How the Economy Was Lost: The War of the Worlds (Counterpunch)

by Roberts, Paul Craig

  The denial of economic reality has become an art form. Accurate economic reporting is not available in the “mainstream media.”

  Occasionally, real information escapes the spin machine. The National Association of Manufacturers, one of outsourcing’s greatest boosters, has just released a report, “U.S. Manufacturing Innovation at Risk,” by economists Joel Popkin and Kathryn Kobe. The economists find that U.S. industry’s investment in research and development is rapidly being shifted overseas: “Funds provided for foreign-performed R&D have grown by almost 73 percent between 1999 and 2003, with a 36 percent increase in the number of firms funding foreign R&D.”

  U.S. industry is investing in R&D but is not hiring Americans to do the R&D. U.S. manufacturers still make things, only less and less in America with American labor. U.S. manufacturers still hire engineers, only they are foreign ones, not American ones.

  It should be obvious to policymakers that relocating the cutting edge of the economy abroad penalizes the U.S. economy and work force and benefits foreign ones. When manufacturing moves abroad, engineering follows. R&D follows engineering, and innovation follows R&D. The entire economy drains away. This is why the “new economy” has not materialized to take the place of the lost “old economy.”

  The latest technologies go into the newest plants, and those plants are abroad. Innovations take place in new plants as new processes are developed to optimize the efficiency of the new technologies. The skills required to operate new processes call forth investment in education and training. As U.S. manufacturing and R&D move abroad, Indian and Chinese engineering enrollments rise, and U.S. enrollments decline.

  The process is a unified whole. It is not possible for a country to lose parts of the process and hold on to other parts. That is why the “new economy” was a hoax from the beginning. As Popkin and Kobe note, new technologies, new manufacturing processes, and new designs take place where things are made. The notion that the U.S. can lose everything else but hold on to innovation is absurd.

  Someone needs to tell Congress before they waste yet more borrowed money. In an adjoining column to the N.A.M. report on innovation, the February 6, 2006, Manufacturing & Technology News reports that “the U.S. Senate is jumping on board the competitiveness issue.” The Bush regime and the doormat Congress have come together in the belief that the U.S. can keep its edge in science and technology if the federal government spends $9 billion a year to “fund innovative, big-payoff ideas that have the potential to transform the U.S. economy.”

  The utter stupidity of the “Protecting America’s Competitive Edge Act” (PACE) is obvious. The tremendous labor cost advantage of doing things abroad will equally apply to any new “big-payoff ideas” as it does to the goods and services currently outsourced. Moreover, U.S. research is open-sourced. It is available to anyone. As the Cox Commission Report made clear, there are a large number of Chinese front companies in the U.S. for the sole purpose of collecting technology. PACE will simply be another U.S. taxpayer subsidy to the rising Asian economies.

  The assertion that we hear every day that America is falling behind because it doesn’t produce enough science, mathematics, and engineering graduates is a bald-faced lie. The problem is always brought back to education failures in K–12, that is, to more education subsidies. When CEOs say they can’t find American engineers, they mean they cannot find Americans who will work for Chinese or Indian wages. That is what the so-called “shortage” is all about.

  I receive a constant stream of emails from unemployed and underemployed engineers with many years of experience and advanced degrees. Many have been out of work for years. They describe the movement of their jobs offshore or their replacement by foreigners brought in on work visas. Many no longer even know American engineers who are employed in the profession. Some are now working in sawmills, others in Home Depot, and others are attempting to eke out a living as consultants. Many describe lost homes, broken marriages, even imprisonment for inability to make child support payments.

  Many ask me how economists can be so blind to reality. Here is my answer: Many economists are bought and paid for by outsourcers. Most of the studies claiming to prove that Americans benefit from outsourcing are done by economic consulting firms hired by outsourcers. Or they are done by think tanks or university professors dependent on corporate donors. Or they reflect the ideology of “free market economists” who are committed to the belief that “freedom” is good and always produces good results. Since outsourcing is merely the freedom of property to act in its interest, and since this self-interest is always guided by an invisible hand to the greater welfare of everyone, outsourcing, ipso facto, is good for America. Anyone who doesn’t think so is a fascist who wants to take away the rights of property. Seriously, this is what passes for analysis among “free market economists.” Economists’ commitment to their “reality” is destroying the ladders of upward mobility that made America the land of opportunity. It is just as destructive as the neocons’ commitment to their “reality” that is driving the U.S. deeper into war in the Middle East.

  Fact and analysis no longer play a role. The spun reality in which Americans live is insulated against intelligent perception.

  American “manufacturers” are becoming merely marketers of foreign made goods. The CEOs and shareholders have too short a time horizon to understand that once foreigners control the manufacture-design-innovation process, they will bypass American brand names. U.S. companies will simply cease to exist.

  Norm Augustine, former CEO of Lockheed Martin, says that even McDonald’s jobs are no longer safe. Why pay an error-prone order-taker the minimum wage when McDonald’s can have the order transmitted via satellite to a central location and from there to the person preparing the order. McDonald’s experiment with this system to date has cut its error rate by 50 percent and increased its throughput by 20 percent.

