The International Dimension: The International Dimension: Changing Flows of Capital, Changing Flows of Capital,

Manufactured Goods & JobsManufactured Goods & Jobs

Conversation on the SC EconomyConversation on the SC EconomyOctober 21, 2005October 21, 2005

Bill WardBill WardCenter for International TradeCenter for International Trade

Clemson UniversityClemson University

Economic Growth Economic Growth & International Realities& International Realities

Large US trade deficit, low US saving Large US trade deficit, low US saving rates & large inflows into US capital rates & large inflows into US capital markets (“non-competitive” $)markets (“non-competitive” $)Declining manufacturing employment Declining manufacturing employment – Globally as well as nationally– Globally as well as nationallySC traditional Mfg base (textiles) at SC traditional Mfg base (textiles) at the tip of the spear of changethe tip of the spear of changeSC unemployment rate above US SC unemployment rate above US average (but below Europe’s rate)average (but below Europe’s rate)

Global ImbalanceGlobal Imbalance& the Juxtaposition of Two Factors& the Juxtaposition of Two Factors

Growth in global supply of tradable Growth in global supply of tradable manufactured goods, caused bymanufactured goods, caused by– Market liberalization in LDCs & FPEsMarket liberalization in LDCs & FPEs– Dramatic rates of productivity growthDramatic rates of productivity growth

US as sole global demand generatorUS as sole global demand generator– Endogenous to the US economyEndogenous to the US economy– Exogenous to other national economies Exogenous to other national economies

that pursue export-led growththat pursue export-led growth

Comparisons to Period following Comparisons to Period following 22ndnd Industrial Revolution (after 1860s) Industrial Revolution (after 1860s)

Supply shock comparable to 2Supply shock comparable to 2ndnd Industrial Revolution in late-19Industrial Revolution in late-19thth & & early 20early 20thth century century

Then juxtaposed againstThen juxtaposed against

1919thth century gold standard that century gold standard that limited national and global options limited national and global options for monetary expansionfor monetary expansion

US & Global Economy US & Global Economy at Start of 20at Start of 20thth Century Century

US price level dropped by half US price level dropped by half during 19during 19thth century century

Mercantilist views and beggar-Mercantilist views and beggar-thy-neighbor trade environment thy-neighbor trade environment going into 20going into 20thth century century

SC, US & Global Economies SC, US & Global Economies at Start of 21at Start of 21stst Century Century

No “pricing power” for Mfg goods No “pricing power” for Mfg goods producersproducers

Increasing Mfg output coupled with Increasing Mfg output coupled with decreasing employment—US and decreasing employment—US and globallyglobally

Talk of “labor force competitiveness” Talk of “labor force competitiveness” solution for Mfg job creationsolution for Mfg job creation

US Mfg US Mfg OutputOutput versus versus EmploymentEmployment(Source: US Bureau of Labor Statistics)(Source: US Bureau of Labor Statistics)

US Mfg Employment 1979-2005US Mfg Employment 1979-2005YearYear Jobs (000) Jobs (000) 1979 (historical peak)1979 (historical peak) 19,42619,42619851985 17,819 17,819 19901990 17,695 17,695 19951995 17,241 17,241 20002000 17,263 17,263 20012001 16,441 16,441 20022002 15,259 15,259 20032003 14,510 14,510 20042004 14,329 14,329 2005 (1st Qtr)2005 (1st Qtr) 14,258(p)14,258(p)

SC Mfg Jobs—1980 to 2005SC Mfg Jobs—1980 to 2005YearYear SC Mfg SC Mfg

EmploymentEmployment

19801980 398,411398,411

19821982 367,400367,400

19871987 365,800365,800

19901990 389,540389,540

19921992 366,900366,900

20002000 352,570352,570

Mar 2005Mar 2005 264,800264,800

The Demand-side ProblemThe Demand-side Problem

Endogenous demand limited byEndogenous demand limited by– PCE shift towards services PCE shift towards services – Low prices of competing Mfg importsLow prices of competing Mfg imports

Exogenous demand limited byExogenous demand limited by– Export-led growth policies in major Export-led growth policies in major

countries (including Japan & China)countries (including Japan & China)– EMU constraints in EuropeEMU constraints in Europe– Labor competitiveness equation in the Labor competitiveness equation in the

face of resulting Global Imbalance face of resulting Global Imbalance (exchange rate for $)(exchange rate for $)

The Endogenous Side:The Endogenous Side:e.g., Growth of U.S. GDP & PCEe.g., Growth of U.S. GDP & PCE

From 1990 to 2004, From 1990 to 2004, U.S. U.S. realreal GDP grew 54% GDP grew 54%

This does not translate into This does not translate into comparable growth in comparable growth in demand for Mfg goodsdemand for Mfg goods

Shifting Demand for Goods Shifting Demand for Goods versusversus Services within U.S. GDP Services within U.S. GDP

PCE for Goods versus Services (1950-2004)

