Continued from p. 3

Wishful thinking: 'We'll always keep high-end jobs'

Policy-makers assure the high-tech community that America can still keep the top skilled jobs. "When a good or service is produced at lower cost in another country, it makes sense to import it rather than to produce it domestically. This allows the United States to devote its resources to more productive purposes," explained the head of Bush's Council of Economic Advisors.( Annenberg)

But there's more than a touch of hubris in those who claim, as does economist Michael J. Mandel, that " America's strongest suit is innovation, which will always create new high-paying positions." Why? India now graduates 2 million college students every year, including 200,000 English-speaking engineers -- and is beefing up education.   In the first three years of the Bush administration, the United States dropped from 4th to 13th place in broadband Internet use.  Thomas Bleha, former foreign service officer in Japan, puts the blame squarely on the Bush administration, and says we're "the only industrialized state without an explicit national policy for promoting broadband" -- a far cry from previous administrations, when government funding created the Internet and promoted its use. South Korea is number one, because of aggressive policies that have linked two out of three households and all schools with broadband connections.  (Mandel, Hopkins, Bleha)

China is also pouring resources into science and technology, and has already developed supercomputers that are among the fastest in the world, along with next-generation optical communications and technology for broadband networks (developed jointly with Fujitsu Ltd.), and claim to have developed the world's first IPV6 router for the next generation of the Internet. The China Electronics Technology Group Corporation (CETC), founded in 2002 with government support, is associated with 46 electronics research institutions and 26 high technology enterprises and currently employs33,000 technical professionals. Calling for a "new assessment" of China's competitive strength, Michael Pillsbury, Senior Research Advisor for the US-China Commission, warns that US policy-makers could be in for a surprise as dramatic as in the early 1950s, when the Soviets launched the Sputnik satellite. (Pillsbury)

First it's the cheap jobs. . .

Wishful thinkers also ignore the fact that losing entry-level jobs means losing the entry points for high-end work. Many highly skilled workers start with code development. The U.S. technology industry can't afford to lose the "natural farm teams" that created architects, analysts and innovators for generation, pointed out C|Net, in an excellent series of articles on outsourcing. That can leave companies with little alternative but to outsource more important jobs. (Ricciuti 2004-1)

The high end that isn't outsourced keeps moving higher -- and   smaller -- just as it did in earlier decades with manufacturing jobs.   Remember when Japanese and Chinese manufactured imports were cheap and labor-intensive toys and low-end products? Likewise, the first computer and IT jobs to be outsourced were call centers and routine programming. A CIO Magazine survey of chief information officers found that they planned to offshore more than one-third of application development and maintenance. More than one in ten had already sent system and architecture planning offshore -- functions that experts predicted would never leave.  One in seven had also offshored research and development and business processes.

Seventy-seven global companies have set up their own R&D centers in India, says Manoj Kunkalienkar, the executive director and president of ICICI InfoTech, a top Indian outsourcing company. "What is surprising is the list of industries doing R&D work out of India is varied, ranging from telecommunications service providers and equipment manufacturers, chip designers and IT hardware companies to plastics and pharmaceuticals producers," he added. "I believe it's just a matter of time before India is recognized as 'the world's R&D center' or 'the knowledge hub.'" (Ware, Ricciuti 2004-1)

"If you peel back the arguments in favor of offshoring, what you finally end up with is an article of faith," commented Washington Post business columnist Steven Pearlstein, "faith that history will repeat itself and the U.S. economy will quickly generate enough new jobs in higher-paying industries to compensate for the ones lost to trade. What I've yet to see, however, is even an educated guess as to what those jobs might be." (Pearlstein)

Who's covering America's debts?

Economic theory says no country can go on forever being the world's consumers, as jobs keep moving abroad. The U.S. is buying imports (including outsourced work) on credit, hoping other nations don't call in the loans. Its overall debt to the world is about $4.4 trillion, nearly twice what it was in 2000.The U.S. now owes more than one-fourth its entire Gross Domestic Product   (GDP) to the rest of the world (28%, compared to 5% in 1997). That puts its debt-to-export ratio "in shooting range of troubled Latin economies like Brazil and Argentina," warn Stern School of Business professor Nouoriel Roubini and Brad Setser of Oxford University. The International Monetary Fund has issued a warning that the U.S. trade deficit "threatens international instability." (Uchitelle 2004, Roubini and Setser, Business Times)

Since the rest of the world is swamped with dollars they get from selling stuff to Americans -- dollars that they aren't spending on American products -- those surplus dollars should drop in value. A cheap dollar would then make foreign work  more expensive. But although the dollar's value had dropped by 25 percent by April, 2005, it has barely budged in trade with China and other countries that send the U.S. 30 percent of its imports. (Mann and Pluck) The Chinese government keep its money -- the Yuan -- pegged to the dollar, so that when the dollar drops against other currencies, the Yuan drops with it. Asian governments -- mostly Japan and China  --   are also propping up the dollar, partly by lending the U.S. billions of the dollars they gain from trade. Instead of buying American products, they bought more than $1 trillion in U.S. Treasury securities and other dollar assets over the last two years. Thanks to the huge budget deficit spawned by the Bush tax cuts, the U.S. has plenty of treasury bills to sell.  (Andrews 2004-1, Andrews 2004-2)

If foreign governments should stop investing in the growing American debt, the dollar could plunge. That would prompt the U.S. government and   the Federal Reserve Bank to raise interest rates, both to lure investment back and to tame inflation (by discouraging spending) as the prices of imports rise.  That could halt economic growth in its tracks, and endanger more jobs, worldwide. Many economists agree with the World Bank when it warned that the massive U.S . current account deficit is "unsustainable" and raises the chances of a global recession. (Gongloff-1, Gongloff-2)

There are political risks as well.   "Could foreign governments like China's one day use this clout to influence U.S. foreign policy?" wonders the Wall St. Journal's Greg Ip. (Ip 2004-1)

->Continued on p. 5: It's about money