LOS ANGELES—Scott Johnson, cofounder of the firm Johnson Fain, is a trim gentleman who sports a white plastic wristwatch and eyewear with oversized clear frames. His company employs 50 workers in a former Chrysler showroom just north of Chinatown, an upmarket presence in a neighborhood where nearby garment factories still scrape by on quick-turnaround sewing and embroidery jobs.
Johnson Fain contributes to the construction of objects as gigantic as office towers in China, but what the company sells isn’t so tangible. “We are purveyors of intellectual content,” Johnson said of his architectural firm. “We don’t build the buildings; we don’t supply the nails or the concrete. People make buildings from our drawings.”
In an airy workroom where young architects labor amid miniature cityscapes and building models, Johnson examined a small replica of central Dallas and then moved on to rows of glossy printouts affixed to a wall. “This is some of our presentation in Taipei last week,” he said, pointing to five versions of a pair of 45-story residential towers slated for construction in Taichung, a city in central Taiwan. “This building is like a kind of jewel—it’s faceted,” he explained, singling out one version. “This is actually the one we’re proposing and studying. It would have a beveled-glass system, and it would reflect light.”
Johnson Fain has worked with international clients for more than 20 years, outrunning a succession of economic upheavals: the collapse of Japan’s property market in the early 1990s; the Asian financial crisis of 1997; and the continuing housing slump in the United States. But the firm’s expansion abroad has been steady. When it won a commission to draw up a master plan for the central business district of Beijing 10 years ago, an estimated 6 percent of its revenue came from work overseas. Today, thanks to an expansion of international business—especially in China—the proportion has quadrupled to about 25 percent.
The architectural firm’s business is the archetype of white-collar service: brainwork that can fetch a high price from customers both at home and abroad. If more U.S. companies resembled Johnson Fain, the service-economy dream—in which globalization enriches us all so that fancier and nicer workplaces can replace the U.S. tube-sock mills already lost to lower-wage countries—might come true. It’s a vision that would also help the nation meet President Obama’s stated goal of doubling U.S. exports over the next five years.
But how realistic is this vision?
Undeniably, the United States has been losing countless jobs to other countries—notably, to China and India—not only in manufacturing but increasingly in the service sector as well. Precise estimates of outsourced service jobs are hard to come by (unlike goods, services don’t pass through a physical port of entry), but experts figure that a few million have left American shores for cheaper locations. And no wonder. In India, call-center employees and software programmers cost, at most, half as much to hire.
However, we still sell more services abroad than we import, thanks largely to U.S. exports of higher-end, white-collar services. The balance of trade in manufacturing has been awful for decades; last year, the United States imported $507 billion more in goods than it sold abroad. For services, the opposite is true; the U.S. trade surplus is well in the black—and growing.
According to the Commerce Department’s Bureau of Economic Analysis, the United States exported $132 billion more in services than it imported in 2009, up from $80 billion in 2006. Judging by the first half of 2010, the United States will record its largest surplus ever this year, exceeding $140 billion. Most of this surplus is presumed to be in high-end, white-collar services—knowledge-based, easily portable brainwork (architectural blueprints, for instance) rather than fixed-location handiwork (such as computer repair or massage therapy). In the upper echelons of the service sector, the future looks especially agreeable.
WHAT FOREIGNERS WANT
These trends have left many trade enthusiasts bullish. “Exporting high-end services is definitely one of our comparative advantages, and it’s a part of our export mix that has unlimited upside,” said Dan Griswold, director of trade-policy studies at the libertarian Cato Institute. “As the global middle class grows, their appetite for U.S. services is just going to grow and grow.”
To anticipate what foreign customers may want, it’s useful to look at what they’ve bought so far. In 2009, travel ($94 billion) and passenger fares ($26 billion) accounted for a quarter of this country’s service exports. Not all of that was white-collar, given the many low-skill services that tourists require. Still, this inflow can be expected to continue as long as the dollar remains weak—say, whenever a Belgian flies to Seattle on Delta, stays at a Marriott, buys breakfast at the Pike Place Market, and flies home.
Customers abroad also paid a tidy sum (about $90 billion, nearly a fifth of service exports) in U.S. royalties and license fees in 2009. Those fees paid to holders of American patents, trademarks, and copyrights enabled foreigners to watch our movies, use our inventions, and produce our pills.
