[identity profile] abomvubuso.livejournal.com posting in [community profile] talkpolitics
Recovery, but for whom? That's basically the question that could summarise the recent news about the US economy. On one side, there are the positive signals about industrial production getting back on its feet (even Romney jumped on board and took credit for that). On the other, indications about sluggish first quarter GDP growth (1.8%). While the experts are making conclusions (based on last year's financial reports) that the US companies are emerging from the crisis more stable than last year, unemployment remains untypically high. And it may have nothing to do with the manufacturing recovery.

Given the endless drama around the Euro, all news coming from America is also being closely vetted for the slightest hints of a new slide down into double-dip recession, or conversely a steady climb upwards. Whether the signals are pointing to a positive tendency is the question that'll possibly decide if Obama will stay in the White House for another 4 years. It's no coincidence that in the beginning of this month, as soon as the news came out that only 69K new jobs had been created in May and unemployment was slightly rising to its current 8.2% instead of dropping, Romney's campaign suddenly started gaining momentum.

In turn, Obama's team switched to crisis mode with a cannonade of negative ads, emphasising on the fact that Massachusetts under Romney had been on #47 in job creation. Meanwhile, the presidential economic advisor Alan Krueger commented that the current rise of unemployment is due to the fact that more people are starting to look for jobs, i.e. there are signs of recovery.  The uneven nature of this recovery, plus the piled structural problems, however, will continue to trouble America way beyond the current election cycle.

From a European and Asian standpoint, the US industry is visibly healing, especially when compared to the French for example. As a report by the Institute for Supply shows, May was the 34th month in a row of continuous industrial growth in the US. The companies report that the new orders have risen for a 37th month in a row, now by 1.9% compared to last month. Granted, it doesn't sound like a big increase, but the movement is certainly upwards. One of the reasons is that the industry had plunged so deep in the recent years, there's a huge slope open for climbing. Moreover, thanks to the weak economy of Europe and much of the rest of the world, the US is suddenly looking attractive for industrial production once more.

The higher efficiency of production, combined with the stagnating salaries and the rising fuel prices (and costlier transportation, respectively), have made companies like Ford, GE and United Technologies opt for the domestic labour, turning their back to that of India and China. Ironically, the crisis has reversed the outsourcing process, at least temporarily.

The problem is that industrial production is not what it used to be before the crisis. While industry carries 1/3 of the economic growth for last year, only 12% of the new jobs created since 2010 are in that sector. Well, there are two possible ways to explain this. One is if we put the emphasis on the production, the other if we focus on the producers. Simply said, production is increasing because America produces more things. But on the other hand, it produces them more efficiently and therefore with less labour required, which is why employment in manufacturing would inevitably be decreasing. That's one of the possible explanations for the "recovery without employment" phenomenon, and that's the issue that's been giving many sleepless nights to both politicians in Washington and millions of Americans at home.

Here's a very eloquent example for this tendency. Oregon has ranked #2 in the newly published BEA stats about the GDP growth for 2011. It comes second only to resource-rich North Dakota. But despite the impressive 4.7% growth, unemployment in Oregon remains above the US-average 8.5%. The reason is that the positive trend is coming mostly thanks to hi-tech, but 15K Intel employees are nowhere near making up for the many thousands of jobs lost in such traditional sectors like timber production. The hi-tech sector still produces stuff worth billions of dollars, but those jobs cannot be recovered.

That's why the majority of economists are sceptical, when in the heat of the election battle various politicians are promising short-term measures for stimulating the manufacturing sector. It's clear that no one wants to abandon that sector, but let's face it: we should quit the notion that it'll keep being the driving engine for mass job creation. The industry will naturally follow the path of US agriculture. A couple centuries ago, 97% of the population was occupied in farming, and now that number is 2-3%. Meanwhile, more agricultural products are being produced than ever in history. In the long term, that's where industrial production will go as well - it's important that it should exist, but the notion that it's got to be the engine of employment, is fast going into history.

Other experts like the famous Harvard Business School economist Michael Porter (Competitive Strategy; The Competitive Advantage of Nations) go even futher, seeing a future distortion of this tendency and a risk of making the wrong conclusions. He argues that if the companies decide to compete through cutting salaries and through maintaining a weaker dollar, this would not be a real competitive advantage. It would not be the road to prosperity. The road to prosperity goes through production, and the creation of a positive business environment, with highly qualified employees. This would allow for the increased efficiency of production, and would justify the high salaries.

In order to prove his theory, Prof. Porter presented a survey on US competitiveness. In that report, a huge 71% of all ten thousand former HBS graduates and current managers who were interviewed, state that they believe the country is beginning to lose its advantages. And what's more worrying is that, while 29% say they'd prefer to keep their business in America, another 31% are considering moving overseas. The main issue? The shortage of qualified workforce, the factor that allowed America to be number 1 for a very long time, mostly through the "brain drain" phenomenon. But these are things that require much deeper introspection and much farther foresight that goes way beyond the mere battle for the White House in November.
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