Imagine that, outsourcing has an effect!
Even services are suffering.
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.
I would like to see more of our students majoring in engineering. That is less likely to happen if they listen to all the nonsense about the engineering jobs going overseas.
Why?
...Critical awareness and the ability to hypothesize, to interpret, and to communicate are essential elements of successful innovation in a conceptual based economy." Alan Greenspan
Why would I like to see more students major in engineering? Or why might they choose not to major in engineering if they hear that the engineering jobs are going overseas?
Unfortunately, most of the engineering jobs are going overseas. Good engineering jobs follow the manufacturing industries. If more of the refining, petrochemical, and chemical industries move overseas, then the engineering jobs will follow them.
I spent much of the 90's as an engineer trying to salvage a career. I had very good grades through bachelor's and master's degrees at major public universities. I had excellent performance appraisals at work. However, when I was laid off, I found few jobs available and had only one offer over the next five years. That job wasn't worth having, and I returned to school to get another engineering degree. I landed back at a good employer in '99, but I'll never recover the salary and benefits that I lost in the 90's. Fifteen to twenty years ago, engineers constantly received calls from headhunters wanting them to consider other jobs. I haven't been called by a headhunter in years.
I understand that people who find themselves in a dying industry are going to have problems. We're going to have work pretty hard just to stay above water, and we're going to have to put up with many situations that we don't like. I don't like it, but it's a part of life. However, there's no reason that I would push someone else to put himself in the same situation that I'm facing. There will be a few engineering jobs left for a long time, but it won't be as it once was. I'd certainly not push anyone towards engineering the way that my generation was pushed.
There are things that we can do to reverse the situation. If we'd do those things, the chemical, petrochemical, and refining industries would recover somewhat and there would again be a high demand for engineers. At that time, I think encouraging people to go into the engineering disciplines would be a good thing to do.
Bill
I thought, based on Greenspan's quote, that our economy won't need engineers anymore. Why go to engineering school when you are going to live in a "conceptual based economy"?
Imagine that, outsourcing has an effect!
Even services are suffering.
I would have to see some reliable data before I would believe that "most" of the engineering jobs are going overseas.
Nevertheless, I have no doubt that the demand for chemical engineers is down in the traditional petroleum and chemical industries. Part of that may be the result of government policies that are unfriendly to such industries. (How difficult would it be to get approval to build a new refinery in the United States these days?)
More important, perhaps, is that those are "mature" industries. (That sounds much better than saying "dying" industries.) Even if the business climate were to improve drastically, it is doubtful that the petroleum and chemical industries would ever need as many chemical engineers as they once did.
The chemical engineering profession is either going to adapt or whither away. Chemical engineers appear to be adapting. They are going into nontraditional fields such as biotechnology, pharmaceuticals, materials, and food engineering. Even so, it would not surprise me if the numbers of chemical engineers declines.
Funny, I came to the opposite conclusion: an engineering education would be a great advantage in a "conceptual based economy." (Greenspan often has that effect on his listeners.) An engineering degree program is good preparation for almost any career, technical or otherwise.
This is typical leftist thinking isn't it? They do not understand basic economics. Everyone has two accounts. A money account and a capital account. When you purchase goods from another country (or from anyone for that matter), your capital account increases by the exact same amount that your money account decreases. The opposite occurs on their end. It's a net zero transaction. Why do leftists not understand this?
Reply 157! You're getting slow. Please tell me again how everything on Earth is made in America. I just paid my bills and need someone/something to laugh at.
I know. You let me down, but that's passable for someone that holds the rest of the world above his own country.
Mechanical engineering is also going to follow chemical engineering. Many of the same plants that employ chemical engineers to run the processes employ mechanical engineers to run the equipment. I agree that many mechanical engineers will be forced to adapt, but the final numbers are still going to be lower in mechanical engineering.
Chemical and mechanical engineering have been the biggest fields for some time, and if you're admitting that those fields are declining, then we get back to my point. It's silly to encourage young people to go into fields where they will immediately find themselves scrambling to adapt to loss of jobs. They'd be much better off going into fields where the training matches the available jobs.
Undoubtedly, government policies are having a big negative impact on these industries. The high cost of natural gas is killing the chemical industry. One reason that the cost of natural gas is rising so much is that government policy is pushing us away from coal and nuclear energy. We have good supplies of coal. Coal is reasonably inexpensive, doesn't kill the ducks when spilled in a lake, and doesn't go boom when spilled on the ground. If we'd use more of our coal (and nuclear) for utility power, we'd have less demand for natural gas and therefore cheaper natural gas. This policy change would help the chemical industry tremendously.
Bill
absolutely. where you really see this is when you look at what the children of engineer parents are going to college for - its not engineering. the parent's know the score. they are piling their kids into law schools.
an engineering undergraduate degree is only worth it if you combine it with finance or business administration. and perhaps a course in Indian or Chinese culture.
Best post of the day Ping.
Thanks. Just trying to bring some common sense and reality to all of this.
Don't bother, he'll just tell you your math is bad and post the same old payroll chart (the richest 2% outliers included).
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