The International Dimension: Changing Flows of Capital, Manufactured Goods

1
The International Dimension Changing Flows of
Capital, Manufactured Goods Jobs

• Conversation on the SC Economy
• October 21, 2005
• Bill Ward
• Center for International Trade
• Clemson University

2
Economic Growth International Realities

• Large US trade deficit, low US saving rates
  large inflows into US capital markets
  (non-competitive )
• Declining manufacturing employment Globally as
  well as nationally
• SC traditional Mfg base (textiles) at the tip of
  the spear of change
• SC unemployment rate above US average (but below
  Europes rate)

3
Global Imbalance the Juxtaposition of Two
Factors

• Growth in global supply of tradable manufactured
  goods, caused by
• Market liberalization in LDCs FPEs
• Dramatic rates of productivity growth
• US as sole global demand generator
• Endogenous to the US economy
• Exogenous to other national economies that pursue
  export-led growth

4
Comparisons to Period following 2nd Industrial
Revolution (after 1860s)

• Supply shock comparable to 2nd Industrial
  Revolution in late-19th early 20th century
• Then juxtaposed against
• 19th century gold standard that limited national
  and global options for monetary expansion

5
US Global Economy at Start of 20th Century

• US price level dropped by half during 19th
  century
• Mercantilist views and beggar-thy-neighbor trade
  environment going into 20th century

6
SC, US Global Economies at Start of 21st
Century

• No pricing power for Mfg goods producers
• Increasing Mfg output coupled with decreasing
  employmentUS and globally
• Talk of labor force competitiveness solution
  for Mfg job creation

7
US Mfg Output versus Employment(Source US
Bureau of Labor Statistics)
8
US Mfg Employment 1979-2005

• Year Jobs (000)
• 1979 (historical peak) 19,426
• 1985 17,819
• 1990 17,695
• 1995 17,241
• 2000 17,263
• 2001 16,441
• 2002 15,259
• 2003 14,510
• 2004 14,329
• 2005 (1st Qtr) 14,258(p)

9
SC Mfg Jobs1980 to 2005

• Year SC Mfg Employment
• 1980 398,411
• 1982 367,400
• 1987 365,800
• 1990 389,540
• 1992 366,900
• 2000 352,570
• Mar 2005 264,800

10
The Demand-side Problem

• Endogenous demand limited by
• PCE shift towards services
• Low prices of competing Mfg imports
• Exogenous demand limited by
• Export-led growth policies in major countries
  (including Japan China)
• EMU constraints in Europe
• Labor competitiveness equation in the face of
  resulting Global Imbalance (exchange rate for )

11
The Endogenous Sidee.g., Growth of U.S. GDP
PCE

• From 1990 to 2004,
• U.S. real GDP grew 54
• This does not translate into comparable growth in
  demand for Mfg goods

12
Shifting Demand for Goods versus Services within
U.S. GDP
13
From GDP Growth to Endogenous Demand for
Manufactured Goods

• GDP grows 54 1990 to 2004
• 41 of PCE goes for goods
• Straight-forward math growth in domestic demand
  for goods 1990 to 2004 was only 21

14
Productivity of U.S. Mfg Labor

• Meanwhile,
• Mfg Output per Worker in U.S. increased 83
  between 1990 and 2004
• In a closed economy, that is a recipe for job
  loss.

