THE IMPLICATIONS OF OFFSHORING
THE UNITED STATE ECONOMY
On January 6, 2004, Senator Charles Schumer and I
challenged the erroneous idea that jobs offshoring was free trade in a New
York Times op-ed. Our article so astounded economists that within a few
days Schumer and I were summoned to a Brookings Institution conference in
Washington, DC, to explain our heresy. In the nationally televised conference,
I declared that the consequence of jobs offshoring would be that the US would
be a Third World country in 20 years. That was 11 years ago, and the US is on
course to descend to Third World status before the remaining nine years of my
prediction have expired.
The evidence is everywhere. In September the US Bureau of
the Census released its report on US household income by quintile. Every
quintile, as well as the top 5%, has experienced a decline in real household
income since their peaks. The bottom quintile (lower 20 percent) has had a
17.1% decline in real income from the 1999 peak (from $14,092 to $11,676). The
4th quintile has had a 10.8% fall in real income since 2000 (from $34,863 to
$31,087). The middle quintile has had a 6.9% decline in real income since 2000
(from $58,058 to $54,041). The 2nd quintile has had a 2.8% fall in real income
since 2007 (from $90,331 to $87,834). The top quintile has had a decline in
real income since 2006 of 1.7% (from $197,466 to $194,053). The top 5% has
experienced a 4.8% reduction in real income since 2006 (from $349,215 to
$332,347). Only the top One Percent or less (mainly the 0.1%) has experienced
growth in income and wealth.
The Census Bureau uses official measures of inflation to
arrive at real income. These measures are understated. If more accurate
measures of inflation are used (such as those available from shadowstats.com),
the declines in real household income are larger and have been declining for a
longer period. Some measures show real median annual household income below
levels of the late 1960s and early 1970s. Note that these declines have
occurred during an alleged six-year economic recovery from 2009 to the current
time, and during a period when the labor force was shrinking due to a sustained
decline in the labor force participation rate. On April 3, 2015 the US Bureau
of Labor Statistics announced that 93,175,000 Americans of working age are not
in the work force, a historical record. Normally, an economic recovery is
marked by a rise in the labor force participation rate. John Williams reports
that when discouraged workers are included among the measure of the unemployed,
the US unemployment rate is currently 23%, not the 5.2% reported figure. In a
recently released report, the Social Security Administration provides annual
income data on an individual basis. Are you ready for this? In 2014 38% of all
American workers made less than $20,000; 51% made less than $30,000; 63% made
less than $40,000; and 72% made less than $50,000.
The scarcity of jobs and the low pay are direct
consequences of jobs offshoring. Under pressure from “shareholder advocates”
(Wall Street) and large retailers, US manufacturing companies moved their
manufacturing abroad to countries where the rock bottom price of labor results
in a rise in corporate profits, executive “performance bonuses,” and stock
prices. The departure of well-paid US manufacturing jobs was soon followed by
the departure of software engineering, IT, and other professional service jobs.
Incompetent economic studies by careless economists, such as Michael Porter at
Harvard and Matthew Slaughter at Dartmouth, concluded that the gift of vast
numbers of US high productivity, high value-added jobs to foreign countries was
a great benefit to the US economy. In articles and books I challenged this
absurd conclusion, and all of the economic evidence proves that I am correct.
The promised better jobs that the “New Economy” would create to replace the
jobs gifted to foreigners have never appeared. Instead, the economy creates
lowly-paid part-time jobs, such as waitresses, bartenders, retail clerks, and
ambulatory health care services, while full-time jobs with benefits continue to
shrink as a percentage of total jobs.
These part-time jobs do not provide enough income to form
a household. Consequently, as a Federal Reserve study reports, “Nationally,
nearly half of 25-year-olds lived with their parents in 2012-2013, up from just
over 25% in 1999.” When half of 25-year olds cannot form households, the market
for houses and home furnishings collapses. Finance is the only sector of the US
economy that is growing. The financial industry’s share of GDP has risen from
less than 4% in 1960 to about 8% today. As Michael Hudson has shown, finance is
not a productive activity. It is a looting activity (Killing The
This is not the end of the story. When manufacturing jobs
depart, research, development, design, and innovation follow. An economy that
doesn't make things does not innovate. The entire economy is lost, not merely
the supply chains. The economic and social infrastructure is collapsing,
including the family itself, the rule of law, and the accountability of
government. When college graduates can’t find employment because their jobs
have been off-shored or given to foreigners on work visas, the demand for
college education declines. To become indebted only to find employment that
cannot service student loans becomes a bad economic decision. We already have the
situation where college and university administrations spend 75% of the
university’s budget on themselves, hiring adjuncts to teach the classes for a
few thousand dollars. The demand for full time faculty with a career before
them has collapsed. When the consequences of putting short-term corporate
profits before jobs for Americans fully hit, the demand for university
education will collapse and with it American science and technology.
The collapse of the Soviet Union was the worst thing that
ever happened to the United States. The
two main consequences of the Soviet
collapse have been devastating. One consequence was the rise of the
neoconservative hubris of US world hegemony, which has resulted in 14 years of
wars that have cost $6 trillion. The other consequence was a change of mind in
socialist India and communist China, large countries that responded to “the end
of history” by opening their vast under-utilized labor forces to Western
capital, which resulted in the American economic decline that this article
describes, leaving a struggling economy to bear the enormous war debt. It is a
reasonable conclusion that a social-political-economic system so incompetently
run already is a Third World country.
Paul Craig Roberts has had careers
in scholarship and academia, journalism, public service, and business. He is
chairman of The Institute for Political Economy. He has held academic
appointments at Virginia Tech, Tulane University, University of New Mexico,
Stanford University where he was Senior Research Fellow in the Hoover
Institution, George Mason University where he had a joint appointment as
professor of economics and professor of business administration, and Georgetown
University where he held the William E. Simon Chair in Political Economy in the
Center for Strategic and International Studies.
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