U.S. Labor Force: One Foot in the Third World

Chronicles Magazine ^ | Tuesday, June 07, 2005 | Paul Craig Roberts

[A. Pole]

In May, the Bush economy eked out a paltry 73,000 private sector jobs: 20,000 jobs in construction (primarily for Mexican immigrants), 21,000 jobs in wholesale and retail trade, and 32,500 jobs in health care and social assistance. Local government added 5,000 for a grand total of 78,000.

Not a single one of these jobs produces an exportable good or service. With Americans increasingly divorced from the production of the goods and services that they consume, Americans have no way to pay for their consumption except by handing over to foreigners more of their accumulated stock of wealth. The country continues to eat its seed corn.

Only 10 million Americans are classified as “production workers” in the Bureau of Labor Statistics non-farm payroll tables. Think about that. The United States, with a population approaching 300 million, has only 10 million production workers. That means Americans are consuming the products of other countries’ labor.

In the 21st century, the U.S. economy has been unable to create jobs in export and import-competitive industries. U.S. job growth is confined to nontradable domestic services.

This movement of the American labor force toward Third World occupations in domestic services has dire implications both for U.S. living standards and for America’s status as a superpower.

Economists and policymakers are in denial, while the U.S. economy implodes in front of their noses. The U.S.-China Commission is making a great effort to bring reality to policymakers by holding a series of hearings to explore the depths of American decline.

The commissioners got an earful at the May 19 hearings in New York at the Council on Foreign Relations. Ralph Gomory explained that America’s naive belief that offshore outsourcing and globalism are working for America is based on a 200-year-old trade theory, the premises of which do not reflect the modern world.

Clyde Prestowitz, author of the just published “Three Billion New Capitalists: The Great Shift of Wealth and Power to the East,” explained that America’s prosperity is an illusion. Americans feel prosperous because they are consuming $700 billion annually more than they are producing. Foreigners, principally Asians, are financing U.S. over-consumption, because we are paying them by handing over our markets, our jobs and our wealth.

My former Business Week colleague Bill Wolman explained the consequences for U.S. workers of suddenly facing direct labor market competition from hundreds of millions of Chinese and Indian workers.

Toward the end of the 20th century, three developments came together that are rapidly moving high productivity, high value-added jobs that pay well away from the United States to Asia: the collapse of world socialism, which vastly increased the supply of labor available to U.S. capital; the rise of the high speed Internet; and the extraordinary international mobility of U.S. capital and technology.

First World capital is rapidly deserting First World labor in favor of Third World labor, which is much cheaper because of its abundance and low cost of living. Formerly, America’s high real incomes were protected from cheap foreign labor, because U.S. labor worked with more capital and better technology, which made it more productive. Today, however, U.S. capital and technology move to cheap labor, or cheap labor moves via the Internet to U.S. employment.

The reason economic development in China and some Indian cities is so rapid is because it is fueled by the offshore location of First World corporations. Prestowitz is correct that the form that globalism has taken is shifting income and wealth from the First World to the Third World. The rise of Asia is coming at the expense of the American worker.

Global competition could have developed differently. U.S. capital and technology could have remained at home, protecting U.S. incomes with high productivity. Asia would have had to raise itself up without the inside track of First World offshore producers.

Asia’s economic development would have been slow and laborious and would have been characterized by a gradual rise of Asian incomes toward U.S. incomes, not by a jarring loss of American jobs and incomes to Asians.

Instead, U.S. corporations, driven by the shortsighted and ultimately destructive focus on quarterly profits, chose to drive earnings and managerial bonuses by substituting cheap Asian labor for American labor.

American businesses’ short-run profit maximization plays directly into the hands of thoughtful Asian governments with long-run strategies. As Prestowitz informed the commissioners, China now has more semiconductor plants than the United States. Short-run goals are reducing U.S. corporations to brand names with sales forces marketing foreign made goods and services.

