The economy of the USA is experiencing not the best times because of low growth, high unemployment, declining competitiveness, job cuts in the industry and growing social inequality. What is the role of globalization in the aggravation of all these problems? Can the market solve a problem of employment and increase incomes in the various sectors of the national economy independently without state intervention? These questions have been the subject of rough discussion in the American expert community for a long time, but they received a special relevance after the economic crisis of 2008-2009.
The U.S. economy is going through hard times. Recently, all these problems exacerbated thus far that the U.S. President, Barrack Obama, put the main emphasis on them in the message about country position, which was presented to the Congress on January 24, 2012.
What is the role of globalization in the aggravation of present economic and social problems in the USA? Is the loss of jobs in the American industry a result of production transfer to developing countries for the purpose of cost reduction and savings on wages? Otherwise, is it caused by the introduction of new technologies? Does globalization influence the process of income distribution in the USA? Does this leads to the strengthening of inequality? All these issues have also been the focus of heated debate in the American scientific society during a long period of time, which gained special attention after the economic crisis 2008-2009.
Therefore, a strong interest was shown by one of the most active participants in this debate, the well-known American economist, the Nobel winner, Michael Spens, stated in the article Globalization and unemployment (the magazine Foreign Affairs), and his two opponents, Richard Katz and Robert Lawrence, who represented other positions of globalization influence on the American economy.
Globalization is a process, which help the markets unite all over the world. For last 60 years, as a result of new technologies and improved management methods that can lower transport, transaction costs (i.e. the costs connected with crossing by a product of adjacent technological processes such as a bus comment) and tariffs and also eliminate many artificial barriers on the way of international trade, the globalization process was constantly accelerated. This gave a tremendous effect. It made possible for an increasing number of developing countries to achieve sustainable economic growth of about 7-10 %. In thirteen of these countries including China, the rates of growth above 7 % remained for 25 and more years. As a result, the level of income in developing countries is approaching the level of developed states.
Ten years ago, globalization’s influence on employment and the distribution of wealth in developed countries was quite insignificant. Economic growth at the rate of 2.5 % was considered to be quite comprehensible there, and the employment opportunities for workers with various educational levels continuously extended in the majority of these countries. Nevertheless, as developing countries became more and more powerful and rich, they changed the economy structure. In the effort to get the greatest benefit from the competitive advantages, they began to produce more and more details, knots and components of the products different in the high added value, which was the exclusive prerogative of developed countries 30 years ago. In this way, there are confidently the two largest countries of the world such as China and India, which share almost 40 % of the world population now. Developing countries strengthen their positions in the economy every year, and all developed countries feel it on themselves including the USA. The largest of them are active in the global market to such an extent that they become more and more competitive in those areas, in which USA has dominated fro along time. First of all, these are the design and manufacture of semiconductors, pharmaceutics and information technology services.
For most of the post-war period, U.S. politicians have been convinced that the growth of economy and employment “go hand in hand”. This belief was proved to be true in a certain degree by the favorable economic conditions of the country. However, the occurring structural changes in the global economy had insomuch strong influence on the American economy that the correlation between these two key economic indicators is practically not shown anymore for the first time in the last decades. Statistics convincingly testify that the number of occupied increases in the branches with a low rate of increase and falls in the branches with a high rate.
From 1990 to 2008, the number of occupied in the USA had grown from 122 million to 149 million people. Over these years, it had been created about 27 million new workplaces, 98 % of which is not accounted for the export sector of economy (non-tradable sector) making the goods and services only for the domestic market. The majority of employers (16 million) in this sector had the government (there were 22 million jobs in its order in 2008) and the public health services sector. Totally, these two sectors created 10 million or 40 % of all new jobs in 1990-2008. A considerable number of jobs also appeared in retail trade, building, hotel and restaurant business. In the export sector (tradable sector), which make the basis of manufacturing industry, engineering and consulting services, where there were 34 million workers in 1990, only 600 thousand new jobs appeared from 1990 to 2008 .
Reduction of a large number of workplaces in the U.S. economy was caused by the large-scale adoption of new information technologies. Though, a much greater impact on employment in the USA was made by the transfer of different manufactures (first of all, accessories with the low added value) in developing countries. This process led to a decline in employment practically in all sectors of the manufacturing industry, except the most profitable parts of the value chain. Employment growth was also observed in some segments of the export-focused sector, but their circle is enough limited. First of all, these are engineering and computer design, management and finance. In these areas of activity, where the highly-skilled personnel is usually occupied, the USA still keeps the advantage and can successfully compete in the global economy.
