How Globalization affects Employment
October 6, 2010 6 Comments
Industrial production related employment had produced the middle class and the overall prosperity in the United States. Such employment has distinguished developed markets from those developing and undeveloped, indeed. The higher income from relatively higher margins of the industrial employment has helped fiscal reserves to increase, the social and infrastructural expenses to be enhanced, hence to setup the developed world’s higher standard of life and overall prosperity. In the last couple of Centuries, the United States had led the developed world into creating a vivid and productive workforce to respond to the demand, national and international, for industrial goods and the related engineering, marketing, etc employment.
The system had performed sufficiently enough to let countries like Germany, Japan, e.g. to distinguish as highly developed industrialized nations. Developed industrialized countries had reached high productivity carried on by ever-developing mechanization, adequate education, infrastructure, and most important adequate employment.The industrial employment had been a main part of the market demand that spurred economic growth.
However, the China’s industrialization and the Soviet Block demise has changed the marketplace and related competition: whereas the globalization has accelerated and the productivity has risen ( From 1968 to 2012, the American economy grew tremendously, driven in large part by a 124 percent increase in worker productivity). The vest Chinese capacity of qualified inexpensive labor and well developed infrastructure (labor expenses have been rising steadily, however the Chinese consumption has compensated by rising too).
Comparably to China, the Post-Eastern Block has not succeeded in prompting adequate market development (i.e. economic growth). Transnational corporations have been taking advantage of this new emerging opportunities, through moving and outsourcing of industrial production, through acquiring inexpensive assets (particularly in the Post-Eastern Block) and market expansion “CATCHING FISH IN THE MUDDY WATER”. However, Transnationals’ access to large pool of qualified workforce has lowered these markets equity and the consequential demand by reducing salaries in an not functioning labor market. Simultaneously, the US and other most developed markets’ industrial employment has been steady declining, alone with the middle class and fiscal reserves. Deficit has been running high alone with national debt.
The 2007-9 Recession has accelerated and aggregated the process of shorting employment. By itself, the 2007-9 Recession was a product of market imbalances, whereas the supply-to-demand gradually changed into demand-to-supply, because the demand in the practiced trickle-down Capitalism has become a gravitating issue.In many places at my articles employment was directed as being mostly affected by the ongoing Globalization and ever rising Productivity, however this article is to localize and show the direct consequential relation between shortening employment and the ongoing Globalization and rising Productivity. It should be quite simple of a task to be objective when observing how many mostly industrial jobs have been diminishing in numbers because either (1) the improving technologies – “More and more computer-guided automation is creeping into everything from manufacturing to decision making,” says Lipson. In the last two years alone, he says, the development of so-called deep learning has triggered a revolution in artificial intelligence, and 3-D printing has begun to change industrial production processes. “For a long time the common understanding was that technology was destroying jobs but also creating new and better ones,” says Lipson. “Now the evidence is that technology is destroying jobs and indeed creating new and better ones but also fewer ones. It is something we as technologists need to start thinking about.” http://www.technologyreview.com/featuredstory/538401/who-will-own-the-robots/ Professor Brynjolfsson puts it like this: “There’s never been a better time to be a worker with special skills or the right education, because these people can use technology to create and capture value.However, there’s never been a worse time to be a worker with only ‘ordinary’ skills and abilities to offer, because computers, robots, and other digital technologies are acquiring these skills and abilities at an extraordinary rate.” (The Second Machine Age by Erik Brynjolfsson and Andrew McAfee) or/and (2) the outsourcing and moving out of industrial production from the US and EU to China (In a recent study, the Economic Policy Institute (EPI) analyzed American jobs lost to China between 2001 and 2011. During that time, “the trade deficit with China eliminated or displaced more than 2.7 million U.S. jobs, over 2.1 million of which were in manufacturing,”), India and beyond. Thus manly these two reasons for reduction of employment are to be considered unquestionable by no one could be democrat or conservative. The difference between the democrats and the republicans is not, obviously, in the previously stated conclusion but mostly in the approach considered for getting out of the ongoing situation to economic revival that will reduce this conclusion, therefore the high and rising unemployment is directly related to the ongoing globalization and rising productivity: a fact to deal with by clearing some fundamental points. Then, only then economic parameters should be set up to overcome the situation and bring new instruments of economics to help to prompt and maintain better paid employment.
