Fairthought
Junior Member
Last week, General Motors, formerly the largest corporation in America and the world, announced it had lost of $8.6 billion (US dollars) for 2005. They also announced layoffs of 25,000-30,000 jobs.
Also last week, Microsoft, world leader on PC operating systems, announced it is has set new records in revenues for the year 2005.
Similarly, Ford -another venerable American manufacturer- is struggling, and Apple -an American technology icon- is surging.
For years it has been known America's economy was transitioning from a manufacturing based industrial technology to a technology-service based economy. What some un-imaginative economists are calling a 'post-industrial economy'. This transition comes with growing pains. The labor market has to change, and those that don't make the change are left behind. But American's don't know how much more growing pains they still have in store for them in the future. Many naively believe the worst is behind them.
GM's total revenues for the year 2005 was a gargantuan $192.6 Billion compared to Microsoft's which was only $44 billion. Eventually, their positions will flip-flop. Many more thousands of factory workers will be out of work unless they learn computer programming skills. Unfortunately, even this will not make a difference. Chances are, Microsoft will outsource one third of their future jobs anyway.
Similarly, China is transitioning from an agricultural based economy to an industrial economy. Although it is feeding the largest economic expansion in the history of any nation in the world, it also comes with growing pains. Hundreds of millions of migrant workers in China have left the rural countryside seeking jobs in the special economic zones set up primarily along China's coast. This flood of workers often end up finding no work or poorly paying work characterized by the worst industrial accident rates in the world. Combined with an oppressive communist government that does not allow a single worker's strike to take place (ever) and we understand why job retention intervals in Chinese factories are short. If not for the flood of workers continually coming in form the countryside, this would be a very serious issue.
Currently, China's workforce is still 50% agricultural. That is a big change from 1980 when it was approximately 80% agricultural. In just 25 years we have seen a 30% outflow of Agricutural jobs. Even in the most advanced economies, agricultural jobs remains approximately 8% of the workforce. At this current rate, the Chinese industrial engine will exhaust its surfeit supply of workers in 35 years. This is a conservative estimate, as a populous country like china will likely need to retain more than 8% of its workforce in agriculture. The labor market will begin to constrict when the agricultural sector falls to 20% of the available workforce.
When this happens, history has shown severe societal upheavals in urban areas. When the economy needs more manpower, but the flow of new workers dries up, workers will no longer be treated like disposable tissue. Workers will assert themselves for a better life. This leads to the same sort of political turbulence that led to the sprouting of Communism revolutions just one hundred years ago. Workers will demand better safety conditions, inflationary wage demands, and will even challenge the state by staging strikes and ever bolder political protests. This will inevitably lead to higher costs of manufacturing.
This is something that every industrialized Western nation has endured. In some cases, it led to the establishment of communism and a big step backward in economic development (Russia, China, Eastern Europe). In other cases, nations formed a hybrid system of welfare/capitalism (America, Northern and Western Europe).
The American labor movement is dying. Not only is the manufacturing base eroding, but it popularity is dying. The american people blame labor unions for 'breaking' businesses into bankruptcy. This is not a fair charge as many of these businesses were bound for extinction anyway as America transitions out of manufacturing to tech-services. The labor unions are also failing to get a foothold in the IT sector, as these jobs -by their nature- are performed in a safe worker environment and already pay well above average. Besides, if a labor union of computer programmers strike for more pay, the company will just outsource overseas.
But this will change when America finally completes its transition. Then, the average job will be an IT job, and pay will not be as satisfactory as it is now. In fact, pay will go down as outsourcing continues to climb (and there is no economic reason why it shouldn't). This frustration of the workers will re-popularize the Unions which will undergo a revival. Workers will demand better pensions, better healthcare, and no more salary cuts. Strikes and protests will upset the economy. To avoid future political turbulence, the government will aquiesce. Laws will be set up to punish companies that outsource, thereby making the american worker more valuable.
The biggest reason why the American worker hasn't been hit hard by inflation is Globalism. The cost of consumer goods (textiles, electronics) has never been cheaper. Some economists insist that it is monetary policy that has chained the beast of inflation. But even Alan Greenspan, an economist of no small repute, says that gobalism is the primary reason inflation has been in check here in America. De-industrialization in America will mean America will lack the industurial capacity to replace imports. Once cost of manufacturing goes up in China, American's will be hit hard by inflation.
China's problems will coincide with America's. Both governments will set up protectionist policies to improve the lot of their workers. America needs to make their workers more valuable, and China needs to recognize the value of their workers. Cost of services and manufacturing will go up. Global trade will slow down and world economies will experience a major recession not known since before globalism was embraced by economists in the early 1990's.
I expect these events to be triggered roughly 25 years from now. By 2030, both countries will have largely completed their transitions phases. Until then, globalism will continue to feed a massive economic expansion for both China and America whose recent growth trends show sustainable rates of 7% and 3% respectively.
