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Why This Is A Jobless Recovery

USA TODAY: Generation Y has a different view of work.  Does your management program need to change?

Jeffery Immelt: Generation Y – Whatever they call it – I’ve never seen people more smarter, more curious, more worldly.  I am so optimistic about the talent I see. The other thing I would tell Generation Y is that there is a Generation A in India and they want what you have.  They want quality of living. They want a second car. They want a vacation home. So either with you or with them I am going to build a future for GE.

(Jeffery Immelt, President and CEO of General Electric and now on the Board of the New York Federal Reserve,  interviewed by USA Today, December 14, 2007.)

The world has changed. The United States and the rest of the developed world of Western Europe and Japan no longer have a monopoly on highly educated and productive workers.  That all changed with the end of the Cold War and the technological advancements of the internet and supply chain management.

For many years, low-end manufacturing jobs were easily off-shored to the developing world.  These jobs did not require much in the way of training and were often highly repetitive in nature.  They were blue-collar and workers could be easily replaced.  The workers did not require much in the way of investment and many workers were frequently ill educated.  The manufacturing processes generally required long lead times so the issue of distance to the eventual customer was minimized.  Goods could be produced at very little cost compared to the developed world and companies could create competitive advantages based upon their ability to produce the same goods at a significantly lower cost than their domestic competitors.  This competitive advantage generally did not last for long as their competition quickly saw the advantage of producing goods off-shore and those that were still producing domestically soon followed or failed.  The manufacture of low-end goods left the developed world first and was followed by more sophisticated manufacturing such as electronics and computers.  Today, not only are these advanced goods being manufactured in what most economists continue to call the developing world, but are being designed in those same countries.

With the end of the Cold War in the 1990′s, the advent of the internet, and advances in supply chain management such as containerization, a highly educated and motivated labor force became available to the global market for the first time.  This labor force consisted of the old Soviet Block countries, China, India (that instituted long over due reforms in its economy), plus other nations.  The number of people available in this new pool of labor, which does not constitute all of the potential labor force available in places like China and India, but only those that could be considered potentially “world class”, is at least as large as the labor force of the United States, Western Europe and Japan combined.  These workers were suddenly thrown into the global labor market without an equivalent number of appropriate jobs for them.  The end result is that there is an imbalance in the global supply and demand for labor.  There are too many qualified people chasing too few jobs, especially in a steep recession.

The developed world first experienced this in the 2001-2003 Recession.  This was the first time that the forces of the internet, supply chain management and the access to new labor markets were felt in the recovery.  Prior recoveries were essentially domestic affairs with the international labor market playing little or no role in job recovery.  But the 2001-2003 Recession was different.  This time the labor market was global.  A job that was lost in St. Louis did not have to come back to St. Luis, but could come back to anywhere in the world.  The economy was now global; markets were now global; and, for the first time, the labor force was now global.  This resulted in what many called the first, “Jobless Recovery!”

The new global worker is often highly educated and trained.  Many of the educational institutions in the developing world produce graduates that are the equal of graduates from American and European institutions. These countries have long histories of scholarship that are respected by the rest of the world.  Russia, for example, has a long and distinguished history in mathematics and computer science.  India’s top science and engineering institutions produce graduates that are certainly the equal of many programs in the United States.

Much of this can be traced to the student exchange programs after World War II.  Developing countries sent their best and brightest to the US and Europe to be educated.  Some of them stayed and the US has benefited greatly from their presence, but many of them went back to their countries and became leaders and educators like President Obama’s father who returned to his native Kenya after attending Harvard.  It has been over sixty- five years since the end of World War II, several generations.  The exchange programs were successful and have produced a great deal of fruit.

The end of the Cold War also meant the triumph of American ideals and Capitalism.  The West won the Cold War because Capitalism marshaled the available resources of the West far more effectively than Socialism marshaled the Soviet’s resources and over time was able to out-produce, out-think, and out-last the Soviet Union.  This was not without setbacks or defeats for the West.  There were many.  But in the long run, Capitalism won out over Socialism because Capitalism, through the free market, simply utilizes resources more effectively and distributes the rewards of the society more equitably than does Socialism.

The ideals of the American system are simply stated in the Declaration of  Independence: that everyone is created equal, that everyone has certain inalienable rights, and that those rights include life, liberty and the pursuit of happiness.  It is a very simple creed that is an anathema to Socialism or any sort of collectivism, or totalitarianism.  The heart of the creed is the world “liberty”. Of course, there can be nothing without life, but life, without liberty is slavery; slaves have no rights; they cannot pursue happiness; and if you are a slave, then you, by definition, have a master, and then, not everyone is created equal.

The current recession is a replay of the 2001-2003 recession except that it will be longer and deeper.  The financial crisis that started the current recession was far more critical than the last recession.  The last recession was started by a classic financial bubble in the stock market.  The roots of the current recession go much deeper.  It started with a financial bubble in the housing market, but it extends to other aspects as well.  First of all, the housing market directly affects far more people than the dot.com bubble did.  Second, the banks are also overextended in the commercial real estate market and other areas.  As a result, they are extremely cautious when lending money to their customers, so money for business expansion is extremely tight.  Third, the decline in housing values that set-off the recession has triggered a crisis in government finance that has put the solvency of various countries in danger as well as a number of states in the United States whose pension programs and other obligations are in danger of putting these governmental units in default.  Forth, the global labor market is now far more entrenched than it was at the beginning of the Twenty-first Century and multinational corporations are far more adept at using it.  Off-shoring is far more common now and this recession and recovery presents companies with an opportunity to realign their work forces to become more competitive in the global marketplace.  The evidence of this can be seen in the recovery of the developing world while the developed world remains stuck in a recession with high unemployment.

