Jewish World Review March 22, 2004 / 29 Adar, 5764
Our new consumer economy
Wasn't the United States supposed to be moving from an agricultural and manufacturing economy to a service economy? According to the logic, growth in U.S. services would be so strong that many American manufacturing jobs would become largely unnecessary to our economy.
Despite our changing economy, America has racked up a $3 trillion cumulative trade deficit in the last 20 years. But while we have carried a deficit in the trade of goods for two decades, we have managed to maintain a surplus in services since 1971. In other words, we provide more services to the rest of the world than we purchase. That surplus, however, has been rapidly declining in recent years, dropping nearly 35 percent since 1997.
Employment in the service sector is now just as vulnerable as employment in manufacturing. New research from the IT consulting firm Gartner estimates that up to 25 percent of traditional tech jobs will shift from developed nations to developing nations by the end of this decade. University of California at Berkeley researchers found that some 14 million U.S. service jobs are now in danger of being outsourced to cheap overseas labor. And consulting firm A.T. Kearney estimates that 500,000 financial services jobs alone will be shipped overseas over the next five years.
It seems that the U.S. economy is in danger of becoming neither a manufacturing nor service economy, but rather a consumer economy. The White House's Web site points to Japanese automobile manufacturer Toyota as an example of globalization's positive effect on the U.S. labor market. Toyota employs roughly 35,000 workers here in the United States. Interestingly, workers in the United States make up only 13 percent of Toyota's labor force, while the U.S. market represents roughly 30 percent of Toyota's total sales.
Americans are, after all, valuable customers. We currently have a greater level of disposable income than our counterparts in Japan, Germany, France and the United Kingdom. But if the outsourcing of American jobs to cheap overseas labor continues to accelerate its pace, as is widely predicted, this may no longer be the case. Eleven percent of all industries in the United States are now vulnerable to outsourcing.
Last week, U.S. lawmakers and a group of senior business executives urged President Bush to resist the critics of outsourcing, warning the president that attempts to stop outsourcing threatened the U.S. economy. This is ironic, to say the least, since it is the practice of outsourcing jobs to cheap overseas labor markets that is impeding recovery in our labor market and threatening our overall standard of living.
In the past, economic theory held that countries should not do at home what can be done abroad less expensively. But as the book "Global Trade and Conflicting National Interests" by respected mathematician Ralph Gomory and economist William Baumol explains: "In the time since these basic models of international trade were formulated there have been major changes in the world economy. David Ricardo's world of agriculture, slow-moving technology and tiny businesses has been replaced by a world dominated by manufactured goods, rapidly evolving technology and huge firms. This calls for re-examination of those classical models."
We need to re-examine our outdated mode of economic thinking. The United States can no longer afford to be the world's marketplace, allowing other nations to detract from our national wealth while offering little to nothing in return. The world, like our economy, is changing, and America must strive to change with it . Prosperously.
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03/15/04: Finding a balance between free trade and protecting our national interest