(09/01/05) Clyde Prestowitz and Three Billion New Capitalists in the Ecologist
Ecologist
September 1, 2005

ONE FOOT IN THE THIRD WORLD
Roberts, Paul Craig

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 10 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 10 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.

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 modem world.

Clyde Prestowitz, author of 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 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 semi-conductor 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 20 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.