  Americans are giving up their civil liberties because they fear terrorist attacks. All of the terrorists in the world cannot do America the damage it has already suffered from offshore outsourcing.

  February 16, 2006

  Chapter 12: The Job Arbitrageurs - Partnering the Destruction of the American Economy

  In March, 2005, the U.S. economy created a paltry 111,000 private sector jobs, half the expected amount. Following a well-established pattern, U.S. job growth was concentrated in domestic services: waitresses and bartenders, construction, administrative and waste services, and health care and social assistance.

  In the 21st century the U.S. economy has ceased to create jobs in knowledge industries or information technology (IT). It has been a long time since any jobs were created in export and import-competitive sectors.

  The Bureau of Labor Statistics forecasts no change in the new pattern of U.S. payroll job growth. Outsourcing and offshore production have reduced the need for American engineers, scientists, designers, accountants, stock analysts, and other professional skills. A college degree is no longer a ticket to upward mobility for Americans.

  Nandan Nilekani is CEO of Infosys, an Indian software development firm. In an interview with New Scientist (Feb 19, 2005), he noted that outsourcing is causing American students to “stop studying technical subjects. They are already becoming wary of going into a field which will be ‘Bangalored’ tomorrow.”

  Bangalore is India’s Silicon Valley. A 21st century creation of outsourcing, Bangalore is a new R&D home for Hewlett-Packard, GE, Google, Cisco, Intel, Sun Microsystems, Motorola, and Microsoft. The New Scientist reports: “The concentration of high-tech companies in the city is unparalleled almost anywhere in the world. At last count, Bangalore had more than 150,000 software engineers.”

  Meanwhile American software engineers go begging for employment, with several hundred thousand unemployed. I know engineers in their 30s with excellent experience who have been out of work since their jobs were outsourced four or five years ago. One is moving t
o Thailand to take a job in an outsourcing operation at $875 a month.

  A country that permits its manufacturing and its technical and scientific professions to wither away is a country on a path to the Third World. The mark of a Third World country is a labor force employed in domestic services.

  Many Americans and almost every economist and policymaker do not see the peril. They confuse outsourcing with free trade, and they have been taught that free trade is always beneficial.

  Outsourcing is labor arbitrage. Cheaper foreign labor is being substituted for more expensive First World labor. Higher productivity no longer protects the wages and salaries of First World employees from cheap foreign labor. Political change in Asia has made it easy to move First World capital and technology to cheap labor, and the Internet has made it easy to move cheap labor to First World capital and technology. When working with First World capital and technology, foreign labor is just as productive—and a lot cheaper.

  This is a new development. It is not a development covered by the case for free trade.

  Outsourcing’s apologists claim that it will create new jobs for Americans, but there is no sign of these jobs in the payroll jobs data. Moreover, it doesn’t require much thought to see that the same incentive to outsource would apply to any such new jobs. By definition, outsourcing is the substitution of foreign labor for domestic labor. It is impossible for a process that replaces domestic employees with foreigners to create jobs for domestic labor.

  Now biotech and pharmaceutical jobs and innovation itself are being moved offshore. The Boston Globe reports that Indian chemists with Ph.D. degrees work for one-fifth the pay of U.S. chemists. American chemists cannot give up 80 percent of their pay to meet the competition and still pay their bills. Rising interest rates will make it difficult enough for Americans to make their mortgage payments, and the dollar’s declining exchange value will raise the prices of the goods and services that have been moved offshore.

  Americans are unaware of the difficult adjustments that are coming their way. By the time Americans catch on to outsourcing, its proponents will have changed its name to “strategic sourcing” or “partnering.”

  Corporations, economists, and politicians have written off American labor. No end of the job drought is in sight.

  April 5, 2005

  Chapter 13: No Jobs in the New or Old Economy

  December, 2008 did not bring Americans any jobs. To the contrary, the private sector lost 13,000 jobs from the previous month.

  If December is a harbinger of the new year, it is going to be a bad one. The past year, hailed by Republican propagandists and “free trade” economists as proof of globalism’s benefit to Americans, was dismal. According to the Bureau of Labor Statistics’ nonfarm payroll data, the U.S. “super economy” created a miserable 1,054,000 net new jobs during 2007.

  This is not enough to keep up with population growth—even at the rate discouraged Americans, unable to find jobs, are dropping out of the work force—thus the rise in the unemployment rate to 5 percent.

  During the past year, U.S. goods producing industries, continuing a long trend, lost 374,000 jobs.

  But making things was the “old economy.” The “new economy” provides services. Last year 1,428,000 private sector service jobs were created.

  Are the “free trade” propagandists correct that these service jobs, which are our future, are high-end jobs in research and development, innovation, venture capitalism, information technology, high finance, and science and engineering where the U.S. allegedly has such a shortage of scientists and engineers that it must import them from abroad on work visas?

  Not according to the official job statistics.

  What occupations provided the 1.4 million service jobs in 2007?

  Waitresses and bartenders accounted for 304,200, or 21 percent of the new service jobs last year and 29 percent of the net new jobs.

