America’s Has-Been Economy

Chronicles ^ | Friday, March 18, 2005 | Paul Craig Roberts

[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.

[SwankyC]

I dont know, ask them. Go look at the content list on a car. My last three new cars were of about 85% foreign content.

[SwankyC]

It doesnt seem to want to allow me to reply to lrudeboy too.

I stoped by the auto strip mall today for lunch. I did a quick flyby of a few models to see what the US content is. I only noted the models where it would skew an overall picture of US made parts.

Dodge - 65-75% of US content
Volvo - 1.5% US Content
Nissan 0 - 65% The 65% was 1 model only
Honda 0(several models) - 90%(Accord only)
Chevy 55 - 75%
Toyota 0(4 models %5 and under) - 90%(minivan only)

I dont know where you got your information but it just doesnt match what's in the lot. You may stop being high and mighty at any time.

[sitetest]

Dear SwankyC,

Well, I don't have time to research this question thoroughly, but here's a little more of what I found out about Honda, as an example.

Here's a link to a page on Honda's website:

http://hondanews.com/CatID1005?mid=2004080244878&mime=asc

The link says that over 75% of Hondas sold in the US are built in North America. I don't know the average content of those models, I only know that the Accord is in the mid-90s, percentage-wise.

This page also states that 1.4 million Hondas are built in North America, which is about equal to the number of Hondas sold in the US in 2004. However, Honda actually EXPORTS some Hondas from North America to other countries.

In 2003, here were some of the models that Honda builds in North America:

- Accord
- Civic
- Acura TL
- Acura CL
- Acura EL
- Acura MDX
- Element
- Odyssey
- Pilot

About 1.25 million Hondas were built in North America in 2003, and of that number, about 850,000 were built in US assembly lines, or about 68% of all North American production.

Here's a link:

http://hondanews.com/catID1021?mid=2001040437274&mime=asc

Honda also says it purchased $10 billion of parts from North American suppliers in fiscal 2004. That works out to about $7000 per car of North American parts.

So, I don't know what to tell you about what you saw at the auto strip mall, but it appears that Honda, at least, builds a whole bunch of cars in North America.


sitetest

[sitetest]

Dear SwankyC,

A little googling reveals that Toyota builds at least some of these models in North America:

- Camry
- Avalon
- Camry Solara
- Corolla
- Matrix
- Sequoia
- Sienna
- Tacoma
- Tundra
- RX 330

For Toyotas built in North America, Toyota uses greater than 95% North American steel, and $22 billion North American-supplied parts.

Here's a link:

http://www.toyota.com/about/operations/manufacturing/index.html

In 2004, Toyota made about 1.4 million vehicles in North America, while selling about 2.3 million vehicles in North America.

Links:

http://www.toyota.com/about/operations/numbers/factsfigures04/na_production_growth.html

http://www.toyota.com/about/operations/numbers/factsfigures04/na_sales.html

Again, I don't know what you saw at the mall, but it appears that Toyota builds a lotta cars in North America, too.


sitetest

[FreedomPoster]

Nicely done.

[traumer]

"What type of knowledge? What field would you recommend to the students? "

Master of LIBRARIAN SCIENCE !

(...not kidding - just heard on radio)

[phil_will1]

"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)."

Although we disagree about the solution, there can be no doubt that China is a huge threat. They have a population of 1.5 billion and their economy is growing at twice the rate that ours is, and has been doing so for some time. India has 1 billion paeople and they sned 6 students to a university for every one China sends.

We are moving into a different economic environment than any we have known before. As Newt said recently, we haven't competed with economies that can match our scale before, but we will very soon. Those who don't take this seriously aren't paying attention.

[Toddsterpatriot]

Again, I don't know what you saw at the mall,

With most of these protectionists, facts come in a distant second to "I saw at the mall" or "Some guy told me".

[SwankyC]

Dear sitetest, <--- isnt that obnoxious!

I dont care what you've googled. Toyota absolutely does make some of their vehicles here, like I said, 90% of the minivan is made in America, but you are trying to make it sound like most of their vehicles are made here and that's just a flat out lie. Again, like I said a quick browse of three other models revealed 0 - 5% manufacture in America. I cant help you beyond that. I dont have a "reality pill" for you to take. Seek help.

with lots of love and affection, swankyc

[sitetest]

Dear SwankyC,

Sorry you find my standard salutation obnoxious.

But that's how I usually begin my posts to nearly everyone, because, to me, posts are like casual, friendly letters. I begin all my casual correspondence with "Dear ____," as well as some of my more formal business correspondence.

"...but you are trying to make it sound like most of their vehicles are made here and that's just a flat out lie."

Nope. I'm not "trying to make it sound like most of their vehicles are made here."

I'm just posting information provided by Honda and Toyota directly. If the information is that they DO actually make most of the vehicles that are sold in the US here in North America, then your argument is with the information.

Don't shoot the messenger. Frankly, until I looked up the information myself, I didn't realize that these companies built so many cars in North America.

I don't know what you saw at the mall, but in terms of aggregate data, both companies make a lot of cars in North America, and both companies use a lot of parts made in North America.

"Again, like I said a quick browse of three other models revealed 0 - 5% manufacture in America."

Well, what can I tellya? Honda made 1.4 million cars in North America last year. I don't know precisely what percentage of cars sold by Honda in the US were manufactured in North America, but it appears to be more than half. Domestic content for cars actually manufactured in North America is high.

Toyota manufactures somewhere around 3 cars in North America for every 5 they sell in the US. They make over 1.4 million, and sell over 2.3 million. I don't know if they export any out of North America, like Honda does.

