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Rojo
03-24-2005, 10:14 PM
Pretty much sums it up:

Counterpunch (http://www.counterpunch.com/roberts03162005.html)

Outscourcing Innovation...And Everything Else
America's Has-Been Economy

By PAUL CRAIG ROBERTS

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 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 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 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 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 counry's fall.

Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan administration. He was Associate Editor of the Wall Street Journal editorial page and Contributing Editor of National Review. He is coauthor of The Tyranny of Good Intentions.He can be reached at: pcroberts@postmark.net

15fan
03-24-2005, 11:13 PM
" "Free market" economists and US politicians are blind to the rapid transformation of America into a third world economy,"

:MandJ:

www.m-w.com

Main Entry: third world
Function: noun
Usage: often capitalized T&W
Etymology: translation of French tiers monde
1 : a group of nations especially in Africa and Asia not aligned with either the Communist or the non-Communist blocs
2 : an aggregate of minority groups within a larger predominant culture
3 : the aggregate of the underdeveloped nations of the world
- third world·er /-'w&r(-&)l-d&r/ noun, often capitalized T&W

Let's get a show of hands.

If you honestly think that the US economy is going to devolve into a third world economy at any point during your life, sign in and say "aye".

CbusRed
03-24-2005, 11:16 PM
" "Free market" economists and US politicians are blind to the rapid transformation of America into a third world economy,"

:MandJ:

www.m-w.com (http://www.m-w.com/)

Main Entry: third world
Function: noun
Usage: often capitalized T&W
Etymology: translation of French tiers monde
1 : a group of nations especially in Africa and Asia not aligned with either the Communist or the non-Communist blocs
2 : an aggregate of minority groups within a larger predominant culture
3 : the aggregate of the underdeveloped nations of the world
- third world·er /-'w&r(-&)l-d&r/ noun, often capitalized T&W

Let's get a show of hands.

If you honestly think that the US economy is going to devolve into a third world economy at any point during your life, sign in and say "aye".


Well, I have allready noticed a large outbreak of typhoid and cholera in my neighborhood. Third world here we come!! :rolleyes:


Perhaps "Excellent" was the wrong adjective to describe this article. :MandJ:

Red Heeler
03-25-2005, 10:03 AM
Way to shoot the messenger while ignoring the message, guys.

I agree that the conclusions in the article are alarmist. However, the author brings up some very good points. To remain the econonmic powerhouse in the world, America has to be good at something that keeps the pockets of most of the citizens full. If we can't manufacture and we can't design, what can we do?

Ravenlord
03-25-2005, 10:06 AM
If we can't manufacture and we can't design, what can we do?
that's easy...become management. ;)

Roy Tucker
03-25-2005, 10:17 AM
I agree that the conclusions in the article are alarmist. However, the author brings up some very good points. To remain the econonmic powerhouse in the world, America has to be good at something that keeps the pockets of most of the citizens full. If we can't manufacture and we can't design, what can we do?
My thoughts too. It does seem to be a trend that's starting. If taken to its logical conclusion, the doom and gloom of the article could come true.

In my little corner of the world, I see signs of it. I work for a large computer storage company in an advanced technology group. We keep our eyes on things that are 6-24 months out so we're can start getting aligned on what's coming down the pike (file patents to stake out turf). We continually get pushed by upper level management (CEO/CTO level) to use India resources for our research and development while US groups are getting whacked. Myself and the guys I work with are somewhat jingoistic in that we'll try very hard to use the good old boys network to get in touch with these groups and give them first shot on new stuff instead of the India track.

zombie-a-go-go
03-25-2005, 10:17 AM
We need to start colonizing. :devil:

KronoRed
03-25-2005, 10:30 AM
We need to start colonizing. :devil:

...or conquering

CbusRed
03-25-2005, 10:35 AM
We need to start colonizing. :devil:


Or stop being a nation full of free-loaders looking for a hand-out all the time, and start becoming an innovator.

zombie-a-go-go
03-25-2005, 10:37 AM
Or stop being a nation full of free-loaders looking for a hand-out all the time, and start becoming an innovator.

Never happen.

CbusRed
03-25-2005, 10:42 AM
Never happen.


Unfortunatley :(

Instead of having a work-ethic similar to Japan, we have counter-productive labor unions and frivilous lawsuits to make money on!

God forbid anyone actually work an 8 hour day to make a living.

