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Advice for the United States

? Are India and China Natural Business Partners? |


| Will China and India Develop New Technologies? ?

July 05, 2005

Advice for the United States

Peter Coy

Americans are worried about losing jobs to Indians and Chinese. What should the U.S., and individual Americans, do to keep good, high-paying jobs in the U.S.?

10:15 AM

Most important as a nation is to continue to push for reforms that foster growth -- efficient regulation, low tax rates, incentives for investment and saving, promotion of technology and much more focus on education, training and retraining. Root out social-welfare like practices which remain too common in America.

Individuals need to build their human capital -- knowledge, education, work skills and habits. Find companies sto work for that are innovative, with managements that look to the future and attempt to posistion themselves for the future, and operate in an efficient and cost-effective manner.

Combining these macro and individual comments, the central theme is this; there is no better way to get a bigger piece of the pie than to have the pie itself grow.

Posted by: Donald Straszheim at July 5, 2005 10:56 AM

In a global economy you are competing not only with your fellow residents but also with those of other countries, including the well educated who are willing to work for a fraction of your cost. To keep high paying jobs in the US we need to upgrade our educational system from the ground (elementary school) up (to the business school, where international business is not even a requirement), encourage students to study foreign languages and cultures, and make sure we develop, attract and retain the most innovative minds. We also need to make sure we defend, and get paid for, our hard earned innovations in the form of Intellectual Property Right protection.

Posted by: Oded Shenkar at July 5, 2005 06:13 PM

American labour organizations have been concerned about losing jobs offshore since the first car rolled off the Ford assembly line – yet the US economy continues to gain strength, and the US continues to keep good high quality jobs.

As a previous commentator noted “there is no better way to get a bigger piece of the pie than to have the pie itself grow”. To grow the pie, the US ggovernment and business leaders need to focus on the upper end of the supply chain – which is after all where the high paying jobs lie.

As the manufacturing industry transformed itself 30 years ago; US companies need to focus their more expensive resources on product development, marketing and sales and allow assembly and manufacturing to take place offshore in developing countries which have a lower cost basis.

By focusing on innovation rather than brawn and ensuring labour and regulatory conditions are attractive – low tax rates, investment incentives, social cohesion, quality education and training etc – the US will continue to attract and retain the best and brightest.

By making their impact of the upper end of the value chain – and partnering with countries such as India and China – US companies need not fear any labour readjustment.

Manoj Singh


Deloitte Asia Pacific

Posted by: Manoj Singh, CEO Deloitte Asia Pacific at July 5, 2005 11:53 PM

People in the US have been concerned with job losses since the early 1970s. Quotas on textile imports were one manifestation of this. Voluntary export restraints against Japan in automobiles (and steel?) were another. Rising sentiment against Chinese exchange rate policy is merely the latest. Despite these concerns, by and large, the US has acted in a manner consistent with the interests of domestic consumers; i.e., it has not allowed barriers to become too high or stay too long. I expect a similar position to prevail in the outsourcing area as well.

However, despite the broad tendency towards genuine free trade, expressions of protectionist sentiment by various groups in the US are most vidid to other countries. There is, therefore, a perception of double standards. If the US is to remain the standard-bearer of free trade in the global economy, it has to project the reality of its trade environment more forcefully.

Posted by: subir gokarn at July 6, 2005 03:12 AM

Calculating China and India's impact on the job market in the US is a difficult exercise. McKinsey argues that off-shoring creates additional value for the exporting country. (Using off-shoring to India as an example, for every dollar off-shored, they estimate the US accrues between $1.12 and $1.14 while the receiving country gets just 33 cents.) Others argue otherwise. I am in favour of the McKinsey arguement. Nike is a famous example of a company that do not have their own manafacturing but gets better R.O.I. and business growth by concentrating on building their brand.

As our experts say, the US should focus their resources on higher value services such as product development, sales and marketing and concentrate on education, training and developing a knowledge economy.