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

1950 1960 1970 1980 1990 2000 2004

Years

Per

cen

tag

e

Goods

Services

From GDP Growth to Endogenous From GDP Growth to Endogenous Demand for Manufactured GoodsDemand for Manufactured Goods

GDP grows 54% 1990 to 2004GDP grows 54% 1990 to 2004

41% of PCE goes for goods41% of PCE goes for goods

Straight-forward math: growth in Straight-forward math: growth in domestic demand for goods domestic demand for goods 1990 to 2004 was only 21%1990 to 2004 was only 21%

Productivity of U.S. Mfg LaborProductivity of U.S. Mfg Labor

Meanwhile, Meanwhile, Mfg Output per Worker in U.S. Mfg Output per Worker in U.S.

increased 83%* between increased 83%* between 1990 and 20041990 and 2004

In a In a closed economyclosed economy, that is a , that is a recipe for job loss.recipe for job loss.

Open Economy MathOpen Economy MathIn an In an open economyopen economy, ,

US company success US company success and and

US jobs US jobs

depend upon depend upon Global demand growth and Global demand growth and US global competitivenessUS global competitiveness

Global Demand ConstraintsGlobal Demand Constraints

EMU fiscal balance agreements & EMU fiscal balance agreements & policy on monetizing deficitspolicy on monetizing deficits

Japan financial sector instability & Japan financial sector instability & continued use of export-led growthcontinued use of export-led growth

Asia Mfg cluster all have weak Asia Mfg cluster all have weak financial sectors and follow export-financial sectors and follow export-led path post-1997 (3 Chinas, led path post-1997 (3 Chinas, Thailand, Malaysia, Korea)Thailand, Malaysia, Korea)

Global Demand Growth LimitersGlobal Demand Growth Limiters

Willingness of investors and risk Willingness of investors and risk managers to hold more US and UK managers to hold more US and UK financial instruments—Making them financial instruments—Making them the “gold mines” of 21the “gold mines” of 21stst century century

Particularly in the face of growing Particularly in the face of growing global imbalances posed by forces global imbalances posed by forces discussed herediscussed here

The Global Supply ShockThe Global Supply ShockMarket liberalization of large LDCs Market liberalization of large LDCs and FPEsand FPEs– China (20% of global workforce)China (20% of global workforce)– India (15% of global workforce)India (15% of global workforce)– Rest of East Asia + FPEs push totals to Rest of East Asia + FPEs push totals to

more than 50% of global workforcemore than 50% of global workforce

Dramatic productivity growth 1990-Dramatic productivity growth 1990-2005 (following slides)2005 (following slides)

International Manufacturing CompetitivenessInternational Manufacturing Competitivenessfactors tracked by BLSfactors tracked by BLS

These three factors taken together These three factors taken together – ProductivityProductivity– Wage RateWage Rate– Exchange RateExchange Rate

Give you Give you

““Dollars of labor cost per unit of Dollars of labor cost per unit of output”output”

2 out of 3 involve controlling 2 out of 3 involve controlling workers’ purchasing powerworkers’ purchasing power

Low wage ratesLow wage rates

Low value of DollarLow value of Dollar

The third competitiveness factorThe third competitiveness factor

ProductivityProductivity– Increases competitiveness of U.S. Increases competitiveness of U.S.

companies, butcompanies, but

– Decreases the number of jobs if Decreases the number of jobs if Global demand does not grow even Global demand does not grow even faster, and/orfaster, and/orU.S. does not gain increasing share of U.S. does not gain increasing share of marketmarket

Growth in Productivity AbroadGrowth in Productivity Abroad1990-20031990-2003

CanadaCanada 79 % 79 %AustraliaAustralia 109 %109 %JapanJapan 145 %145 %KoreaKorea 247 %247 %TaiwanTaiwan 284 %284 %BelgiumBelgium 134 %134 %DenmarkDenmark 73 % 73 %FranceFrance 164 %164 %GermanyGermany 77 % 77 %ItalyItaly 45 % 45 %NorwayNorway 43 % 43 %SwedenSweden 179 %179 %United KingdomUnited Kingdom 132 %132 %

Changing Shares of Global Mfg Changing Shares of Global Mfg Value AddedValue Added

Share of Value Added in Manufacturing

0

5

10

15

20

25

30

U.S. Japan China Germany France Korea

Sh

are

1982 1994 2004

NET CHANGE: 1982-2004

Korea 3.0%Germany -3.5%

China 7.5%

Japan -2.7%U.S. -1.1%

Percent Change in Mfg Percent Change in Mfg Employment 1992-2003Employment 1992-2003

-30

-25

-20

-15

-10

-5

0

5

Ca

na

da

No

rwa

y

Ta

iwa

n

Ita

ly

Sw

ed

en

Fra

nce

Ko

rea

Ne

the

rla

nd

s

Be

lgiu

m

U.S

.

U.K

.

