How the Economy Was Lost: The War of the Worlds (Counterpunch) (6 page)

Chapter 12: The Job Arbitrageurs - Partnering the Destruction of the American Economy

I
n March, 2005, the U.S. economy created a paltry 111,000
private sector jobs, half the expected amount. Following a well-established pattern, U.S. job growth was concentrated in domestic services: waitresses and bartenders, construction, administrative and waste services, and health care and social assistance.

In the 21st century the U.S. economy has ceased to create jobs in knowledge industries or information technology (IT). It has been a long time since any jobs were created in export and import-competitive sectors.

The Bureau of Labor Statistics forecasts no change in the new pattern of U.S. payroll job growth. Outsourcing and offshore production have reduced the need for American engineers, scientists, designers, accountants, stock analysts, and other professional skills. A college degree is no longer a ticket to upward mobility for Americans.

Nandan Nilekani is CEO of Infosys, an Indian software development firm. In an interview with
New Scientist
(Feb 19, 2005), he noted that outsourcing is causing American students to “stop studying technical subjects. They are already becoming wary of going into a field which will be ‘Bangalored’ tomorrow.”

Bangalore is India’s Silicon Valley. A 21st century creation of outsourcing, Bangalore is a new R&D home for Hewlett-Packard, GE, Google, Cisco, Intel, Sun Microsystems, Motorola, and Microsoft. The
New Scientist
reports: “The concentration of high-tech companies in the city is unparalleled almost anywhere in the world. At last count, Bangalore had more than 150,000 software engineers.”

Meanwhile American software engineers go begging for employment, with several hundred thousand unemployed. I know engineers in their 30s with excellent experience who have been out of work since their jobs were outsourced four or five years ago. One is moving to Thailand to take a job in an outsourcing operation at $875 a month.

A country that permits its manufacturing and its technical and scientific professions to wither away is a country on a path to the Third World. The mark of a Third World country is a labor force employed in domestic services.

Many Americans and almost every economist and policymaker do not see the peril. They confuse outsourcing with free trade, and they have been taught that free trade is always beneficial.

Outsourcing is labor arbitrage. Cheaper foreign labor is being substituted for more expensive First World labor. Higher productivity no longer protects the wages and salaries of First World employees from cheap foreign labor. Political change in Asia has made it easy to move First World capital and technology to cheap labor, and the Internet has made it easy to move cheap labor to First World capital and technology. When working with First World capital and technology, foreign labor is just as productive—and a lot cheaper.

This is a new development. It is not a development covered by the case for free trade.

Outsourcing’s apologists claim that it will create new jobs for Americans, but there is no sign of these jobs in the payroll jobs data. Moreover, it doesn’t require much thought to see that the same incentive to outsource would apply to any such new jobs. By definition, outsourcing is the substitution of foreign labor for domestic labor. It is impossible for a process that replaces domestic employees with foreigners to create jobs for domestic labor.

Now biotech and pharmaceutical jobs and innovation itself are being moved offshore. The
Boston Globe
reports that Indian chemists with Ph.D. degrees work for one-fifth the pay of U.S. chemists. American chemists cannot give up 80 percent of their pay to meet the competition and still pay their bills. Rising interest rates will make it difficult enough for Americans to make their mortgage payments, and the dollar’s declining exchange value will raise the prices of the goods and services that have been moved offshore.

Americans are unaware of the difficult adjustments that are coming their way. By the time Americans catch on to outsourcing, its proponents will have changed its name to “strategic sourcing” or “partnering.”

Corporations, economists, and politicians have written off American labor. No end of the job drought is in sight.

April 5, 2005

Chapter 13: No Jobs in the New or Old Economy

D
ecember, 2008 did not bring Americans any jobs. To the
contrary, the private sector lost 13,000 jobs from the previous month.

If December is a harbinger of the new year, it is going to be a bad one. The past year, hailed by Republican propagandists and “free trade” economists as proof of globalism’s benefit to Americans, was dismal. According to the Bureau of Labor Statistics’ nonfarm payroll data, the U.S. “super economy” created a miserable 1,054,000 net new jobs during 2007.

This is not enough to keep up with population growth—even at the rate discouraged Americans, unable to find jobs, are dropping out of the work force—thus the rise in the unemployment rate to 5 percent.

During the past year, U.S. goods producing industries, continuing a long trend, lost 374,000 jobs.

But making things was the “old economy.” The “new economy” provides services. Last year 1,428,000 private sector service jobs were created.

Are the “free trade” propagandists correct that these service jobs, which are our future, are high-end jobs in research and development, innovation, venture capitalism, information technology, high finance, and science and engineering where the U.S. allegedly has such a shortage of scientists and engineers that it must import them from abroad on work visas?

Not according to the official job statistics.

What occupations provided the 1.4 million service jobs in 2007?

