RateWatch #372 – Global Economy & Migration of Jobs
September 6, 2003 by Dick Lepre
dicklepre@rpm-mortgage.com
What's Happening
Now and for most of the next year the most closely watched bit of economic data will be the BLS
Employment Situation Report. Non-farm jobs were down 93,000 last month. The unemployment
rate may be down but that is more of a technicality. Jobs drive the economy. If I were the guy in the White House I'd say, "Sure but jobs are a lagging indicator" - which, indeed they are. But the employment situation may be complicated by world trade and the transfer of jobs abroad. We are having a "jobless recovery" - an increase in GDP with no increase in jobs. While that may have mild economic implications the political and social implications are significant.
The Global Economy & The Migration of Jobs
Perhaps the first U.S. industry that succumbed to globalization was clothing manufacturing. There is a certain irony here. Textiles may have been the industry that benefited most from the 17th century globalization phenomenon known as slavery. Clothing manufacturing became too expensive in the U.S. and the first anti-globalization PR campaign that I can recall ensued. This was the "look for the union label" message. The ILGWU campaigned both with that message to the public and with lobbying for tariffs, quotas and other protectionist agenda.
A union's job is to protect its workers. Its purposes are to maintain jobs and get better working conditions and benefits. At first the "look for the union label" message seemed simple - buy stuff made in the U.S.A. because you are spending money that your neighbors are getting and thus they can buy more stuff from you.
Unions expanded the message when they opposed NAFTA. It was not merely a "buy American" agenda but an alliance among labor, consumer groups, environmentalists, religious organizations and social justice activists to oppose a treaty which they saw as beneficial to multinational
corporations but harmful to workers, ordinary consumers and the environment. This movement
has morphed into opposition to institutions such as the WTO and the World Bank.
For some time there was fear that the U.S. auto industry, for example, would be wiped out or nearly wiped out. But that did not happen. What has happened is more complex than first envisioned. We now have Japanese cars manufactured in the U.S.
In the past few years we have seen a new effect of the "global economy." This is the migration abroad of high-tech jobs. This is an interesting variant on the migration of manufacturing jobs that was seen in the 1970's & 1980's. The '80's saw angst about the loss of jobs in the auto industry, steel, and appliance manufacturing. The reasons for that migration were several: lower wages, Japanese savvy in regard to manufacturing, subsidization by governments to reduce the cost to manufacturers of raw materials, increased ancillary labor costs in the U.S. (workers comp etc.).
Most recently we have seen actual and future forecasts of high-tech jobs moving abroad. This is interesting because these are different types of jobs with different workers. These jobs are moving to counties such as India, Russia, and Hungary and are not low-paying jobs but jobs that are going to folks with college degrees. What makes this even more interesting is that the dot-com thing had several effects which helped to produce this wave. A shortage of workers here produced high salaries and the necessity to import workers on visas to do the jobs. To make things a bit simplistic what we may be seeing in that well-educated citizens of India are happier working at one-third of their Silicon Valley salary if they can stay in India and do the same work. Many of these jobs are in computer programming. This requires only the technical knowledge and a sufficient understanding of English. In addition, programmers demanding higher wages as a result of the labor shortage may have, in effect, priced themselves out of the market.
Similar jobs losses are occurring in areas such as call centers. General Electric, American Express, British Airways, and Microsoft all make use of Indian call centers. India offers an additional advantage to U.S. companies. U.S. companies can offer 24 hour call center service without maintaining 24 hour operations in its U.S. call centers.
This has meaning even to folks like myself. In a few years from now you may get a mortgage by
talking to Vijay in New Delhi rather than Dick in San Francisco.
These call center operations can be amusing. For example, Microsoft has call centers in India where one might get useful help from an Excel pro but they also send calls for on-line game support there and, since these are somewhat more culturally dependant than a culture-neutral product such an Excel the results can be a bit frustrating.
The Good and The Bad
The good thing about moving jobs abroad is that it makes stuff less expensive. It also makes American workers more "honest" - they have to keep up their productivity or else.
The people in other countries who get these jobs also benefit. Folks here may not be so concerned that some programmer in India just got a job, but from a purely economic point of view that makes him a potential customer.
But Aren’t People in Other Countries Exploited?
A common argument made against the global economy is that workers in other countries are exploited. "Exploited" here means "paid too damn little." This is an interesting issue but my take is as follows:
- the people who get these jobs are better off with them than they were the day before they got these jobs
- by our standards they are paid too little and their working conditions are poor
- their wages will be set by the marketplace where the work occurs
- they will be better off, over the long run, only if they unionize. Unionization is not painless. It
occurs in a context of social struggle and is often ugly. These workers have to do that. We cannot do it for them.
The issue may not merely be a labor/management issue. Something such as a democracy or worker-friendly government institutions must exist.