Thus, the employment structure in the U.S. economy varies. Jobs move from the sector engaged in the production of goods for the foreign market to the sector of making goods and services, which are consumed exclusively in the domestic market, to a great extent. Spens considers this all to be a very serious problem as, most likely, fewer workplaces will be created in the USA than it was predicted. Besides, a number of activities existing nowadays for employment in the export-focused sector are narrowed. Primarily, it affects all workers with the average level of income. If the sector of economy focused on internal demand loses the ability to absorb free labor, and the export-focused sector of economy cannot become a “motor” for employment growth, the USA will inevitably enter a long period of mass unemployment.Want an expert to write a paper for you Talk to an operator now
Unlike employment, the added value has grown up in the export and non-export sectors of the U.S. economy from the beginning of the 1990s at about the same rate. However, as employment grew faster in the work sector of the domestic market, the added value per worker had increased only by 0.7 % a year during the period from 1990 to 2008 (for 1990-2008 it had increased on 12 %, from 72 thousand to a little more than 80 thousand dollars). In the export-focused sector, where the increase in the number of employed was insignificant, the growth of the added value in total and per worker over the same period (from 79 thousand to 120 thousand dollars or 52 %) was quite high and corresponded to the growth rate of the global economy. Rapid growth was observed not only in the sphere of finance, where the number of jobs had increased during this period, but also in the manufacturing industries, where the largest decline in employment was recorded. The added value grew in hi-tech branches insomuch rapidly that it allowed compensating the losses caused by the movement of some economic activities from the USA into other countries.
Spens underlines that the added value is an extremely powerful indicator of social and economic development of the country as it reflects not only the state and the rate of development in one or other branch but also the income distribution in the economy. The income of each citizen of the country depends on the size of added value. For hired workers, this indicator defines the level of their personal income, while it determines the return on investment for shareholders and other owners of the capital and the level of tax revenues for the state. As a rule, the income of workers in the industry is in correlation depending on the size of added value per employee. As the added value in the sector focused on internal demand practically did not grow, the average level of income also did not increase in this sector. On the contrary, in the sector focused on export, the added value per employee and income showed high growth due to the increase of labor productivity in a variety of branches and the movement of low-paid jobs to other countries. As the majority of new jobs were created in the manufacturing sector for internal consumption, where the salary grew slowly, it led to more inequality in income distribution.
In this situation, the opportunity to find job and increase the income is given to people with a high educational level, who are occupied in the top segment of the U.S. export-oriented economy. In the bottom segments, these opportunities are constantly declining. Spens believes that such tendency will remain in the future. He explains it by the fact that as developing countries are increasingly moving to production with the high added value (and they should do it to keep the reached rates of economic growth), there will be involved fewer workers in the export-oriented sectors of economy in developed countries. The reason is that businessmen will seek to transfer the labor-consuming manufactures to developing countries.
Thus, the varying structure of the global economy has unequal influence on various groups of the population in the USA. For highly skilled workers, the possibility of employment is improved practically in all spheres of economy: in the sector focused on export due to the growth of the global economy, in the sector focused on internal demand for the reason that the second has to compete with the first for experts. As for low-qualified employees, employment opportunities decrease. Thus, in connection with the restructuring of the global economy, the problem of income distribution becomes aggravated in developed countries including the USA. Not all citizens of these countries win from the globalization, some of them rather seriously lose.
Despite the emergence of cheap goods and services delivered from developing countries in the market due to globalization that is favorable for all Americans without a doubt, they all are disturbed by a problem connected with receiving the opportunity of highly paid and highly skilled work. A considerable number of Americans is assured that the future does not promise them anything good, and that their children will have fewer chances to find the desirable work than their parents. It is quite possible that the slow economic recovery after the crisis of 2008 speaks about this sensation.
Spens underlines that transnational corporations are the undoubted stars in development of the global economy. They create global supply chains and move the production of goods and services to various parts of the world in response to the ever-changing market demands. The multinational corporations promote the growth of economy and job creation in developing countries. Transferring to these countries the separate links of the supply chain characterized by the low added value, they stimulate economic growth and enhance the competitiveness of developed countries in such a way including the USA. According to the estimations of McKinsey Global Institute, the growth of gross national product in the USA had been provided on 31 % by the American transnational corporations during the period from 1990 to 2009.
