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.

[Cacique]

First: The article speak of "American" companies. No such thing, we have only transnational companies with offices here.

Second: It assumes that Americans are entitled to a set wage and to live in oppulenece and luxury. No such thing.

Thirdly: Capital has no nationality, it will go where it will gain it's greatest return. If slavery would be profitable, we would have slavery.

There are too many economists who believe that the United States can exist without manufacturing. Exporting so called "intelectual property" in the form of pornographic Hollywood movies that nobody wants to watch, novels in english that nobody can read.

The Chinese and our rivals understand that an industrial base is what makes a nation a military and by extension an economic power.

The idiots running this country have been selling and exporting everything but the kitchen sink. There will come a time when we will not even be able to manufacture our own military hardware as all the factories will be in China and Bangladesh.

We have been trading our trade and techonogical secrets in exchange for cheap labor. In the end we will have neither.

[oceanview]

within 10 years, the DoD is going to have to support a "cottage industry" for semiconductor manufacturing inthe US unless they want to source components needed for military projects, from china.

[SwankyC]

don't forget the "Randroids" either.

I havent had the pleasure of his comments yet.

[Wolfhound777]

Yes, and there is even talk of DOD acquiring parts from France of all places. Why the hell anyone would trust our troops lives with something made in France is beyond me. We are our own worst enemies and Congress is leading the charge to ruin. We have to demand that they work these issues as the potential for grievous damage to the US is not far off if left unaddressed.

[Gunslingr3]

Prestowitz is correct that the form that globalism has taken is shifting income and wealth from the First World to the Third World.

Wealth creation isn't a zero sum game. The inability to grasp this is the root of opposition to trade.

[mr_hammer]

Ping-a-roo!

[Ron in Acreage]

He leaves out the fact that only large companies report their hires to the government. Companies with 100 or less employees don't report new hires. Also, more and more people, like myself, quit their jobs and become self employed. We are not counted in the employment numbers. We have the best economy and the best standard of living in the entire world. This sky is falling rhetoric is getting about as old and stale as the DNC playbook.

[Gunslingr3]

The history of the balance of payments in the U.S. can be divided up into five stages

Stage I: The U.S. is a young debtor nation (1770-1870) -We have a current account deficit due to the need to import most goods and inability to produce many goods for export. -We have a capital account surplus due to a great deal of foreign investment in the U.S. in the areas of roads, farming, cattle ranches, railroads, and canals.

Stage II: The U.S. is a mature debtor nation (1870-1920) - There is still a current account deficit due to large investment income being paid back to foreign investors based on the investment of stage I. The merchandise account is in surplus -- exports > imports.

Stage III: The U.S. is a young creditor nation (1920-1945) -There is a huge surplus in the current account due to large volume of postwar (WWI) exports. -The capital account is now in deficit due to a great deal of U.S. investment in Europe for postwar reconstruction.

Stage IV: The U.S. is a mature creditor nation (1945-1980) -The current account has a merchandise deficit -- exports < imports but an investment income surplus with a slight net surplus overall. -The capital account is in deficit largely due to postwar (WW II) reconstruction in Europe and Japan.

Stage V: (1980- ) -There is a large (and growing) deficit in the merchandise accounts (The Trade Deficit) and a slight surplus in the investment income accounts. -There is a large surplus in the capital account partially to finance the above merchandise deficit (foreign individuals and banks lending money to individuals in the U.S.) Additionally, since the U.S. has had a low inflation rate since 1982 and consistent economic growth , the U.S. has been a good place to invest relative to the rest of the world. However the current inflow of capital investment could eventually lead to large investment income payments in the near future. The investment income surplus we now enjoy may soon be eroded thus worsening the current account deficit.

[Nonstatist]

Okay, show me a first world economy doing better. Japan has endemic deflation and at least a quarter of their private companies are on government life support, as well as 8 of their top 10 banks. China, with its roaring private sector , still has over 300 million workers in non competitive employement with steep govt subsidy

Okay, we're so stupid , who's doing better, who has higher overall productivity?

[Racehorse]

Okay, show me a first world economy doing better.

I'll show you ten.

This from Businessweek.

Here's a look at the growth performance of the twenty largest global economies over the past ten years. The number after each country is the increase in real GDP per capita, 1995-2005, based on IMF data.

