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.
Seen this alot, especially in St. Louis. Have been trying to find a new career now that the IT industry fled. The big 3 employers in St. Louis are full of Hindu's and Pakastani's who work for next to nothing.
My new venture is as a Loan Officer and the outlook is not good. I spend 3 hours a day prospecting to Real Estate agents and this will be the next sector to see a dramatic downturn in housing prices. The jobs have been fleeing and the RE prices are about to take a downswing.
It goes to the old analogy - no bucks, no buck rodgers.
America is still the largest economy in the world so it is possible to do some corrections. The simplest would be to reinstate moderate tariffs. Large enough to stop the hemorrhaging but small enough to keep trade going.
Next step would be national debate on the creating intelligent long term national economical policy. We need to figure out what is the best without being blinded by the rigid free market doctrine.
Read my comments again. Maybe you read too quickly. I didn't say or imply living in a capitalist system is bad. I'm very much a contributing part of the system, as has my family for the past 150 years in the United States.However it needs to be monitored and tweaked in it's overall context. I'm more concerned about strategic and defense related matters affected by "free trade". By the way, your sense of humor is lame...and your comment on insight, well, show me some of yours and maybe I'll be impressed.
"So I'm getting sick and tired of these "service" jobs being demeaned by those who believe that we were better off when we were slaving away at some factory job."
I think one of the reasons this doesn't bother me much is that I pretty much have never really seen a factory, other than the one that makes Nissan vehicles over in Jackson, MS. None of my relatives, friends or friend's relatives gave worked in a factory.
Somehow, everybody I know managed to survive, and some of them even thrive, without ever setting foot in a factory or manufacturing anything. There was simply no alternative. I live in the South and it has NEVER had a manufacturing base but somehow, the people here manage to actually earn livings (gasp!) in the service industry, among others.
I, for one, just don't see how we can set record home sales, boast of some of the lowest unemployment in the world and fixate on the material items that we do if outsourcing is killing our economy.
Agreed. Excellent points. Again, business people (I am one) need to also understand they don't operate in a vacuum; their activities also impact a society's freedom and moral character.
American economy cannot and should not be based on 250 millions clones of Mr. Greenspan.
That's right -- that's real free trade as we have production in their countries and we sell in their countries.
I've asked and asked and asked again on thread after thread.
Maybe you can answer.
How come foreigners can outsource to us and do well selling here at the same time that many American corporations say that they must move production off shore and import the goods to remain competitive? IMO that's not real free trade that's "free trade."
I am not trying to be confrontational. I really want to know.
Yes because overseas they dont have to pay AFL-CIO level wages and benefits. US Cars would cost a heck of a lot less if we werent paying for the healthcare of guys who retired off the production line at 45 or 50.
Should we abolish American health care system in order to compete with China or India?
Capitalism is not crippled by greed because capitalism is regulated by the free market. When people are free to buy and sell as they wish on any mutually agreed terms greed gets its come-uppance. There are numerous examples of greedy companies and individuals who are no longer around because the free market (not the government) weeded them out. You say capitalism ignores greed and darwinism but greed is just another factor that darwinism punishes in a free consumer society.
"Economies and civilizations change. Before manufacturing, agriculture was the backbone of our economy."
My feelings, exactly. Adapt and overcome. And Americans have always been good at doing just that.
I do miss my local candlemaker, though. And my horse is still really mad that he's been replaced with an auto-mo-beel. ;)
I'm currently "unemployed" by today's definition (my job was outsourced to Iowa of all places!) but I still have "income" because I can produce things and provide services and goods to others less skilled than myself. 'Tain't Rocket Science.
You mean the 20th century. Prior to World War I, some ninety percent of the US workforce was involved in farming.
I don't "despise" manufacturing. It was the center of the American economy at one time and now that time is passing. There will be other transitions in the future, this isn't the last. As for our population growth, I'd say it's a blessing. Other industrialized countries are facing low, or negative growth rates, and eventual extinction. More people doesn't mean a "burden" on our system, unless you live in socialism. Look, we don't know what exactly the future economy will consist of. But we do know that factory jobs don't cut it any more. There will be new industries and new jobs. The economy will adjust, as it always has in the past.
Exactly. Somehow we are able to afford these huge home prices and buy a car or two to boot. Then cable TV, home computers, video games, books, music, movies, and on and on and on. Shopping malls and restaurants are absolutely mobbed. You just can't build them fast enough. Traffic is a nightmare in every big city because everybody's got the bucks to go out on the town and do things.
Yet some would have us believe that the sky is falling because some "Laverne and Shirley" bottle-capping jobs are going to Mexico or someplace. Give me a break.
Thank you. You provided some insight for a question I asked in #48.
No offense, Budd, but that is the stupidest thing I have read from a long list of stupid things written by those supporting so-called "Free Trade".
NO but I see no reason that when I buy an American made car a large percentage of my payment should be going to pay for the healthcare of people that have been retired for years. Current employees okay but retirees, no way. If they feel generous have them pay for that out of their profits. If they want GM or Ford to pay for their healthcare then they should continue to work there.
We never had Mao-era communist "factories."
These worthless state owned enterprises area being shut down or coverted with western technology and FDI. Tens of millions more "who pretend to work for the state that pretends to pay them for their work" would lose their "jobs" if were not for the Chi-coms' fear of revolution.
IMO it does not make sense to compare our real, privately-owned free market enterprises to communist crap.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.