Wednesday, August 05, 2009

Where the Recession Will Lead Us Next



Today I've been reading over a column in Newsweek entitled, "The Recession America Needed". It's a compelling post that I hope you have time to read from start to finish. The idea of a "good" recession finds significant proponents and many passionate detractors. I myself am not firmly convinced in either direction. As one might expect, I do, however, have some major disagreements with certain sections of this piece and I've noted them below.

I take some slight liberty with the passage below.

The cost of labor in the US is still too high to allow most businesses to compete with the cost of manufacturing overseas. Either US workers will have to agree to be paid less to have sustainable jobs, or manufacturing efficiency in America will have to take a great leap forward. Both will probably have to be part of any long-term improvement in the status of the US economy as a growing manufacturing presence in the world.

Labor costs also include benefits like health care coverage and other insurance that are usually provided by each employer. Other countries, particularly in the developing world do not have a highly developed health care industry as we do and it should be noted that health care has been an industry growing exponentially here in the United States for the past decade or more. When we in this country began to make the first few tentative shifts away from a purely industrial based society in the 1970's, health care came on strongly and filled the gap. In the city of my birth, for example, Birmingham, Alabama, the health care industry was a Godsend and quite literally saved the city from ruin.

While I agree that labor and particularly productivity probably need to function with much greater efficiency than currently exists, what is also required is for health care and insurance costs to be lowered in corresponding fashion. In our highly developed system, everything is tied together and one can't modify one variable without directly affecting all the others in the process. Many other nations of the world don't have these specialized demands and this is why they can afford to lower costs and to provide goods and services at a deep discount to ours. I believe in American ingenuity but I also know that without some combination of pain and necessity, it has no incentive to exist. Switching finally, mercifully, to an information based economy is the only means by which we can continue to grow and continue to stave off fundamental reductions in our standard of living and way of life.

The recession will probably lead both American businesses and workers to the point where it is clear that the cost of labor in the United States has been too high, and it has been too high for twenty or thirty years. That has not been true uniformly across all industries. Labor became too expensive in the car and other manufacturing industries in the 1970s. The cost of service workers, especially in the technology industry, has become too expensive in just the last few years. The American worker is going to have to come to terms with the fact that an economy that supports 95% employment will be an economy where the incomes in many industries must decrease.

This is somewhat factual, though bordering on generalization. What I wish the author would have qualified is that many manufacturing jobs like those in automobile plants have benefited from salaries that were raised over time to abnormally high levels. Even so, there is a vast amount of difference between service workers in low-wage, low-skill occupations like cooks or waitresses and those in high-wage and high-skill occupations like those who design aircraft carriers. Throwing both groups together under the same massive umbrella isn't a particularly accurate representation of the truth. That we continue to distribute employment so unevenly through the entire system is my deepest concern, particularly because this encourages the highly qualified and highly competent to pursue jobs at which they can always make some semblance of a living and are not being compelled, encouraged, or even forced to rise to their fullest potential. American prosperity has always profited off of the backs of the working class toilers, but the same educational and occupational strategies will not cut it anymore. Social mobility must be emphasized and encouraged even if it requires effort, additional education, and a complete revision of societal expectations. Any society that does not demand high achievement will have a disproportionate number of people in service industry jobs, which will continue to be driven overseas.

The US is going to have to be much more aggressive in defending the intellectual property rights of the companies that employ its workers and pay its taxes. An economy that was relatively strong for a long period of time partially concealed the huge loss of income that US enterprises should have gotten from software, entertainment, defense and aerospace expertise, and alternative energy and biotech knowledge. Microsoft, the world's largest software company, says that it has all but given up on doing profitable business in China. Reuters reports that the movie, music, software, and book industries claim to have lost $3.5 billion to piracy in China in 2007. The same problem exists in other large nations including Russia and India. The Business Software Alliance survey of the global piracy problem in 2006 claimed that the practice cost the industry $40 billion that year, and only for software installed on PCs. That does not include the huge markets for server and other enterprise software or software for handheld devices. The great majority of software used around the world is owned by US companies. The amount of the loss to piracy for American companies over the next decade is incalculable but it is not hard to make the case that it is tens and tens of billions of dollars and perhaps, since the available data is not all from a single source, a great deal more. This huge "leak" in American GDP is just as significant as large drops in consumer spending or losses of jobs that go overseas. Stimulating the economy has to be as much about the rights of American enterprise as it is about spending taxpayer dollars.

I always laugh at how the Mainstream Media increasingly seeks to justify its existence. Losing market share, demographics, advertising revenue, and readership, the author couldn't resist putting in a plug for his own industry. It's a wholly justified move, but also very see-through.

Translation: if you continue to illegally download pirated music, movies, or related media then not only will you bring us down, you will also bring yourself down in the process. While I won't disagree completely with this sentiment, I must also point out that unrestrained greed and an attitude of supremely unapologetic capitalist immorality is why people feel absolutely no guilt whatsoever for downloading or accessing copywrited information. Rather than pointing fingers and encouraging shame, the entertainment industry might instead consider trying to understand from whence this attitude stems. If the media really wishes to understand why it's feeling the pinch, let me recommend a few suggestions.

1. Avoid soft news unless unavoidable.
2. Give primary consideration to viewers rather than advertisers.
3. Do not overextend yourself, no matter how much profit you might expect to make.
4. Focus on educating viewers, not entertaining them.
5. Let your fundamental premise be that less is clearly more, rather than the other way round.

1 comment:

ej5049a said...

My initial contention with the idea that wages for so much of the US manufacturing and service industry are too high is that, for so many of these positions, the wages are not enough as it is. Jobs that pay minimum wage have been eaten away by inflation over the decades (though luckily some of that has recently been remedied). Particularly low-skill, low-wage jobs are disproportionately filled by women and minorities who, at least in contemporary American society, are more likely to be single and supporting children than a single male. What ends up happening with these trends is that women are pushed below the poverty line or need to take on multiple jobs just try attempt to make ends meet. To argue to further reduce these wages is basically a threat to the well-being of millions of people across this country. A better tack for this argument would be, as you pointed out, greater support for an information-based economy, with greater education, training, and access to people of all levels of society (not just those who can afford a fancy degree from a 4-year college). We need to support industries that can provide these jobs in innovative fields to encourage new ideas and new ways of problem-solving, rather than following this race-to-the-bottom.