America's has-been economy
- From: periodistalibre@xxxxxxx
- Date: Tue, 16 Oct 2007 22:14:43 -0700
by Thomas Heffner -
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 America's 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 America's
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 non-
tradable 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. Now think economists
and Bush administration officials claim that America's 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), Japan's 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 America's
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.
.
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