Waitresses and bartenders accounted for 304,200, or 21 percent of the new service jobs last year and 29 percent of the net new jobs.

Health care and social assistance accounted for 478,400, or 33 percent of the new service jobs and 45 percent of the net new jobs. Ambulatory health care and hospitals accounted for the lion’s share of these jobs.

Professional and business services accounted for 314,000, or 22 percent of the new service jobs and 30 percent of the net new jobs. Are these professional and business service jobs the high-end jobs of which “free traders” speak? Decide for yourself. Services to buildings and dwellings account for 53,600 of the jobs. Accounting and bookkeeping services account for 60,500 of the jobs. Architectural and engineering services account for 54,700 of the jobs. Computer systems design and related services account for 70,400 of the jobs. Management consultants account for 88,400 of the jobs.

There were more jobs for hospital orderlies than for architects and engineers. Waitresses and bartenders accounted for as many of last year’s new jobs as the entirety of professional and business services.

Wholesale and retail trade, transportation, and utilities accounted for 181,000 of 2007’s new jobs.

Where are the rest of the new jobs? There are a few scattered among arts, entertainment, and recreation, repair and maintenance, personal and laundry services, and membership associations and organizations.

That’s it.

Keep in mind that the loss of 374,000 goods producing jobs must be subtracted from the 1,428,000 new service jobs to arrive at the net job gain figure. The new service jobs account for more than 100 percent of the net new jobs.

Keep in mind, too, that many of the new jobs are not filled by American citizens. Many of the engineering and science jobs were filled by foreigners brought in on work visas. Indians and others from abroad can be hired to work in the U.S. for one-third less. The engineering and science jobs that are offshored are paid as little as one-fifth of the U.S. salary. Even foreign nurses are brought in on work visas. No one knows how many of the hospital orderlies are illegals.

What a super “new economy” Americans have! U.S. job growth has a distinctly Third World flavor. A very small percentage of 2007’s new jobs required a college education. Since there are so few jobs for university graduates, how is “education the answer”?

Where is the benefit to Americans of offshoring? The answer is that the benefit is confined to a few highly paid executives who receive multi-million dollar bonuses for increasing profits by offshoring jobs. The rest of the big money went to Wall Street crooks who sold trusting people subprime derivatives.

“Free traders” will assert that the benefit is in low Wal-Mart prices. But the prices are low only because China keeps its currency pegged to the dollar. Thus, the Chinese currency value falls with the dollar. The peg will not continue forever. The dollar has lost 40 percent of its value against the Euro during the years of the Bush regime. Already China is having to adjust the peg. When the peg goes, Wal-Mart shoppers will think they are in Neiman Marcus.

Just as Americans have been betrayed by “their” leaders in government at all levels, they have been betrayed by business “leaders” on Wall Street and in the corporations. U.S. government and business elites have proven themselves to be Americans’ worst enemies.

January 8, 2008

Chapter 14: The Great American Job Sell-Out

A
mericans are being sold out on the jobs front.
Americans’ employment opportunities are declining as a result of corporate outsourcing of U.S. jobs, H-1B visas that import foreigners to displace Americans in their own country, and federal guest worker programs.

President Bush and his Republican majority intend to legalize the aliens who hold down wages for construction companies and cleaning services. In order to stretch budgets, state and local governments bring in lower paid foreign nurses and school teachers. To reduce costs, U.S. corporations outsource jobs abroad and use work visa programs to import foreign engineers and programmers. The American job give away is explained by a “shortage” of Americans to take the jobs.

There are not too many Americans willing to accept the pay and working conditions of migrant farm workers. However, the U.S. is bursting at the seams with unemployed computer engineers and well-educated professionals who are displaced by outsourcing and H-1B visas. During Bush’s entire first term, there was a net loss of American private sector jobs. Today there are 760,000 fewer private sector jobs in the U.S. economy than when Bush was first inaugurated in January 2001.

For years the hallmark of the European economy was its inability to create any jobs other than government jobs. America has caught up with Europe. During Bush’s first term, state and local government created 879,000 new government jobs. Offsetting these government jobs against the net loss in private sector jobs gives Bush a four-year jobs growth of 119,000 government jobs. Comparing this pathetic result to normal performance produces a shortage of millions of U.S. jobs. What happened to these jobs?

Over these same four years the composition of U.S. jobs has changed from higher-paid manufacturing and information technology jobs to lower-paid domestic services. Why?

During this extraordinary breakdown in the American employment machine, politicians, government officials, corporate spokespersons, and “free trade” economists gave assurances that America was benefitting greatly from the work visa programs and outsourcing.

The mindless chatter continues. Just the other day Ambassador David Gross, U.S. Coordinator for International Communications and Information Policy in the State Department, declared outsourcing to be an economic efficiency that works to America’s benefit. There is no sign of this alleged benefit in U.S. jobs statistics or the U.S. balance of trade.

