Thursday, June 17, 2010

The Chinese Want to Innovate, Too. (Innovation Will Not Save the U.S. Economy.)

If you have ever followed or participated in the debate over Global Labor Arbitrage and foreign outsourcing, then you probably know that one of the common arguments put forth by the free market dogmatists is that we don't need to worry about filthy low-value-added manufacturing jobs because innovation is the future.  They argue that we must become a nation of innovators producing high-value-added goods and services and that innovation will produce tomorrow's jobs.  They will also sometimes argue that Americans almost have a monopoly on innovation and that we are the best at innovating, as though we have some sort of a racial advantage on innovation.

I don't disagree that innovation is good and that it's important.  It is certainly a touchy-feely notion that just about everyone would agree with.  However, I do take issue with their claims that we don't need to worry about global labor arbitrage because innovation will save us.

First off, any manufacturing or production-type jobs created by innovation can be performed less-expensively with fewer environmental and labor regulations in a far less litigious environment overseas.  Secondly, "necessity is the mother of invention", and the people who are directly involved with the act of manufacturing will end up making many of the improvements to the manufacturing process.  Thirdly, the cost of innovation--the cost of R&D--might very well be less expensive in other countries.  (We have been training foreign graduate students for years with our taxpayer supported universities.)

High Tech Research Going to China with Devastating Effects on Our Ability to Compete and on Our Future by Craig Harrington

It was one thing when America lost its textile industry, its toy making, and the production of basic consumer goods. It is another when we begin losing the core research and development that makes our companies operate. There is a growing shift in innovation. We are now outsourcing more than basic goods and simple service jobs. We are outsourcing high-paying work and sparkling facilities that were once Silicon Valley staples.

Multinational corporations have no reason to stay in the United States; they have no incentive to remain in our expensive market. We cannot expect them, and the jobs they support and create, to stick around based on altruism alone. Industries locate, relocate, and grow wherever the economy presents them with the best opportunities. The U.S. was once the focus of those opportunities, but it is no more.
Furthermore, people in other nations want to innovate, too.  For example, in 2004 India produced about 290,000 new engineers.  And guess what?  China wants to innovate too!  Surprise surprise!  According to this NPR report, the Chinese Aim to Build the Next Silicon Valley.

According to the free market dogmatists, we don't need to worry about the loss of manufacturing jobs and we don't need to do anything to protect ourselves from global labor arbitrage because innovation will save us and only Americans are capable of innovation and the Chinese will be content to work the filthy low-value-added manufacturing jobs.  I call bullshit!


Anonymous said...

If we expect to make any progress, we have to come up with solutions. What do we want?

How about reversing the offshoring trend through the use of tariffs that punish nations who: allow companies to exploit workers or the environment or manipulate currencies?

Are we prepared to deal with retaliation?

Anonymous said...

I'm a so-called free market dogmatist. I dont think they would of shipped the jobs and industry overseas if there were no government interference. For example, because the government economically interferes, we have so many rules and regulations as well as minimum wages that make businesses want to go overseas to begin with. It's not really the free market that's at fault but rather the government. Get rid it, just leave the police and army(but we all know this wont happen so lets just blame capitalist and the free market instead).

Knute Rife said...
This comment has been removed by the author.
Knute Rife said...

@Anonymous 5:39

Are you kidding?

1. The minimum wage jobs aren't the ones being off-shored, so dispense with that red herring.
2. Interfering regulations? Like the ones that keep our water safe to drink, our air safe to breathe, and our work places safe to work in? Oh yes, those are definitely bad things. By the way, those were all passed under that Communist bomb-thrower Dick Nixon. And also by the way, I worked on both his '68 and '72 campaigns, which should give you some idea that I am not some smelly radical and that I have some depth perception on all this.
3. You do understand how unfettered free trade inherently favors capital over labor, don't you? Moving capital requires a few keystrokes and, presto, it's transferred from Detroit to Mumbai. The unemployed workers left behind? Not quite so mobile. They're left behind trying to compete against the worst sweatshops on Earth. Do you think that a race to the wage bottom is in any way a good thing? We were the world leader in it once, although they didn't tell you about it in school. I suggest you Google Jacob Riis, Lewis Hine, and the Triangle Shirtwaist Fire.

Anonymous said...

Got some news for you on the Chinese Silicon Valley(s), they have 2 already and are building another. I just got back from there, Gaundong and Dalian are major points. Intel just built and has operational a new Nano chip plant in Dalian, China with over 1000 US employees and I do not know how many Chinese. It's gone, our 'tech lead' is history. China holds more Nano patents than any other country (23%) and they have 1.4 billion minds to harvest.Get used to it, the US, Dollar and our way of life will never be the same.

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