strategy+business is published by PwC Strategy& Inc.
 
or, sign in with:
strategy and business
Published: July 26, 2010

 
 

A Return, Not to Normal, but to Reality

This kind of severe split between haves and have-nots has not happened any time before; not in the Great Depression, or in the crashes of 1987 and 2001. The time delay before a broad job market returns will be a big problem for the bottom half of the economy, and it will be difficult to see clearly because it will be clouded by averages in the statistics. The unemployment rate will be 10 percent overall, but that will mean 40 percent in some sectors and zero percent elsewhere.

S+B: Why would it take so long to fix this problem?
ANDERSON:
It has two causes, and both took a long time to develop. They’ll take a long time to unravel. The first is the rise of offshoring over the past 40 years to cut costs — a strategy that is backfiring now. Companies in the West are bringing jobs back to their home countries, not for patriotic reasons, but because they found out either that they needed their expertise in-house or that part of the offshoring machine didn’t work very well. Distinguishing what to offshore versus what to produce at home has become a major business question.

The second cause was the loss of the U.S. manufacturing base as companies elsewhere outperformed American companies. Automobiles are a pretty good example, and there are some great books written about this. See, for example, Eamonn Fingleton’s In the Jaws of the Dragon: America’s Fate in the Coming Era of Chinese Hegemony [Thomas Dunne Books, 2008]. These manufacturing jobs went to Japan or South Korea, which occasionally then offshored them to China and Vietnam. The same happened with electronics. The U.S. has one DRAM [dynamic random access memory] semiconductor company left, but essentially all the others went away.

In the coming years, more Asian and Latin American companies will open plants in the U.S. and Europe, but mainly to avoid trade retribution. That, too, has been going on for 30 years. For instance, in the late 1980s, Japan was named an “unfair trading partner” under the “Super 301” U.S. tariff laws. This happened after Intel filed a complaint about semiconductor competitors from overseas, and Toyota’s top executives worried that cars would be the next product type in line. So they immediately put all their manufacturing plants for cars sold in America into the United States. It wasn’t because they loved America; it’s because they didn’t want Super 301 brought against them, too.

The U.S., in particular, is vulnerable to this problem. It should decide not to allow foreign nations to sell cars in its markets, if there is not equal access for U.S. cars overseas. The same ought to be true for steel, televisions, consumer electronics, and other categories that the U.S. has been frozen out of in trade with mercantilist nations. Why should my citizens be allowed to buy your cars, if you won’t let your citizens buy mine?

Hope and Expectation

S+B: If you looked at these trends separately, none of them would strike you as a good thing. But given the way they fit together, where do you look for hope?
ANDERSON:
There is some reason for hope here. Learning how to protect IP is our only path forward. Whether you’re making movies or chips, the sooner that happens, the better.

The emergence of all of the new consumers in the world is exciting. If we got some basic things right about trading, there would be lots of growth available for everybody. China, the U.S., Japan, India, and Europe could all grow. It would be a very exciting story.

S+B: How does the environmental imperative play into the growth? For example, we’re trying to boost economic growth, bring billions of people into the middle class, and stay within the carrying capacity of the planet at the same time.
ANDERSON:
Like [University of California computer science professor] Larry Smarr, I call myself a long-term optimist. And I don’t see people as a threat. It seems to me that the largest businesses available — as the Chinese would tell you, and I think a lot of Americans understand — are in clean energy, alternative energy, and green technologies.

 
 
 
Follow Us 
Facebook Twitter LinkedIn Google Plus YouTube RSS strategy+business Digital and Mobile products App Store

 


 
Close