The US Labor Force: One Foot in the Third World

[Madison]

Quote from AAAintheBeltway:

You are correct about most of this. I don't disagree at all. But what is the solution? If you ban outsourcing, you are basically erecting a barrier to trade in services. That is probably illegal under GAT, not to mention exactly the opposite of our current goals in trade negotiations.

It's hopelessly naive to say "bring the working conditions at these outsourcing venues up to our level". Sounds good but the gap is too vast to close in a realistic timeframe.

good question... realistically, an active solution is unlikely, in that the profit motives are only on one side - the parties with the power to change it have no incentive to do so, and the people being exploited have little power. meanwhile, the chinese are working, saving, and learning from the outsourcers - and the american consumer doesn't seem to care. it will accelerate until either the market adapts to correct the imbalances, or until there's a political or economic crisis.

as for tariffs, as you said they're generally not a viable solution - and they seem unlikely in the near-term, given american dependence on asian treasury holdings.

 

[wilburbear]

Why should anyone be able to force a consumer to buy a good or service more expensively than the consumer can get it elsewhere? Everyone would love to erect an artificial wall against competitors, and force the public to be a sucker and pay for their good or service. But, this practice is a first cousin to theft.

The economist Milton Friedman had it right, saying, essentially, "If a country produces goods at a loss, we shouldn't restrict these goods in trade. On the contrary, we should buy all we can."

 

[dddooo]

Quote from wilburbear:

Why should anyone be able to force a consumer to buy a good or service more expensively than the consumer can get it elsewhere?

There are millions of things in every country and every society that people are forced to do by laws and regulations that they would rather not do or do differently. There are millions of things that people are forced not to do that they would love to do. They all have one characteristic in common - they were presumably created for "public good".

Whether oursourcing, cheap foreign labor and cheaper foreign goods are beneficial for this country or not is of course debatable, but if majority of americans decide that banning them serves "public good", that they will be better off, the economy will be stronger and more robust then there will be nothing wrong with forcing the consumer to pay slightly higher price for locally manufactured goods and services.

 

[Madison]

Quote from wilburbear:

Why should anyone be able to force a consumer to buy a good or service more expensively than the consumer can get it elsewhere? Everyone would love to erect an artificial wall against competitors, and force the public to be a sucker and pay for their good or service. But, this practice is a first cousin to theft.

there is already an artificial wall against competitors, the whole outsourcing scheme depends on that wall -- if the market were truly as "free" as claimed by the multinationals, then the chinese slave laborer could simply choose to move to the US to seek a higher wage and the protection of first-world labor laws. but he can't do that easily, due to chinese laws, US immigration laws, as well as non-financial considerations.

the point is not making people buy expensive things, but rather that corporations want to sell products to the first world, at first-world prices, and to enjoy the benefits of an advanced society, infrastructure, health care system, legal system, police force, etc. -- those things come at a cost, namely, workers have more rights and earn more wages. outsourcing is an attempt to avoid that cost without giving up those benefits.

 

[sKaLpZ]

"He served as Assistant Secretary of the Treasury in the Reagan administration."

No wonder the economy is so screwed up.

Quote from K.C.:

by Paul Craig Roberts

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

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 bring reality 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 wealth.

My former Business Week 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 producers.

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.

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 school teachers 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 in 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.




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Paul Craig Roberts has held a number of academic appointments and has contributed to numerous scholarly publications. He served as Assistant Secretary of the Treasury in the Reagan administration. His graduate economics education was at the University of Virginia, the University of California at Berkeley, and Oxford University. He is coauthor of The Tyranny of Good Intentions. This article is published in the Chronicle with permission of the author. He can be reached at: paulcraigroberts@yahoo.com.



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Copyright © 2005 The Baltimore Chronicle. All rights reserved.

 

[wilburbear]

Quote from dddooo:

There are millions of things in every country and every society that people are forced to do by laws and regulations that they would rather not do or do differently. There are millions of things that people are forced not to do that they would love to do. They all have one characteristic in common - they were presumably created for "public good".

Whether oursourcing, cheap foreign labor and cheaper foreign goods are beneficial for this country or not is of course debatable, but if majority of americans decide that banning them serves "public good", that they will be better off, the economy will be stronger and more robust then there will be nothing wrong with forcing the consumer to pay slightly higher price for locally manufactured goods and services.

In my mind protectionism is not a public good. The gains go to the relatively few who are protected (say shoe makers), at the expense of the many (all shoe buyers). The shoe maker commonly enlists a politician for help. The faceless public is then enlisted to make a transfer payment to less competitive industries. This scenario can be applied to almost all protectionism.

How can folks on the political left sign up a single mother to pay more for shoes to benefit an uncompetitive company? That's what protectionism is. The few benefit at the expense of the public.

 

[dddooo]

Quote from wilburbear:

How can folks on the political left sign up a single mother to pay more for shoes to benefit an uncompetitive company?

I think this example was already mentioned before in another thread. Everything is cheaper overseas, absolutely everything.

The difference is therefore between a single mother having a job at a shoe factory paying living wage and able to afford slightly more expensive local shoes or having no job at all (as everything is cheaper to produce overseas) and being unable to buy even cheapest "made in china" shoes.

It's not just manufacturing of course, substitute mother with father, shoe factory with computer hardware/software/engineering/accounting company, you'll still get the same picture.

That's where I think you make a mistake, it's not just a few shoemakers, its the whole manufacturing, computer, engineering, eventually science and research and many other sectors of the economy that are affected. And what do we have left in this country that cannot be outsourced - lawyers, doctors, plumbers and used car/insurance salesmen. Oh, and of course traders.

Why is it so hard to understand? Everything is done overseas (cheaper) -> no jobs in america (or $1hr jobs) -> no consumers -> no profits eventually, dirt poor population, third world status. RACE TO THE BOTTOM.

 

[ptunic]

Ok, how do you explain the unbelievable success of Hong Kong the last 40 years? They have roughly the same standard of living as the US (about 20 times better than China), and they have had free trade for a very long time. They have been FAR more exposed to outsourcing, trade, etc with China, being as they border with it (well are part of it now of course).

-Taric

 

[ptunic]

Hong Kong:

GDP per head ($ at PPP):

2000: 25,671
2001: 26,173
2002: 26,830
2003: 27,700



China:

GDP per head ($ at PPP):

2000: 3,980
2001: 4,340
2002: 4,720
2003: 5,180



edit: typo

-Taric

 

[AAAintheBeltway]

Labor arbitrage is a fact of life, although not a widely understood topic. It is holding down our reported inflation, both through outsourcing and also through official tolerance of widespread illegal immigration. Clearly it has almost destroyed the union movement, which in my view is not altogether a bad outcome.

I don't see a lot of very thoughtful analysis of it. You see a fair amount of handwringing, a lot of anger and the usual think-tank generated recitations of the benefits of free trade.

I can appreciate being able to buy manufactured goods at low prices, but I wonder where the future innovations will come from if we lose our manufacturing base. It's not like we have an educational system that excels in teaching science and math. Go into any engineering school and you will find most of the classes being taught by foreign born grad assistants.

The free trade advocates will say, compare our economy to europe. They have 10% unemployment and no growth. They say we will come up with new industries that will pay higher and generate more wealth. Let's hope so. Someone has to pay the taxes to support those full pay for life beginning at age 52 public sector retirement packages.