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.
OAS told him not to give me one. Or maybe the FTAA told him not to.
Then why don't they assemble the parts overseas? That's where the cheap labor is, remember?
Excerpted and condensed from:
Of Restraints upon the Importation from Foreign Countries
of such Goods as can be produced at Home
"There seem, however, to be two cases in which it will generally be advantageous to lay some burden upon foreign for the encouragement of domestic industry...
- The first is, when some particular sort of industry is necessary for the defence of the country....
- The second case, in which it will generally be advantageous to lay some burden upon foreign for the encouragement of domestic industry is, when some tax is imposed at home upon the produce of the latter. In this case, it seems reasonable that an equal tax should be imposed upon the like produce of the former....
The economic burdens that you admit the feds place on domestic industry are essentially a form of taxation. Therefor, the steel industry qualifies for tariff protection under BOTH conditions specified by Adam Smith.
How many steel jobs are there now? 10 million? 20 million?<
Employment in the steel industry declined to about 170,000 wage and salary jobs in 2002.
63% of the workforce is nonunion, so it is disingenuous to showcase labor organization as a boogeyman.
chinese and indian engineers are very smart. they earn alot more then the factory workers of course, but still a very low wage compared to US standards.
the only reason foreign nationals need to come to the US for engineering educations is because their own systems are not built up yet. In time, that will happen. As engineers there get older, they will leave industry and enter the higher education systems there - that will be the way they form their programs with trained engineers as professors. that's why we don't see many japanese engineers in US programs - they are moved past the phase of needing US degree programs for their own people.
The US high school systems turn out more than enough candidates for these fields, not everyone needs to enter them. The reason fewer are taking this up in college is because of the market dynamics of finding a job and wages in the field.
Dear SwankyC,
A little bit of googling reveals that for Hondas built in the US, the domestic content is somewhere between 70% and 90+%, depending on how one counts content.
Honda, as an example, has over 450 suppliers in the United States.
Some models of Toyota have about 90% domestic content, with an overall domestic content average of about 75%, and about 500 American suppliers. Toyota uses almost all (98%) US steel for cars built in the US.
sitetest
You almost sound like Marx. LOL
Now you've done it . . . .
My guess is that it's one of those girly-boy clubs that you have to give a limp-wristed secret handshake to get in.
What about claiming that American factory workers cannot compete with folks earning $1 per hour, then?
Only when responding to your latest, friend.
Okay, you and I agree that steel is necessary for defense, but how much steel is necessary? Your chart showed we produced 101.5 million tons in 2000. Is 50% needed for defense? 20% Or 120%?
In this case, it seems reasonable that an equal tax should be imposed upon the like produce of the former
Sounds reasonable. So how much tax on foreign steel would equal the domestic tax on American steel?
Employment in the steel industry declined to about 170,000 wage and salary jobs in 2002.
Hmmmm...I have a feeling more Americans are employed in steel using industry. Is it fair to punish them to protect 170,000 steel making jobs?
63% of the workforce is nonunion, so it is disingenuous to showcase labor organization as a boogeyman.
I'd be interested in how many union workers work in mini-mills and how many nonunion workers are employed by the integrated mills.
Sorry, I hadn't noticed they were in charge, but if you say they are.....
That is true in manufacturing industries that are more labor intensive, such as products that require assembly.
However, steel production is more highly automated and is labor efficient.
Labor costs are not as significant as capital, energy and material costs.
Not sure the cure to deadly government regulations is additional government regulations.
The proportiom used for defense cannot be separated from other purposes since it shares the same production infrastructure. If you outsource the capacity that's used for civilian purposes, you degrade the military infrastructure as well.
Nope, you definitely use the Marx key on other people too.
****
To: A. Pole
So why do protectionists cite to Marx?
187 posted on 03/21/2005 7:44:20 AM PST by 1rudeboy
That's why Honda, for example, has engine and transmission plants here. Toyota also builds engines here.
You don't know what you're talking about. Why post as if you do?
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