Friday, June 16, 2006

The Economic World Cup

Last week, Fareed Zakaria wrote an extended piece in Newsweek that coincided with a series of articles on global leadership and the U.S. position. The comparison Zakaria made is of the U.S. to Great Britain at the end of Queen Victoria's reign, which occurred at the last turn-of-the-century. Great Britain, at that time, was the world's sole superpower, a nation unmatched in its influence and reach, and unparalleled in its technology and military prowess. Yet as the 20th century proved correct, the winds of history have a way of turning even the most dominant empires into dust.

In comparing the U.S. of today to the Great Britain of 100 years ago, Zakaria makes some very valid points, but ultimately does not explore any concrete thesis. First, he goes through all of the ways that the U.S. is going down the tubes. He inevitably trots out statistic after statistic illustrating how the rest of the world is poised to not only overcome the U.S., but leave us in the dust. My favorite happens to be the fact that the U.S. graduated more people in 2006 with sports-exercise degrees than electrical engineering degrees. The bottom line: While the U.S. has higher growth and greater potential than most industrialized countries (such as France, Spain, Germany, and Italy), it will not be able to compete with the hunger, ambition, and sheer volume of intelligence, manpower, and cost-effectiveness of China and India.

Zakaria, however, then goes on to disprove this bottom line by explaining how the U.S. fosters a creative environment, how we have the best universities in the world, and that we have an increasing population, as opposed to the expected declines in other countries. The bottom line here: While the U.S. may fall dramatically behind in all of these numbers, it will never fall that far behind because of its spirit and ingenuity.

Could it be that we're actually doing both? That while our educated classes decline, our fortunes will be buoyed by the environment and nature of the U.S. economy? Well, yes, but under strict contingencies.

First and foremost, education must be a top priority. That blanket statement won't do, though. In order to compete in the world economy we need to determine what the role of the American worker is in that economy. Historically - well, for much of the past century - the traditional role was that of manufacturer. Over the past decade, and certainly in the near future, manufacturing will become nonexistent as a strong player on the national level. Simply put, U.S. workers cannot compete with Chinese, Indian, or Bangladeshi workers in the manufacturing trades. That's not a put-down to U.S. workers. It's the truth. The longer we deny that truth, the slower and more painful the death of U.S. manufacturing will be. Instead of going through that, we need to focus our educational efforts on three fronts: (1) Reeducating workers already in the workforce in innovative ways that will allow them to provide for their families while moving the U.S. forward economically; (2) ensuring that all children in the U.S. are prepared for the economy they will encounter after they graduate from high school; and (3) freeing resources for higher education to become hotbeds of technological, scientific, and other scholarly innovation. This means investing - heavily, in some areas - to earn the dividends on the other side.

The other priority is to remove xenophobic politics from the national scene. A fair, effective, and efficient immigration system - one that not only provides immigrants with the opportunity to live and work in the U.S., but also gives incentives toward citizenship - is absolutely essential if we are to compete with the "rest of the world." While our population may be increasing - certainly a positive sign when compared to our West European brethren - we cannot possibly compete with a couple billion people and change in Southeast Asia. In order to fulfill the promises of a global economy, we have to be a global country. The moment we start to truly regress in our immigration policies is the moment we will start slipping from our status as sole superpower.

I speak in the Spirit of Truth.


A Green Cowboy said...

In the long-term, how sustainable is the emphasis on factory jobs in developing nations? Aren't companies now starting to move out of China and turn to Bangladesh and Vietnam as new places to build factories, because the Chinese population, government, and environment could only take so much abuse before they started to demand at least slightly better conditions?

If that is the case, will we see a domino effect (on a scale of decades) that pushes cheap and abusive factory jobs around - maybe eventually returning to the US?

I just don't think we will see the blue-collar job in the US "wink out" without other major associated effects, beyond a swelling in the ranks of those entering the white-collar market.

(And this argument does lump together quite a range of blue-collar work; obviously, differences between textile factories in China and the Ford plant in St.Paul merit much more in-depth consideration)

PiedPiper said...

