[A-List] One Foot in the Third World

[Bill Totten <shimogamo@xxxxxxxxxxxxx>]

Stuck on a path of long-term economic decline,
by 2024 the US will be a has-been country

by Paul Craig Roberts

The Ecologist (September 2005)


In May the Bush economy created 73,000 private sector jobs: 20,000 jobs in
construction (primarily for Mexican immigrants), 21,000 in wholesale and retail
trade, and 32,500 in healthcare and social assistance. In the public sector,
local government added another 5,000.

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, they 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 ten million Americans are classified as 'production workers' in the US
Bureau of Labor Statistics non-farm payroll tables. Think about that. The US,
with a population approaching 300 million, has only ten million production
workers. That means Americans are consuming the products of other countries'
labour. 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
non-tradable domestic services. This movement of the American labour force
towards Third-World occupations in domestic services has dire implications
both for US living standards and for America's status as a superpower.


America's naive belief that offshore outsourcing and globalism are working for
the US is based on a 200-year-old trade theory, the premises of which do not
reflect the modern world


Economists and policymakers are in denial while the US economy implodes in front
of their noses. The US-China Commission, the US government agency set up in 2000
to monitor the changing economic relationship between China and the United
States, 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 19 May hearings in New York at the foreign-policy
think-tank, the Council on Foreign Relations. Technology executive and trade
expert Ralph Gomory explained that America's naive belief that offshore
outsourcing and globalism are working for the US is based on a 200-year-old
trade theory, the premises of which do not reflect the modern world.

Clyde Prestowitz, author of Three Billion New Capitalists: The Great Shift of
Wealth and Power to the East (Basic Books, 2005), 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 Americans are paying them by
handing over their markets, jobs and wealth. My former colleague at the magazine
Business Week, Bill Wolman, explained the consequences for US workers of
suddenly facing direct labour-market competition from hundreds of millions
of Chinese and Indian workers. Towards 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 labour available to US capital;
the rise of the internet; and the extraordinary international mobility of US
capital and technology.

First-world capital is rapidly deserting first-world labour in favour of Third
World labour, which is much cheaper because of its abundance and low cost of
living. Formerly, the US's high real, incomes were protected from cheap foreign
labour, because US labour worked with more capital and better technology, which
made it more productive. Today, however, US capital and technology move to cheap
labour, or cheap labour moves via the internet to US employment. The reason
economic development in China and some Indian cities is so rapid is because
it is fuelled 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, laborious
and characterised by a gradual rise of Asian incomes towards US standards,
not by a jarring loss of American jobs and incomes to Asians. Instead, US
corporations chose to drive earnings and managerial bonuses by substituting
cheap Asian labour for American labour.

American businesses' short-run profit maximisation plays directly into the hands
of thoughtful Asian governments with long-run strategies. As Prestowitz informed
the US-China Commission, 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 domestic 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 programmes,
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
EU constitution by France and the Netherlands. 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 Washington-based think-tank the Brookings Institution that
the US would be a Third-World economy within twenty years. I was projecting the
economic outcome of the US labour force being denied first-world employment and
forced into the low-productivity occupations of domestic services. Considering
the vast excess supplies of labour in India and China, Asian wages are unlikely
to rapidly approach existing US levels. Therefore, the substitution of Asian for
US labour in tradable goods and services is likely to continue.

As US students seek jobs immune from outsourcing, engineering enrolments are
declining. The exit of so much manufacturing is destroying the supply chains
that make manufacturing possible. Asia will not give it back its economy once
America has lost it; it will not play the 'free-trade' game and let its labour
force be displaced by cheap American labour. Offshore outsourcing is dismantling
the ladders of America's fabled upward mobility. The US labour force already has
one foot in the Third World. By 2024 the US will be a has-been country.

Paul Craig Roberts is co-author of The Tyranny of Good Intentions
(Prima Lifestyles, 2000)


Bill Totten     http://billtotten.blogspot.com/