Wednesday, April 2, 2008

Are manufacturing jobs moving east or were US wages inflated for four decades

There is a continuous stream of noise in the media about jobs moving east, and about the negative impact of globalization. In my discussions with an old friend Dave Wilson we came up with a contrarian view.
After World War II, the infrastructure in Europe and Japan were in shambles, the population losses sustained in Europe and Japan were orders of magnitude more than those sustained in the US, and the Asian and African economies were still primarily underdeveloped. This automatically led to the US being the only country ready to be the "factory" of the world. And since the other economies had not developed/redeveloped their infrastructure fully, the competition to the US was negligible. Hence the semi-skilled and unskilled labour could negotiate high wages, since the products could sell at artificially high prices.

By the 70s and 80s, many other regions in the world had infrastructure to support manufacturing economies, and the natural forces of market economy took over. Hence the current 20 -30 year trend of rationalisation of wages and cost looks like a job migration. But in reality it is just that it took 30-40 years for the rest of the world to play catch up.

I know this is an over simplification, but is this a plausible explanation?

1 comment:

Anonymous said...

In my view “globalization” was a disguised move of imperialism – but backfired! It was thought that the developed countries will have markets of developing and underdeveloped countries at their disposal , to do as they pleased. Some of the developing countries, though initially bullied into opening their market, soon found out that it can be turned to their advantage also - in certain areas to start with. China and India, amongst others, took it to the final conclusion. When it hurt the developed countries, the developed countries started crying foul!
Your observation on US labour negotiating high wages fits in with the then prevailing condition in the rest of the world. The turn of events, in my opinion, took place even earlier than the 70s. I would put it more towards late 50s. What hastened it was the threat from the Soviet Union. The US led group of nations, for their own survival, thought of using Germany as a buffer State to the Soviet Union. The American Marshall Plan – a scheme to help Europe recover from the ravages of World War II came into effect in 1948. West Germany was included in this group of nations in 1949 –a consequential result of the Soviet Union backed communist coup in Czechoslovakia in early 1948 and the resulting fear of communism spreading deeper into western Europe. Around US $13 to 15 billions were pumped into Europe from 1948 to 1952 to help it recover from the ravage of World War II. (The dates and figures are from memory and are only meant to indicate the span of time and money).
Finally, one day China and India will be included in this cycle of “evolution”. History will repeat itself .