The actions of the federal government during this time have not helped.  Instead of taking actions that would repair the economy and create jobs, the central government has created new programs designed to increase costs for businesses, especially for small businesses, the main job growth engine of the economy.  It has established new entitlement programs costing trillions of dollars and forced tax increases on the federal, state and local levels to pay for these programs.  Finally, the government has imposed new regulations that will cost businesses additional funds making it more difficult to create new jobs and hire workers.  All of this will slow the economic recovery from the current recession.

The past two years of the Obama Administration have been an experiment in futility in the creation of jobs in the economy.  They are two years that have made an already bad situation worse which will take some time to overcome.  Official unemployment is likely to remain in the eight to ten percent range for a very long period of time before it finally starts to decline to more acceptable numbers while the actual unemployment rate will remain roughly double the official figure.

The world that exists today is an American creation.  It is the result of the success of American policy over the past sixty-five years since the end of World War II.  The world of 2011 is a world of Capitalism.  There are a few places on the globe that are still attempting to promote Socialism: North Korea; Cuba; and Venezuela.  But no major economy or country is seriously promoting a Socialist agenda, especially after the Great Recession of 2008 to the present, with the possible exception of the United States.

The past two years of the Obama Administration have been a disaster, especially when attempting to create jobs.  The stimulus package has not worked.  The claim that jobs were saved simply cannot be supported as it cannot be measured.  President Obama’s policies are unfriendly to small business as they have added to the cost of doing business through “Obamacare”, and other new regulations.  Small business is the job creator in the US economy, responsible for between 60 and 80 percent of all new jobs.  Big business, on the other hand, represents a declining portion of the American labor force.  An increasing portion of Fortune 500 corporations are doing more of their business outside the United States and their labor force reflects this reality.  Today, IBM employs more people in India than in the United States where it is not subject to President Obama’s new laws that increase the cost of doing business.  Jeffery Immelt’s “Generation A” is being hired by more multinational corporations and many of those jobs were once held by American workers.

So this recession, like the 2001-2003 Recession, is also a “jobless recovery”.  The nations of the developing world have already started to recover with China, in particular, coming out of the recession, and, in fact, starting to experience the inflation that comes with a recovery.  The developed world, on the other hand, remains mired in the recession with joblessness stubbornly remaining high.  Europe is faced with what seems to be a continuing financial crisis in the Euro-Zone and the policies of the Obama Administration have not worked to get the country out of the recession.  Europe is cutting spending, while the US attempts to spend its way out of the recession.  Neither policy has worked particularly well.

There is an imbalance between the developed and the developing world.  It is not just an imbalance in what workers are paid, but also an imbalance in benefits, regulations and other costs that often make doing business outside the developed world more attractive.  The differences can be seen in the United States on the State level.  There are some states that are friendlier toward business than others.  Lists of this type are readily available.  Coincidentally, many of those states that are friendly to business are the same ones that increased in population and picked-up Congressional seats in the 2010 census.  The same can be said for countries.  There are some countries where it is more profitable to be doing business; to be  making goods; to employ people in than others. Multinational corporations have developed lists like this, whether expressed or implied when it comes to hiring and expanding their workforce.  Unfortunately, for many of these firms, when it comes to the current economic recovery, it would appear that the US is not near the top of the list.

To bring an end to the jobs recession in the United States, the Government of the United States must do several things:

1. Lower taxes on business: Keeping the Bush Administration’s tax structure essentially in place was a start, but it was not a tax cut, it was an extension of the current tax rates.  Taxes need to be lowered;

2. Institute policies that will grow the economy: Since 1950, federal income tax collection has averaged a consistent 19.5 percent of GDP.  If the government wants more tax revenue, then the economy must grow.  That means letting the citizens keep more of their money;

3. Stop deficit spending:  This is simply unsustainable.  It will not happen all at once, but we must change the direction.  All government programs need to be examined.  NO NEW GOVERNMENT PROGRAMS!  There was a report recently that the government mis-issued $125 billion in checks. That is $405.00 for every man, woman and child in the country!

4. Just as Europe needs to address its bankrupt countries, the US needs to do something about the bankrupt states: A crisis on our doorstep.  A bailout is not the answer. Union contracts, underfunded pension programs, etc. need to be renegotiated.  That may mean creating a way for some kind of bankruptcy for the states or, perhaps, something else, but this cannot be ignored;

5. Create a workforce for the future: K-12 education in many parts of the US is in peril. Post-secondary education needs to be completely reexamined.  Many workers will change jobs seven to ten times during their working lives.  Lifelong learning used to be something academics talked about, now it is a matter of national security.  There is plenty of money spent on education.  It needs to be spent more effectively;

6. Create a pro-business climate in the country:  We hear the Obama Administration is anti-business.  There must be a reason or we would not be hearing it.  They did not say it about Bush or Clinton and they successfully dealt with recessions.

The world is a more competitive place because the United States made it that way.  It is the result of sixty-five years of successful American policies and ideals.  It would be one of the great historic ironies of all time if the United States allowed other societies to surpass it using the ideals and policies America had abandoned in favor of the discredited ideals and policies it had so successfully defeated.

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