A few years back, Der Spiegel editor Gabor Steingart took a look at the mechanism by which America has managed to become and sustain its position as the greatest world superpower. Focusing on financial and socio-political structure, Steingart determined that America’s success was derived from three key elements wholly unique to the “American” system: (a) culture of extreme optimism and daring; (b) extreme globalism; and (c) ability to trade globally using its own national currency.
Presciently, Steingart determined that these three virtues would also bring about America’s gradual and painful ruin. He wrote: “Forever piously trusting in a future rosier than the present, millions of households are borrowing so much money that they end up endangering the very future they’re looking forward to. The lower and middle classes have practically given up on putting aside any savings. They’re going into the 21st century like a poverty-stricken, Third World family, living from hand to mouth without any financial reserves whatsoever.”
Steingart added: “But for many blue- and white-collar workers, this decline is already absolute because they have less of everything than they used to. They possess less money, they are shown less respect in society and their chances for climbing up the social ladder have deteriorated dramatically. They’re the losers in the world war for wealth. But while that may be their fate, they cannot be faulted for it.”
Steingart posits that the cause of America’s certain failure as a superpower is its government’s decision in the 1970s to move from a major exporter of good to a major importer of goods by allowing manufacturers in major industries such as automobiles, furniture, etc. to go offshore. The result was that investors followed the manufacturers offshore and so did the jobs.
“Neither laziness nor the obvious American penchant for consumerism can be blamed for this changed reality in America,” writes Steingart. “US industry — or at least what little is left of it — is responsible. In the span of only a few decades, US industry has shrunken to half what it once was. It makes up only 17 percent of the country’s GDP, compared to 26 percent in Europe.”
Steingart’s analysis rings true. A recent study by Lael Brainard and Robert E. Litan at the Brookings Institute found that off shoring would likely provide significant economic gains for businesses and substantial losses for domestic laborers, companies and communities. They posit that as technology increasingly allowed companies to offshore labor and save up to 50% in labor costs and create jobs, those jobs have gone to mostly highly skilled foreign workers, namely Chinese and Indian laborers. Moreover, the gains in productivity and labor costs savings have resulted in rising profit margins proportionate to American wage losses.
In considering America’s current economic model’s impact on individual workers, the study found that “longer-term averages often conceal what is happening to individual workers.” “Solid economic research now documents that the wages of low-skilled workers—those at the bottom of the income distribution—were pushed down in the 1980s and early 1990s by a combination of foreign trade, immigration, and a drop in demand caused by changes in technology that favor greater skills. This downward pressure increased income inequality until the mid-1990s, when the rising tide of the overall economy lifted all boats. Now that college-educated, white-collar American workers will increasingly be in competition with highly qualified workers in the developing world, won’t they be subject to the same pressures?”
BusinessWeek’s chief economist Michael Mandel worries the “skills premium” that educated workers earned in the past may be pushed down in the future, cheapening the historically high value of advanced degrees in law, medicine and science. But in ignorance of this concern, conservative leaders, specifically Senate Republicans, voted back in September to defeat an effort by the Democratic majority to offer up legislation that would confront U.S. multi-national corporations moving manufacturing jobs overseas. They argued that the legislation would “raise taxes on the largest U.S. companies, which are responsible for much of the job growth in the country.”
As conservative American leaders promote austerity measures that would eliminate social services such as social security, unemployment insurance, health care, Medicare and education, the question remains whether such cuts would have any appreciable effect on the labor situation given that the actual cause of America’s economic decline very well could be off shoring jobs and importing cheap labor.