America`s Has-Been Economy
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
outsourced manufacturing. Today many US companies
are little more than a brand name selling goods made in
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
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
Confronted with inconvenient facts,
outsourcing`s apologists moved to the next level of
fantasy. Many technical and engineering jobs, they said,
"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
Alas, now it is design and
innovation that are being outsourced. Business Week
Innovation," March 21) that the pledge of First
World corporations to keep research and development
in-house "is now passé."
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
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 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
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
Meanwhile the Grand Old Party has
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.
Craig Roberts, a former Reagan Administration official,
is the author of
The Supply-Side Revolution and, with Lawrence M.
The Tyranny of Good Intentions : How Prosecutors and
Bureaucrats Are Trampling the Constitution in the Name
for Peter Brimelow`s
Forbes Magazine interview with Roberts about the
recent epidemic of prosecutorial misconduct.