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.
Why SINCE 1989? What about BEFORE 1989? Japan transformed from the Third World country into the leading economical power. Most of the Third World countries would gladly had Japanese post 1989 problems (BTW, Japan is not doing so bad even after 1989 and USA is getting deeper into the debt with Japan).
You said:
Pragmatic (not ideological) national policy combining market and well calibrated government intervention usually worked very well.
So, how well has it worked in Japan since 1989? Or would that ruin your point that government intervention usually works?
Sorry to burst your bubble, but the United States is the leading economic power.
Since 1989 it worked quite well as it prevented Indonesia or Weimar republic style collapse. BEFORE 1989 it worked EXTREMELY well as it made Japan a prosperous industrialised country.
But you would like to see Japan to be like Indonesia without the natural resources. It must be because you are not Japanese.
Or would that ruin your point that government intervention usually works?
Compare Indonesia with Malaysia at the time of Asian crisis - the first followed the free market Western advice the second decided to use state intervention. Compare Russia of 1990's which following the advice of Chicago/Harvard boys transfered the national wealth into hands of mafia with China which used state planning in national interest.
OK, so Japan is the second leading economic power. For a small island with little resources and much smaller population than USA it is quite an achievement.
Wow, not collapsing is a reason for government central planning? Setting a low bar. We didn't collapse either, what do you credit that to?
Compare Russia of 1990's which following the advice of Chicago/Harvard boys transfered the national wealth into hands of mafia with China which used state planning in national interest.
The Chicago/Harvard boys advised Russia to transfer the national wealth into the hands of the mafia? I must have missed that white paper. You wouldn't have a link to it, would you?
You said that planning worked well. So, how much has the Japanese economy grown annually since 1989? They've been planning their economy since at least the end of WWII. They must be getting better at it, right? Practice makes perfect?
Compare Indonesia with Malaysia at the time of Asian crisis
Why not compare the US and Japan? Our growth since 1989 vs their growth. How about since 2000? Why not 1980? You seem to want more planning for the US, show me that planning worked better than not planning.
I'll bet the OAS ordered you to say that! LOL!!
Because the federal government imposes regulatory burdens on the steel and mining industries (OSHA, EPA, etc.) that are not observed offshore.
People coming together to voluntarily trade goods and services.
There is nothing "voluntary" about it whatsoever.
The lopsided economics of international trade are dictated by corrupt bureacrats who negotiate misnamed "free" trade agreements.
"We are infinitely better off without treaties of commerce with any nation."
--Thomas Jefferson to James Madison, 1815.
Nothing voluntary about a company wanting to voluntarily buy steel from South Korea. Once again, not understanding your Willie logic.
So, you can't, or won't, explain why expensive steel is good for America?
According to hedgetrimmer, the OAS is the supranational body to govern the Western Hemisphere, as designated by the Free Trade of the Americas Agreement.
So, when you want to fight that parking ticket, dispute that property tax increase or lobby your elected representative, don't bother, the OAS has power over the entire Western Hemisphere.
I'm not Irish, so I don't know the whole story, but didn't the British force the sale of the grain to England? Not much free market about it.
I've explained that it is the federal regulatory bureaucracy that places that economic burden on our domestic industries.
You're the one who refuses to acknowledge that.
Well you haven't even explained the OAS acronym yet for those who don't know. Can't you tell us in your own words?
It's not so much the loss of the factory jobs themselves that people object to, as the loss of the other jobs related to them. The idea that we could continue to design the machinery and software used in production, once the factories moved elsewhere is proving to be an illusion. The know-how and the pioneering can-do spirit follow the centers of production, or at least that's the fear. The idea that we could still be the headquarters country after outsourcing industry, looks overconfident. Of course, we can't seal off our borders and stay on top of the heap, but people naturally fear the unknown, and there's much in deindustrialization to make people understandably nervous.
You're the one who refuses to acknowledge that.
I agree that the feds place a burden on domestic industry. So does a unionized workforce. So, why is it good for America to make steel consumers pay $150/ton for American steel if they could buy Korean steel for $120/ton?
We creating a lot of steel worker jobs by doing that? How many steel jobs are there now? 10 million? 20 million?
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