By substituting foreign for American workers, U.S. corporations are destroying their American markets. As American jobs in the higher-paying manufacturing and professional services are given to Asians, and as American schoolteachers and nurses lose their occupations to foreigners imported under work visa programs, American purchasing power dries up, especially once all the home equity is spent, credit cards are maxed out and the dollar loses value to the Asian currencies.

The dollar is receiving a short-term respite as a result of the rejection of the European Union by France and Holland. The fate of the Euro, which rose so rapidly in value against the dollar in recent years, is uncertain, thus possibly cutting off one avenue of escape from the over-produced U.S. dollar.

However, nothing is in the works to halt America’s decline and to put the economy on a path of true prosperity. In January 2004, I told a televised conference of the Brookings Institution in Washington, D.C., that the United States would be a Third World economy in 20 years. I was projecting the economic outcome of the U.S. labor force being denied First World employment and forced into the low productivity occupations of domestic services.

Considering the vast excess supplies of labor in India and China, Asian wages are unlikely to rapidly approach existing U.S. levels. Therefore, the substitution of Asian for U.S. labor in tradable goods and services is likely to continue.

As U.S. students seek employments immune from outsourcing, engineering enrollments are declining. The exit of so much manufacturing is destroying the supply chains that make manufacturing possible. The Asians will not give us back our economy once we have lost it. They will not play the “free trade” game and let their labor force be displaced by cheap American labor.

Offshore outsourcing is dismantling the ladders of America’s fabled upward mobility. The U.S. labor force already has one foot in the Third World. By 2024, the United States will be a has-been country.

[Destro]

How about a figure we can all agree with? The shocking decline in overseas investments here?

[Asclepius]

Tell it to China, which you claim "fails to realize" that manufactured goods are a cash loser.

China in ten years will be where Japan is now, quite stagnant except in their tech and financial sectors. Their stock market is already in a free fall or do you follow the news at all? India will probably prosper bescause India understand the new economy: they are investing more in services and high tech than heavy industry, a proven loser.

[Paul Ross]

Let me change the line of questioning as I appear to have you flummoxed.

Really, you're the one who has no industrial history knowledge, and no one else appears to see any signs of your flummoxing ANYONE here.

If an "industrial base" is so horribly vulnerable that it requires the massive subsidy of onerous, consumer-punishing protectionist legislation (as you yourself argue), or the subsidy of slave labour in the third world to even make it profitable at all (as you yourself argue), does that not suggest to you, ahem, a hiccough in your line of reasoning?

Your reasoning is the one that is circular. The Chinese slave labor is a deliberate contrivance MAINTAINED DELIBERATELY as policy by China's Communist party. It serves them in multiple ways. If you use your reasoning, I think you will see what those are.

Anyways, it becomes clear with your emphasis in this line of argument that your fundamental misunderstanding of economics is the common libertine failure, i.e., that you fail to comprehend that YOUR POLICIES are the ones that " requires the massive subsidy"...can you say Ex-IM Bank and OPIC subsidies? Can you say Chinese currency manipulation of the rmibi-dollar ratio? And also,

"of onerous, consumer-punishing protectionist legislation "...can you say CURRENCY DEBAUCHMENT?

Four years of clear correlation. This is a "tax" a "massive subsidy" and "onerous" and ultimately "consumer-punishing"...to use all your loaded phrases. They apply much more aptly to your policies than a tariff. Tariffs, properly structured, can build the nation up. Your policies tear it down. Note, China still has kept all its tariffs in place, despite its WTO obligations to end them. That is what your policies of outsourcing lead to directly. China is at war with the U.S. and we are simply to stupid as a country to realize it. And China's communist rulers have been delighted beyond belief to find those within the U.S. who continue to spout rationalizing apologetics...economics theories which abet their continued warfare, lest the suckers should ever wake up.

[Nonstatist]

How about a figure we can all agree with?

Look at #96, and then tell me why none of that matters.

[jb6]

No, those who are on unemployment are counted as unemployed, that's the only concrete figures you get. How do you know that Joe Snuff sitting at home not collecting anything is looking for work?

