Ilana Mercer, May 28, 2003

The wholesale exporting of manufacturing jobs from the U.S. to countries where labor is cheap was easier for this writer to chalk up to the smooth workings of the free market than was the loss of 560,000 high-technology jobs over the last two years. There’s nothing like first-hand experience to bring about a rude awakening as to the direction the American economy is headed.


The breadwinner in this family, we presumed, was not in an easily displaced occupation. Relatively young, with a Ph.D. in electrical engineering and a stellar design record, it was not unreasonable to think that an economic powerhouse like the U.S. needed his skills.


Alas, by necessity, the outsourcing or the exporting of high-income and highly-skilled work to places like China and India, where wages can be as low as one-tenth of what an American with a similar skill-set commands, has been the topic of discussion around our dinner table.


According to CNN’s Lou Dobbs, of the 2.5 million jobs that have been shipped abroad over the past two years, a large number are such high-productivity jobs. A company like Ernst & Young, for instance, is outsourcing, albeit through a contractor, finance and accounting services to India. Dobbs estimates that 1 million people across India “work for U.S.-based companies, like GE Capital, Oracle and Microsoft.”


The trend is growing.


The American economy will be employing fewer engineers, accountants, information technology workers, stock analysts, radiologists, architects and research and development scientists – all highly trained top earners who ought to form the backbone of a vigorous and vibrant economy.


And I’m talking the lock, stock and barrel loss of careers, not a temporary shortage of jobs.


When manufacturing jobs were lost en masse, economists promised we’d become a service-oriented economy, quips columnist Paul Craig Roberts. Now that professional services and high-tech jobs are moving offshore, often with no more than a click of the mouse, what shape is the economy destined to take?


A very poor shape indeed, I venture.


Exporting jobs to where labor is cheapest may be the most efficient allocation of capital, but it results in unemployment in the U.S. and is a contributing factor to a trade deficit that increases by an average of $1.5 billion a day. To the argument that the cheap goods sold back into our markets offset the loss of exported jobs, there is only one humane response: Tell that to the unemployed who are too poor to purchase the goods.


If a company were to buck the tide and stay put, it would, however, soon go out of business because it’s competing with dirt-cheap imports. For their part, consumers expect that every new model Pocket PC should have more features yet, at the same time, be cheaper.


On the highway to Third-World status, we’ve thus been exporting high-wage jobs while importing one very costly problem: an abundance of poor, Third World legal and illegal immigrants. This influx, encouraged by successive administrations, further increases unemployment and contributes to the suppression of wages. The “real earnings of those in the top 10 percent fell 1.4 percent over the last year,” reports Roberts, with “the real weekly pay for the median worker falling by 1.5 percent.”


The allure of outsourcing is, of course, cheap labor, although it used to be that American workers, while expensive, were also highly productive – this was a very skilled, well-educated and highly capitalized work force. Weak property rights and a dicey rule of law in the Third World outweighed the enticement of a cheap labor force. On balance, it was once viable for companies to stay in the United States. Things, however, have changed. Doing business in Asia, for instance, where the vast work force is now relatively skilled, is far less precarious and so much cheaper that companies are willing to risk diminished legal protections.


In the U.S., companies must, moreover, endure endless, punishing, government-imposed regulations, which make doing business and staying competitive increasingly difficult. To the cost of the assorted alphabet soup of regulatory agencies a corporation must pay off, add exorbitant corporate taxes and expenses like workers compensation insurance.


Factored into the wage price the corporation pays are large government-imposed costs. The company’s before-tax wage package must offset the cost of the income-tax burden as well as the cost of a government rape known as Social Security. Put it this way: the top high-tech employee rarely sees more than $70,000 in after-tax income, despite the fact that on paper he has a six-figure income, which the company duly pays. Without these onerous government taxes, this employee would cost the firm 30 to 40 percent less.


Consider that the annual Social Security burden alone on an American high-tech employee, borne by the employer, is the equivalent of the annual salary of a high-tech worker living well in India, and the logic of outsourcing is self-evident!


Government omnipresence makes the notion of free trade a misnomer – trade is anything but free.


True enough, the abler American worker will not be completely replaced. The breadwinner in this family no longer does what he loves and is so good at doing, but rather, spends his days managing – correcting and coordinating – foreign workers, while watching colleagues being downsized and lose occupation and career.


Cheap is the choice, but there’s a price to pay.



May 28, 2003

CATEGORIES: Economy, Immigration, Labor, Outsourcing, Regulation, Technology