China	108.5%
Russia	52.7%
India	50.4%
Iran	47.8%
Korea	42.6%
Taiwan	39.3%
Spain	30.5%
United Kingdom	26.7%
Canada	25.9%
Australia	25.7%
United States	25.6%
Mexico	24.5%

[Logophile]

By 2024, the United States will be a has-been country.

No doubt about it—we are doomed.

Or at least that is what Paul Craig Roberts says. Even if we accept the gloomy picture he paints (I do not), it is remarkable that he proposes no solutions. No matter what, he says, the United States is slipping into Third-World status. It is a done deal; it cannot be stopped.

[Euro-American Scum]

Our ability to provide for our own National Security is being sold out, and in the hypothetical event of major world conflict, we would have to re-tool all of our old manufacturing capabilities to sustain a protracted effort.

Been there. Done that. It's been going on for a couple of years now.

[LNewman]

Here's another:

Greenspan: Long-term rate puzzler
By Greg Robb, MarketWatch
Last Update: 10:10 PM ET June 6, 2005
WASHINGTON (MarketWatch) -- The decline of long-term interest rates over the past year despite the Fed's steady tightening remains a conundrum, said Federal Reserve Board Chairman Alan Greenspan.

[Wolfhound777]

Interesting link. It doesn't bode well for the home team.

[Logophile]

Here's a look at the growth performance of the twenty largest global economies over the past ten years. The number after each country is the increase in real GDP per capita, 1995-2005, based on IMF data.

China 108.5%

Russia 52.7%

India 50.4%

Iran 47.8%

Korea 42.6%

Taiwan 39.3%

Spain 30.5%

United Kingdom 26.7%

Canada 25.9%

Australia 25.7%

United States 25.6%

Mexico 24.5%

So China had a growth rate of 108.5% over five years (assuming we can accept these data as accurate). That looks impressive until you ask "108.5 percent of what?"

In 2004, the estimated GDP of China was about $5,000 per capita, compared with $37,800 per capita for the United States. (Source: CIA World Factbook.) Which economy is really "doing better"?

[CarrotAndStick]

108% in TEN years, i.e., an annual growth rate of 10.8% within that period. This is consistent with reports on China's growth from several sources.

About the per-capita income, since China's rates of growth are supposedly faster than America's, what can be theoretically interpreted from this article, and needn't be taken as fact, is that a car travelling at 10.8 mph will eventually catch up with one travelling at 2.5 mph, no matter what the gap between the two, provided both travel through the same route(i.e the same time period).

[redangus]

What WalMart(Lowes, Home Depot, Kmart, Sears etc.) is he shopping at?

[WFTR]

Even if we accept the gloomy picture he paints (I do not), it is remarkable that he proposes no solutions.

I think there are some steps that will help us. They may not be complete solutions, but they are steps in the right direction.

1. We must quit giving "economic aid" to foreign countries. Losing jobs to a Third-World country is bad enough. Losing them because our government used our tax dollars to subsidize the infrastructure that made those factories possible is worse. In many cases, these factories wouldn't be profitable if companies had to build the infrastructure around them from scratch. The taxpayers shouldn't have to subsidize the factories that will result in the loss of their jobs.

2. We need to recover some of the costs of previous "economic aid" through tariffs.

3. We need to make our environmental laws more reasonable so that energy costs in the United States are lower. If energy costs were lower, factories in the United States would be more profitable.

4. We need tort reform that would reduce the wealth transfer from those who make things to lawyers. Another big drag on profits of factories in the United States is the high cost of litigation or the high cost of steps taken to avoid litigation. If we could reduce this cost, there would be more incentive for companies to keep factories here.

There are other steps that could help, but these are a start.

Bill

[elmer fudd]

The interesting thing about this list is that 4 out of the ten countries on it are third world and have done so well because they started out in abject poverty. If you're making 10 cents an hour and you receive a 100% wage you're still only making 20 cents. A fifth country, Spain, has been largely lifted up by it's membership in the EU. It's one of Europe's current sources of cheap labor.

The other five countries you list have very similar trade policies to the United States and have been shifting their own manufacturing over to China nearly as fast as we have. They seem to have done all right in spite of that.

[elmer fudd]

Should read, "100% wage increase".