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.
So, if we use 1 million tons a year for defense we need tariffs and regulations to protect the entire 101.5 million tons of productive capacity?
It's a protectionist thing. Facts don't matter. Just say "We don't make anything here" often enough and it becomes true.
That is why the greedy freemarketeers can go to Hell (as many of them will).
According to Adam Smith, it is justifiable to levy the tariff as compensation for the burden of regulation even if we didn't use ANY for national defense purposes.
So, how much tariff would be fair? And how much extra cost to steel users is okay to protect 170,000 jobs?
Exactly what I have been thinking as I watch the apologists who want the U.S. to absorb every illegal who crosses our borders. Many churches are also zealously incouraging giving money to help the illegal immigrants. It seems that the dirty secret of the industries near our borders, is that they are enjoying the profits made on the backs of the "illegal immigrant slaves" who are crossing our borders.
Freemarketeers will go to hell because the British starved the Irish?
Still no luck proving Japan's planning worked better that our lack of planning, huh?
There's no need to micromanage the economy in that fashion, especially since excessive regulatory burdens apply to ALL domestic industries. The proper way to address the issue is to levy a relatively low (10~15%), flat-rate "revenue tariff" on ALL imported goods. And to further encourage investment in domestic production with a corresponding reduction in the corporate income tax.
The First Federal Revenue Law
On April 8, James Madison, once again a congressman from Virginia, addressed the House. He went right to the point. Congress, he said, must "remedy the evil" of "the deficiency in our Treasury." He argued that "[a] national revenue must be obtained," but not in a way "oppressive to our constituents." He then proposed that the House adopt legislation, virtually identical to the unimplemented Confederation tariff, imposing a five-percent tariff on all imports....
...A single, uniform tariff, he insisted, had two advantages. First, it could be imposed quickly, which was important because "the prospect of our harvest from the Spring importations is daily vanishing." Second, it was consistent with the principles of free trade ("commercial shackles," he said, "are generally unjust, oppressive, and impolitic")
Because they worship the evil idol Mammon.
we already have an imported light truck tariff in the US - it has helped to, shall we say, "encourage" all these foreign auto maker truck plants to be built in the US - as opposed to having the trucks imported from Thailand, where Japan has large light truck capacity.
So tell us, who has been "crushed" by the current light truck tariff? the US consumer? the US consumer is buying light trucks in record numbers over the past decades that the tariff has been in place. New plants are being built in the US to employ americans at both the end stage and at the supplier level - and why shouldn't they be, since the market for those truck sales is right here.
so where is the evidence that the light truck tariff isn't working?
The light truck tariff has been in effect since, what, 1980? And when did those foreigners start building truck plants here?
The point is, the Japanese just started getting into those segments - they never competed there until somewhat "recently" (was the Toyota Tacoma the first one?). They could have used plant capacity in Thailand to source those products - the tariff was one of the reasons they didn't, and instead built plants in the US.
Agree. The 1980's are good times to remember. The US doom and gloomers were then prophesizing Japan's dominance and the US economic collapse. Hmm, what happened to that?
If you leave the market alone the US adapts. Adaptation not regulation has been the key to US sucess.
And the problem is?
They don't make up for jobs producing products sold to a worldwide market. No leverage. Also, its my understanding most of these automobile factories are final assembly only. The individual components are manufactured overseas.
So if the plants are here, then the tariff is no longer necessary . . . unless you speak for the UAW.
Why is an EU publication describing the brain drain to the US a "speculative" article and your experience of one definitive?
"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."
So just the foreign students who do not return to their home countries are "stupid?" Read the articles. The foreign graduates stay here.
Sorry, but your understanding is incorrect. And autos, as opposed to other goods, have federally-mandated content labels. A part manufactured overseas, but installed here qualifies as "foreign."
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