As the export sector has no shortage of highly educated and highly skilled personnel, the companies in developed countries do not want to put the investment in labor-saving technology as they do not seek to improve competitiveness of labor-consuming links in the chain of the added value and transfer them into developing countries. This is the situation, which creates certain discrepancy between the private interests of the companies (desire for profit) and public interests (requirement for employment increase). Though, such situation cannot proceed infinitely: if the high rates of economic growth remain in developing countries, there will be no cheap labor anymore in two-three decades. Consequently, the U.S. multinational corporations cannot transfer manufacture there. However, it is not necessary to wait the onset of this moment. According to Spens, time loss, can be disastrous for the USA. It is necessary to take drastic measures now for employment restoration in the export sector of the U.S. economy. On the introduction of the latest technologies that increase labor productivity and maintenance of competitive wages in some branches of the manufacturing industry or, at least, separate parts of the industrial chain at the territory of the USA, the right combination of measures will be kept in order to avoid their transfer to developing countries. Nevertheless, the market will not cope with this problem independently. It can be solved only by the joint efforts of hired workers, business and government.
As an example of the problem’s solution, to the experience of Germany is highlighted. It was able to keep advanced industries making the labor market more flexible and giving a priority to job creation instead of income growth. Throughout the last decade, the salary in Germany has grown at the moderate rate. Thus, the gap in income levels is much lower there than in the USA, where it continuously increasing (currently, the U.S. has essentially higher this indicator than the majority of other developed countries).
Many economists in the USA believe that the market will solve the problems of employment and income growth by itself as soon as the crisis will end and economic growth will renew. This opinion divided both some skilled and rather competent people such as the richest man of the U.S., Warren Buffett, in the formation of public attitude. Spens believes that the supporters of the similar point of view overestimate the possibilities of the market. He also underlines that it will not be possible to solve the problem of increasing employment without the adoption of some measures in the USA. However, as similar hopes for the omnipotent hand of the market widespread among American politicians and in society ,in general, any attempts to prove that the national economy requires structural changes and the development of measures for employment’s increase encounter serious difficulties. In these conditions, it is necessary primarily to reach a consensus that maintenance of each American citizen with work is the paramount problem of the USA. Once such consent is reached, the search of ways for competitiveness’s increase and openness of the U.S. economy should become the following step.
Though, it is not known how effective these or other variants of the policy directed on the solution of more equitable distribution of income in various sectors of the U.S. economy can be, they should consider the interests of all persons involved in the economy in any case. It is necessary to accumulate all information about new technologies and market conditions, which business, government, trade unions and universities have, and embody it into concrete initiatives. The U.S. President, Barrack Obama, has already created a new executive authority, the Council on Jobs and Competitiveness, headed by the chief executive officer of General Electric, Jeffrey Immelt. It is considered being a significant step towards solving the burning issues of the USA such as increasing competitiveness of the U.S. economy and unemployment. However, there is concern that the U.S. cannot make investments in human capital, new technologies and infrastructure in required scales in the conditions of limited financial resources and reduced jobs in the public sector. On the other hand, the American citizens should make certain sacrifices in order to create more favorable opportunities for future generations.
In order to change the structure of the national economy and increase the professional level of workers occupied in the top echelon of the added value chain above all, it is necessary to pay more attention to the formation. The most competitive workers should be employed in this segment of the American economy. Though, the formation cannot solve all problems facing the USA. Both at the federal and state levels, it is essential to make investments in infrastructure that will allow to create additional workplaces in the short-term prospect and increase the return on investments in the private sector the in the medium and long-term. It is also necessary to invest in new technologies that will create new jobs in the export sector of the U.S. economy. In the investment process, both the private capital and the state should participate. It is noted that the U.S. government has already put significant resources in scientific researches and new technologies, but job creation has not been the overall goal of these investments till now. Nowadays, it is time to make public investments in the development of infrastructure and the creation of new technological base for the U.S. economy –in order to restore its competitiveness and increase employment in the export sector.
The reformation of the taxation system is required, as well. It is needed to simplify and reconstruct it in such a way that it will stimulate increasing competitiveness, investment and employment growth. It is obligatory to liquidate the holes in the tax laws and eliminate all obstacles, which hinder to view initiatives. It is necessary to lower tax rates on corporate income and incomes from investments in order to make the USA more attractive country for business and investments. Currently, the multinational corporations seek to preserve and invest revenue abroad. Otherwise, they will be compelled to pay taxes in those countries, where they get profit, as well as in the USA.
Certainly, the decrease in tax rates will lead to the reduction of revenue in the state budget, but these losses can be offset by the increase of taxes on consumption. Besides, such a measure could bring additional benefits as it would contribute to changing the present structure of demand in favor of domestic products. This should be done not only to inhibit the unemployment growth in the country, but also reduce the deficit of the U.S. trading balance.
However, these measures may be not enough. Globalization puts the USA before the necessity of choice: to provide employment for the country or to raise revenues. What is more beneficial? Germany had already made the choice. It protects the jobs in those branches of the export sector, which are under a serious competitive pressure. It is considered that the USA should follow its example.