Wednesday, August 18, 2004

Offshoring: Does America Suffer An Ontological Deficit?

An ontological deficit is characterized either by a lack of "reality checks" or proper responses to events that should give one pause, and ask whether the ontological theory one holds is in fact correct. America seems to be running a particularly high aggregate ontological deficit. It's mystifying, since the facts are apparently available - they're just ignored.

What is the oldman talking about? Dan Drezner, whom I've come to regard in the same manner as a sort of well meaning but soft in the head cousin who can't be trusted with the keys to the family van, writes an article regarding whether America has a skills-deficit.

One of the policy debates that emerges with the offshore outsourcing debate is whether greater investments in training and education would really address the shift in jobs demand that comes with greater technological innovation and international trade.

With that debate in mind, Timothy Aeppel has a Wall Street Journal front-pager on the current difficulties American employers are facing because of the dearth in Swiss-style machinists.

The rest of the WSJ citation and Dan's own commentary goes on to glowingly describe the growing need for Swiss-style machinists. So I was curious about these swiss-style machinists, so the oldman thought the place to look would be an industry publication since they would both know best and put it in the best light. So the oldman went and got the PDF File of the Cutting Tool Engineering Magazine article that focused in precisely on swiss-style machining.

The article predictably is glowing and extolls both the growth and the virtues of high-precision crafting and its future being bright even as other manufacturing sectors take sharp declines. Then deep down in the bowels of the article, the abashed cutting tool engineers make an admission. As it turns out swiss-style machining composes less than 10% of the tool and die market.

With the other 90% as it turns out in sharp losses. But maybe Dan just picked a bad example! Maybe hi-tech solutions will save us, and even if that wasn't a terribly good example well Dan's article shows that there is a growing need for electricians and plumbers and ... well those aren't hi-tech but those are specialized skill-set growth areas and certainly hi-tech like swiss-style machining will save us if only we had the faith to spend years apprenticing ourselves to learn the craft right?

No.

As the oldman pointed out, recently the USA has started running a systematic and negative hi-tech trade deficit as reported in the CSM.
Exports fail to keep pace with imports, stirring concern about a key fount of jobs.

By David R. Francis | Staff writer of The Christian Science Monitor

For the first time on record, the United States has a deficit in high-tech trade, prompting concern about American competitiveness in key job-producing industries from biotechnology to aerospace.

That deficit appears to be widening, fueled in part by the trend of offshore outsourcing in areas such as software design. As computer parts have become commodities, production has long since moved to places such as Taiwan and, now, to China.

Trade gaps have opened in scientific instruments and in specialized industrial machinery. In commercial airplanes, among the most sophisticated of machines, America remains an export powerhouse, but Europe's Airbus consortium as of this year is selling more planes than Boeing.[emphasis added]

In a sense, hi-tech was simply the last to go. Note that the article specifically mentions scientific instrumentation and in specialized industrial machinery - precisely the area that swiss-style machining covers. So the answer is no, no, and no. The numbers speak for themselves. Even this cherry-picked example meant to be a beacon showing that it is merely our lack of skills that is driving this economic restructuring and not systematic infrastructure issues is on the face of it simply wrong.

Nor is it an American phenomena. As Newsweek covers, this is a world phenomena that extends to Germany, France, etc.
A Heavier Burden
Even as recovery spreads worldwide, workers are finding themselves working harder for less money

By Rana Foroohar and Tony Emerson

Newsweek International

Aug. 23 issue - You've heard about the jobless recovery—that strange American paradox of payroll declines in a booming economy. Now, it seems, the Yankee virus has spread to Europe, too. Continental economies are beginning to rebound, but unemployment is as high as ever; in places like Germany, the ranks of the jobless are growing, even as the government pushes reform and trade unions make unprecedented compromises to keep jobs at home. Economists are beginning to call the trend by its true name. A recent report by the European bank UBS titled "Jobless Recovery in Germany" warns: "Unemployment appears to be a feature of this recovery that will persist."

