And What It Means for America

 

by Robert Argento

 

Contrary to the optimistic picture painted by the national media, the so-called New Economy that has its origins in the 1990s is facing serious challenges over the next few years. Though the administration cites cheery figures for unemployment statistics and overall growth, they ignore larger and threatening movements that call for disquiet, if not alarm.

"Faith-based" politics in Washington continues to say We know the New Economy will solve all the world's problems. Just give it time. And even if you see sign after sign that things aren't working out the way you'd like, don't worry. In the end, the national interest will be best served this way.

Not long ago when Senator Hilary Clinton charged that the US economy was on the brink of collapse, republicans jeered her "partisan" gloom. But recently, her observation was endorsed by the New York Times. An op-ed by Bill Greider warned that the US economy faces a structural denouement as serious as that which caused the late Soviet Union to collapse. Perhaps even worse, the surrealistic political climate left in the wake of 9/11 and the weapons of mass deception fiasco does not permit power brokers to frankly discuss our failing situation. 

Now, just what is this "New Economy" that America has staked its future on? It is characterized by two broad trends. The first trend is the globalization of business by means of free trade agreements and the World Trade Organization (WTO). The second trend is the so-called "information revolution." The role of the WTO is to help producers of goods and services, exporters, and importers conduct their business as if borders and governments (and the governed) don't matter. The role of the information revolution is to use ever more powerful information technologies to develop new goods and services, target the marketing and distribution of those goods and services to global consumers, accelerate international commerce, and maintain accounts.

So after about eight years of chugging along, how is the New Economy really performing? Let's take a look at a number of important concerns and see how we measure up.

 

 

Offshoring America's Future

Strategic News Service (SNS),  a weekly newsletter enjoyed by Bill Gates, reports that the number of jobs being offshored from the US is five times greater than what is being reported by the US Department of Labor. "Five years from now, a significant portion of the Silicon Valley infrastructure—venture capitalists, lawyers, advertising and marketing agencies, etc.— will have operations in Bangalore," write John Hagel and John Seely Brown (BusinessWeek, July 2005). Though some futurists are optimistically proclaiming that the US will become an economy of ideas that are then developed into products by other countries, SNS believes this is delusory in the extreme. In any case, says SNS, the US is currently suffering from a dearth of innovation and needs capital investment to re-ignite it. But the US economy might not get enough help from Silicon Valley venture capitalists, who invested $1.3 billion in China in 2004 and are increasingly eyeing China as a better ROI (return on investment). The problem is exacerbated by the fact that China's government invests more aggressively in innovation than Washington does.

There is some hope on the horizon. Innovative new industries might include: grid computing, biotechnology, pharmaceuticals, nanotechnology, artificial intelligence, and sixty-four-bit computing for cheaper processing of information. But all of these new technologies are either commercially or ethically challenged, and it remains to be seen if any of them can produce industries capable of replacing the jobs being lost due to globalization. Few industry analysts see another Internet-style boom in America's future, and from Silicon Valley to Winston-Salem many fear for their job. Meanwhile, many knowledge workers who have already stepped down from high-paying software engineering jobs to non-skilled WalMart-type jobs show up as happily "employed" in the latest government figures.  

The story of Dell illustrates the offshoring dilemma. Dell is a major global PC player worth $49 billion. Yet, North Carolina taxpayers "agreed" to subsidize Dell to the tune of $280 million. Why? Well, to keep them from offshoring their Winston-Salem facility and its 1,700 jobs as they have already done with half their workforce. Dell wants to reach $80 billion over the next few years and, in effect, has obtained taxpayer help to do it. The only way to put a stop to this kind of extortion is for American workers to insist on a level playing field for labor and environmental standards as part of international commerce agreements.

 

 

Close CAFTA Vote Signals Retreat from New Economy

In late July, CAFTA (Central American Free Trade Agreement) was approved by a House vote of 217-215. CAFTA, like its predecessor NAFTA (North American Free Trade Agreement) advocated by president Clinton, means that corporations can set up operations in any signatory country and not worry about consumers having to pay duties to buy their products. As a result of CAFTA, corporations will increasingly try to offshore jobs to those countries with the weakest human rights records and toothless environmental standards, because they know that's where they can get the most from workers at the lowest cost and not have to worry about labor contests.

On the other hand, the passage of CAFTA by such a narrow vote might signal growing doubts about the global free market movement. While part of the democratic leadership (including Senators Feinstein and Lieberman) voted for CAFTA, most democrats (including Senators Kerry, Kennedy, and even the former president's wife, Hillary Clinton) voted against it. This possibly represents a seismic shift in the democratic party, which previously voted decisively in favor of NAFTA, CAFTA's predecessor. Even republicans are beginning to blink. Said North Carolina's representative Walter Jones, “I think we all want trade with the countries of Central America. But trade will not work unless it’s fair—fair for Central American and fair for American workers. This trade agreement is flawed.”

 

Digging Deeper Into Debt

The total US debt, which was looking like a solved problem when Clinton left office, has now reached epic proportions. The U.S. is over $7 trillion in debt. While most of this debt is undoubtedly due to Bush's "tax reform," too much of it stems from mismanaged trade policies and war spending.