Intellectual property comes in many forms. Some wouldn’t consider the Care Bears, devised in the 1980s by American Greetings, a high-end service, but foreign license-holders of the franchise might disagree. Every time a Care Bear card is printed overseas or a stuffed Care Bear is manufactured, American Greetings makes money—more than $2.6 billion in global sales since 2001. And more than a third of the company’s revenues come from overseas. That’s why consumers in Japan will soon be introduced to an Asian version of the Care Bear. That would be the Sweet Sakura Bear, which American Greetings describes as “a shy and modest bear that delivers a unique message created specially to reflect the values and symbols of Japan,” among them the “importance of savoring and appreciating the splendor of every passing moment.”
Meanwhile, the Johnson Fain architectural firm represents what the Commerce Department’s statisticians classify as “other private services.” The value of these services comes from brainpower honed over many years of study and experience in fields such as accounting, education, advertising, legal counsel, medical care, and telecommunications. Many of these services rank among the fastest-growing U.S. exports.
For all of its faults, American culture can be a selling point—all the more so if, say, a foreign entity is hoping to make Americans less angry about the flight of jobs overseas. That’s why the Chinese government hired a subsidiary of a New York City-based advertising agency, DDB, to plan an advertising campaign called “Made in China. Made with the world.” The result was a series of 30-second spots on cable television that featured, for example, a runner lacing up his sneakers and the catchphrase, “Made in China with American sports technology.”
These “other private services” include one that has had its troubles of late: financial services. An industry that was exposed as having urged clients to buy toxic assets has nearly found forgiveness overseas. U.S. exports of financial services dipped from $61 billion in 2008 to $55 billion in 2009, but they are expected to rebound a little to $56 billion in 2010. Even bailed-out Wall Street investment banks are eagerly expanding into Asia, hoping to tap into the wealth of the developing continent’s newly rich. Although American taxpayers still own a third of its stock, Citigroup has been hiring staff and expanding local branches in Hong Kong, India, and Singapore. Morgan Stanley has involved itself in bigger deals than any of its competitors as an adviser on mergers and acquisitions in Asia.
EDUCATION üBER ALLES
Across this array of exportable white-collar services, a key to competitiveness has been the quality of American universities. “The majority of the world’s top universities are in the United States,” said Jonathan Rothwell, a senior research analyst at the Brookings Institution. When foreign students pay tuition to U.S. schools, the university educations themselves count as white-collar exports. And many of the graduates, Rothwell noted, start architectural, R&D, and engineering firms that are penetrating foreign markets and bolstering U.S. exports.
It’s way too soon, however, for the purveyors of U.S. white-collar exports to break out the champagne. Even high-end services can be vulnerable to reversals in the flow of international trade.
Dean Baker, codirector of the Center for Economic and Policy Research in Washington, observed that a lack of competition from immigrants and outsourcing has granted many white-collar professionals in the United States—doctors and lawyers, notably—a large measure of protection. But that could end someday. Suppose you need expensive surgery. Your health insurer, instead of shelling out $150,000 to a nearby hospital, might urge you to try a first-rate hospital in Bangkok. Baker imagined a sales pitch: “We’ll pay your airfare. You can take your spouse, take a kid, stay there two weeks, three weeks, or however long it takes you to recuperate, and we’ll give you $10,000 on top.” The insurer and insured might stand to gain, but at the expense of American doctors and other well-paid practitioners in the domestic medical industry.
Sustaining vigorous growth in white-collar services also requires maintaining a generous supply of highly skilled entrepreneurs and employees. This can be done by students getting better results from American public schools and by recruiting the most-skilled immigrants possible. However, the troubles of our public school systems are hardly news, and our approach to immigration has been unhelpful. Even as lax border enforcement has effectively invited a great number of unskilled laborers into the country, complicated visa rules and labyrinthine regulations have kept skilled foreign workers out.
Looking at the trade picture overall, it seems that white-collar services, for all of their promise, still have a long way to go before they can make up for the U.S. manufacturing business that has been lost. America’s $132 billion surplus in the international trade of services last year plugged barely a quarter of the half-trillion-dollar deficit in the trade of goods. To bring the U.S. trade back into balance, in other words, exports of services would need to increase by nearly 300 percent. Architectural blueprints alone aren’t likely to cover the gap. In the meantime, Sweet Sakura Bear has her work cut out for her.
The author is a writer in Los Angeles and an editor at the Washington Monthly.
This article appears in the December 11, 2010 edition of National Journal Magazine.