Posted on 06/07/2005 8:14:42 PM PDT by 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.
No matter what, he says, the United States is slipping into Third-World status. It is a done deal; it cannot be stopped.
You replied:
If not economically then at least socially and culturally.
Have you spent much time in a real Third-World country? I have. I can tell you that anyone who says that the United States is heading for Third-World status inside of 20 years (as Roberts does) is peddling snake-oil.
Anyone who has seen (and smelled!) life in the Third World knows that there is no comparison. We have so many advantages: clean air and water, reliable communications and power systems, a working health care system. Our economy is the largest and most vibrant in the world. Our government, for all its faults, is more efficient and less corrupt than any Third World kleptocracy. Our Constitution and Bill of Rights (to the extent that they are observed) put us far ahead of any other country.
Then there are the intangibles. For generations, our people have been taught to work hard and obey the law. We tend to admire achievers and reward success. We are known for our optimism and can-do attitude, even in the face of seemingly insurmountable challenges. (Although reading the comments here make me doubt the latter!)
I could go on, but you get the idea. I do not deny that we face serious problems. Nevertheless, I am confident that Americans can find a way to out-compete any other nation if we are resolved to do so. On the other hand, if we wring our hands and declare that we are doomed, then doomed we are.
2. Innovation - No other country has the track record of innovation like the US. If foreigners are the only ones innovating, then they will eventually take that knowledge back to their home country. This will devalue what little we do produce.
3. Education - Foreign professors tend to be hard to understand and cannot impart the complex nuances of engineering and science to students (most foreign professor's language skills do not match a native speaker). With the rise in foreign professors, I can understand the decline in domestic applicants. Who wants to learn chinese on top of learning calculus? The more native born professors we have, the more native born students we can attract.
4. Historical precedent - Most of the greatest men and women in American history had engineering degrees, or were involved in the Sciences, people like Franklin, Washington, Jefferson, Lee, Edison, the list goes on... Science and Engineering are a quick way to fame and wealth in America. The wealthiest person in the world is Bill Gates after all.
If we give up on Engineering, then we will decline into the Third World faster than any other power in history. ITT tech isn't gonna be able to give you the theory needed to understand the electrical circuit, but you will definitely be able to wire the Chinese Engineer's house when he calls you for service. The $30/hour you're making will easily be affordable by his $60/hour career as a Software Engineer.
Cheers,
CSG CSG
I work in this industry and I know of what I speak.
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.Wow. You really are flummoxed. Way to conflate unrelated issues, you poster child for the BEA (Befuddled Amateur Economists of the world, a subsidiary of the Paranoiac National Front).
Help me to understand you, please. Are you saying that USA built "a war time industrial base largely from scratch"?Indeed. We were behind just about everyone in every sector of industry, metallurgy especially. Do you remember something called the Great Depression? It should be in one of those history text books you never read.
There is no law that living expenses have to be higher for Americans. Economic competition can drive down living costs also. Indeed, I would argue that that has already happened.
How can they lower their living expenses without moving out of USA or without government subsidies?
Your talk of government subsidies worries me. Do you really believe that government intervention can reduce the cost of living?
The primary reason that manufacturing employment is declining has nothing to do with China. Manufacturing productivity has been growing at a rapid pace since the start of the industrial revolution. We just don't need all the manufactured goods that our economy can produce.
That leaves us free to use our economic resources for other purposes, and that means services. The service sector has been growing like crazy.
An important thing to keep in mind is the fact that manufacturing jobs are disappearing all over the world--not just the US. In fact, China is losing manufacturing jobs faster than we are.
Whenever service sector employment grows, manufacturing sector employment necessarily declines. That's just a mathematical certainty, unless you have a high unemployment rate, and we do not. For that reason, you can't just look at one industry or employment sector and use that as a barometer to judge the health of the economy.
The primary reason that the US has the strongest economy in the world is that unlike other nations, it has resisted the temptation to let bureaucrats and politicians make economic decisions like how many manufacturing jobs we should have. We let the markets do that, and it has paid off.
I think it would be foolish to change that now.
So you think they can keep a cap on dissent forever? That they can continue to disappoint the agrairian majority that wants a bigger piece of the pie, and keep the Tianamen activists at bay forever?
Where do you think their capitalist seed money comes from? It comes from expatriate Chinese. Its extremely premature to be suggesting the Chinese are willing to go to War(Cold or otherwise) over Taiwan or a bigger Pacific presence or whatever, and scare off all those offshore Chinese. Very premature indeed.
I agree. My point is that these companies get lots of benefits from the US government and American society but return very little.
How do you imagine this "out-competing"? By making cheaper products? By paying less American workers?
if we are resolved to do so
Whom do you mean by "we"? The CEOs who dismantle manufacturing for short term gain and fat bonuses? US workers who suplement their incomes with credit cards and borrowing against equity? Students who go to law schools and avoid engineering? Neocons who waste billions on building democracy in the countries which do not understand it?
When I visit local bookstoers I avoid the computer sections. I do not want my mood to be ruined - these sections are reduced by the factor of three or four and have old books gathering dust. No new books there.
engineers who work for defense contractors are quasi-government employees. there is nothing wrong with that, but its not a "market forces" job. and the demand is very limited, just a few companies do defense related work.
innovation will take place in the countries where investments are made, and engineers are employed. if that's not the US, then you can kiss innovation goodbye.
you are simply making the case that a global recession is coming - you may be right. Greenspan can't figure out why the bond market isn't raising rates (because he is) - the markets are telling him something, they are telling the Fed their statements about how well the US economy is doing, which is the basis for his rate increases, is grossly overstated. The market is right.
As this article says, China and India are sucking the air out of the room - they are sucking in what would be capital investments by western corporations (japan, US, Europe), reducing our economic and job growth. the US is only doing somewhat better because we have population growth (immigration, legal and illegal) and a developed service economy that the others do not. But those factors won't hold us up forever.
Yup, they only return goods, services, jobs and taxes. Hardly worth mentioning.
and don't forget the booming "interest only mortgages". The Fed made a statement this week talking about how dangerous they are for the economy, and how they are inflating the housing bubble even bigger. no one is doing anything to stop it of course, its just going to be part of crash I guess.
You'd have to look damn hard to find heavy-industrial capacity remaining in the Midwest. Most metal-fabricating and machining has moved out--with more scheduled for departure in the next 5 years.
Even finding 50-ton overhead cranes (or 20-ton) is becoming a challenge.
By being more innovative and more productive than our competitors.
what "competitors". India and China aren't developing any industries of their own, the industries they have are being shipped there by US and other western companies. Oracle isn't competing with an Indian database company, their executives are sending Oracle to India 1000 engineers at a time.
Never mind them. They have failed entirely at this debate. Personal attacks never succeed vs reasoned factual debate in changing opinions.
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