Don't like the trade deficit, low GDP and the public outrage over the offshore outsourcing? Change the accounting method to make it go away! Such is the agenda of government statisticians it appears. How they are going to incorporate statistical lies into national accounts is shocking. Production location no longer matters, the thing that will count is ownership of the final product.
We have a new definition, Factoryless manufacturing. Did you know we can have U.S. manufacturing without actually making any goods in the United States? That's the plan to count corporations and their products who are located in the U.S. but offshore outsource their manufacturing abroad as part of the U.S. manufacturing base. Get that?
Factoryless” manufacturers, as defined by the U.S. OMB, perform underlying entrepreneurial components of arranging the factors of production but outsource all of the actual transformation activities to other specialized units.
Right now, iPhones are counted as imports and rightly so. Apple has offshore outsourced manufacturing and final assembly to China. Most parts are not manufactured in the United States and components come from China, Japan, South Korea and Germany. Very obviously an iPhone is no more American than that cheap plastic good marked Made in China.
Yet if the government statistical agencies have their way, that iPhone will be an American manufactured good, despite the fact that 1 million Chinese made the thing while Apple does not provide Americans jobs of scale and maintains their strong profit margins.
The target date for this statistical fraud is 2017. There is a Factoryless Production Group, involving all of the statistical agencies, working out the incorporation to count offshore outsourcing as U.S. manufacturing.
Here is another example, taken from this BEA paper, to show their intent to classify offshored manufacturing as an American good.
If a U.S. shoe company sent soles and leather to a contract manufacturer in another country for assembly of its athletic shoe, the U.S. shoe company— the principal— is importing manufacturing services from the contract manufacturer. Because the U.S. shoe company owns the soles, leather, and assembled athletic shoe, there is no international transaction and therefore the soles and leather should not be recorded as U.S. exports and the assembled athletic shoe should not be recorded as a U.S. import.
See any Americans manufacturing the shoe in the above example? Nope, yet somehow this is now an American good with no record of the fact it was manufactured overseas with foreign workers, foreign capital and then imported back into the United States. The shoe is now an U.S. good which low wage American burger flipper workers cannot afford to buy.
Gets worse, Manufacturing will now be renamed to transformation activities as if manufacturing a product or part of a good is a trivial step and not the offshore outsourcing of production. A recent Census paper spells out the bias for multinational firms who labor arbitrage and frankly don't employ American manufacturing workers.
The new international guidelines state that the recording of imports and exports of goods should be based on the transfer of economic ownership.
By redefining global outsourcing as ownership of the intermediate stages of manufacture, magically multinational corporations can offshore outsource plants, capital, jobs and services, yet because they own it, this redefinition will make that global production part of the U.S. domestic economy. So, instead of Apple iPhones being classified as an import, which they are, only the contract service to build them would be considered. In other words, those one million Chinese workers at Foxconn would be considered a contract service, a cost, similar to electricity, yet the iPhone itself, would be claimed to be an American product, which clearly it is not. This is outrageous for it hides the massive trade deficit and worse, completely discounts how manufacturing scales. Most jobs in making of goods are in the actual production. Sales, Marketing, R&D employ only a small percentage of labor involved in making a product and even there, we have massive offshore outsourcing and the importing of foreign workers as well. Reclassifying imports and exports by which greedy multinational corporation owns what, eradicates the millions of Americans who should and would have been working in manufacturing, making those very products. This agenda to modify national accounting methodology for trade, imports, exports, manufacturing, wholesale trade, GDP, employment and so on will literally sweep under the rug the millions of Americans jobs lost due to offshore outsourcing as well as hide those same jobs being given to China and other low wage nations.
Manufacturing News alerted us to what is going on, with an excerpt of their article below:
Globalization Forces Major Change In Business Classification System: One Result Will Be That Imports From Manufacturers That Have Outsourced Production Offshore Will No Longer Be Considered Imports
U.S. federal agencies involved in economic data are on the verge of a major and transformative change in the way they classify companies that have outsourced their U.S. production to foreign manufacturing contractors.
The change could radically increase U.S. production statistics by classifying "factoryless goods producers" as domestic manufacturers. Companies like Apple will no longer be considered "wholesale traders," and their sales would be counted as U.S. production, even though none of their manufacturing is in the United States.
