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.
If you are interested in a good discussion of domestic-content labels or autos, click on the link in my #156.
If you are interested in a good discussion of domestic-content labels on autos, click on the link in my #156.
Good for China, that's for sure.
So they say. You want me to believe something someone publishes in a foreign journal or my own lying eyes? I'm telling you my experience. You can give that whatever credence you want compared to a magazine article, but I live the truth of the matter everyday, so you're going to have a hard time convincing me that what I experience everyday is untrue but what someone I don't know writes in an EU article is true.
You remind me of the guy I used to work with who stated that he knew it was absolutely true that wearing seatbelts in a car crash didn't really help save your life because he read some article in some magazine to that effect. He's preaching that crap to me after I'd just lived through a 50 mph crash against a tree in part because I was wearing my seatbelt. Nothing like a little practical experience to give you a different view of magazine articles.
He, he. James Madison the original Commie and evil inspirator of Patrick Buchanan.
these plants could be undercut easily. Many Japanese light truck makers have factories in Thailand; open it up, and Mitsubishi et al will ramp up low cost truck imports and undercut both GM, Ford as well as Nissan and Toyota who are based in the US.
"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)."
So you support adding a VAT to our other taxes? That is politically a non-starter. Mnay conservatives are highly skeptical of giving the federal government another way of taxing us, in addition to the tax forms already in existence.
"So, how much tariff would be fair? And how much extra cost to steel users is okay to protect 170,000 jobs?"
And how many jobs would you be willing to destroy in steel using industries in order to save those 170,0000 jobs?
I see only two options to prevent the collapse of American industry - restauration of the tariffs or VAT (which can be used like tariffs). I prefer the first.
Only as a matter of degree, not of kind.
Japan was a First World country throughout the 20th Century.
Also, they were significantly benefited in the post-WWII era by not having to foot the bill for their national defense.
And then companies would be free to import all the foreign steel they wanted?
I don't have any evidence anyone is being crushed. Do you?
In 20 years we'll be saying "Remember when some thought China was an economic threat?" And the protectionists will have moved on to their next target.
Degree difference if large enough is a difference of kind. For example if the temperature in you room gets hundred degrees higher or lower you will experience it very clearly. Believe me.
That would be zero Phil. I'm trying to pin down those who do want tariffs.
The scale is ten times bigger. If China follows the Japanese example then her economy will be five times larger that USA (if USA keeps the ground).
I hope you're ok. Get well soon.
You mean the Japan example from 1989 until now?
Questions like this one:
"Still no luck proving Japan's planning worked better that our lack of planning, huh?"
First USA had planning in the past, second conditions of America with huge reserves or space and natural resources are completely different than the small crowded island without resources and with even less inhabitable land.
To demonstrate in a way compelling to you that Japanese policy was closer to the optimum than the alternative one is beyond human strength. Even designing an alternative economical policy for the mere sake of comparison is a PhD assignment.
Different things are obvious to the different people, sorry.
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