Posted on 01/08/2006 8:17:33 AM PST by A. Pole
Forced outsourcing of design and manufacturing because of so-called free trade, foreign insourcing with US subsidies, and imported foreign labor is crippling US high tech economy. Paul Craig Roberts wrote about this in March 2005.
A country cannot be a superpower without a high tech economy, and America's high tech economy is eroding as I write.
The erosion began when US corporations outsourced manufacturing. Today many US companies are little more than a brand name selling goods made in Asia.
Corporate outsourcers and their apologists presented the loss of manufacturing capability as a positive development. Manufacturing, they said, was the "old economy," whose loss to Asia ensured Americans lower consumer prices and greater shareholder returns. The American future was in the "new economy" of high tech knowledge jobs.
This assertion became an article of faith. Few considered how a country could maintain a technological lead when it did not manufacture.
So far in the 21st century there is scant sign of the American "new economy." The promised knowledge-based jobs have not appeared. To the contrary, the Bureau of Labor Statistics reports a net loss of 221,000 jobs in six major engineering job classifications.
Today many computer, electrical and electronics engineers, who were well paid at the end of the 20th century, are unemployed and cannot find work. A country that doesn't manufacture doesn't need as many engineers, and much of the work that remains is being outsourced or filled with cheaper foreigners brought into the country on H-lb and L-1 work visas.
Confronted with inconvenient facts, outsourcing's apologists moved to the next level of fantasy. Many technical and engineering jobs, they said, have become "commodity jobs," routine work that can be performed cheaper offshore. America will stay in the lead, they promised, because it will keep the research and development work and be responsible for design and innovation.
Alas, now it is design and innovation that are being outsourced. Business Week reports ("Outsourcing Innovation," March 21) that the pledge of First World corporations to keep research and development in-house "is now pass@."
Corporations such as Dell, Motorola, and Philips, which are regarded as manufacturers based in proprietary design and core intellectual property originating in R&D departments, now put their brand names on complete products that are designed, engineered, and manufactured in Asia by "original-design manufacturers" (ODM).
Business Week reports that practically overnight large percentages of cell phones, notebook PCs, digital cameras, MP3 players, and personal digital assistants are produced by original-design manufacturers. Business Week quotes an executive of a Taiwanese ODM: "Customers used to participate in design two or three years back. But starting last year, many just take our product."
Another offshore ODM executive says: "What has changed is that more customers need us to design the whole product. It's now difficult to get good ideas from our customers. We have to innovate ourselves." Another says: "We know this kind of product category a lot better than our customers do. We have the capability to integrate all the latest technologies." The customers are AmericaÕs premier high tech names.
The design and engineering teams of Asian ODMs are expanding rapidly, while those of major US corporations are shrinking. Business Week reports that R&D budgets at such technology companies as Hewlett Packard, Cisco, Motorola, Lucent Technologies, Ericsson, and Nokia are being scaled back.
Outsourcing is rapidly converting US corporations into a brand name with a sales force selling foreign designed, engineered, and manufactured goods. Whether or not they realize it, US corporations have written off the US consumer market. People who do not participate in the innovation, design, engineering and manufacture of the products that they consume lack the incomes to support the sales infrastructure of the job diverse "old economy."
"Free market" economists and US politicians are blind to the rapid transformation of America into a third world economy, but college bound American students and heads of engineering schools are acutely aware of declining career opportunities and enrollments. While "free trade" economists and corporate publicists prattle on about AmericaÕs glorious future, heads of prestigious engineering schools ponder the future of engineering education in America.
Once US firms complete their loss of proprietary architecture, how much intrinsic value resides in a brand name? What is to keep the all-powerful ODMs from undercutting the American brand names?
The outsourcing of manufacturing, design and innovation has dire consequences for US higher education. The advantages of a college degree are erased when the only source of employment is domestic nontradable services.
According to the Los Angeles Times (March 11), the percentage of college graduates among the long-term chronically unemployed has risen sharply in the 21st century. The US Department of Labor reported in March that 373,000 discouraged college graduates dropped out of the labor force in February--a far higher number than the number of new jobs created.
The disappearing US economy can also be seen in the exploding trade deficit. As more employment is shifted offshore, goods and services formerly produced domestically become imports. Nothink economists and Bush administration officials claim that AmericaÕs increasing dependence on imported goods and services is evidence of the strength of the US economy and its role as engine of global growth.
This claim ignores that the US is paying for its outsourced goods and services by transferring its wealth and future income streams to foreigners. Foreigners have acquired $3.6 trillion of US assets since 1990 as a result of US trade deficits.
Foreigners have a surfeit of dollar assets. For the past three years their increasing unwillingness to acquire more dollars has resulted in a marked decline in the dollar's value in relation to gold and tradable currencies.
Recently the Japanese, Chinese, and Koreans have expressed their concerns. According to Bloomberg (March 10), JapanÕs unrealized losses on its dollar reserve holdings have reached $109.6 billion.
