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article imageOp-Ed: Asian prosperity and dismantling of the 'American Dream'

By JohnThomas Didymus     Sep 7, 2012 in Politics
The next US president could be Obama, it could be Romney, or even Ron Paul, but the larger part of the global market forces that will impact on the US economy remain unchanged and largely outside the control of US planners.
The best that US governments can do in reaction to these emerging forces, short of waging an imperialist war of conquest on the emerging economies of Asia, is enact policies for a soft-landing of the US economy as it falls from its lofty heights of prosperity in the next decades.
It is understandable that American politicians mount the politicking podium, carefully edit and restrict analysis of the nature of challenges facing the US economy, make glib promises to create more jobs, stimulate industrial production, cut spending and increase revenue but offer only scanty details about how they intend to achieve these goals. But of course, we know that politicians only tell the electorate what they know they want to hear – promises of prosperity irrespective of the reality of obvious sobering forecasts for the future.
If the emerging Asian economies do not sink suddenly into the Pacific or the Indian Ocean in the next decades, and if the US does not stumble on vast gold mines on the Moon in the same period, you don't need a PhD or a Merlin crystal ball to predict the trajectory of US economy in the next decades, irrespective of which party wins the general election. The global market with its wealth generating resources is limited. If other countries would increase their prosperity they can only do so at the expense of the prosperity of already developed economies.
The stage for the global competition that will force a restructuring of the balance of economic power is already set. China with its vast resource of cheap labor is the primary threat to the US economy and the effects are already being felt in the recent pattern of recession and unemployment in the US and European countries The immediate impact of China's growing prosperity on US economy is the growing trade deficit between China and the US which China deliberately augments by devaluing its currency relative to the dollar.
The US economy is faced with what one may describe as a "paw in the bottle" dilemma. US citizens in the post-World War II era of economic prosperity pushed their hands through the narrow neck of the prosperity bottle and grasped the nut of wealth. It is difficult facing up to the reality that the post-World War II "prosperity bubble" has burst and that the US economy will have to pro-actively guide itself to a new equilibrium position of lower affluence status in preparation for long term stability in competition with newly emerging economies.
The answers to the "paw in the bottle" dilemma are readily listed but it would take a courageous politician to stand on the podium and tell Americans the straight truth. So rather, they mount the podium and promise Americans jobs, but don't tell them how they intend to create the jobs. Where will the jobs come from? The average Chinese factory worker earns less than $1 per hour compared to the U.S. factory worker who earns $10. This a massive cost disadvantage for the manufacturer who must employ the American worker. Not even Romney who wants to be US president would employ an American worker at $10 per hour when he could employ an Indian for less than $1 an hour.
The stark truth that politicians don't tell Americans in their electioneering is that the vast production cost gap between Western economies and the rest of the world is at the root of the economic crisis in the West. It has nothing to do with illegal immigrants and only little to do with government welfare spending. These are merely symptoms of the problem, and not the problem. Kenneth Buchdal is not a politician, so he can talk unreservedly about the stark facts:
"The average Chinese factory worker earns $.40 an hour as compared to $15.50 paid to a U.S. factory worker.
"The math... is so overwhelming that most manufacturing industries within the U.S. that have not already departed will have to leave within the next 10-15 years....
"Eventually, just about everything you can touch or pick up in a store will be sourced from a foreign country as the migration of our manufacturing businesses is completed. It should be noted that this migration has nothing to do with new products, superior products or advanced technologies being offered by these foreign countries. It is merely due to the tremendous operating cost advantage offered by these foreign countries."
Way forward: Implementing the left-wing agenda
The optimal mitigating responses to the new emerging economic world order are already being implemented by left-wing governments of Western countries but these measures have caused an intensification of conflict between liberals and conservatives in US politics. Liberals are realistic enough to face up to the reality that the post-World War II "prosperity bubble" of the US and Western European economies has burst finally. They understand that economy planners must now begin implementing controlled fall measures for achieving a new lower equilibrium for Western economies.
Unfortunately, in the US, there persists a large section of the citizenry who continue to live a dreamworld of past prosperity and think there is a Republican ticket back to the "glorious 50s." These are the "conservatives" who are looking up to Romney-Ryan ticket to rewind the tape of history and restore the prosperity of the past. Sooner or later they would have to wake up to the reality that farsighted leftist economic planners see and are preparing for:
What leftist Western governments understand
What leftist governments understand and which informs the main thrust of their policy is that the post-World War II "prosperity bubble" has burst finally. Bill Clinton, in his last speech at the Democratic National Convention in Charlotte, expressed the insight when, according to Digital Journal, he said: "The old economy is not coming back."
Left-wing planners understand that there isn't any way that Western economies can insulate their citizenry from competition in the global labor market where cheaper labor is available. In the context of competition with emerging East Asian economies, Western economies need sustained immigrant labor to help force down labor costs and correct the cost competitiveness disadvantage that Western economies suffer relative to East Asian economies.
Americans grumble that the standard of living of their middle class is falling and politicians, both Democratic and Republican, are afraid to tell the truth that there is nothing any government can do about that. Market forces leave American workers with no options in the long run but to swallow "first world" pride and get down to competing in the international market with "third world" workers for lower wages: Indians, Chinese and Taiwanese.