Of course I can't write a pie-eyed post without making overgeneralizations, it's the nature of bloggerdom. Will all manufacturing or "blue-collar" jobs leave the US? No. The notion of the "blue-collar" job, however, must inevitably change from that of a factory worker to that of something more in tune with the global economy. The factory-style work will - and has over the course of the last decade or two - moved to different parts of the world. The St. Paul Ford plant is a perfect example. Why retool a plant the most efficient plant in the US, when you can build a (cheaper) one in China or Bangladesh or Vietnam, and then hire (even cheaper) workers to build your automobiles.

For me, I guess, it's a question of how long we will continuously lament the "exporting of America" a la Lou Dobbs before realizing that instead of asking the world to adapt to us, we need to adapt to changes throughout the world. If we want to continue being at the forefront of global leadership and maintain status as the world's sole superpower, than we have to BE that leader. We can't just say we're the leader and expect it to be reality. And being that leader means making investments and forward-thinking policy decisions.

Mandingo said...

A strain of development theory (actually pioneered here at the U of MN) describes the idea of "induced demand". To give two prime examples, the United States and Japan, each developed according to a given abundance, or scarcity, of input factors--land and labor. Japan's development was induced by a scarcity of land and an abundance of labor...therefore, they found ways to better utilize scarce land through fertilizers and genetics. The United States on the other hand, had an abundance of land and a relative scarcity of labor. Therefore, mechanization of labor was "induced" by this imbalanced ratio of land to labor. That's how this theory purports to explain the development of economies.
My guess is economies like that of China and India have an abundance of labor. Hence, the induced mechanization of the labor force. This might explain in part each country's rapid industrialization. This GC has obvious environmental implications. Is their development "sustainable"? I hazard that it's not.

PiedPiper said...

Is their development sustainable in the environmental or "green" sense, or is their development sustainable in the economic, market forces sense? I think that GC makes a valid point when we look at the pitfalls of globalization in that once labor is opened up to anyone anywhere there are no standards for how to treat workers. And there are also no standards for how to treat the environment in those locales.

A point made by Zakaria, however, is that these jobs are going to people in countries where the populace is poorer, hungrier, and with far less to lose than those in the US. And at the same time these countries are taking those jobs, they're also pumping out a couple million engineers and scientists. The danger (for the US) is then that a country like China or India will not the need the US for labor and will not need the US for its designs, ideas, or innovation. And when that happens, we need to be prepared for the repercussions to our economy and our status in the world.

Are the three of us just checking this thing every 30 seconds and waiting for another chance to respond? Wow, we are lame.

A Green Cowboy said...

Yes, we are, and yes, we are lame, and no, that hasn't changed since the glory days of college.

I think I used "sustainable" too loosely...what I meant was that China used to be the home to so much of the world's cheap labor that it made sense to build your factory there. However, Bangladesh and Vietnam seem to be taking over that niche, as environmental and worker rights gain traction in China and it becomes more expensive and difficult to build factories there. Perhaps the same factors that drove companies to outsource to China are now driving them out of China, to Vietnam etc.

But what about ten years from now, or twenty? Then will environmental and worker rights in Vietnam gain traction, pushing cheap manufacturing to somewhere else?

Mandingo said...

Am I not even included in this conversation? che cazzo?! I thought my introduction of the "induced demand" theory was brilliant. brilliant!
And it goes ignored.

PiedPiper said...

Hmmm, I don't think agree with that. Factory jobs in China are not being outsourced to Bangladesh or Vietnam. Those jobs are coming from the US and other Western countries. The development boom in China has been continuous and I think it's safe to say that it will be continuous for some time. It's not like we've seen a dramatic increase in the level of workers rights in China. But, of course, that's one of the factors that may lead to the eventual democratization of China. As more and more people move from the rural areas to cities and develop a middle class that demands things like workers rights, free speech, and the other essential elements of a free society, then you won't just have an economic problem, you'll have a democratic revolution.

And that's when the Pie-Eyed Picayune Editorial Board steps in and becomes the Pie-Eyed Politburo of the World.

And I hope Xtra is reading this from Vietnam. Ho Chi Minh my ass.

PiedPiper said...

You're so far above us, Mandingo, we can't even see you through the humid haze lingering over the Twin Cities today.