Also last week, Microsoft, world leader on PC operating systems, announced it is has set new records in revenues for the year 2005.
Similarly, Ford -another venerable American manufacturer- is struggling, and Apple -an American technology icon- is surging.
For years it has been known America's economy was transitioning from a manufacturing based industrial technology to a technology-service based economy. What some un-imaginative economists are calling a 'post-industrial economy'. This transition comes with growing pains. The labor market has to change, and those that don't make the change are left behind. But American's don't know how much more growing pains they still have in store for them in the future. Many naively believe the worst is behind them.
GM's total revenues for the year 2005 was a gargantuan $192.6 Billion compared to Microsoft's which was only $44 billion. Eventually, their positions will flip-flop. Many more thousands of factory workers will be out of work unless they learn computer programming skills. Unfortunately, even this will not make a difference. Chances are, Microsoft will outsource one third of their future jobs anyway.
Similarly, China is transitioning from an agricultural based economy to an industrial economy. Although it is feeding the largest economic expansion in the history of any nation in the world, it also comes with growing pains. Hundreds of millions of migrant workers in China have left the rural countryside seeking jobs in the special economic zones set up primarily along China's coast. This flood of workers often end up finding no work or poorly paying work characterized by the worst industrial accident rates in the world. Combined with an oppressive communist government that does not allow a single worker's strike to take place (ever) and we understand why job retention intervals in Chinese factories are short. If not for the flood of workers continually coming in form the countryside, this would be a very serious issue.
Currently, China's workforce is still 50% agricultural. That is a big change from 1980 when it was approximately 80% agricultural. In just 25 years we have seen a 30% outflow of Agricutural jobs. Even in the most advanced economies, agricultural jobs remains approximately 8% of the workforce. At this current rate, the Chinese industrial engine will exhaust its surfeit supply of workers in 35 years. This is a conservative estimate, as a populous country like china will likely need to retain more than 8% of its workforce in agriculture. The labor market will begin to constrict when the agricultural sector falls to 20% of the available workforce.
When this happens, history has shown severe societal upheavals in urban areas. When the economy needs more manpower, but the flow of new workers dries up, workers will no longer be treated like disposable tissue. Workers will assert themselves for a better life. This leads to the same sort of political turbulence that led to the sprouting of Communism revolutions just one hundred years ago. Workers will demand better safety conditions, inflationary wage demands, and will even challenge the state by staging strikes and ever bolder political protests. This will inevitably lead to higher costs of manufacturing.
This is something that every industrialized Western nation has endured. In some cases, it led to the establishment of communism and a big step backward in economic development (Russia, China, Eastern Europe). In other cases, nations formed a hybrid system of welfare/capitalism (America, Northern and Western Europe).
The American labor movement is dying. Not only is the manufacturing base eroding, but it popularity is dying. The american people blame labor unions for 'breaking' businesses into bankruptcy. This is not a fair charge as many of these businesses were bound for extinction anyway as America transitions out of manufacturing to tech-services. The labor unions are also failing to get a foothold in the IT sector, as these jobs -by their nature- are performed in a safe worker environment and already pay well above average. Besides, if a labor union of computer programmers strike for more pay, the company will just outsource overseas.
But this will change when America finally completes its transition. Then, the average job will be an IT job, and pay will not be as satisfactory as it is now. In fact, pay will go down as outsourcing continues to climb (and there is no economic reason why it shouldn't). This frustration of the workers will re-popularize the Unions which will undergo a revival. Workers will demand better pensions, better healthcare, and no more salary cuts. Strikes and protests will upset the economy. To avoid future political turbulence, the government will aquiesce. Laws will be set up to punish companies that outsource, thereby making the american worker more valuable.
The biggest reason why the American worker hasn't been hit hard by inflation is Globalism. The cost of consumer goods (textiles, electronics) has never been cheaper. Some economists insist that it is monetary policy that has chained the beast of inflation. But even Alan Greenspan, an economist of no small repute, says that gobalism is the primary reason inflation has been in check here in America. De-industrialization in America will mean America will lack the industurial capacity to replace imports. Once cost of manufacturing goes up in China, American's will be hit hard by inflation.
China's problems will coincide with America's. Both governments will set up protectionist policies to improve the lot of their workers. America needs to make their workers more valuable, and China needs to recognize the value of their workers. Cost of services and manufacturing will go up. Global trade will slow down and world economies will experience a major recession not known since before globalism was embraced by economists in the early 1990's.
I expect these events to be triggered roughly 25 years from now. By 2030, both countries will have largely completed their transitions phases. Until then, globalism will continue to feed a massive economic expansion for both China and America whose recent growth trends show sustainable rates of 7% and 3% respectively.
I think if we see the current rates of growth continue for this period, the resulting world will be scarcely recognisable to one we have today. We are currently overdue the next technological revolution, by Mid Centuary China may have given us two or three.