15
Open Economy Math

• In an open economy,
• US company success
• and
• US jobs
• depend upon
• Global demand growth and
• US global competitiveness

16
Global Demand Constraints

• EMU fiscal balance agreements policy on
  monetizing deficits
• Japan financial sector instability continued
  use of export-led growth
• Asia Mfg cluster all have weak financial sectors
  and follow export-led path post-1997 (3 Chinas,
  Thailand, Malaysia, Korea)

17
Global Demand Growth Limiters

• Willingness of investors and risk managers to
  hold more US and UK financial instrumentsMaking
  them the gold mines of 21st century
• Particularly in the face of growing global
  imbalances posed by forces discussed here

18
The Global Supply Shock

• Market liberalization of large LDCs and FPEs
• China (20 of global workforce)
• India (15 of global workforce)
• Rest of East Asia FPEs push totals to more than
  50 of global workforce
• Dramatic productivity growth 1990-2005 (following
  slides)

19
International Manufacturing Competitivenessfactor
s tracked by BLS

• These three factors taken together
• Productivity
• Wage Rate
• Exchange Rate
• Give you
• Dollars of labor cost per unit of output

20
2 out of 3 involve controlling workers
purchasing power

• Low wage rates
• Low value of Dollar

21
The third competitiveness factor

• Productivity
• Increases competitiveness of U.S. companies, but
• Decreases the number of jobs if
• Global demand does not grow even faster, and/or
• U.S. does not gain increasing share of market

22
Growth in Productivity Abroad1990-2003

• Canada 79
• Australia 109
• Japan 145
• Korea 247
• Taiwan 284
• Belgium 134
• Denmark 73
• France 164
• Germany 77
• Italy 45
• Norway 43
• Sweden 179
• United Kingdom 132

23
Changing Shares of Global Mfg Value Added
24
Percent Change in Mfg Employment 1992-2003
25
Global Loss of Mfg Jobs 1995-2002

• Mfg Jobs Mfg Jobs
• 1995 2002 Change
• Region (000) (000) (000)
• Africa 4,242 3,926 - 317
• Americas 31,944 31,691 - 253
• Asia 76,594 58,395 - 18,199
• Europe 58,319 55,657 - 2,662
• Oceania 1,321 1,395 74
• Globally 172,421 151,066 - 21,355

26
China Mfg Employment

• 98 million Mfg jobs in 1995
• 80 million Mfg jobs in 2001
• 83 million Mfg jobs in 2002
• Out of global total of 150-200 Million
• 200 million potential new workers yet to come out
  of rural China

27
Mfg Jobs in Industrial Countries

• US about 14 million
• Canada less than 2 million
• UK less than 4 million
• Japan about 11 million
• Germany about 8 million
• EU (25) as a whole about 25 million
• Ireland a few hundred thousand

28
Competitiveness

• SC must help keep Mfg COMPANIES competitive
• Nevertheless implying reductions in traditional
  Mfg employment
• And implying need for new strategies for work and
  wealth besides Mfg job creation
• Thus, verifying the importance of work of the
  OTHER presenters

29
End of Presentation

• Supplementary Slides Follow
• Shifting sectors of employment
• Declining Mfg shareselected countries
• Mfg jobs mirror Ag jobs in 20th century

30
Shifting Sectors of Employment

• 1990-1992 2000-2002
• Male Male
• Upper Middle Income Countries
• Agriculture (1) 22 8
• Industry (2) 32 22
• Services (3) 46 70
• High Income Countries
• Agriculture (1) 6 4
• Industry (2) 38 19
• Services(3) 55 76
• United States of America
• Agriculture (1) 4 1
• Industry (2) 33 14
• Services (3) 62 85

31
Declining Mfg Share of Jobs

• 1990 2004
• United States 18.0 11.8
• Canada 15.7 14.4
• Australia 15.0 11.3
• Japan 24.3 18.3
• France 21.0 16.3
• Germany 31.6 22.7
• Italy 22.6 21.8
• Netherlands 19.1 14.0
• Sweden 22.3 14.9
• United Kingdom 22.3 14.9

32
Manufacturing Productivity and Employment in
Early-21st Century Mirror Agriculture in 20th
Century

• Farm Workers
• As of Total
• Year US Employment
• 1919 32.8
• 1930 29.8
• 1940 25.3
• 1950 18.0
• 1960 11.5
• 1970 6.0
• 1980 3.9
• 1990 2.6
• 1999 1.3