The attached article is an analysis of the jobless situation
in the American economy at the present time -- with its obvious
implications concerning Bush's prospects in the next presidential
elections in November 2004. The anonymous Economist staffer writes
that unemployment is due to two factors. One is cyclical -- caused by the
normal rise and fall in consumer demand for various reasons -- and the
other is structural -- due to the actual make-up of the businesses (and
direct government employment) that employ workers within a
country.
Both causes of employment are wave-like. The consumer demand factor is
fairly short-term -- of the order of 5 to10 years -- as the mass of
consumers fall into step as regards changing fashions of demand for
goods, and/or how much to invest, and/or how deeply to get into debt,
and/or what size families to have. These, in turn are due to other
factors such as the rate of interest, and also what is the overall
consensus as regards the future. Most of the decisions that result are
entirely rational but some are irrational, or rather, a-rational, such as
the investment boom of the late 90s when everybody was taken in by the
prospects for the IT revolution, so that all those who invested in
equities thought they were going to be rich. Some of the factors and
fashions and decisions are mutually-cancelling in their effect, but there
is usually one predominant short-wave trend within the while and it is
this that has the major effect on employment.
The structural cause of consumer demand, and hence overall employment, is
due to the succession of innovations that find their way to the showroom
or shopping mall. At any one time these are usually components of a much
larger technological or scientific breakthrough and the latter don't come
around very often. And when they do, it may take as long as 50 or 60
years or even longer for their full effects to become apparent. At the
present time -- and for the last 30 or 40 years or so -- we are into a
period in which computerisation is working its way through the whole
economic system. As far as the production of goods is concerned, though
not so much in the case of services, this takes the form of distinct
ratchet-like steps in which one particular production method becomes
uneconomic and suddenly ceases. The apparent cause of most of these are
supposed to be cheaper labour -- and there's no doubt that this is an
important trigger-cause, particularly when a particular production
process leaves one country and goes to another -- but it also enables the
producer to change the whole culture of the process, enabling a whole new
constellation of cost factors to bear on the final price of the product
when it reaches the consumer.
During the industrial revolution of the past 200 years or so there have
been three main structural changes -- the steam age, the electrification
age and, today, the computer age. Once each of those got under way, then
a rapid succession of new products and new methods of production took
off. The problem is that when we are in the middle of one of these main
phases, we certainly experience the ratchet-like effects of more
efficient production on employment -- which can be painful for many --
but we don't have any idea of how much longer the phase is going to last.
For any one production process there has to be a limit to gains in
efficiency. At the present time, for example, there seems to be an
unceasing flow of jobs from the developed countries to the developing
ones, particularly those of south-east Asia and, more latterly, India. In
response, the only thing that a developed country can do is to make the
existing production processes even more efficient and attract jobs back
to the home country. This happened very effectively in the 90s, for
example, when the dsign and production of computer chips, which had
largely fled to Asia, came back again to America. However, this
particular segment of the industry seems to be flowing back again to
Asia.
The writer of the Economist article makes a good point in saying
that it would help all employers in the developed world if the health
costs of employing labour could be made much cheaper. So it would, but
this doesn't meet the main problem -- that we don't really know how much
longer the computer age will last until pretty well everything we do is
as efficient as it can possibly be.
However, when we consider that all three main phases of the industrial
revolution -- steam, electrification and computerisation -- have all
depended on cheap energy, the evidence is that this is going to be
extremely expensive in the coming decades. This, by itself, isn't going
to alter the character of what we produce and what services we need, but
it may limit the overall world production that is possible and strongly
suggests that, maybe, the industrial revolution is coming to an end.
Perhaps it is time to consider that an entirely new revolution is going
to be needed if the whole of mankind is not going to enter a period of
prolonged statis and, maybe, steady collapse.
Given the need for energy in large quantities -- whatever the nature of
the historical period, or the important production phases within them --
then any country that is looking towards a much longer term future ought
really to be placing the utmost emphasis on an entirely new energy
technology. This can only be solar power. Indirectly, it has always been
the source of our energy from huner-gatherer times right up till the
present so-called high-tech era -- whether natural living resources,
fossilised fuels or radioactivity -- but there is no reason in principle
why we should not tap into solar power much more directly and on a daily
basis and, more importantly, a local basis, say by solar cells or
biological methods. The potential is enormous, and what is more, it has
the possibility of being able to restore social and political
organisation to much smaller community-sized economices -- something in
which our genetic behaviours can act much more safely than in the huge
hierarchical systems we have today and the fearful weapons with which
they protect themselves.