  Health care and social assistance accounted for 478,400, or 33 percent of the new service jobs and 45 percent of the net new jobs. Ambulatory health care and hospitals accounted for the lion’s share of these jobs.

  Professional and business services accounted for 314,000, or 22 percent of the new service jobs and 30 percent of the net new jobs. Are these professional and business service jobs the high-end jobs of which “free traders” speak? Decide for yourself. Services to buildings and dwellings account for 53,600 of the jobs. Accounting and bookkeeping services account for 60,500 of the jobs. Architectural and engineering services account for 54,700 of the jobs. Computer systems design and related services account for 70,400 of the jobs. Management consultants account for 88,400 of the jobs.

  There were more jobs for hospital orderlies than for architects and engineers. Waitresses and bartenders accounted for as many of last year’s new jobs as the entirety of professional and business services.

  Wholesale and retail trade, transportation, and utilities accounted for 181,000 of 2007’s new jobs.

  Where are the rest of the new jobs? There are a few scattered among arts, entertainment, and recreation, repair and maintenance, personal and laundry services, and membership associations and organizations.

  That’s it.

  Keep in mind that the loss of 374,000 goods producing jobs must be subtracted from the 1,428,000 new service jobs to arrive at the net job gain figure. The new service jobs account for more than 100 percent of the net new jobs.

  Keep in mind, too, that many of the new jobs are not filled by American citizens. Many of the engineering and science jobs were filled by foreigners brought in on work visas. Indians and others from abroad can be hired to work in the U.S. for one-third less. The engineering and science jobs that are offshored are paid as little as one-fifth of the U.S. salary. Even foreign nurses are brought in on work visas. No one knows how many of the hospital orderlies are illegals.

  What a super “new economy” Americans have! U.S. job growth has a distinctly Third World flavor. A very small percentage of 2007’s new jobs required a college education. Since there are so few jobs for university graduates, how is “education the answer”?

  Where is the benefit to Americans of offshoring? The answer is that the benefit is confined to a few highly paid executives who receive multi-million dollar bonuses for increasing profits by offshoring jobs. The rest of the big money went to Wall Street crooks who sold trusting people subprime derivatives.

  “Free traders” will assert that the benefit is in low Wal-Mart prices. But the prices are low only because China keeps its currency pegged to the dollar. Thus, the Chinese currency value falls with the dollar. The peg will not continue forever. The dollar has lost 40 percent of its value against the Euro during the years of the Bush regime. Already China is having to adjust the peg. When the peg goes, Wal-Mart shoppers will think they are in Neiman Marcus.

  Just as Americans have been betrayed by “their” leaders in government at all levels, they have been betrayed by business “leaders” on Wall Street and in the corporations. U.S. government and business elites have proven themselves to be Americans’ worst enemies.

  January 8, 2008

  Chapter 14: The Great American Job Sell-Out

  Americans are being sold out on the jobs front. Americans’ employment opportunities are declining as a result of corporate outsourcing of U.S. jobs, H-1B visas that import foreigners to displace Americans in their own country, and federal guest worker programs.

  President Bush and his Republican majority intend to legalize the aliens who hold down wages for construction companies and cleaning services. In order to stretch budgets, state and local governments bring in lower paid foreign nurses and school teachers. To reduce costs, U.S. corporations outsource jobs abroad and use work visa programs to import foreign engineers and programmers. The American job give away is explained by a “shortage” of Americans to take the jobs.

  There are not too man
y Americans willing to accept the pay and working conditions of migrant farm workers. However, the U.S. is bursting at the seams with unemployed computer engineers and well-educated professionals who are displaced by outsourcing and H-1B visas. During Bush’s entire first term, there was a net loss of American private sector jobs. Today there are 760,000 fewer private sector jobs in the U.S. economy than when Bush was first inaugurated in January 2001.

  For years the hallmark of the European economy was its inability to create any jobs other than government jobs. America has caught up with Europe. During Bush’s first term, state and local government created 879,000 new government jobs. Offsetting these government jobs against the net loss in private sector jobs gives Bush a four-year jobs growth of 119,000 government jobs. Comparing this pathetic result to normal performance produces a shortage of millions of U.S. jobs. What happened to these jobs?

  Over these same four years the composition of U.S. jobs has changed from higher-paid manufacturing and information technology jobs to lower-paid domestic services. Why?

  During this extraordinary breakdown in the American employment machine, politicians, government officials, corporate spokespersons, and “free trade” economists gave assurances that America was benefitting greatly from the work visa programs and outsourcing.

  The mindless chatter continues. Just the other day Ambassador David Gross, U.S. Coordinator for International Communications and Information Policy in the State Department, declared outsourcing to be an economic efficiency that works to America’s benefit. There is no sign of this alleged benefit in U.S. jobs statistics or the U.S. balance of trade.

  Repeatedly and incorrectly, U.S. corporations state that outsourcing creates more U.S. jobs. They even convinced a New York Times columnist that this was the case.

  The problem is, no one can identify where the U.S. jobs are that outsourcing allegedly creates. They are certainly not to be found in the BLS jobs statistics. However, the Indian and Chinese jobs created by U.S. outsourcing are highly visible.