US Labor Force: One Foot in the Third World

In May the Bush economy
eked out a paltry 73,000 private sector jobs: 20,000
jobs in

(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

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 nonfarm payroll tables. Think
about that.

The US 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 US economy has been unable to create jobs in
export and import-competitive industries. US 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 US
living standards and for America`s status as a

Economists and
policymakers are in denial while the US economy implodes
in front of their noses. The

US-China Commission
is making a great effort to

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 naïve 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 US over-consumption, because we are paying
them by handing over our markets, our jobs, and our

My former Business
colleague, Bill Wolman, explained the
consequences for US 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 US to Asia: the collapse of
world socialism which vastly increased the supply of
labor available to US capital; the rise of the high
speed Internet; the extraordinary international mobility
of US 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 US labor worked with more capital and
better technology, which made it more productive. Today,
however, US capital and technology move to cheap labor,
or cheap labor moves via the Internet to US 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. US capital and technology
could have remained at home, protecting US incomes with
high productivity. Asia would have had to raise itself
up without the inside track of first world offshore

Asia`s economic
development would have been slow and laborious and would
have been characterized by a gradual rise of Asian
incomes toward US incomes, not by a jarring loss of
American jobs and incomes to Asians.

Instead, US corporations,
driven by the short-sighted 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 US. Short-run goals are
reducing US corporations to brand names with sales
forces marketing foreign made goods and services.

By substituting foreign
for American workers, US 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 US 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
Washington, DC, that the US would be a third world
economy in 20 years. I was projecting the economic
outcome of the US 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 US levels.
Therefore, the substitution of Asian for US labor in
tradable goods and services is likely to continue.

As US 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 US labor force already has one foot in the
third world. By 2024 the US will be a has-been country.

Craig Roberts, a former Reagan Administration official,
is the author of

The Supply-Side Revolution
and, with Lawrence M.
Stratton, of

The Tyranny of Good Intentions : How Prosecutors and
Bureaucrats Are Trampling the Constitution in the Name
of Justice


for Peter Brimelow`s

Forbes Magazine interview with Roberts about the
recent epidemic of prosecutorial misconduct.