Keith Hudson
<<<<
NEW IDEAS NEEDED
Why many Americans are staying out of work
Washington DC:
Few statistics are followed more closely in George Bush's White House
than the monthly jobs figures. In 1992, unemployment cost his father the
election; the son has presided over more than 2.5m job losses. Small
wonder that the White House jumped on the latest report, released on
October 3rd.
It showed that non-farm payrolls rose in September, the first rise in
eight months. At 57,000, the net number of new jobs created was barely
half the 125,000 or so needed to keep up with new entrants into the
labour force; but at least it was not a drop. Better still, August's job
loss number was revised down by more than half. "Things are getting
better," said Mr Bush.
Are they? One month of modest employment growth hardly proves the end of
"the jobless recovery". Nonetheless, there are reasons for
hope. One is that all of the increase in September's jobs came from the
private sector, much of it from a rise in the number of temporary
workers. The number of temporary jobs has risen for the fifth month in a
row.
Hiring more temporary workers often precedes a rise in permanent jobs as
economies emerge from recession. According to Richard Berner, an
economist at Morgan Stanley, America's firms have spent the past two
years trimming their workforces, after taking on too many employees
during the bubble years of the late 1990s. With the excess cut out, and
profit margins bigger, he reckons hiring should start again.
The pace of job growth, however, may well continue to lag behind that of
previous post-1945 recoveries. This is because America's recent slowdown
was no ordinary recession. Structural changes in America's economy --
such as technological innovation and moving production
abroad -- have played a far bigger role than before in job losses. Rather
than temporarily laying off workers as demand slowed, firms have been
getting rid of them entirely. Those dismissed have to find jobs in new
firms and new industries, which takes much longer than simply returning
to an old employer.
In a recent study, Erica Groshen and Simon Potter, two economists at the
Federal Reserve Bank of New York, carefully examined the relative
importance of cyclical and structural factors in the labour market. They
point out that temporary lay-offs, when a worker is laid off during a
recession but later returns to the same employer, played a significant
role in four recessions before the 1990s. In the two most recent
downturns, those of 1990-91 and 2001, they figured little.
The two economists also tried to measure whether job losses were due to
cyclical or structural factors. If a job is lost because demand for the
firm's product is temporarily low, then the job should come back as the
economy begins to recover. But if a job is lost because a firm or
industry is structurally in decline, then it never returns. In the sharp
recession of the early 1980s, they found that job losses were split
almost evenly between cyclical and structural changes. In the most recent
slow-downs, however, most job flows were due to structural changes. By
1990-91 almost 60% of America's workers were in industries undergoing
structural adjustments. By 2001, that figure was almost 80%.
This highlights two important points. First, it may well take longer than
expected for the jobs figures to rise, since they will have to be new
jobs, often in new industries. Second, today's trend towards structural
rather than cyclical shifts is an intensified version of a phenomenon
already evident in the 1990-91 slowdown. In one way, this bodes well:
although it took more than a year for job growth to pick up in the early
1990s, about 18 months into the recovery employment growth
soared.
Given that America had more cyclical excesses to work off this time, and
that structural shifts are even more important than in 1991, employment
may well take longer to rise than it did in the early 1990s. But rise it
eventually should.
Time, unfortunately, is not on Mr Bush's side. With the presidential
election little more than a year away, the White House needs to point to
job increases now. Unfortunately, in their haste for results, both Mr
Bush's team and his Democratic rivals are pushing wrongheaded ideas. The
politicians' focus has been on trying to slow down the pace of structural
change, particularly in one area, foreign competition. China-source of
soaring imports and the place to which many American firms shift their
production-is cast as the chief villain.The pressure is on for China to
revalue its exchange rate or, say many law-makers, face punitive
tariffs.
Alas, the attempt to slow structural change in American industry will not
stop there. The fear of losing service-sector jobs to foreigners is close
behind. A study by Forrester, a business research group, suggests that
the number of such jobs that will be outsourced to places such as India
is likely to rise from 400,000 today to 3.3m in 2015. Already some states
are trying to resist this by ordering state agencies not to use call
centres and the like in India.
It would be better to address the factors that depress American hiring
directly. One good place to start would be the rising non-wage costs of
employing permanent workers, especially health-care costs. After slowing
in the mid-1990s, these are soaring again, at double-digit rates since
1998. Finding a way to control health-care costs would be a far more
sensible way to help America's workers than bashing China.
>>>>
Economist -- 11 October 2003
