- The Washington Times - Saturday, April 22, 2006

Is your job safe? Not if it can be done abroad. The only safe jobs are in domestic services that require a “hands-on” presence, such as barbers, hospital orderlies and waitresses.

For a number of years, the Bureau of Labor Statistics’ monthly payroll jobs reports have been sending U.S. policymakers dire warnings, only to be ignored. The March report repeats the message. Ninety-five percent of the new jobs are in domestic services. The U.S. economy no longer creates jobs in export or export-competitive sectors.

Wholesale and retail trade, waitresses and bartenders account for 46 percent of new jobs. Education and health services, administrative and waste services, and financial activities account for another 46 percent.

This has been the profile of U.S. employment growth for a number of years, along with some construction jobs filled by legal and illegal immigrants. It is the job profile of a Third World economy.

From January 2001 to January 2006, the U.S. economy lost 2.9 million manufacturing jobs. The promised replacement jobs — “new economy” high-tech knowledge jobs — have failed to materialize.

High-tech knowledge jobs are also being outsourced abroad. According to the Bureau of Labor Statistics, U.S. employment of engineers and architects declined by 189,940 between November 2000 and November 2004 (latest data available). Economist Alan Blinder estimates that as many as 56 million American jobs are susceptible to offshore outsourcing. That would be about half of the U.S. work force.

Offshoring has contributed to the explosion of the U.S. trade/current account deficit over the last decade to $800 billion annually and rising. The United States has a trade deficit in manufactured products, including advanced technology products, of more than a half trillion dollars annually, a sum far larger than the oil import bill.

To cover the trade deficit, the United States has to turn over to foreigners ownership of its accumulated wealth. This worsens the current account deficit, as the income streams on the U.S.-based assets now accrue to foreigners.

Many economists pretend the whopping U.S. trade/current account deficit is evidence the rest of the world has great confidence in America. They pretend foreign investment in the United States causes the trade deficit, whereas it is simply the U.S. trade deficit that gives foreigners the dollars with which to purchase our existing assets.

Traditionally, a trade deficit might indicate a country’s industries were not competitive against imports from abroad, resulting in a decline in the exchange value of the country’s currency. This would make foreign goods more expensive for that country and its goods cheaper for foreigners, thus restoring a balance.

This does not work for the United States for three reasons:

(1) The U.S. dollar is the world’s reserve currency. The dollar can be used to settle all international accounts. Therefore, there is a world demand for dollars. This demand absorbs what would be an excess supply for any other country running such large deficits.

(2) China pegs its currency to the dollar, thus preventing an adjustment in the price of the two countries’ goods and services. Other countries, such as Japan, intervene in currency markets and buy dollars to support the dollar and prevent their currencies from rising in dollar value.

(3) Offshoring turns U.S. production into imports. Much of the U.S. trade deficit results from offshoring, not from traditional trade competition. The collapse of world socialism and the advent of the high-speed Internet made cheap foreign labor available to U.S. companies. U.S. firms use foreign labor to produce offshore the goods and services they market to Americans. For example, more than half of the large U.S. trade deficit with China is comprised of goods and services produced by U.S. companies in China for American markets.

How can the U.S. reduce its trade deficit when it deprives itself of exports and fills itself with imports by offshoring its production of goods and services, and when the devaluation of the dollar is limited by the dollar’s reserve role and by other countries pegging their currency to the dollar or by intervening to support the dollar? Obviously, when balance returns to U.S. trade, it will not come through traditional means.

One way balance can return is by the United States oversupplying the world with dollars to the point at which the dollar is abandoned as the reserve currency.

Another way is through the limit placed on Americans’ ability to consume that results from replacing manufacturing and engineering jobs with waitress, bartender and hospital orderly jobs. A country that loses high value-added jobs and gains low value-added jobs risks losing its prosperity. Offshoring raises corporate profits in the short-run at the expense of destroying the domestic consumer market in the long-run.

Most economists are confused about offshoring. They mistakenly think offshoring is an example of free trade bringing mutual benefit through comparative advantage. It is not. Offshoring is an example of companies obtaining absolute advantage by combining high-tech capital with low-cost labor. The gains from absolute advantage are asymmetrical or one-sided. The cheap-labor country gains; the expensive-labor country loses.

As Morgan Stanley economist Stephen Roach noted April 7, “Average hourly compensation of Chinese manufacturing workers is only 3 percent to 4 percent of levels in the United States, 10 percent of the pay rate of Asia’s newly industrialized economies, and 25 percent of levels in Mexico and Brazil.” Mr. Roach also notes that with a rural population of 745 million (about 2 times the total U.S. population) and headcount reductions of more than 60 million workers from state-owned enterprises, China will not experience a labor shortage anytime soon.

This means it will be a long time before Chinese wages rise enough to offset the benefits of offshoring. The same can be said about India. Consequently, a large percentage of U.S. jobs is vulnerable to being moved abroad.

Paul Craig Roberts is a nationally syndicated columnist.

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