Sunday, October 16, 2011

Is The US Paying the Price of Globalization?

The economy of the United States is in deep turmoil. The loss of jobs is the single most visible sign of an economy in stagnation, or perhaps in decline.

What ails the US economy has been years in the making. What we see today; the collapse of housing markets, job losses, crippling Federal and private debt, troubled banks and corporation are fundamentally symptoms of deep systemic malaise.

My sense is that what is wrong with the US economy has got to do with the hubris of Washington and the greed of Wall Street and Corporations.

But I think that the US is really a victim of globalization and technology. Globalization and technology are the reason jobs will not return to the US and unemployment will remain stubbornly high. Let’s face it, no amount of grandstanding and brinkmanship by the US Congress will bring jobs back, at least not high quality well paying jobs.

Globalization has created a league table of winners and losers. And the US tops the table of losers. For instance, a typical worker at GM in the US weighs in at $56 on the hour. In China and India a worker performing at the nearly as productive as the US worker costs GM under $5 an hour.

In Ramos Arispe Mexico where GM is investing $500 million, labor costs are $7 an hour. To stay profitable in an increasingly competitive auto industry, it is not hard to figure out why Detroit is not the place to be. It is therefore not surprising that GM has reduced its hourly workforce from 89,000 to 50,000 in the last five years.

In 2008 Volkswagen arrived in Chattanooga Tennessee with a packet of dough, $1 million and a promise to create 2,000 jobs and a $14.50 per hour pay package. The median hourly wage in Chattanooga was $12.66 in 2007. This is not anybody dream job and certainly not the promise of perks of middle-class. And if you think about, what VW is offering to pay in Chattanooga is truly globally competitive.

Like agriculture in the last 50 years, the role of manufacturing is in a precipitous decline. So “designed and made in America” is just wishful thinking. Re-treating into protectionism is one option of getting manufacturing humming again while paying $56 an hour. But this is a sure way to undermine global competitiveness of US products against lower-cost imports from places such as China, India Mexico Brazil and South Africa.

Can the US reverse what seems like an inexorable decline in incomes? By 2010, real median household income had fallen to $49,445, compared with $53,164 in 2000. So it is about time US politicians stopped talking nostalgically about the restitution of manufacturing jobs. That ship has sailed away to a far off land, literally.
It seems to me that the US has not yet come to grips with the reality of globalization or the international connectedness of production. It has one disastrous consequence for US manufacturing: decline.

The US has only one option if it must stay in manufacturing. It must evolve its industrial infrastructure base into producing high tech products that capitalize on the high skill levels of its workforce.

The US should focus and enhance its edge in aviation and defense. These are far superior sectors with regard to wages and the US has no competitors here, yet. I think the US should play to its strength in education, entertainment, computing and financial services.

Although the median household income fell between 2000 and 2010, wages for those with higher education rose by 1.4 percent in the same period. But attaining a college degree remains a distant dream to millions of Americans.

The White House says 1.2 million students drop out of school each year, and only about 70 percent of entering high school freshmen go on to graduate. The Obama administration is offering a $900 million carrot to the nation’s school systems to tackle what many view as an abysmal dropout rate that threatens America’s ability to compete in the new global economy.

Only 41 percent of low-income students entering a four-year college managed to graduate within five years, the Department of Education found in a study last year, but 66 percent of high-income students did.

Higher achievement in Science, Technology, Engineering and Mathematics (STEM) is critical if the US is to remain globally competitive. But the Program for International Student Assessment revealed that students from 20 other nations in math and science outperformed the top-performing US high school students.
This is troubling statistics. But the inter-generational consequence on US global competitiveness is dire.

The US cannot compete in the same league with Brazil or Russia or India or China. It has to out educate and out innovate the BRIC.

So merely yelling jobs on the floor of Senate or the House or out on the campaign trail just won’t do. Real and urgent investments in Education is fundamental and urgent.

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