Book Reviews & Citations
(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.