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US Sours On Globalisation
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Globescan, a polling firm that has been tracking public opinion about the economy for the past eight years, has noted a 15 per cent decline in public support for capitalist principles in the year since 2009. From a high of 80 per cent in 2002, the proportion of respondents who see free market capitalism as the best system for the future, has dropped to 59 per cent. The reason behind this loss of faith is not hard to gauge. The 2008 economic crisis, which exposed moral corruption and corporate malfeasance and which pushed the country into recession, could not have bolstered confidence in the system. But the coincidence of spiking job losses and skyrocketing corporate profits has brought a new focus on the costs of a globalised economy, particularly among low-income Americans.
A recent Commerce Department report shows that American companies laid off 2.9 million workers at home while increasing employment overseas by 2.4 million. Arbitraging low-cost labour abroad has certainly helped bring down domestic payrolls cost, one of the most important components of a company's budget. A classic example is General Electric (GE): some 60 per cent of GE's business and nearly half of its workforce are outside the US.
The recent news that the US private sector has created 244,000 new non-farm jobs in April provides cold comfort. At this rate of job growth, it would take seven more years to reach full employment. More importantly, perhaps, most of the new jobs created in the past two decades have come in the low-paying service sectors and not in manufacturing as they used to be. Those jobs have largely been outsourced to low-cost countries or replaced by automation, leaving at home mostly non-tradable jobs in goods and services that have to be performed in place. Consequently, discount shopping centres such as Wal-Mart or fast food joints such as McDonald's are the main new employers. The changing nature of American jobs can be seen in the fact that in the decade between 1999 and 2009, median household income actually fell by 5 per cent. A recent report produced by the Council on Foreign Relations shows that growth in the "tradable" sectors of the economy — manufacturing, finance and insurance, consulting and services — has been flat since 1990.
Another trend that makes some economists worry about a "post-employment economy" is the growing wealth of companies in almost reverse proportion to their employee numbers. A survey of top American multinationals shows that while their average market worth has doubled in the past four decades, they employ less than one-third the number of workers they did before.
The technological transformation and increasing globalisation of production distributed throughout the world has obviously helped the rich and, to a lesser extent, the middle classes. Indeed, the top 1 per cent of US taxpayers account for 20 per cent of its revenue base. The growing income gap does not bode well for a fast recovery. The wealthy few cannot replace the demand lost due to large-scale unemployment and anxious consumers. Even the employed worry about losing their jobs, hanging on to their purses.
Of course, there are some indications of a reversal in companies' outsourcing strategies. Facing growing anger about outsourcing, and concerned about rising labour costs in China and elsewhere — some corporations have brought back operations to the US soil. Some consolidation of farflung supply chains has also come due to the recent series of disruptions — from volcanic eruption to tsunami. But the long-term trend of corporations seeking to maximise efficiency and profits by moving production offshore and nearer to their main markets is not easily reversed. However much it is hated on Main Street, in the developed world, globalisation remains popular in its boardrooms.
The author is director of publications at the Yale Center for the Study of Globalisation, and Editor of YaleGlobal Online.
(This story was published in Businessworld Issue Dated 30-05-2011)