I don't know about those speculative articles. All I know is what I see, every day, working in the trenches. We've got more and more foreign nationals filling out the ranks in advanced degree programs, and fewer American students. There is a reason for that. Students aren't stupid. If their home country, its political and business leaders, value what they do and what they are learning to do, they will find employment in those fields. If not, if the persons who do those things are considered expendable, if those jobs are sent overseas or completely eliminated, then the students considering those fields will look elsewhere. There are any number of free traders who will applaud that and say, good, we don't need those things anyway, it behooves us to remember that history shows that others have had the same ideas ("La République n'a pas besoin de savants") and things didn't turn out too good for them. It wouldn't be the first time that a society devoured it's own children.
212 posted on 03/21/2005 11:09:03 AM PST by chimera
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To: A. Pole

"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.


213 posted on 03/21/2005 11:20:48 AM PST by phil_will1
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To: Labyrinthos
What field would you recommend to the students?

Walmart Greeter, Walmart Cashier, Walmart Stockboy.

And if all else fails...you'll always have a stable job as a diversity trainer.

214 posted on 03/21/2005 11:21:24 AM PST by BureaucratusMaximus ("We're going to take things away from you on behalf of the common good" - Hillary Clinton)
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To: Willie Green
The US steel industry employs the most productive technology on the face of the planet.

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?

215 posted on 03/21/2005 11:25:46 AM PST by Toddsterpatriot (Maybe it's not the Alinsky Method. Maybe you appear ridiculous because you are ridiculous!!!)
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To: 1rudeboy
Funny how that works.
216 posted on 03/21/2005 11:27:18 AM PST by Toddsterpatriot (Maybe it's not the Alinsky Method. Maybe you appear ridiculous because you are ridiculous!!!)
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To: A. Pole; malakhi
This is not true. Pragmatic (not ideological) national policy combining market and well calibrated government intervention usually worked very well.

Yeah, how well has that worked for Japan since 1989?

217 posted on 03/21/2005 11:30:56 AM PST by Toddsterpatriot (Maybe it's not the Alinsky Method. Maybe you appear ridiculous because you are ridiculous!!!)
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To: FreedomPoster
Lots of cars, for one example. Toyota, Nissan, Honda, BMW, and Mercedes-Benz all come to mind as manufacturers with significant American operations.

That's just assembly. The parts still come from overseas.

218 posted on 03/21/2005 11:37:17 AM PST by SwankyC (1st Bn 11th Marines Semper Fi)
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To: phil_will1
IOW it totally eliminates the bias of our current tax system which actually favors foreign producers over and above our own.

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).

219 posted on 03/21/2005 11:42:14 AM PST by A. Pole (Proverbs 26:11: "As a dog returneth to his vomit, so a fool returneth to his folly.")
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To: SwankyC
That's just assembly. The parts still come from overseas.

100% come from overseas? 80%? 50%? Do you have a source for your theory?

220 posted on 03/21/2005 11:42:47 AM PST by Toddsterpatriot (Maybe it's not the Alinsky Method. Maybe you appear ridiculous because you are ridiculous!!!)
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