Protectionism
Protectionism exists on many scales. I live in San Francisco. San Francisco has a "big is bad"
mentality. Folks here love to demonstrate against big companies. One analog to protectionism
and the world economy is San Francisco's attitude to "big box stores." This exhibits itself as
a "Wal-Mart is bad - the local store is good" mentality. The only "big box" store in San
Francisco is Costco. To be fair, the "big box store" effect is similar elsewhere. "Big box" stores have, generally, been a suburban thing. Land is less expensive and there is less hassle regarding zoning etc. I am in no way condoning all of Wal-Mart's business practices. If workers there are paid too little they need to stand up for themselves by unionizing. We have a structure in place which defines the process by which workers become represented by a union. Wal-Mart has been unsurpassed at pressuring employees out of voting for union representation. The people who work at Wal-Mart can change things. It may indeed be difficult but it is not impossible. Maybe what is needed is a strong, charismatic figure such as Lech Walesa or Cesar Chavez and preferably someone who can assure that Wal-Mart is held accountable if it violates workers' ability to unionize.
So what is the proposition?
- San Francisco stays "quaint" (this may be more important here than in most large cities because
S.F. is a good-looking city, so this may have more value here than elsewhere because of the economic value of tourism. I mean you don't want to see an Ikea store in a picture of the Golden Gate Bridge.
- local businesses (or more accurately "local business ownership") survive
- stuff is more expensive
- the value associated with merchandise choice is diminished. The presumption here is that I am
better off, apart from price, being able to choose from 50 hammers at Home Depot than 10 at my local hardware store.
The "quaint" thing is not so pertinent in most places so the question of local protectionism against "big box" stores is (I think) about two things. Is there greater economic value in paying
more and getting fewer choices that losing local control of businesses?
Some of the "big-box" store debate is political. There is apparent political value in the "vote for me and I will keep the "big box" stores out of town" appeal.
I don't get it. It makes no sense to me to protect inefficiency. Retail models change: local mom-and-pop stores, department stores, malls, "big-box" stores and whatever comes next. Someone will eventually come along with a model that replaces Wal-Mart.
The proposition of protectionism is simple. It is somewhat like unemployment insurance: agree to pay something extra for stuff and the chance of losing your job will be diminished.
I don't buy this. I would rather take my chances with a free-market economy. If folks become
unemployed that is what we have unemployment insurance for. We owe them that and training/
retraining. The free-market economy has served us well. Computers are assembled from components made all over the world. Has the computer/chip business in the U.S. gone out of existence as a result? I don't think so.
Cars are made all over the world but still the U.S. auto industry has survived. To be fair, a lot of
workers have been exposed to angst in industries such as auto-manufacturing but all that we owe them is help in dealing with the effects of the changes. We don't owe anyone job protection.
In 2000 Alan Tonelson wrote a book titled: "The Race to the Bottom: Why a Worldwide Worker Surplus and Uncontrolled Free Trade are Sinking American Living Standards". The proposition is clear from the title: globalization will cause the purchasing power of the US population to go down the drain.
Tonelson's thesis is best summarized by Richard D. Lamm, a former governor of Colorado.
"The benefits of global trade flow unequally to those in the upper-income brackets. A few benefit,
while the majority of American workers pay the price. He claims that, taking inflation into
account, global trade for the last 25 years has helped cause the living standards (as measured
by compensation received for every hour of work) of an overwhelming majority of Americans either to stagnate or decline".
There may be some truth to that concept but trade is the driving force of any economy and world trade is the driving force of the world economy. I think that the world will be better off with more world trade unfettered (for the most part) by quotas and tariffs.
Is globalization a risky business? It most certainly is. American factories that produce clothing, TVs, and appliances have been wiped out. I do not think that I could get any of those folks who lost their jobs to feel good about globalization. Yet, subsequent to the shift of these jobs to other
countries we had the economic boom of the '90s and extremely low unemployment.
One fact about globalization is that it is fraught with uncertainty. We do not know what the results will be. It may be good for the average American, it may be bad for the average American or it may be bad for a while and then good. Globalization brings many more parameters to the table than does a national economy and we (Americans) are less able to control these.
Arguments can be made for hundreds of pages on either side of this issue. For me, personally, it comes down to this: I either think of my city or my state or my country or the whole darn planet. For me, throw open the doors of free trade, let's start thinking of everyone on the planet as being in this together, stop thinking of nationalism and take a chance on a one planet mentality. Is the path going to be painless? Not by a long shot. Am I willing to risk a bit of backsliding of the quality of life for myself for the possibility that folks in various parts of the world can be better off? Yes. Are other countries going to “play on a level playing field”? Of course not – some will, some won’t.
As for the attitude that it is my best interest to "but locally" where do I draw the line?
Are my mortgage clients who live in California better off if I only get them loans from California banks?
Should I only buy clothing made in California?
Should I only buy clothing made in the U.S.A.?
Should I only by a car assembled in California?
Should I only by a car assembled in the U.S.A.?
Should I only eat food grown in California?
Where do I draw the line? Am I a San Franciscan? A Californian? An American? An earthling?
The United States is, from my perspective, different from most countries with large economies because it is so multi-cultural. It is the place where have-nots from all over the world have come to have a better life. At present, there are 33,000,000 foreign-born people in the U.S. It is appropriate that this "melting pot" not fetter the causes of world trade.
To preserve the quality of life here without advancing concerns for the rest of the world is short-sighted. The goals should be world prosperity, world peace and a better life for all. Besides, if the issue were solely economics, in the long run we will be a lot better off with the average citizen on the planet earning more. The arguments aside, we probably have no choice. Globalization is here whether we like it or not.
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