The Asia Times reported (March 12) that Asian central banks have been reducing their dollar holdings in favor of regional currencies for the past three years. A study by the Bank of International Settlements concluded that the ratio of dollar reserves held in Asia declined from 81% in the third quarter of 2001 to 67% in September 2004. India reduced its dollar holdings from 68% of total reserves to 43%. China reduced its dollar holdings from 83% to 68%.
The US dollar will not be able to maintain its role as world reserve currency when it is being abandoned by that area of the world that is rapidly becoming the manufacturing, engineering and innovation powerhouse.
Misled by propagandistic "free trade" claims, Americans will be at a loss to understand the increasing career frustrations of the college educated. Falling pay and rising prices of foreign made goods will squeeze US living standards as the declining dollar heralds AmericaÕs descent into a has-been economy.
Meanwhile the Grand Old Party has passed a bankruptcy "reform" that is certain to turn unemployed Americans living on debt and beset with unpayable medical bills into the indentured servants of credit card companies. The steely-faced Bush administration is making certain that Americans will experience to the full their country's fall.
Bump
This has nothing to do with outsourcing and everything to do with American kids being convinced they need to throw a ball or be a rap "artist" instead of scientists or engineers.
Been hearing this since Reagan was elected.
If you listened to these clowns you'd be short the dow 8000 points lower.
But be prepared for wild eyed attacks by flamers
And the anti-freetraders who claimed all the computer programming jobs were going overseas were proven to have hyped up the reality of the industry. Low-level, redundant programming jobs were outsourced, but mid- and high-level programming jobs in America continue to rise.
And quite a bit to do with the fact that most schools are more worried about kids feeling good and knowing th ins and outs of sex, than they are with teaching the 3rs.
But how can you protects your ownership, when the assets are located over the ocean in the countries with different culture and political system? I think that your property will be as much worth as American Indian rights to the land.
Where I work all the new programmer hires are coming from China. The job posting comes up people from other tech departments and programming degrees apply and the ompany ends up flying some Chinese girl in.
How will you get the "high-level" programmers, if the entry path starting from "low-level" is gone? Oh, I know, you will bring them from abroad!
So let's have a tech bubble, hire a grillion programmers we don't need, and when the bubble bursts blame someone else.
It isn't free trade that threatens jobs in the United States it is illegal immigration. Illegal immigration is destroying the entry level rungs of the job ladder. Illegal aliens are taking the jobs that would otherwise go to displaced factory workers and other workers who are in flux. Raising the minimum wage, which was in the news last week, will make the problem even worse. Raising the minimum wage increases the attractiveness of employing people outside the law.
I am all for eliminating the punitive taxes and mandates that make offshoring attractive. But you can't whine and wail about offshoring while ignoring illegal immigration. To do so is just plain silly.
I hope that this is incorrect, but I fear it is true. Certainly, you cannot have an Akihabara unless you have the manufacturers, but it would be nice to at least eventually to have access to the high-end goods. For instance, shake-resistant binoculars were widely available in Japan long ago; in fact, I don't recall seeing them yet for sale in retail stores in the U.S., though I do see from a Google search that they are for sale from Amazon.
Get more education (MS, PhD), and start in a mid-level job.
Good point. Government nationalizing foreign owner assets has happeened before, and will happen again. The worst may be yet to come, Communist China (it is communist last time I checked) does not have a legal system, much less an international legal system; all these American companies have set up shop there on a handshake and as long as the dictators say everything is working in their favor, American business produces using Chinese slave labor. The second that changes, good luck with your claims American business. And don't forget the huge foreign trade deficit with the Chinese.
A counter argument might be that they can't afford to hurt their relationship with us; their people will uprise. Really; and the Chinese communist army will sit idly by, like at Tianemmen Square? We like to look the other way as long as the Chinese dictatorship allows us to your their citizens for cheap labor, and the Chinese continue to use their profits to update their military, steal trade and high tech secrets, and create relationships with other enemies of the United States. We are profitable in the short run, fools in the long run.
We saw after the 1973 oil crisis what such a "protected" industry here in the US would do (the then "big four" auto makers) in the face of overwhelming consumer demand for smaller, higher-mileage, higher quality automobiles: exactly nothing (which is why the Japanese came in and stole their lunch money).
The government should no more be in the business of protecting producers at the expense of consumers than it should be in the business of protecting consumers (with price controls) at the expense of producers.
N.B. Many of those "highly paid" computer engineers who were employed "at the end of the century" were nothing more than 20 something script kiddies employed at outrageous salaries by dot coms fueled by ignorant investors who assumed that the stock market could never go down again. They NEVER would have been employed (much less at those salaries) if the unemployment rate hadn't been at 2%...
Programmers like myself are certainly aware of these forigners lack of creativity and ability (Actually though I'd put India and Russia on a higher run with regard to ability and Russian programmers are quite creative, the one's I've met at least, most dont look for work overseas though. The Chinese are like worker bees, and have about the same brain capacity, and creatie ability. They aren't much use without a hive.)
Still HR sees their degrees and the cheap price and passes up tech folks in the company every time one of these positions comes up.
First and foremost we need to promote math and science better in schools.
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