What’s Really Wrong with our Economy - page two
Globalization
Globalization was in full swing years before the Internet Revolution. Manufacturing jobs have been leaving the U.S. and fleeing to less developed countries since at least 1930. But the cheap, virtually cost-free transfer of data to any point on the globe has enabled a new kind of global competition – competition in services. And the rapid spread of education in some parts of the Third World have created a well-educated work force that can render these services anywhere on the planet, from India to Bangladesh to the Philippines to Chile.
This has created a fundamentally new global competition in services. Developing countries can provide services at much lower cost than the advanced industrial nations of North America and Europe, and for this reason employment in basic services is growing in these countries and shrinking or growing slowly in advanced nations.
According to the best estimates of the U.S. Department of Labor, about two million U.S. jobs were outsourced in 2009. That’s enough jobs in one year to account for virtually all the jobs lost during the worst three months of the current recession. In the last decade since 9/11 as many as 20 million U.S. jobs have been shipped to foreign countries. In many ways the consequences of these job losses have been worse for our country than the consequences of the terrorist attacks. But unlike the terrorist attacks, indelibly emblazoned in fiery images, these devastating job losses have gone unnoticed and unobserved, except by a few specialists.
The mainstream media ignores the millions of disemployed in our country, blithely assuming that globalization is a tide that lifts all boats. But the evidence suggests globalization has been very beneficial to China and India and Brazil, but punishing to the United States.
Admittedly, some jobs are also “insourced.” While this number is difficult to pin down, the best available estimates suggest that foreign firms employed nearly five million Americans in the U.S. in 2008. This number has increased from about four million in 2003.
These numbers tell us that both the number of American jobs shipped overseas and the number of Americans working for foreign firms has increased over the last ten years. But it is clear that the total number of jobs outsourced is vastly greater than the total number of jobs insourced. As long as this trend continues, U.S. employment will continue shrinking.
And there appears to be nothing on the horizon that can reverse this trend. The pay differential between American workers and foreign workers remains vast. In China and India, average worker salaries are just 10 or 12% of comparable American wages. While Chinese and Indian wages are rising in relation to American wages, they still have a long way to go. It could be many years before the productivity-adjusted wage differential equalizes.
It will happen eventually, however, through the natural functioning of the global market. The Japanese were the first non-Western nation to industrialize rapidly. After World War Two Japanese wages were less than a tenth of comparable American wages, but that relationship has changed dramatically since. Japanese wages now average more than $4,000 per month at current exchange rates – higher than the average U.S. wage. For this reason, Japanese industry is subject to the same outsourcing job drain we experience in the U.S.
No political party can resist this trend. Short of enacting onerous and restrictive laws that probably would not be effective, we Americans are faced with the prospect of continued outsourcing of our jobs to developing nations for many years to come. The natural functioning of the global labor market will stabilize this situation sometime in the 21st Century. By then many developing countries will be dramatically wealthier – and we could be much poorer. But we don’t have to be.
<< previous next page >>