Ch

ina

Ge

rma

ny

Au

str

alia

Ja

pa

n

Ra

te

Data for The Netherlands and China are for 1990-2002.Source: W.A. Ward, Manufacturing Productivity and the Shifting U.S., China, and Global Job Scenes, 1990-2005. Center for International Trade, Clemson University, Clemson, SC.

Global Loss of Mfg Jobs 1995-2002Global Loss of Mfg Jobs 1995-2002

Mfg JobsMfg Jobs Mfg JobsMfg Jobs19951995 20022002 ChangeChange

RegionRegion (000)(000) (000)(000)(000)(000)AfricaAfrica 4,2424,242 3,9263,926 - 317- 317AmericasAmericas 31,94431,944 31,69131,691 - 253- 253AsiaAsia 76,59476,594 58,39558,395 - 18,199- 18,199EuropeEurope 58,31958,319 55,65755,657 - 2,662- 2,662OceaniaOceania1,3211,321 1,3951,395 + 74+ 74

GloballyGlobally172,421172,421 151,066151,066 - 21,355- 21,355

China Mfg EmploymentChina Mfg Employment

98 million Mfg jobs in 199598 million Mfg jobs in 199580 million Mfg jobs in 200180 million Mfg jobs in 200183 million Mfg jobs in 200283 million Mfg jobs in 2002

Out of global total of 150-200 MillionOut of global total of 150-200 Million

200 million potential new workers yet 200 million potential new workers yet to come out of rural Chinato come out of rural China

Mfg Jobs in Industrial CountriesMfg Jobs in Industrial Countries

US about 14 millionUS about 14 million

Canada less than 2 millionCanada less than 2 million

UK less than 4 millionUK less than 4 million

Japan about 11 millionJapan about 11 million

Germany about 8 millionGermany about 8 million

EU (25) as a whole about 25 millionEU (25) as a whole about 25 million

Ireland a few hundred thousandIreland a few hundred thousand

““Competitiveness”Competitiveness”

SC must help keep Mfg COMPANIES SC must help keep Mfg COMPANIES competitivecompetitive

Nevertheless implying reductions in Nevertheless implying reductions in traditional Mfg employmenttraditional Mfg employment

And implying need for new strategies And implying need for new strategies for work and wealth besides Mfg job for work and wealth besides Mfg job creationcreation

Thus, verifying the importance of Thus, verifying the importance of work of the OTHER presenterswork of the OTHER presenters

End of PresentationEnd of Presentation

Supplementary Slides FollowSupplementary Slides Follow

1.1. Shifting sectors of employmentShifting sectors of employment

2.2. Declining Mfg share—selected Declining Mfg share—selected countriescountries

3.3. Mfg jobs mirror Ag jobs in 20Mfg jobs mirror Ag jobs in 20thth centurycentury

Shifting Sectors of EmploymentShifting Sectors of Employment

1990-19921990-1992 2000-20022000-2002MaleMale MaleMale

Upper Middle Income CountriesUpper Middle Income CountriesAgriculture (1)Agriculture (1) 22%22% 8%8%Industry (2) Industry (2) 32%32% 22%22%Services (3) Services (3) 46%46% 70%70%

High Income CountriesHigh Income CountriesAgriculture (1) Agriculture (1) 6%6% 4%4%Industry (2) Industry (2) 38%38% 19%19%Services(3) Services(3) 55%55% 76%76%

United States of AmericaUnited States of AmericaAgriculture (1)Agriculture (1) 4%4% 1%1%Industry (2) Industry (2) 33%33% 14%14%Services (3)Services (3) 62%62% 85%85%

Declining Mfg Share of JobsDeclining Mfg Share of Jobs

19901990 20042004United StatesUnited States 18.0%18.0% 11.8%11.8%CanadaCanada 15.7%15.7% 14.4%14.4%AustraliaAustralia 15.0%15.0% 11.3%11.3%JapanJapan 24.3%24.3% 18.3%18.3%FranceFrance 21.0%21.0% 16.3%16.3%GermanyGermany 31.6%31.6% 22.7%22.7%ItalyItaly 22.6%22.6% 21.8%21.8%NetherlandsNetherlands 19.1%19.1% 14.0%14.0%SwedenSweden 22.3%22.3% 14.9%14.9%United KingdomUnited Kingdom 22.3%22.3% 14.9%14.9%

Manufacturing Productivity and Employment Manufacturing Productivity and Employment in Early-21in Early-21stst Century Century

Mirror Mirror AgricultureAgriculture in 20 in 20thth Century Century

Farm Workers Farm Workers

As % of As % of Total Total

YearYear US EmploymentUS Employment

19191919 32.8%32.8%

19301930 29.8%29.8%

19401940 25.3%25.3%

19501950 18.0%18.0%

19601960 11.5%11.5%

19701970 6.0% 6.0%

19801980 3.9% 3.9%

19901990 2.6% 2.6%

19991999 1.3% 1.3%