Imports by American companies that outsource their production to foreign manufacturers also would no longer be counted as imports, thereby impacting the balance of U.S. international trade accounts.
The idea is for the federal government to determine how much production has been offshored and to pinpoint the number of American companies that are linked to manufacturing, even though they don't make the products they design and sell.
The wordspeak coming out of America's statistical agencies is shocking. Offshore outsourcing of American jobs will now be classified as a service. Magically those millions of Chinese making goods will simply be service workers and the resulting good itself will be claimed to be an American product. Poof! Gone is the fact America's jobs are offshore outsourcing and multinational corporate profits magically give the illusion there is economic growth in America.
This Federal Reserve economists' research paper estimates this reclassification would have increased the value of manufacturer's shipments by 30% in 2007. Manufacturer's shipments contribute to investment in GDP, so a 30% increase is quite an artificial and illusionary economic growth boost. Fabless semiconductor companies have increased dramatically with more offshore outsourcing and cell phones,since 2007, so we can expect this figure to be even higher.
Another research paper found by identifying and reclassifying these offshore outsourcers as manufacturers resulted in a large boost to manufacturing output and employment. This is an incredible trick and will completely hide the fact millions of jobs have been lost and the U.S. manufacturing base has eroded.
Reclassifying FGP establishments to the manufacturing sector would have increased reported manufacturing jobs by 595,000 in 2002 and by 431,000 in 2007, corresponding to an 4.0 percent increase in manufacturing employment in 2002 and 3.2 percent increase in 2007. The same method of adjustment would have resulted in increased reported manufacturing output by $253B (6.5 percent) in 2002 and by $279B (5.2 percent) in 2007.
The second method involves two strong additional assumptions. First, we assume that the fraction of FGPs in the overall wholesale sector is the same as that among those plants answering both the design and manufacturing questions in 2002, and those answering the design, primary activity and outsourcing questions in 2007. Second, we assume that all these FGPs are proportionally dif- ferent from (larger than) the average in their industry in terms of employment and output to the same degree as the observed FGP plants. Applying the first assumption results in 58,147 FGPs in 2002 and 45,624 FGPS in 2007. Average employment at wholesale plants was 13.5 workers in 2002 and 14.3 workers in 2007 and the within- industry FPG-adjustment factors were 1.67 and 1.65 respectively yielding an average of 22.5 workers per FGP in 2002 and 23.6 workers per FGP in 2007. This more liberal set of assumptions results in 1,311,000 more manufacturing jobs in 2002 and 1,934,000 in 2007, 9.0 percent and 14.4 percent respectively. The same method of adjustment would have resulted in increased reported manufacturing output by $758B (19.4 percent) in 2002 and by $895B (16.8 percent) in 2007.
Who is the culprit for such disastrous reclassification of businesses that do not manufacture in the United States as U.S. manufacturers? The OMB and the Economic Classification Policy Committee (ECPC). The Office of Management and Budget (OMB) means the White House is behind these redefinitions and resulting statistical gamesmanship. Check out their guidelines and ask yourself, how by the description, can this possibly be an employer of Americans making American goods?
When individual steps in the complete process are outsourced, an establishment should remain classified in the manufacturing sector. For example: 1) a decision to produce or purchase raw materials does not change the classification; 2) a decision to use contractors or a professional employer organization (PEO) rather than a traditional employment contract does not change classification; and 3) a decision to outsource marketing and distribution to a wholesaler does not change classification. In each case, the decision to perform or outsource a function changes the establishment production function but does not change the classification.
Below is the definition of of a Factoryless Goods Producer (FGP) by the ECPC and with a stroke of a pen, our multinational corporations who offshore outsourced millions of jobs, ruined millions of lives along with America will now be reclassified as American manufacturers from wholesale trade. The irony is beyond gallows humor, it's like bulldozing a mass grave and pretending it is no longer there and the original atrocities never happened.
- Owns rights to the intellectual property or design (whether independently developed or otherwise acquired) of the final manufactured product.
- May or may not own the input materials.
- Does not own production facilities.
- Does not perform transformation activities.
- Owns the final product produced by manufacturing service provider partners.
- Sells the final product.