Two approaches considered:
First, the private employment is currently the mostly used economic instrument, which is prompted mostly (if tax breaks and subsidies are not included) by market forces.
Second, the government related employment has been either direct or indirect through projects or programs. Both approaches have been affected under the new conditions: in the first place, tax breaks and subsidies work until certain time when these directly could be overwhelmed by the resistance of the market forces such as shortening demand for thus manufactured goods or provided services and in the second place, under the current financial system the bulking deficit and national debt limits the abilities of any administration to keep long term projects and programs of such becoming political issue being most likely interrupted.
Both approaches can not properly function in a system of high interest commercial lending because these are not directly connected to genuine market competition but are artificial methods for creating employment.
To establish more adequate market conditions for adequate employment, in which market forces are used in their best under such new developing conditions the free entrepreneurship should be let to create and maintain relative employment, whereas the role of the government is minimized. The new conditions should be precisely evaluated and the necessary changes and approaches should be implemented:
- New global market conditions affected by the much cheaper industrial production in China, India and elsewhere have shorten the return on investment and profitability for the small and medium investors and the small to medium businesses,
- New global market has given all the powers to the transnational corporation and the big investors, which abilities to borrow on lower rates and access public funds through market exchanges, however the industrial production has been moved or outsourced the majority of their and their investment and reinvestment goes away from the US territory. Despite that the transnationals and large investors benefit directly from the globalization and rising productivity, they bring small and declining employment.
- For small and medium businesses and investors is relatively easy to open and establish new businesses, but the lack of business laws and regulations in contracting, the “shady” business practices, the lack of personal liability to corporate structures make life much easier, except when must go to the bank in attempt to borrow, and well then life may well become close to nightmare, because the financial institution consider the points from above more like a lack of security and high risk and either rejects such loans or lend on high interest to offset risk.“While the smallest businesses are growing revenues the most quickly, they are adding jobs the most slowly: From January to November 2013, micro businesses experienced 1.86% growth per employee, small businesses 0.75%, medium businesses -1.14%, and large businesses -6.72%. Strong sales and greater productivity, without employment growth, yields a jobless recovery……… Today, access to capital for small businesses is a significant problem. The largest businesses are able to secure financing with relative ease and on strong terms, including historically low interest rates. But as business size gets smaller, access to capital shrinks dramatically. For example, a recent Pepperdine University study showed a large discrepancy in bank loan approval rates: 75% of medium-sized businesses that sought a bank loan were successful, compared with 34% of small businesses and only 19% of microbusinesses” (HBR Blog Network Why Small Businesses Aren’t Hiring… and How to Change That).
- When the government gets involved by making easy loans the consequences may well follow the steps prompting to the last recession by exasperating value of equity, of overcapitalization. Because whenever the market balance is disrupted, either redundancies or shortages occur.
- The relaxing financial policies and regulations allowing large financial institutions to speculate brings similar effect to the small and medium investors what the “shady” business practices bring to small and medium businesses such as expensive money and financial difficulties because of the lack of security and high risk, indeed.
- Whenever governmental regulation are used, instead of criminalizing business violations and enhancing personal liability for corporate structures and business transactions, consequences are negative to the market forces because most of the time such regulations are quite partial and politically influenced. Thus criminalizing business violations and enhancing personal liability of corporate structures could much better equalize the so much needed small businesses and investors, which are the main employer on the US market, to the big businesses and investors, it also will jack up the security and minimize the risk to lenders.
- The role of public equity should be also fundamental in balancing the ongoing effect from the Globalization and rising Productivity: so, what “public equity” could be considered for: Infrastructure, Medicare, Social Security, Education are considered public equity because of the effect these impose over the marketplace in time of shrinking industrial production (here it should be mentioned the gaining “equity” approach is some used by China for balancing their marketplace), but here also could be stated that such policies of gaining and growing “equity” may work much better on the US market that eventually may prompt more employment by replacing the artificial governmental programs to such market related approach to balance market demand-to-supply toward inflation.
- Instead of the debt as a main economic issue in this new market economics the balancing demand-to-supply should be the main issue pinned to inflation & deflation; to succeed in these new approach Monetary Policies should be well adapted to accommodate.
