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.
For a "mature" economy with our size , none are more productive
Spot on comments
But they don't, of course. China is a developing country with enormous built in demand and a still rather primitive (overall) infrastructure. It would be absurd to extrapolate that rate of growth out indefinitely. Not going to happen.
I couldn't agree with you more. That's why these discussions are so aggravating. There is no common understanding of what constitutes economic growth nor relative well-being.
Growing an economy 6 times the size of China with 70 % less people as fast as we do is a testament to our overall productivity and efficiency.
Sure, they did alright. They're not at the bottom of the list . . . yet.
But, according to a real growth in GDP all they and we did was alright. Whether the countries you're calling third world can sustain their growth or meet some undefined test for per capita well-being, wael, I'm kinda interested in knowing the answer to that puzzle myself.
For a "mature" economy with our size , none are more productive
I can't decide whether you're quibbling or tossing out the test question. :-)
Interesting discussion, though. I just wish we had some better defined frame of reference.
What this seems to say is you're not interested in comparing the growth of world economies but prefer to measure the "standard of living" of various groups within some inconvenient national border. What is the advantage in doing that?
We? I know your not talking to me. Maybe some are getting richer, but I sure am not.
China's growth rates have stayed put for nearly two decades. Any slowdown can only happen if there is a drastic worldwide decline in the demand for "Made in China" goods, or if there is political turmoil in China. As there isn't much sign of either of these happening, don't hold your breath till any of these happen.
We all like things to be different, but unfortunately, the store shelves seem to be filling with more and more Chinese-made stuff.
BTTT
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.
Paging Mr. Greenspan...
...and you expect Greenspan to do what? Educate a youth whose attention span is precisely calibrated to the exact length of a music video? Maybe he should raise all the Third World wages so they are competitive with wages in the U.S.? Maybe he should implement a seres of subsidies to businesses to build factories in previously abandoned industrial areas?
It's an adult world. America will either compete or perish.
There is no "free trade" with Red China!
If China were to do something (invade Taiwan, for example) and we came to Taiwan's defense by declaring war on China, what would allies like Germany, Britain, India, France, etc. think about our attacking a country that they have so much invested in?
Or, what would the large corporations of America, who have billions invested in industrial enterprises in China, do in response to our warring with China?
Wouldn't we be threatening the billions of dollars that millions of Americans have in stocks in these corporations?
What would the result of those losses to 401K's, IRA's, etc. have on our economy?
Does anyone think that the Chinese haven't thought this out?
Further, do you think the free-traders will allow us to actually war with China?
Free trade and free traitors are killing us.
Stan Roach has seconded this in a recent essay of his.
We make lots of stuff. We make construction equipment and airplanes for example. True, we don't make shoes or textiles.
So explain to me why making shoes and textiles is so essential to our national prestige and our economic success that we should tax people who produce construction equipment and airplanes to subsidize people who produce shoes and t-shirts.
There are more shoe and t-shirt manufacturers than there are heavy equipment manufacturers. They would, in theory, employ more people.
That's pretty lame. There aren't more shoe makers and t-shirt makers in the US. And I don't want to import Mexican laborers so that we can open more of that kind of business here. I'm perfectly fine with Mexico and China making shoes and t-shirts. We'll make the construction equipment, farm equipment, airplanes, and other stuff that they can't make.
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