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.
Slaving (both the trade and employment aspects) deserves the death penalty.
RE: If you look at a 50 year graph of home equity, you see that Americans had a considerable amount of it until about 1996, when the graph line on removal of equity from homes heads up like a NASA launch.
I get no fewer than 15 direct mailers touting 40 year refis in junk mail every week. Of course my skimpy little mortgage will be paid in about 10 years, so of course I tear them up. I don't know whether I should laugh at the idiots who go for these refis, or cry about what's gonna happen when the SHTF!
RE: There has to be a change in the very corporate culture of US companies,
Not exactly, the corporations are actually victims themselves. The real issue is the investment community. Most of them do not understand the value propositions of the companies they invest in, and do not comprehend the fundamentals. Truth be known, the opening up of stock trading to the masses may not have been such a great thing, in retrospect. Maybe it really ought to be open only to those who can invest large sums.
There are quite a few folks out there that think its ok to do business with slave states I guess. It is one way to lower costs, but if the economic model based on slavery keeps making money for some, you will see slavery spread worldwide.
Grima Wormtongue was a freetrader and a traitor!
RE: The problem with america right now is the hyper-consumerism that we all take part in.
Interestingly, I don't really take part in it. I am a cash / virtual cash guy, the only debt is a small home mortgage. Perhaps related, I am also considered "wealthy" by the government. Is part of the key to my wealth, the fact that I have never really fallen for the lure of consumer advertizing, and have never carried credit card debt? Are people who never gain wealth, those who never gain control of their own cash flow and never learn to live within their means? Oh man, now I'm sounding like "Rich Dad Poor Dad" here, but there is much truth in that book.
I dont think I agree with this article at all...
the Chicken Little type screaming about the economy is quite a wonder on here sometimes....
It's what Che Guevara dreamed of.
Intel moved my former roommate's entire department to Russia. Another friend of mine worked for Sybis in Cali. Sybis gutted it's entire IT department (everything) and moved it to India. Oracle has done similiarly but on a smaller scale. IBM, Nortel, etc. The only thing that ever came back was one call center from Dell.
Not true, I saw Made in America wrapping paper in Walmart.
Is that for all those English as a second language cash drains in our schools for the illegal mexicans?
Another thought, with the aging of the workforce and lack of young people to keep up with the elderly.
Robotics, robotics programming.
The current Japanese unemployment rate is 4.7%.
However, I would caution against using that as a long-term indicator; like the U.S. number, it is more indicative of the short-term hiring situation rather than useful for long-term numbers. Both the U.S. government and the Japanese government have very long explanations about how they calculate these numbers.
I personally prefer participation rates; I like both the normal definition, and as well I like to use the overall population in light of the demographic situation we are seeing develop.
What do you think of my idea that Japan's planning hasn't worked out so well over the last 15 years?
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