I'll also note that Toyota actually employs 37,000 people in North America directly. GM had about 50,000 folks employed in North America in 2000, and I understand that GM has had to cut further.

Domestic content for those Toyotas appears to be pretty high, apparently around $15,000 per car manufactured in North America.

"Again, like I said a quick browse of three other models revealed 0 - 5% manufacture in America."

Well, we call that an anecdote. And at this point, it is an anecdote unsupported by any evidence, other than your own testimony. From your anecdote, we have no idea how representative your sample is. We do know that you're kind of hostile and nasty, and that doesn't really enhance your credibility.

But even if we fully credit your story, and I'm willing to give you the benefit of the doubt, your anecdote borders on sheer meaninglessness. We have no idea as to the sales mix of the models you purport to have looked at. We have no idea whether you missed a whole slew of models that ARE made here. Or perhaps, you looked at models where some come from North America, and some of the same model come from Japan or elsewhere, and the particular cars you saw were not from North American facilities.

What one is to make of your story is a mystery. It has no context, no particular attachment to the larger reality.

On the other hand, I've cited the actual official websites of Honda and Toyota. Perhaps they're lying about nearly three million vehicles built by their two companies in 2004. Perhaps you might want to research that and offer some actual proof, other than your own anecdotal assertions.

"I cant help you beyond that. I dont have a 'reality pill' for you to take. Seek help."

* chuckle *

I think this is what is meant by "projection."


sitetest

[Toddsterpatriot]

I think this is what is meant by "projection."

Ouch. That'll leave a mark!!

[sitetest]

Dear Toddsterpatriot,

"Ouch. That'll leave a mark!!"

It really wasn't meant to leave a mark. Perhaps then it would have been better left unsaid.

However, when one asserts one's ever-so-slight anecdote against the published data of large, international, reputable corporations, assertions that others are having a hard time with reality ring especially hollow.


sitetest

[Toddsterpatriot]

However, when one asserts one's ever-so-slight anecdote against the published data of large, international, reputable corporations, assertions that others are having a hard time with reality ring especially hollow.

You're preaching to the choir brother. I've had people say that WalMart carries no American products. Zero.

When I showed them that WalMart only bought 7.55% of their goods from China, the tap dancing was something to see. Along the lines of "Well, I know what I saw, damn the truth"

[A. Pole]

So now trade surplus or deficit is the indicator of a successful or failed economy?

I assume you you wanted to ask if the "trade surplus or deficit AND UNEMPLOYMENT is the indicator"? Because I gave you both. You must have ommitted it by a mistake.

Now, let us make a mental experiment. Imagine that Japan would get the half of continent with huge resources, good climate etc ... would it have a good effect on the economy? And then imagine that Americans lost ther land and were forced to live on overcrowded, mountainous without any resources. I believe that it would crippleAmerican economy very severly.

How would than Japanes and American economies would compare? My point is that taking into account what Japan was given by fortune, Japane is doing much much better and so the Japanese economical policy is second to none.

[Paul Ross]

The market is not doing "its job" it is merely responding to forces that the Chinese are manipulating. You are the ones not doing "your job". You are asleep at the switch, and can't even read the article.

[Paul Ross]

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.

I don't believe they would intend to do this to the country...but they can clearly be blindered to it. Scales have been allowed to form over their eyes, and their hearts hardened. I saw where the U.S. trustee's office claimed only 5% of bankruptcies had medical debt. A casual survey of the schedules of actual filings show it is in fact more like 30-to-50% as claimed by Bankruptcy practitioners. Sickening.

[Paul Ross]

There will be new industries and new jobs. The economy will adjust, as it always has in the past.

Nope. We are in a beggar-thy-neighbor competition of societies. The Iron Law of Wages is being allowed to operate, and the destruction of the U.S. middle class is underway. Anything new never gets made in the U.S., it goes straight to China for manufacturing. We went from one-income bread-winners, to two income families...with many having to work multiple jobs. This is progress?

[SwankyC]

projection? Absolutely. Im trying to project reality to you and it just isnt taking. You and ol' "90% of Walmart's good are made in America" ToddsterPatriot dont like to accept fact.

Well, we call that an anecdote.

You call it an anecdote, I'll call it reality.

actually make most of the vehicles that are sold in the US here in North America,

I dont deny they are making some of the vehicle here. Civics and accords being two but you're still trying to say they are making all of their vehicles here and it just isnt true. So why dont you go look at reality.

your anecdote borders on sheer meaninglessness

Im sorry that you find reality meaningless. Like I said, seek help. That's all I got, you're wrong and im not gonna argue with you like a child.

[SwankyC]

It's interesting you're still reliving that argument todd. All I can say is wow. You arent married ar you?

[Toddsterpatriot]

I assume you you wanted to ask if the "trade surplus or deficit AND UNEMPLOYMENT is the indicator"? Because I gave you both. You must have ommitted it by a mistake.

Japanese Unemployment rate:
5.3% (2003)

Japan

In February, both the number of unemployed persons, 8.0 million, and the unemployment rate, 5.4 percent, returned to their December levels after dipping in January

United States

Are you sure the 0.1% difference means their central planning is working?

My point is that taking into account what Japan was given by fortune, Japane is doing much much better and so the Japanese economical policy is second to none.

So, you're going to ignore economic performance since 1989? Ignore government debt, which in Japan is about 2.5 times larger than ours.

If you want a thought experiment, look at Hong Kong. They had much less than Japan was given. And yet without any central planning, their purchasing power parity - $28,800 (2003 est.) ,according to the CIA World Factbook is higher than Japan's, purchasing power parity - $28,200 (2003 est.)