There is a growing camp of economists who believe today's brutally tough labor market is not a temporary American oddity. Falling wages, reduced benefits and rising job insecurity seem to be increasingly entrenched features of the job scene across most of Western Europe, the United States and other parts of the developed world. The number of insecure freelance positions is rising (as are working hours) while stable jobs with good benefits are being cut. Large numbers of laid-off workers aren't getting their old jobs back—they are having to look for new work, often in entirely new fields. Those who still have jobs are working longer hours with little prospect of meaningful raises.

The new labor market is shaped by growing global competition, spurred by the rise of cheap manufacturers in China, India and Eastern Europe, and the price-chopping effect of both the Internet and giant retailers led by Wal-Mart. These forces compel Western companies to exercise growing restraint on prices and labor costs. "One thing globalization clearly does is to exert a leveling effect on wages. The question is whether China and India will catch up to the West, or the West begins to fall back," Eckhard Cordes, an economist and head of Daimler's truck division, said in an interview earlier this year. Indeed, he warned, Europe had little choice but to cut wages or begin losing jobs by the thousands: "I think Germany is heading for a real crisis within the next 10 years. At least you in the United States have some job growth. In Germany, there is zero. Nothing."

The crisis may not take 10 years to unfold. New signs of the upheaval are everywhere,

The mood in labor markets has shifted dramatically from just four years ago. In the United States, books like "Free Agent Nation" celebrated the prospect that we would all be freelancers one day, constantly hopping from one cool job to a higher-paying one, with no ceiling in sight. The Organization Man was dead. We free agents needed big corporations less than they needed us. But that was 2000, the dizzy end of the Internet boom. Now the zeitgeist has shifted 180 degrees, and freelance is no longer a synonym for freedom. All it evokes is job insecurity and zero benefits.

Like it or not, that's the kind of job openings that are out there. In the U.S. recession that ended in June 2001, half the job cuts were "structural," meaning permanently eliminated, compared to an average of 25 percent in previous recessions, according to the U.S. Federal Reserve. In other words, laid-off workers are much less likely to be rehired by their old companies and have to find new jobs or turn to self-employment. Data from the U.S. Bureau of Labor Statistics show that more than half of the jobs created since the end of the recession are part time, that tenured workers are still losing their jobs at record rates and those that find new ones are taking 57 percent pay cuts on average.

This is a global phenomena. It is not dependent upon tiny local inefficiencies of job-market-skill-sets. It is a sweeping, systematic, and pervasively undeniable process. Yet some people, the equivalent of the soft-in-the-head family cousins, still insist on earnestly defending such a process. Yet others egging them on, are paid shills and nay-sayers and yes-men variously providing plausible deniable to the undeniable and confirmation to the uncondonable for their own personal gain.

There was a time when a reasonable argument could be made that the "free trade" system would bring hi-tech job growth to the developed nations of the world and export dirty dangerous jobs overseas. That time has come to an end. No person who honestly makes a modest effort to look at the complete picture of all the data and evaluates it for what it is, can keep their intellectual honesty and still think that a hi-tech job boom miracle will save the job markets in the developed nations of the world.

It's time for that debate to end, to be laid in the dirt of a pauper's grave like it belongs and to look toward a new future. To do otherwise is to be part of the tinfoil brigade still screeching about the Iraqi nuclear program. To do so is to be one of the fools that swore up and down to the oldman that there were not 100,000 soldiers in Europe and Asia to be shifted around. One of them even proposed to prove it with spreadsheets. Well he must not have been using the same spreadsheets as President Bush did when he ordered tens of thousands of personnel in Europe and Asia to be shifted.
Wednesday, August 18, 2004 - Page A13

On Monday, President George W. Bush announced the "most comprehensive restructuring of U.S. military forces overseas since the end of the Korean War." Over the next decade, the United States will repatriate 60,000 to 70,000 soldiers and 100,000 family members and civilian employees, and will close many facilities overseas, especially in Germany and South Korea.

Frankly, the oldman has been too nice. It is time to lay tired arguments down. It is time to stop bickering with fools. It is time to stop playing anything less than hardball with people who would rhetorically sell out for personal gain or approval.

America is suffering from an ontological deficit. It's time to adress that head on.

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