MWM
03-25-2005, 11:15 AM
What's missing in all these arguments from guys like this is what should be done. They're long on telling us how bad these things are for the economy, but short on solutions (and then thy try to place blame of these trends on a President). Tell us what should be done. Should the US government legislate against outsourcing? If so, I'd love to see someone like Roberts explore in the same level of detail the economic implications of such a step. I don't think these guys offer solutions because they know their offering would most likely be a much worse predicament thatn the one thy clain we're heading to.

FWIW, I've spent every day of the last month working on a consulting project for one the larger ODMs in the country who used to be strictly manufacturing, but now do design work. I've read about everything there is to read about the very subject of the article above and talked to several management level people about this very thing. The reality is that most of the "design" work they speak of is more for commodity-like products and not for truly new and innovative technologies. Most of the new BIG ideas are still coming from American engineers at the OEMs and not foreign engineers at the ODMs. Innovation still takes place right here in the USA. Maybe that will change too, but not any time soon, IMO.

MWM
03-25-2005, 11:17 AM
Instead of having a work-ethic similar to Japan, we have counter-productive labor unions and frivilous lawsuits to make money on!


Have you taken a look at Japan's economy over the last decade?

CbusRed
03-25-2005, 11:19 AM
Have you taken a look at Japan's economy over the last decade?


Yes.

RBA
03-25-2005, 11:26 AM
Unfortunatley :(

Instead of having a work-ethic similar to Japan, we have counter-productive labor unions and frivilous lawsuits to make money on!

God forbid anyone actually work an 8 hour day to make a living.


Last I heard, American workers were the most productive workers in the world. Has this changed in the last couple years?

Does anyone actually work a 8 hour day anymore? I'm not paid by the hour, so I rarely work less than 10 hours a day. And what about the "walmart" workers? The ones working less than 30 hours a week becuase "walmart" like corporation don't want to pay benefits.

I find your distaste for the average American worker alarming and not really based in reality.

CbusRed
03-25-2005, 11:29 AM
I find your distaste for the average American worker could be interpeted as unpatriotic and not really based in reality.

:MandJ:
:lol:


And I thought I had seen it all... :MandJ: :lol:

RBA
03-25-2005, 11:31 AM
:MandJ:
:lol:


And I thought I had seen it all... :MandJ: :lol:

Show me some facts on how Americans are lazy. Just throwing out some right wing talking points ain't going to cut it.

CbusRed
03-25-2005, 12:15 PM
Show me some facts on how Americans are lazy. Just throwing out some right wing talking points ain't going to cut it.


I will, after you justfiy how YOU can call ME unpatriotic.


I feel as though I have just been called a retard by a retarded kid. :MandJ:

REDREAD
03-25-2005, 12:31 PM
Or stop being a nation full of free-loaders looking for a hand-out all the time, and start becoming an innovator.

It doesn't matter what we innovate here.. it will be cheaper to maintain and produce in Aisa, unless the US does become a 3rd world country.

I've experienced that first hand. US Company comes up with idea. Hires American engineers to work 60-80 hour weeks to get it to work. It works.
Project gets sent overseas and all Americans working on it get laid off.

The US may not end up as a 3rd world country, but current policies by the government and coorporations are going to drag down everyone's standard of living. However, justice will be served when coorporate earnings drop as the middle class consumer pool shrinks (worldwide, these low paid Aisan workers don't have the money to buy this stuff that is being outsourced).

Just remember, 2/3 of the American economy is driven by consumer spending. As the middle class shrinks, so does the economy.

traderumor
03-25-2005, 12:34 PM
The loss of a manufacturing base is a problem and I have sounded the alarm since graduating from college in 1991. As this economy continues to move toward a service economy, which again started in full force during my college days 1987-1991 with merger mania and takeovers, now the problem has evolved to outsourcing. Now, these are by no means expert opinions, just top side observations by an accountant. Even my own profession can be a part of the problem, as a service provider whose fees normally transfer wealth, rather than create it.

What's the solution? Sad to say, the paper that holds our economy in place will probably be burned one day. In other words, it will probably play out in a Great Depression type of economic collapse that forces standards of living down and forces folks to accept lower wages for low skill jobs instead of the few manufacturing jobs that remain having the disadvantage of high wages for low skill jobs. So, I would say that the Third World comparison is a bit of hyperbole, but a collapse of this economny seems inevitable. Not sure when that will be, but I think it will be the only medicine that cures our ills.

RBA
03-25-2005, 12:37 PM
I will, after you justfiy how YOU can call ME unpatriotic.