The US will be better off with a government that encourages competition tp create competitiveness, promote collaboration and partnerships rather than protestionist policies. The US people should have more confidence in themselves in building value added propositions and moving up the value chain.

The US should put more effort in marketing their culture, their proven education system and encourage bilateral exchange. The US should relax their immigration policy to allow more students to come to the US for continued education, lower the barriers and encourage foreign investments from China and India. This will encourage more Chinese business to expand to the US rather than other countries. It will also increase the demand for the export of US services.

To keep the high paying jobs, the US should understand where their key competitive edge is and create an environment and enhanced education system to forster those talents. This should be in the area of marketing and planning, management and finance. The result should be the best blending of creative thinking with analytical market projection, resulting in innovation that drives/leads the market. While there may be scientists and technology gurus in other markets like India and Russia, US innovation is market driven, not technology for the sake of technology.

If the US concentrate to forster these strengths through their training and education, encourages partnerships with China and India rather than fear the loss of jobs, it will continue to lead the global economy and has nothing to fear.

Posted by: Viveca Chan at July 6, 2005 03:58 AM

In the near term, we are dealing with an emotional issue. When a laid-off BankAm man shot himself in a car park, there was no talking globalization to his friends and family. Some issues will settle down (if such a thing will exist) only with time. The danger is, some politicians either do not get it or decide to make capital out of flux anyway.

You cannot keep "high paying" jobs anywhere as a matter of entitlement. We have to wake up every morning and add new value to remain at the same place.

I visited Citibank in 1996 to understand their quality initiatives. They had calculated the sigma level of two things. One, the pass book entry system and the uptime of their fund transfer system. Both were running at a 3 sigma level at that time - that means 68,000 errors in a million opportunties. What was the cost of correction of the pass book? $25 per error. Who was paying for it? The average US bank customer. If that same error could be corrected at $5 an error by doing it from some place eles, who benefits?

In the manufacturing world, we are told that the cost of poor quality (COPQ)in a well run company is 15%. Simply told, anything the customer did not pay for is COPQ. That is like taking 15% of cash and burning it. In an average company, it is more like 20-25%. In service companies, ususally the COPQ is as high as 40-50%. So, just think how much inefficiency is out there and if part of it can be removed by right sourcing of talent, what it does to the economy?

I see the US, like any other country, needing to reinvent itself and add new value. At a collective level and at an individual level. There are some areas in which the US will lead - unless it chooses not to. These are R&D in every which field,capital markets and international finance, global defence (it is an outsourcing opportunity if thought through well) and space. It will be difficult to upstage the US in these areas. Everyplace else, water will find its own level - that is the meaning of globalization.

Posted by: Subroto Bagchi at July 6, 2005 09:59 AM

The fear of losing jobs to Indians and Chinese is a sub-set of a more fundamental tussle within American society. That is the contest of Main Street vs. Wall Street -- of the more local and socially anchored entrepreneur vs. faceless mobile capital.

Our exchange on this blog is premised on the absolute victory of the latter, since that is what is more obviously visible. This handicaps our discourse in two major ways: one, we are straight-jacketed into a false binary mindset of “free market vs. welfare”; and two, we overlook and/or undervalue the innovative thinkers and businessmen who are seeking to reconnect society and markets in a more balanced way. For example, the Washington-based lawyer Michael Shuman’s work on strengthening local economies and Edgar Cahn’s pioneering work on ways to value and build the Core Economy.

The question of more long term significance is not how Americans can hang on to high paying jobs vis-à-vis India-China but how rapidly they can redefine market activity itself, in order to weave together social and monetary values. This in turn will depend on its political and intellectual leaders’ ability to free themselves from the currently constricted and stifling definition of ‘free market’.

