Blind to the Consequences of Offshoring
Published on Tuesday, February 20, 2007.
By PAUL CRAIG ROBERTS
At a Washington, D.C., press conference last November, Harvard University professor Michael Porter claimed that globalism was bringing benefits to Americans (Manufacturing & Technology News, Nov. 30, 2006). Porter was introducing the latest report, “Competitiveness Index: Where America Stands” of which he is a principal author, from the Council on Competitiveness.
I recognized a number of Porter’s claims to be inconsistent with empirical data. After examining the report, I can confidently state that the report provides scant evidence that America is benefiting from globalism.
This is not to say that the statements in the report and the information in the numerous charts are untrue. It is to say that the data do not support the claim that America is benefiting from globalism.
The competitiveness report boasts that the United States “leads all major economies in GDP per capita”; that “household wealth grew strongly, supported by gains in real estate and stocks”; and that “poverty rates improved for all groups over the past two decades.”
All of this is true over the time periods that the report measures.
But it is also true that all of this was happening prior to globalism. Moreover, in recent years as globalism becomes more pronounced, the U.S. economy is performing less well.
The report provides no information that would suggest that the gains measured over 20 years or more occurred because of globalism or that the economy is performing better today than in past periods.
Indeed, the report acknowledges under-performance in critical areas.
U.S. job creation in the 21st century is below past performance. Debt payments of Americans as a percent of their disposable incomes are rising while the savings rate has collapsed into dis-saving. Poverty rates have turned back up in the 21st century when the impact of globalism on Americans has been most pronounced.
A total critique of the competitiveness report would be as long, or longer, than the report’s 100 pages. As this is beyond the capacity of the Manufacturing & Technology News’ newsletter and readers’ patience, I will limit my remarks to the most critical issues.
The report mentions many times that the United States is the driver of global growth without emphasizing that U.S. growth is debt-driven. Both the U.S. government and U.S. consumers are accumulating debt at a rapid pace. Debt-driven consumption is exceeding U.S. output by a sum in excess of $800 billion annually.
The trade and current account deficits are rapidly increasing the burden of debt service on Americans and threatening the dollar’s role as reserve currency. The competitiveness report makes these negatives sound like America is leading the world by driving economic growth.
In the middle of the report there is a misleading chart that shows that “U.S.A. attracts most foreign direct investment” — in terms of dollars. The report asserts that “the United States remains a magnet for global investment” because of “America’s high levels of productivity, strong growth and unparalleled consumer market.”
This is one of the instances in which the report becomes totally propagandistic.
The report suggests, as do many careless economists, that foreign direct investment in the U.S. consists of new plant and equipment, which, in turn, is creating jobs for Americans. However, foreign direct investment in the United States consists almost entirely of foreign acquisitions of existing U.S. assets. Foreign direct investment is merely the counterpart of the huge American trade and current account deficits. America pays for its over-consumption in dollars which foreigners use to buy up existing U.S. assets. One result is that the income streams associated with the change of ownership now accrue to foreigners and, thereby, worsen the current account deficit.
Read all of it here.