I feel as though I have just been called a retard by a retarded kid. :MandJ:

I said, could be intepreted as unpatriiotic. I have since removed it from my post. Sorry if you were offfended by the "could be intepreted as unpatriotic"

What ever your opinoin of me, I guess I can't change. Oh well. Have fun in your world.

Please feel free to PM, if you wish. I won't respond to any this "patriotic" stuff in this forum. And yes, I started it.

REDREAD
03-25-2005, 12:39 PM
. Most of the new BIG ideas are still coming from American engineers at the OEMs and not foreign engineers at the ODMs. Innovation still takes place right here in the USA. Maybe that will change too, but not any time soon, IMO.

It will change. Give these ODM engineers another 10 years of experience.

Remember, it started off that only manufacturing was disappearing (which I thought was alarming at the time). They promised us that all the white collar jobs would stay in the US, which obviously was wrong.

What's the answer? Tariff all imports that aren't produced with comparable labor, safety, and pollution standards. That will pretty much kill the competitive advantage of going overseas. We may have to pay 20% more for our plastic crap at Walmart, but it would produce more jobs in the US, increase the tax base (more people working, and making more). Long term,
it would help everyone more.

Of course, I know the "free trade" people are going to reject that idea. But what we have now is not free trade. For example, I have a relative in the steel manufacturing business. Without getting too technical, there are some manufactured parts that need a coating. In the US, you have to go through great pains to collect the coating, dispose of it properly, protect the workers from exposure, etc. When they make these parts in Aisa, they load them up on the boat, do the coating on the boat, and then dump all the stuff in the Ocean. That's where the cost savings comes in. So our children are going to eat poisoned fish as a trade off to that cost savings... Countless other examples.. But coorporations only care about the bottom line.

REDREAD
03-25-2005, 12:44 PM
What's the solution? Sad to say, the paper that holds our economy in place will probably be burned one day. In other words, it will probably play out in a Great Depression type of economic collapse that forces standards of living down and forces folks to accept lower wages for low skill jobs .

Sadly, I agree with you. The big problem we are going to have with the next depression is that the US government may not be able to borrow money either, so it's going to be tough for the government to create massive jobs as it did during the Great Depression.

MWM
03-25-2005, 01:04 PM
Tariff all imports that aren't produced with comparable labor, safety, and pollution standards.

I'm in total support of this. But this is an ethical argument, not an economic one. I agree that the US should require companies seeling goods in the US to abide by a certain level of safety standards, environmental standards, and labor relations standards.


That will pretty much kill the competitive advantage of going overseas.

It will make a small dent in the competitive advantage these countries have, but it won't be enough to make it worthwhile to keep it all here.


We may have to pay 20% more for our plastic crap at Walmart, but it would produce more jobs in the US, increase the tax base (more people working, and making more). Long term, it would help everyone more.

Actually, having to pay that much more for goods would have the exact OPPOSITE effect. The impact it would have on demand would more than offset any positive that might occur from it. It would create massive unemployment and the economic impact would be much greater than what you think would happen if we left it alone.

We heard all the same arguments back in the 70s and 80s when manufacturing became more machine based and less human based. There were all kinds of doom and gloom scenarios put forth back then and none of them came to pass.

If you really want to understand golablization, you should read In Defense of Globalization by Jagdish Bhagwati. It's an excellent book and Bhagwti's credentials and credibility on the subject are unmatched. But if you're not interested in really learning the other side of the argument then don't read it. He addresses every issue you bring up in your arguments.

traderumor
03-25-2005, 01:24 PM
We heard all the same arguments back in the 70s and 80s when manufacturing became more machine based and less human based. There were all kinds of doom and gloom scenarios put forth back then and none of them came to pass.

I'm asking this because I don't know but reasoning and wondering, but hasn't automation contributed to the loss of manufacturing jobs? Add that to outsourcing and we see folks working in the retail and service sectors (and probably making less) instead of at the local factory?

Rojo
03-25-2005, 01:35 PM
But if you're not interested in really learning the other side of the argument then don't read it.

That side of the argument is all you usually get. Just turn on the TV Sunday morning. Anyone who disagrees with "free trade" and the infallibility of the market is labeled a crank.


Actually, having to pay that much more for goods would have the exact OPPOSITE effect.

How so? That stuff is mostly made in China. Walmart might loose some money but maybe people will go out to eat or take a longer vacation or whatever with their money instead of wasting it on a singing bass.