Interesting theory. But I got three words for you: Cite your source. Wait, four: Biatch.

A Green Cowboy said...


1. Yes, the initial boom of outsourcing was from US and other western countries to China; but is that initial boom dwindling as the jobs that were originally shipped off to China are now transferred to Vietnam and other places?

2. No, we haven't seen a dramatic increase in workers' rights in China - but I think there has been movement in that direction, significant enough to raise costs of production for corporations, and stir interest in moving factories out of China.

My sources:

"Now traditional labor-intensive industries including those making clothes, shoes, toys, furniture, machinery are being discarded by migrant workers as businesses with better working conditions and higher income, such as electronic factories, have become their first preference when seeking a job," said Liu Qiusheng.
- China Daily, August 08, 2004

The bustling factories in southern China, which provide goods for the country's vast and growing overseas market, can't get enough workers even in the world's most populous country. This is due largely to increased demand for labor, poor working conditions, and the fact that Chinese now have other options -- among them the tourism and computer industries.
- NPR’s Morning Edition, September 24, 2004

Rents in Shanghai are too expensive for most textile mills now. Many apparel plants have moved to the suburbs, where they make goods for well-known global firms such as Nike and Eddie Bauer. As a result of increased consumer scrutiny, many of these global brands now insist on corporate codes of conduct for plants designed to ensure proper working conditions -- such as bans on child labor, clear fire exits and extra pay for overtime.
- NPR’s All Things Considered, April 27, 2005

A Green Cowboy said...

Mandingo ~ I am all about your theory, but I have to try and stick it to Pied first.

Mandingo said...

Shut yo' goddamn ass up, bitch. You want me to cite a source? How about the Hayami-Ruttan Induced Demand theory of development. And if you don't believe that shit, you can goddamn my ass kisses. Vernon W. Ruttan (U of MN) and Yujiro Hayami. Figure it out.

xtrachromosomeconservative said...

Dingo, you muffed up your own treatment of the induced demand theory. Anyhow, I don't believe this notion of abusive work situations. To us, the situation of a vietnamese worker certainly is dire, to the vietnamese worker, by and large, it is a vast improvement. Think of the alternative, back-breaking labor in a rice paddy or coffee plantation with posionous snakes (and yes, I have been in a rice paddy and almost bit by a posoinous snake in the process). Progress occurs over time, to insist on equivalent labor/environmental conditions in countries like a Vietnam would price them out of further development. It's called comparative advantage.

Pied: I second your sentiment on the great Ho. If here were of a sudden to wake up in Saigon he would be convinced that the revolution had failed and the yanks had won.

PiedPiper said...

What I find most interesting about this conversation is that we've seemed to cling to a debate of whether we can attribute job losses in the US to gains in China, and whether Vietnam is subsequently doing the same to China. We don't deny the fact that whether the jobs are going to China or Vietnam, they're not staying in the US nor are they coming back. They are gone. So the debate here, really, centers around something peripheral to the issue I was originally trying to convey, which is that difficult policy choices - namely in education and immigration - ought to be implemented in order to adapt the US job market for the global economy. Does anyone deny that?

As to your sources GC: In a country of a gazillion people, I take your measly quotes with half a grain of salt. It's like X said, comparing "workers rights" in the US to those in China and Vietnam is like comparing an elephant to a mouse. Besides, they're all from socialist bastions - China Daily and National Public Radio. Bwa!

ChinaLawBlog said...

Zarqawi is right. The talk about the U.S.'s downfall is neither new nor on target. The fear mongering numbers on China tend both to be inaccurate and to emphasis quantity over quality.

xtrachromosomeconservative said...

"What I find most interesting about this conversation is that we've seemed to cling to a debate of whether we can attribute job losses in the US to gains in China, and whether Vietnam is subsequently doing the same to China. We don't deny the fact that whether the jobs are going to China or Vietnam, they're not staying in the US nor are they coming back. They are gone." I think the emphasis on jobs being lost is misplaced. Certain jobs are lost in a given company or industry. Others spring up in their place, this is creative destruction. Our phrasing would give the impression that we view globalization as contractionary pressure on the economy.