At $400 billion a year, the net US debt to foreign elements now exceeds twenty-five percent of gross domestic product. If we "stay the course" as free-marketeers insist we must, we could reach fifty percent in four or five years. Trade agreements, especially those with China, are digging us deeper and deeper into a hole. If we keep this up, we'll dig ourselves so deep we'll come out the other side in China. 

Current trading policy enables China to sell us $162 billion more goods each year than we sell them. This is not due to China's adoption of the American model of capitalism or "free trade." In fact, China's centrally managed economy—which has rejected the free-market fundamentalism of NAFTA and CAFTA—is outpacing the US New Economy and its corporate managed trade policy. China protects its industry more—not less—than Washington does, and this accounts for its economy outperforming ours.

Current US war policy only aggravates debt to China. Like the initial rosy estimates of only "six months in-and-out," budget office estimates of only $1.5 billion to $4 billion per month to liberate oil-rich Iraq have been upset by reality to the tune of $8 billion per month.

 

 

Peak Oil and Alternative Energy

Perhaps the most serious limiting factor on the success of the New Economy is not trade, the tax code or war spending, but rather the availability of petroleum and energy. Without an ample and cheap supply of crude oil to meet the accelerating demands due to global economic development, the entire system could flatten out, or worse. Cheap and abundant oil has fueled economic development at a feverish pace since World War II. We depend on oil not only for gasoline, jet fuel, and lubrication products, but also for heating our homes, generating electricity, nitrate fertilizers for high-yield agriculture, and for synthetics used in everything from computer cases to those large-footprint tires on your SUV.

But the problem is that we are now pumping oil out of the ground about as fast as we can. The new large oil fields that forecasters of ten years ago assumed would be pumping oil by now have not materialized. Result? Goldman Sachs sees $105 per barrel (it's now $65) by next year. And some analysts think this could be enough to shock the global trading system.

The only way to head off economic shock due to peak oil would be to have alternative energy sources in place in time. But this is highly unlikely, since so little alternative energy has been developed. 

Unfortunately, we are as unprepared now as we were thirty years ago. While other countries move ahead on energy research, the US is moving only incrementally. We still have the option of redirecting money from the Iraq occupation into energy research, which would not only help our economy move off the oil base but would also create many good jobs with a bright future right here at home. Plus, migrating off oil would provide the added benefit of helping alleviate global warming. The recent energy bill, however, does little to accomplish any of this.  

 

Retirement or Work?

One of the wonderful benefits of the post World War II "old economy" was the expectation of a secure and healthy retirement by age sixty-five. Millions of American workers used to count on it, almost as a birthright of US citizenship. But the New Economy is casting doubts on this cherished benefit, as both defined benefit plans and 401K investment plans continue to under perform. Today, you see more and more geriatrics working in retail stores.

Starting with the 1980s, US corporations began phasing out defined pension plans and introducing employee funded 401K investment plans in their place. Investment plans were flaunted on the basis of offering the employee more flexibility and more choice in her retirement planning. But the severe market adjustments of several years ago combined with underperforming stock indexes since then have flattened out 401K accounts, calling the retirement hopes of millions of American workers into doubt.

Pension plans have fared no better under the New Economy. Silicon Valley's San Jose Mercury News reported the alarming trend that only sixty-eight percent of today's big employers still have defined benefit pension plans, down from ninety-one percent in 1985. Many of those companies that still have pension plans say they are likely to freeze pension contributions for some or all of their employees and they will start excluding new hires from their plans. The situation for small to medium sized employers gets even worse.

Illustrating the trend is Silicon Valley heavyweight Hewlett-Packard. In July, HP announced they were reorganizing and cutting 14,500 jobs. As part of the "re-org" and cost cutting, HP decided to also begin dismantling its pension program to save another $300 million a year. Current employees will see drastic cuts in their benefits and new hires won't get any pension at all—all this from one of Silicon Valley's venerated success stories. "Those workers whose age and years of employment add up to less than sixty-two as of Dec. 31 will stop accruing pension benefits," reported the Mercury News.

 

 

Road to Recovery

All things considered, the domestic New Economy is lagging in what has been termed a global race to the bottom. The Bush tax cuts are not helping; neither government or private investment is spurring enough new innovation and creating new high paying careers to replace those being offshored. And whereas other nations are protecting new industries, the ongoing free-market dogma in Washington does not allow an equivalent response. The result is that many American workers and elderly feel like they're sinking.

To restore a robust economy with a bright future for all Americans, Bush can and should:

Return to a progressive tax code to restore government solvency and improve the position of the dollar.

Demilitarize Iraq and stop wasting $100 billion a year that would be better spent on alternative energy in preparation for peak oil.

Renegotiate trade agreements to define a level playing field for trade exchange, worker rights, and environmental standards.

 

Robert Argento is a writer from California, now living in Wilmington and working on his first nonfiction book.

Carolina Civic Voice

                                    Fall 2005 Vol  5, No 3