Posted by: Rajni Bakshi at July 6, 2005 11:56 PM

Let’s face it: this is a difficult question and the prescription depends very much on the diagnose itself. Both the US government and American people (and other rich countries) must come to terms with the fact that losing jobs to India, China, Mexico and other developing countries in certain industrial sectors is inevitable. The single most comparative advantage of these developing countries is the low cost of their labor – plenty of cheap but more and more skilled workforce, ready to sweat for long hours in harsh conditions at a tiny fraction of what a low-paid blue-collar worker is earning in the US. Driven by the market forces in the globalization process, many multinationals have been moving manufacturing bases to low-waged countries like China and India. Americans have legitimate concerns about job losses but they must understand the very structural nature of the challenge, and more importantly, it is not the only problem they are facing.

It is neither fair nor helpful to just blame others. It may sound patriotic or popular to bash China, Mexico or India for the lost jobs in the US, but Americans must realize that, as serious as the challenge of low-cost labor from developing countries, the roots of their economic problems are deep inside the United States. Even if the Chinese currency appreciates by 40 percent, or manufacturing jobs double in salary in the developing world overnight, there is unlikely to be any major impact on the US job situation or other related problems. The Bush administration is running a huge deficit in government expenditure and has shown little interest in curbing it. This irresponsible behavior is hurting both the US economy and the world economy. Washington has so far gotten away with such recklessness due to the fact that Japan, China, Taiwan and others are still willing to subsidize the US by purchasing large quantities of US treasury bonds. At the same time, average Americans continue to spend more than what they earn, living on credit, showing no sign of buying less, thanks in part to cheap imports from China and other countries. But that causes the US trade deficit to mount. Unfortunately, many people don’t realize this, and thus can easily be misled by short-term events, biased media coverage or political manipulations.

More to follow.

Posted by: Wenran Jiang at July 7, 2005 04:21 PM

There are a number of things that are fundamental in keeping and creating jobs in the US (I am not sure how to define high-paying jobs here).

For the US government:

? To be fiscally responsible is the first step for creating an environment for job growth in the US. The Clinton era proved that it is possible to create jobs in the US in the age of rapid globalization. Unless Washington balances its books, it is not in a position to lecture anyone else about fiscal responsibility.

? To negotiate with developing countries as equal partners in order to solve short-term difficulties facing US manufacturing industry. Washington needs to be patient in explaining its concrete concerns to the countries that may take US jobs away, sector by sector. For example, when the WTO quotas for textiles were finally removed for the US and other industrialized countries at the beginning of this year, large quantities of Chinese imports rushed into these markets. Instead of negotiating with the Chinese government for a commonly acceptable settlement, Washington imposed unilateral measures to curb Chinese imports. In contrast, the EU managed to work with China on an agreement on the same issue, prompting Beijing to believe that the US government is not genuine in wanting to have a negotiated settlement to the trade dispute. Effective negotiations will help the US in managing a transition in the short-term for its potential job loss in such sectors as textile and other low-end manufacturing industries.

? In the medium and long term, I agree with other colleagues that government should facilitate structural reforms and promote competitiveness. But it does not have to be at the expense of the social-welfare system. To the contrary, a better, more efficient and comprehensive social safety network, which does not exist in the US today, will provide a much needed cushioning space for those who have lost their jobs or are being trained for new skills for other employment opportunities. Canadian and European social welfare practices have much to offer in this regard. The fact that many developing countries are engaging in a primitive form of capitalism without a sound social security network should not be a pretext for the US and other Western countries to cut or eliminate their own welfare system.

For American people:

? Thinking globally and being informed about the rapidly changing world. There are many areas in which the US is very competitive and a good focus on one’s own and the next generation’s possible employment opportunities will definitely help.

? Seeking educations that matter to one’s future. It is ideal to have a good college degree in a desired job category but even primary schools can make differences. Edmonton, Alberta is the city in which I live, and it has a public funded bilingual program in many languages other than the French immersion, such as Chinese, Arabic, Ukrainian, etc. Such programs are in place largely due to the collective efforts of citizens trying to make our education system more competitive from early age groups.

