Monday, February 09, 2004

Progress inequality ... or how a "rising" tide DOESN'T lift all boats

INTRODUCTION
Maybe it should be changed to how a receding tide leaves some folks stranded high and dry and others get shipped out to sea. Like the future of America! The Christian Science Monitor has a nice piece out on growing wage inequity (skewed market distribution) .

" The problem of widening wage inequality is not new, and is rooted in long-term trends. The rise of technology in the workplace, for example, puts a premium on educated workers and eats into the bargaining power of the less-skilled. The entry of about a million immigrants a year, puts downward pressure on wages in many low-income jobs. Offshore outsourcing of jobs and falling union representation also play a role.

" All these factors are still present," says Ann Owen, an economist at Hamilton College in Clinton, N.Y. and former Federal Reserve economist in Washington. "We can probably project a future growth in inequality."

" Particularly troubling: The challenge persists even as the economy is growing, at a 8.2 percent annual rate in the third quarter of 2003 and a 4 percent rate in the fourth quarter.

" The median weekly wage for the nation's 100 million workers was $625 in the fourth quarter last year. That's up 2 percent from the same quarter in 2002, barely beating inflation.
"

Meanwhile Dan Drezner has a post out on the new Australian Free Trade Pact. For the record, the oldman mostly approves except that he notes that once again "free trade" is limited to mostly manufacturing and services. This is a dead end. Free trade cannot work in the long run with such distorting market forces involved. It may seem a triumph to open up the market to manufactured goods, but the problem is that the remaining "unfree" trade will skew the rest. As it's already doing with China and India.

REACTION:

As the oldman notes:
Sugar really is one of those areas where idealistic Ricardian comparative advantage could simplistically take place. They sell us cheap sugar which they have a lower opportunity cost for, and we could produce and sell more sophisticated goods back. It would be a much better investment of our capital than the sugar industry. It's also one of the areas that wouldn't be prone to national security issues. Ditto pretty much for cotton. Why is the United States trying to stay a low margin agricultural commodity producer? We could use that money and invest in forward thinking industries instead.

SOLUTION ANYONE?

America has to get out of the business of using our money to do things we're not so great at, and at doing things we're better at. With an economy increasingly slanted towards a Information Economy America cannot afford anymore to neglect its schools and universities. Massive reform and restructuring has to begin taking place in the next five to ten years, or in the next two decades America will fall behind the rapidly advancing boom in Indian hi-tech led growth (USA Today):

" With China ascendant in recent years, it's been easy to overlook India. Not anymore. Thirteen years after starting to unshackle its Soviet-inspired economy, India is seeing a payoff.

Its world-class software developers are moving into high-margin consulting with the goal of taking business from the likes of Accenture and IBM. Its drugmakers, denounced as patent pirates a few years ago, are being wooed by the same global giants whose medicines they were copycatting. Outsourcing specialists are climbing the value chain, moving from filling orders for infomercial ab crunchers to handling financial analysis for Wall Street firms.
"

Kristof of the NYT notes in his column 'Watching the jobs go by' that:

"The topic today is the growing furor over the outsourcing of jobs to India — and, more broadly, educational lapses here. One reason for the jobless recovery in the U.S. is that it doesn't make much sense to have an American radiologist, say, examine your X-ray when it can be done so much more cheaply in New Delhi.

Indeed, why should computer software be written, taxes prepared, pathology specimens examined, financial analysis done or homework graded in the U.S., when all of that can be done more cheaply in Bangalore? I.B.M. is moving thousands of jobs to India and China, and Reuters says it will have Indian reporters cover some U.S. companies from there.
"

What is Kristof's analysis of the root of the problem? Education. Education. Education.

"The latest international survey, called Trends in International Mathematics and Science Study, found that the best-performing eighth graders were, in order, from Singapore, South Korea, Taiwan, Hong Kong, Japan, Belgium and the Netherlands. The U.S. ranked 19th, just after Latvia. (India and China weren't surveyed.)"

That's right, we rank 19th. And if we don't get up off our butts and do something about it our economy will end up ranking 19th as well!!!

This isn't sustainable folks. We're not so much losing jobs to outsourcing / "offshoring" as we're failing to create new jobs and economic ventures here in the States. That's why our economy and job growth is stagnant and we've got jinxed government figures that hide it all. Yep that's right, it's all a whitewash job and the oldman intends to expose it! (But after he's done with his student's midterms this week. Ack!!!)

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