[jb6]

Not to mention that 1. we had since 1939 to retool and we did that under "Lend Lease" and 2. we had a lot of industry to retool from.

[hershey]

Is anyone in the admin. paying attention?

[Paul Ross]

They are accumulating our dollars. The only thing they can do to make this "bill" come due, is they can stop accumulating our dollars, and start spending them.

A'hem. They have accumulated, as you say, a $600 billion stash. So why haven't they spent them YET??? What are they WAITING for? And aren't you a little concerned that when the Chinese Premier comes to the U.S. to lecture us about trade competition (they comfortably behind their tariff walls, and government-controlled communist economy) there is a lack of media coverage on the hypocrisy? And just what did he say that we could possibly interest them in to spend those dollars? Our advanced defense technology. That's it. They want us to let go of the last thing keeping us secure. Surprise.

[hershey]

General Motors is cutting 25,000 American workers' jobs and building more plants in Mexico and China. I guess we're supposed to get busy inventing something quick to sustain us until it's outsourced. Cellphones and HDTV aren't enough.

[Nonstatist]

How do you know that Joe Snuff sitting at home not collecting anything is looking for work?

Well, if he isn't, then he deserves the non-recognition that he gets.

[jb6]

Australia, Taiwan and S.Korea are not first world economies? Boy they'll be surprised.

[jb6]

Far more than half of China has a standard of living worse than many third world nations

Yup, and our products are made by that slave labor. How nice. China's comparitive advantage is slave labor and don't for a moment think that they'll give that up.

[Nonstatist]

I missed Australia. Taiwan and S. Korea are 2nd world.

[superiorslots]

Quote: I guess we're supposed to get busy inventing something quick to sustain us until it's outsourced. Cellphones and HDTV aren't enough



All those layed off people should "pull up their bootstraps" as Rush calls it and get some more "skoolin" and get into bio molecular chemistry and nanotechnologoly.

[jb6]

China in ten years will be where Japan is now, quite stagnant except in their tech and financial sectors.

They'll have a fully employed and aging work force making 1st world wages? Hahahaha, tell that to the 600,000,000 working for less then 20 CENTS per hour and the 1,000,000,000 (three times our whole population plus) who live in abject poverty in the country side hoping to get one of those "high-paying" jobs.

[Nonstatist]

China's comparitive advantage is slave labor and don't for a moment think that they'll give that up.

Japan and West Germany (their labor rate in the '50's was much lower than ours) gave it up, so dont be so sure.

[Paul Ross]

Cellphones and HDTV aren't enough.

A'hem. Those are being primarily made in the Pacific Rim...mostly China...as well. No HDTVs are made in the U.S. at all, to my knowledge.

The general rule of thumb nowadays, is that once a new idea comes up from the U.S., it immediately is sent for manufacture to the Pacific Rim, skipping the U.S. as a producer altogether.

That is the main philosophy of smart management now preached. Those managers who cling to U.S. manufacturing preferences are derided as "out-dated".

[hershey]

We'll soon have one Happy Hemisphere, free trade, travel, settle wherever you like...maybe Mexico won't allow that, but no matter. The US will have millions more former Third World residents to educate, feed, clothe, etc.. This migration of unskilled, uneducated, non-English speaking peoples is insane and is overwhelming this country; in fact, we're probably the world's laughingstock. Worst of all, it's totally illegal and rammed down our throats without even a national discussion let alone a vote.

[hershey]

I forgot to mention that G.M. is blaming workers' health insurance costs for their problems. $1500 per car goes to the worker health insurance kitty.

[jb6]

2nd World? So they're in the block of socialist/communist economies run by the Soviet Union? Which is what 2nd World means. First world was the US and its direct NATO allies, 3rd World were the underdeveloped mostly neutral states. If you're referring to economies, S.Korea and Taiwan both have mature manufacturing economies and most of their people have a relatively high standard of living (purchasing power parity) since a dollar doesn't spend the same everywhere.