? Living within one’s means and learning to save in times of a stable income, and changing life styles if necessary for that goal. Chinese are putting away as much as 40 percent for either re-investment or saving for future uncertainties that may come.

The US as a nation also must confront the fact that it is both a rich country and a country that has a very unequal distribution of wealth. Its Gini coefficient is about 0.4, and a small percentage of the population obviously has very highly paying jobs. Maybe it’s time to think of some kind of redistribution of income and benefits via a more progressive taxation system as a necessary and integral part of keeping and creating US jobs.

Posted by: Wenran Jiang at July 7, 2005 04:43 PM

Thanks to Wenran for this detailed input. Your point about American spending habits and the deficit raises the following questions for me:

* Is there room in US public discourse to challenge this model of growth which depends on perpetually increasing credit-based consumption?

I'm assuming that US social phenomenon like the Voluntary Simplicity movement and ethical buying habits (boycott of sweatshop products etc.) are still quite marginal.

* Might such questioning and soul searching within the US help to challenge this model at the global level? My hunch is that it would help. Otherwise, we will continue to exalt the creation of cheaper and cheaper goods while underplaying the human and ecological toll of low wages and lax environmental regulations.

* Would the adoption of measures like Genuine Progress Indicators by societies across the world help mitigate the current imbalance between economic 'growth' and livelihoods? See>

Posted by: Rajni Bakshi at July 8, 2005 11:37 PM

Let me tell a job story in Beijing, China. When I came to Beijing about 6 years ago, I often heard that some Beijing residents who lost their jobs in reforms in those years were not willing to take some service jobs such as washing dishes in restaurants, selling goods in stores, etc. They considered they should be highly paid. Of course, these jobs are not. Therefore, they would rather do nothing than take these jobs. There are people who want to take these jobs. They are the people who came from the surrounding countryside or provinces. However, in recent years, I rarely heard this kind of talk. Now no matter the people is a formal Beijing resident or not, the amount of his paying is only based on his ability and output. Indeed, most of the high-paying jobs in Beijing belong to Beijing residents who are either original or transferred. However, it is not because they are Beijing residents that they get the high-paying jobs, it is because they possess high skills. Now as the economy becomes more and more global, the situation of a city also applies for any country. I don't believe there is any magic to reserve high-paying jobs for any people with unqualified skills. The only way to get high-paying jobs is to possess skills that few people have.

Posted by: Jiang Li at July 11, 2005 10:47 AM

The only constant is change. 300 years ago, India was amongst the most prosperous countries of the world, till it became amongst the poorest. Economic forces are never static. The very fact that per capita income in the US is high must mean that labour rates in the US also have to be high. With little to no accretion to its work force, this only suggests an inability to compete on labour. Thus the US has only two choices. One, it adopts a protectionist policy and thus forces its high labour costs to get reflected in prices of its goods and thus increase the cost to the American consumer. Two, it embraces low cost products and services thus reducing prices for the average American consumer. The surpluses generated can then be spent on investment in design, technology and creating industries which are in a position to compete on platforms other than merely low cost. The latter remains the only way forward. A competitive advantage on labour is never sustainable. The differences in per capita income between the US and India-China are two great for them to not be arbitraged away by natural economic forces. This is just a natural way for global rebalancing. The US has no choice but to find ways to compete apart from merely on the cost of labour. These could result from innovation and development to retooling the economy for services led growth.

Posted by: Madhav Bhatkuly at July 13, 2005 06:30 AM

I think there are some solid words of advice in the expert comments above so I will keep mine brief.

Can the US compete and not lose jobs to India and China ? Sure. Today a McKinsey report talks about 4.1mln jobs lost by 2008 to outsourcing. I think that the hype like the bark is worse than the byte.

At the high end there is enough competiteness in the US economy and workforce to ensure a migration of jobs. And importantly as an economic principle with increased momentum of outsourcing the pressure of rising wages will cause arbitrage to be less of a factor in job losses in the US.

Posted by: Saurav Adhikari at July 15, 2005 07:13 AM

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