We live in a Democracy, we don't have to just shrug our shoulders to the inevitability of globalism.

REDREAD
03-25-2005, 02:16 PM
I'm in total support of this. But this is an ethical argument, not an economic one. I agree that the US should require companies seeling goods in the US to abide by a certain level of safety standards, environmental standards, and labor relations standards.


Although the environmental side of it will eventually become an economic arguement. When the Pacific Ocean eventually becomes unfishable due to pollution.. But I'm glad you agree





It will make a small dent in the competitive advantage these countries have, but it won't be enough to make it worthwhile to keep it all here.


It depends, largely on how far you make them up their labor standards.
But making stuff in the US has a huge advantage of not having to ship stuff across the ocean. A lot of furniture built overseas actually has lumber harvested from America sent to china, manufactured and shipped back here.
I know someone who was formerly a manager of a furniture manufacturing plant. His company went to China (and he eventually lost his job). The big cost savings in that industry was no environmental controls. His factory was in a rural town, and while the labors were paid pretty good, it was not a big labor saving solution. A lot of stuff is automated. The American workers due better work and are more productive. In fact, they still do the custom work in the USA, because when they sent that to China, the Chineese screwed it up so often that it wasn't economically working. So, at least for that industry,
that legislation would bring some furniture jobs back to America. Maybe the same thing doesn't hold for plastic, steel, textiles, etc.. but it would certainly help stem the flow of jobs out of the country. It's a pretty expensive proposition to move operations overseas and risky.






Actually, having to pay that much more for goods would have the exact OPPOSITE effect. The impact it would have on demand would more than offset any positive that might occur from it. It would create massive unemployment and the economic impact would be much greater than what you think would happen if we left it alone.

It all depends. People bought VCRs back in the late 80's when they cost $200 each. Today they cost about $30 (and don't last nearly as long, but that's a different story). You could probably make that VCR in America for $50-60 at the most. Would that put that much of a dent in VCR buying?

Look at the economy now.. The price of at least some automobiles is going down quite dramatically. In 1997, I paid about 12-13k for my Chevy, and that was invoice. Today, since the economy is slow, I hear ads on the radio for that same car at about 10k, plus generous financing.. During the dotcom boom, people had more money to spend on stuff because they had more money. Now, times are tighter, so companies are forced to lower prices to get the customers to buy more. It's entirely possible that if the middle class has more job security and isn't worried about their job disappearing, that they will spend more than they are today, thus increasing demand.

I do see your point, that in general, higher prices lead to less demand. However, IMO, it's a more complicated situation than just that. Consumer confidence and income plays a major role in that.

I'm certianly not a representative sample of the population :) , but after being outsourced a couple of times, our spending has gone WAY, WAY down.
The goal now is to save up enough money to weather the next layoff. And I'm one of the lucky ones. At least I'm not an engineer forced to take a low paying job unrelated to their field .. those people used to be good "economy stimulators" but now have no extra income to buy luxuries, no matter how cheap Aisa can make them.

In other words, demand can get squeezed by people not having money, as well as high prices. It's a complex relationship that I certainly don't have the answer for.



But if you're not interested in really learning the other side of the argument then don't read it. He addresses every issue you bring up in your arguments.

I am interested in hearing that side. I know I've gotten overly emotional about this in the past. I concede your point that bringing back all manufacturing to the US (if that was hypothetically possible) might result in higher prices. It might squeeze demand. At the same time, I see the middle class shrinking also squeezing demand and thus the economy.. Who is going to buy all these services in the service based economy? If nothing else, what about all the tax revenue the government is losing from people who have been outsourced out of their jobs? That impacts everyone as well.

I'm not sure if they've declared the recession over or not .. By my definition, a "jobless" recovery really isn't a recovery.

Do you see my point that as the middle class shrinks and has less disposible income due to downward wage pressure and living expenses flat or increasing (fuel, heating, mortgage payments).. that will also squeeze demand for the products these cost conscious coorporations are selling us?

REDREAD
03-25-2005, 02:23 PM
Walmart might loose some money but maybe people will go out to eat or take a longer vacation or whatever with their money instead of wasting it on a singing bass.
.

:MandJ: I know someone with 4 of those..

But you raise a good point. It doesn't matter what it costs to manufacture that singing bass or whatever. Walmart is going to charge whatever the market will bear for it. On at least some items, the consumer sees no cost reduction from outsourcing..