- Subsidies to targeted industries of renewable energies, organic farming, environmental tourism and etc. are to be market tools to prompt some employment when simultaneously save Earth. Under the current economic approaches, industrial production is just moved from one place to another considering profitability, thus the relatively expensive technologies to generate renewable energies, whereas reducing companies competitiveness and the consequential ROI. Only targeted subsidies, tax breaks, could make these industries compatible.
Obviously, to keep employment in functional working limits in these new economic conditions small and medium businesses and investors should be setup to be finance-able on a low interest rate; Monetary quantities should be enhanced to accumulate if SMB and SMI expand their market-share and ”equity” approaches alone with targeted subsidies should help the balance. The market security should be considered number one priority. © Joshua Konov, 2009
In number of articles, I presented the theory of Market Economics as based on the conception of the tipped-off, from a Supply to a Demand driven Global Market Trend to a Demand-to-Supply Trend that was prompted by the ongoing Globalization and rising Productivity, which new Trend is consequential to the improving Technologies, the China’s Industrialization, the Outsourcing and Moving of Manufacturing, the Internet and etc developments that have accelerated these processes for the last 20-25 years. This article uses available data and respectful papers to prove the validity of such conception. And, brings upfront the necessity of comprehensive assessments and the needed changes of Economics to meet these new challenges.
The beginning of the 21st Century showed the tremendous effect, technologies and globalization, has on the concentration of industrial production into a few players globally. The transnational corporation along with the Chinese state enterprises have succeeded in achieving immense capacities and potentials for swift expansion by using a large pool of international capital, improving technologies, better controlled management, and by outsourcing and moving of production (for transnational corporations mostly). Consulting companies, e.g. BCG, Ernst & Young, Deloitte Consulting, contributed globally to share competitive practices, compare managerial and technological approaches that boosted competition and productivity.
The diversion between the large transnational corporation and Chinese state owned companies from one side and the small and medium companies and most developing economies from another has grown larger than ever, living the last in competitive disadvantage and thus prompting inequality not just between rich and poor in the most developed economies, but also between developed economies (including China) and the most developing ones. Even further, the success of their improvements has reduced the employment elsewhere, ironically “supported” by a shrinking and inadequate global demand, more like a “Catch 22’s perpetuum mobile”.
It has been argued that the “bottom billion may be trapped in poverty” (Collier 2007). The undeveloped markets i.d. economies along with the deteriorating such as Detroit will have to wait for their turn, until the giant industrial economies like China become rich and uncompetitive in manufacturing. When the technological changes have made manufacturing more capital and skill intensive. So, it is creating fewer jobs. Some form of pre-mature deindustrialization seems to have set in (Rodrik, 2013, Subramanian 2014). This might be because consumers and households in developed countries now spend a lot less on manufactured goods than they do on services. This can put a limit to how fast the latecomers to development can grow through industrialization. While jobs in the industrial sector are shrinking globally.
In the past, technological and structural underdevelopment consisted of shortages that provoked inflations; however, in the presence, excessive manufacturing capacity and rising productivity brings high unemployment and prompts deflations. Large retailers have penetrated markets and Internet sales have brought international goods to most markets, aiding the high manufacturing capacity. The market equilibrium on a macro economic level has become less perceptive to Supply than to Demand factor.  Large Transnational Corporations employ about 0.82% of the global workforce taking more than a quarter of the global wealth adding to the widespread poverty, deteriorating middle class, rising inequality, and the Earth pollution, whereas poverty brings primitive fossil fuels heating, woods cutting, old car usage, and etc.; and, deteriorating middle class adds to the poor; what about excessive inequality? – It just accelerates the whole process, but most important it prompts the overall economic stagnation: market disequilibrium caused by inadequate demand.
Most of the Emerging Markets are hit by the same problems as the poor in the Developed Markets are, whereas the results are all the same no difference between Detroit and many Undeveloped or Emerging Markets: factors affecting the market equilibrium from the demand side, expanding Earth pollution, rising Discrimination and Radicalization caused by the economic upheaval of the 2007-9 recession and sluggish recovery. While the existing middle class has shrunk the poor was not given opportunities of rising to a middle class.