A Green Cowboy said...

My point was that pressure for worker and environmental rights in China is now strong enough to have an effect on where the factory jobs are - the point was NOT that worker and environmental rights in China are getting to be equal to those in the US. As Xtra mentioned, to expect that would be unrealistic and present more problems than it would resolve.

Yes, it is a peripheral issue to your main post, but Pied, you ignored my point at first, then dismissed it. Hence my desire to throw in some "proof."

US has to make difficult policy decisions to adapt to the global economy? Yes.

xtrachromosomeconservative said...

The biggest thing the US can do to "adapt" is allow those events that will force adaptation, job destruction and the resultant creation.

xtrachromosomeconservative said...

GC, you have pointed out a good number of situations where various manufacturing jobs are being outsourced from shanghai to inland china or bangledesh or some other poorer locale because shanghai (for example) has become too expensive. You consider this evidence that shanghai in this instance is a loser in globalization. This seems to me to be a counterintuitive interpretation of the events. The proof that you have offered appears rather to be evidence that both parties have benefited. First, one must pose the question as to why a Shangai or similar city would become expensive. The answer seems simple, once one manufacturer makes a go of it others will find Shanghai to be an attractive location. This basic competition will cause workers prices to go up as labor availability disappears. As manufacturer’s locate to Shanghai, its labor force will become more attractive. A managerial class will form, concepts such as quality control and performance measurement emerge, all of these things converge towards the formation of an increasingly skilled (and as a result, more expensive labor force). Thus, Shanghai might price itself out of making widgets for the dollar store or Wal Mart but come to viewed as a good locale for Target suppliers or auto part manufacturers. That is a positive.

A Green Cowboy said...

Xtra - I know we are still dashing down a path that Pied originally intended, but I find it interesting, so I am going to keep going.

If I represented the argument as "shanghai is a loser in globalization because its outsourced jobs are now being outsourced yet again, but to somewhere else," that was not what I had intended. I didn't mean to imply it as a negative or positive. As you point out, it could be a positive in several ways.

I think the larger question is: where does this pattern lead? If widget factory workers experience a boom in China, then the work force becomes more skilled and environmental and worker rights gain traction and thus the widget boom is moved to Vietnam, then the same cycle occurs there, then somewhere else, I wonder what the boom ultimately leaves in its wake. Prosperity that will last? Or will conditions deteriorate and the widget factories return?

However, I think I just talked myself into a corner - those questions are so big and involve so many other factors in even the most basic model, that it cannot reasonably be answered in our blog format.

But if it sparks a response, please share.

A Green Cowboy said...

Oops - first line should read "a path that Pied didn't intend."

xtrachromosomeconservative said...

Pied relayed an interesting point made by Zakaria about education in the states. We are constantly hearing about how X country produces more engineers and yada yada. I think this results from a number of things. Math and the sciences are not supported sufficiently in primary and secondary education. By the time one gets to college there are in my mind several other problems. The sports exercise comment brings to mind a certain irrationality imbued in the federal loan programs. There are decidedly worthless majors in college, there are some majors that have an altruistic bent that bear little in the way of earnings potential, and there are useful majors. I was an art history major, which is a great discipline for breaking into the food service industry. But my minimal work experience has shown if you can work hard and think critically this will often set you apart in your office (a liberal arts background typically helps in the latter) and aspire to making decent money. However, if you can think critically and have taken a progression of calculus courses than your organization is likely to think you’re that much more useful and by extension pay you more. In general, our economy will increasingly move towards areas like IT, bio tech, and other areas that stem from math and the life sciences. It would seem that the way we assist students in financing their education should reflect this reality. At the graduate level in terms of scholarships and grants this is true but not so with loans. Federal loan programs, to my knowledge, which is minimal, don’t reflect the respective earning potential of a discipline, maybe they should with certain exceptions. Setting a higher interest rate for the art history major compared with that of the engineering major might be one incentive (that said, that might be excessively wonkish and assuming far too much rationality on the part of an 18 year old). Though, that said, I think that the student loans and Sallie Mae are something of a racket anyhow and that the financing should be student centric (vouchers) as opposed to institution centric.