Repeatedly and incorrectly, U.S. corporations state that outsourcing creates more U.S. jobs. They even convinced a
New York Times
columnist that this was the case.

The problem is, no one can identify where the U.S. jobs are that outsourcing allegedly creates. They are certainly not to be found in the BLS jobs statistics. However, the Indian and Chinese jobs created by U.S. outsourcing are highly visible.

On February 13, the
Dayton Daily News
(Ohio) reported that jobs outsourcing is transforming Indian “cities like Bangalore from sleepy little backwaters into the New York Cities of Asia.” In a very short period outsourcing has helped to raise India from one of the world’s poorest countries to its seventh largest economy.

Outsourcing proponents claim that U.S. job loss is being exaggerated, that outsourcing is really just a small thing involving a few call centers. If that is the case, how is it transforming sleepy Indian cities into “the New York Cities of Asia”? If outsourcing is no big deal, why are Bangalore hotel rooms “packed with foreigners paying rates higher than in Tokyo or London,” as the
Dayton Daily News
reports?

If outsourcing is of no real consequence, why are American lawyers or their clients paying $2,900 in fees plus hotel and travel expenses and two days’ billings to attend the Fourth National Conference on Outsourcing in Financial Services in Washington, D.C. (April 20–21)?

On the jobs front, as on the war front, the Social Security front, and every other front, Americans are not being given the truth. Americans’ news comes from people allied with the Bush administration or dependent on revenues from corporate advertisers. Displease the government or advertisers and your media empire is in trouble. The news most Americans get is filtered. It is the permitted news. Many “free trade” advocates also are dependent on the corporate money that funds their salaries, research, and think tanks.

Another clear indication that outsourcing of U.S. jobs is no small thing comes from the reported earnings of the leading Indian corporations that provide American firms with outsourced IT employees and engineers. During the recent quarter, Ifosys’ revenues increased by 53 percent, TCS grew by 38 percent, and Wipro was up 34 percent.

On January 1, 2001, Cincinnati-based Convergys Corp had one Indian employee. Today it has 10,000. Why? Because it can hire Indian university graduates for $240 a month, a sum that is a fraction of the U.S. poverty level income.

Many Americans think that an outsourced job is an existing job that is moved offshore. But many outsourced jobs are created offshore in the first place. On February 11,
USA Today
told the story of OfficeTiger, “the sort of young technology company that once created thousands of high-paying jobs in the U.S.A, fueling sizzling economic growth.” The five-year-old startup business employs 200 Americans and ten times that number of Indians. The company has plans for hiring many more Indians to perform “tech-heavy financial services.”

Under pressure from venture capitalists who fund new companies, American startup firms are starting up abroad. Thus, the new ventures, which “free trade” economists assured us would create new jobs to take the place of the ones moved offshore by mature firms, are in fact creating jobs for foreigners.

As a consequence, tech jobs in the U.S. are falling as a percentage of the total. Clearly, tax breaks for venture capitalists are self-defeating when the result is to create jobs for foreigners, not for Americans. Why should the American taxpayer subsidize employment in India and China?

These developments have obvious adverse implications for engineering and professional education in America. The BLS jobs forecast for the next ten years says the vast majority of U.S. jobs will not require a college education. University enrollments will decline and so will the production of Ph.Ds as fewer professors are needed.

As India and China rise to First World status, the U.S. falls to Third World status where the only jobs are in domestic services.

This has enormous implications for the U.S. balance of payments. Americans’ consumption of manufactured goods is heavily dependent on foreign manufacture, whether that of foreign firms or that of U.S. multinational firms that supply their American customers from offshore. How does an economy in which employment growth is concentrated in nontradable domestic services pay for its imports with exports?

Since 1990 the U.S. has been paying for its imports by giving foreigners ownership of its assets. In the last 15 years foreigners have accumulated $3.6 trillion of America’s wealth.

America has been able to pay for its consumption by giving up its wealth because the dollar is the world’s reserve currency. As America’s high-tech and manufacturing capabilities decline and its red ink rises, the dollar’s role as reserve currency must end.

When the dollar loses its reserve currency role, America will not be able to pay for the imports on which it has become dependent.

Until recent years, U.S. companies employed Americans to produce the goods that Americans consumed. Employment supported sales, and sales supported employment. No more. By their shortsighted policy of moving U.S. jobs abroad, our corporations are destroying their American markets.

Economists give assurances that the dollar’s decline and fall will bring jobs and industry back to the U.S. Once Americans are as poor as Indians and Chinese are today, the process will reverse. Multinational corporations will locate in America to take advantage of cheap labor and unserved markets. By becoming poor, the U.S. can become rich again.

You might want to ask the economists and our “leaders” in Washington why we should put ourselves and our descendants through such a wrenching process.

February 15, 2005