Shrinking fiscal reserves and trickle-down ideologies have imposed austerity policies to infrastructures, social and educational expenses, thus holding high unemployment from Spain, Portugal, and Italy to Greece, the living standards are free falling, or Bulgaria, and Romania in the European Union, where slow business activities and lack of vivid improvement prevails. However, from Guyana, Peru, and Ecuador to Bolivia, Paraguay and Colombia in South America, from Guinea-Bissau, and São Tomé and Príncipe to Republic of the Cong, Chad, and Zimbabwe in Africa, from Afghanistan, Tajikistan, and Yemen to Pakistan, Uzbekistan, and Iraq in the Middle East, etc. markets are underdeveloped, infrastructure is either undeveloped or deteriorating, corruption is roaring along with poverty and disarray! The world was never better, but it had never possessed the technologies nor the organization to be any better, but for the last few decades. In the past, the weak technologies and markets were a natural promoters of underdevelopment, poverty and the related discrimination and nationalism, but with the great technological inventions and improvements, the Internet and WIFI, the open globalized marketplace, and etc to have such roaring poverty and underdevelopment is inexcusable, thus I consider that if these if properly used these new developments would make the world advancing into a new era of prosperity; however, only a new system of economics that apprehends these new developments and abstract itself from the trickle-down philosophy would succeed in such improvement.
Joshua Konov, 2014
 [PDF] Global steel 2014 – Ernst & Young Excess capacity is the biggest threat to the sector While there are signs that the outlook for demand is slowly improving, excess capacity remains the biggest threat to the steel sector. The sector is straining under the relentless pressure caused by years of excess steelmaking capacity and low margins. While some capacity is expected to be removed over the next decade, the announced addition of capacity by steelmakers out to 2020 shows that investment is still alive and well. To counteract the investment in new steelmaking capacity, we estimate that about 300 million tonnes of steelmaking capacity needs to be closed for the industry’s profit margin to reach unsustainable level, and raise the capacity utilization rate for the sector globally, from below 80% to more than 85%. Permanent shutdown of capacity is the only real solution to bring balance to the market but in the short term it is difficult to see this happening given state participation in many countries and additional political incentive to retain employment, regardless of profitability. The overall net effect, however, has been an increase in steel making capacity despite the Chinese Government mandating 80 million tonnes of capacity to be removed restructuring and consolidation in the Chinese market, a handful of large Chinese steel players will emerge, leading to global competition intensifying. “Steel producers should test the vulnerability of their business models and the resilience of their strategies to ensure sustainable growth.“ Anjani Agrawal
 “It has been argued for more than 200 years that economic growth is associated with the manufacturing sector (Baumol 1967, Dercon 2014, Gelb 2014, Kaldor 1966, Rodrik and McMillan 2011, De Vries et al 2013, Winters 2010, UNIDO 2009). Services have been considered non-tradable, menial, low productivity, and low-innovation (McCredie and Bubner 2010). The East Asian Tigers are the classic success stories about how the conventional path to growth goes through industrialization. However, this conventional path to development seems to have hit a roadblock in other regions, especially low-income countries in Africa and South Asia. Indeed, several high level reports on Africa—the 2014 African Transformation Report, the African Union’s Agenda 2063, the African Development Bank’s long-term strategy, the UN Economic Commission for Africa’s 2013 report, and UNCTAD’s 2012 report—have all raised concern about limited industrialization and technological progress. Indeed, in many African economies, manufacturing—the sector that led rapid development in East Asia—is declining as a share of GDP. The worry is that without a major transformation, Africa’s recent growth spurt may soon run out of steam.”
 Mongolia is the world’s most polluted country and also home to one of the world’s most polluted cities — Ulaanbaatar. The country’s main sources of pollution are its traditional coal-fueled stoves and boilers used for heating and cooking, as well as congested traffic and old cars. Heating is essential for the survival of its people for about eight months of year. The country uses everything from coal, wood to refuse, such as black tar-dipped bricks and old car tires to fuel stoves and boilers World’s Most Polluted Countries
 Neither of the top 10 polluted sites are in the U.S., Japan or western Europe. However, a lot of the pollution in poorer countries has to do with the lifestyles of richer ones, noted Stephan Robinson of Green Cross Switzerland—for example, a tannery in Bangladesh that provides leather for shoes made in Italy that are sold in New York City or Zurich. “The pollution we see is not coming from the major global industrial companies, it’s all from small mom-and-pop shops, which prepare the raw materials that we then later use,” Robinson said. Or, in the case of Agbogbloshie, Ghanaians are polluted by the electronic devices Westerners have already used. Local people in such areas, Robinson added, “are very often polluting their environment not because they think it is fun but because it is a question of survival.”