An American in Davos

By James O'Keefe

CommentaryPublished: 2/15/06

The Daily Targum

Weathering a storm dumping seven feet of snow on the Alps, my train ascended north into the alpine village of Davos, Switzerland, and I was amongst 2,500 delegates from 90 countries at the 35th World Economic Forum two weeks ago. Although there was the usual WEF schmoozing inside the conference room amongst global elites exchanging business cards, the talk of pervasive growth and highly-skilled labor in India and China was particularly ominous. With massive American trade deficits, declining domestic investment and its effect on American buying power, Western leaders with a stake in the United States were biting their nails and forecasting the greatest shift of global economic power the world has ever seen.

Among those I met were Swedish auto-part manufacturers losing their jobs to Imatra Kilsta of India. High-tech entrepreneurs from New York spoke of how difficult it was to raise venture capital for their "ideas." One software engineer from Silicon Valley lamented on moving to Lake Tahoe and taking up snowplowing where "[management] can't move the white stuff out east."

While my ears and eyes would typically glaze over vocabulary words like "deficits" and "currency" to topics like the Danish cartoon strips, which are far more sociologically captivating, everyone was worried about the emerging skilled workforce in India and China.

As I write this now, headlines in The Wall Street Journal Europe and London Financial Times read "American Giants Push for Nuclear Sales to India" and "Toyota Expands in U.S. as GM and Ford Retreat."

Monday, the WSJ reported the U.S. trade deficit at a record $725.75 billion - some 7 percent of our gross domestic product - and deficits with China alone are rising 25 percent in one year to $201.62 billion.

Some commentators think this is a practical joke. "I have a 'trade deficit' with my grocery store; victuals are exchanged for scraps of American green paper," said economist Walter WilliamsWilliams.

Cute analogy, but tell it to the central banks that are overflowing with "scraps of American green paper" and treasury bonds we have no intention of paying back. The east is in talks of developing its own currency, following in the footsteps of the European Union with the Euro - the first European currency since the time of the Romans. The International Monetary Fund hints Asian banks are backing up their fortunes with gold, and this week's reports indicate emerging markets in Singapore and Hong Kong acquired western companies at $9.3 billion in 2005. Meanwhile, our investors are pouring money into the east for better returns at America's expense. Since we import everything from China, a future decline in the value of our currency would be devastating for our way of life and on U.S. consumption - which the world economy depends heavily on.

The inevitable increase of the accompanying interest rates to offset hard times would have worse long-term consequences for our stocks, inflated by get-rich-quick-pitches to management about exporting the whole caboodle to India and saving pennies on the bottom line of the balance sheet. Outsourcing is justified by the remainder of "high-tech" and "service jobs," but skilled labor abroad is now jeopardizing those.

Our de facto economic strategy should not just be reducing costs, nor should it be protectionism. American management should be creating value for the customer, and our government should be pursuing a long-term accountable economic policy of balanced trade, with an emphasis on high-technology innovation. President George W. Bush is taking only one step in the right direction in his State of the Union Address, by putting emphasis on the latter.

Whether or not our current trend of outsourcing will present a crisis will be debated among economists. Not even the Europeans deny America is currently the most powerful, influential nation the world has ever seen. We boast an $11 trillion GDP and consume 40 percent of the world's output. We have the strongest military on earth, which defeated Hitler and is now spreading democracy in regions that stone women alive. Our art, music and literature currently dominate the Eastern and Western hemispheres the same way blue jeans and rock 'n' roll brought down the Berlin Wall. I've seen long lines at McDonalds in Geneva, heard Kelly Clarkston blast throughout Milan train stations and, on Sunday, saw American snowboarders win gold and silver medals in Torino, Italy. But after attending the WEF in Davos and seeing first-hand our remaining highly-skilled engineers running to the ski slopes - pun intended - it is disconcerting to think all that power and influence could soon change.

James O'Keefe is a Rutgers College senior, studying abroad in Switzerland.

NJO: Originally published in The Daily Targum and later posted on the blog Feathers of Steel at liberabit.blogspot.com.