Some pundits suggest that rather than compete with Asian economies in the labor market, Western economies could use technology to offset the labor cost advantage that China enjoys. This argument ignores the fact that the room for manoeuvre in the technology domain is narrowing everyday. Emerging economies are fast closing the technological gap with the Western industrial nations, especially in the area of mass produced consumer goods. It would be folly for Western planners to underestimate the capacity of newly emerging economies for innovation in hi-tech industry.
Free vs. controlled fall of the US economy
The impact of global competition on the US economy will depend on the response of US planners. But two alternate scenarios are envisaged:
Freefall: This is the catastrophic path the US economy will follow if its government faithfully implements core rightwing policies such as tightening immigration and cutting spending without articulating a program for stimulating the economy for sustained production. Buchdahl describes the freefall scenario:
"[Phase 1 of the freefall is well underway] as manufacturing throughout U.S. exits to low-cost foreign countries... billions of capital investment dollars are now being spent in countries such as China and India for new operations.
"However, there is a much larger Phase 2 that is only now beginning to take off.
"Corporations... are beginning to understand that their high cost U.S. corporate offices and development centers must also start to move offshore for long-term survival in a global market. The same logic or intuitive reasoning behind the move of manufacturing jobs to foreign countries also applies to any business function. Thus, the exit of IT, purchasing, research and development, finance and other administrative functions has already begun.
"Eventually, corporation headquarter facilities will need to physically move offshore. The facts and math are simple. As the intensity of foreign competition continues to increase, foreign corporations paying $3,000-25,000 to administrative, staff and executive employees, will need to displace U.S. corporate employees being paid $30,000 – millions of dollars, who work in high cost corporate offices located in the United States.
"Eventually, just about everything you can touch or pick up in a store will be sourced from a foreign country as the migration of our manufacturing businesses is completed. It should be noted that this migration has nothing to do with new products, superior products or advanced technologies being offered by these foreign countries. It is merely due to the tremendous operating cost advantage offered by these foreign countries.
Controlled fall through liberalized immigration policy
Rather than allow massive capital flight from the US as corporations relocate abroad in search of cheaper labor and low cost operating environments, government can take the pro-active response of bringing the conditions that the corporations are seeking in foreign countries home. The most effective means to this end is already being implemented by left-wing governments in the West: liberalized immigration policy.
As already explained, given the cost disadvantages Western economies suffer in competition with emerging East Asian economies, the economies need sustained immigrant labor to help force down labor costs. An influx of immigrant labor will help create at home, the low operating cost conditions that US businesses are seeking abroad through outsourcing and relocation of operations. American workers will have to swallow the bitter pill of lower wages and lower standards of living for their economies to survive. There are no alternatives. And political problems will arise: Native citizens will loathe to compete with immigrants for lower wages. Higher levels of unemployment that result will cause unrest. But the freefall scenario in which American businesses relocate abroad without measures to stem the tide is certainly not a better option. As immigrants move in, nativist tea party movements and right-wing racist groups will gain followership and flourish. But these right-wingers are mostly dreamers who haven't woken up to the reality that the "prosperity bubble" of their national economy has burst and that there are no options but for the economy to sink to a new equilibrium level guided by softlanding measures that stem the tide of wholesale capital flight eastwards.
The long run equilibrium: India?
In the long run, China also faces the problem that rising standards of living create as the economy experiences increasing prosperity – increasing wages and related general pattern of increase in general operating costs for businesses. This will favor emergence of a new set of emerging economies, chief amongst which is India. Time Business reports that trend is already noticeable:
"...China, like the U.S., is facing a challenge from competitors with lower wages... the era of cheap labor in China is over. Wages are growing about 12% a year (in real terms). As a result, China is losing its competitiveness in labor costs to other emerging economies. That puts at risk the low-end, labor-intensive, export-oriented manufacturing (apparel, shoes, electronics) that has created countless jobs and jumpstarted China’s rapid growth. Just like the U.S. has lost factories to lower-wage economies like China, China is already seeing neighbors like Vietnam eat into its dominance in these types of industries."
But now the needless budget deficit debate
The conservatives vs liberals debate over ballooning budget deficit, the need to cut spending or otherwise increase progressive taxes is a subheading in the larger debate for repositioning the US economy for competitiveness. But unfortunately in the campaign for votes, it has assumed the status of the major issue for debate in its own right.
Republicans want the government to cut spending but don't explain what to do when the inevitable deflationary effects of the cuts set in, in the absence of increased revenue. Anyone can understand the need to cut spending but unfortunately, drastic cuts in spending in the absence of increased revenue generation is best recipe for a recession. What the demand-side planners want to hear from their supply-side detractors is how to keep economic production running after government cuts spending, but unfortunately they get no answers. Meanwhile, the vicious cycle of ballooning deficit continues because the same Republicans will resist all attempts to impose progressive taxation.
But quite apart from the self-serving elitist ideology which insists that poverty is wholly a personal failure and that the poor, therefore, do not deserve social support, there is no known logic or principle of morality that justifies the preference for controlling the ballooning deficit by cutting welfare spending to attempts to controlling its growth by imposing a stiffer regime of progressive taxation.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of
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