Expert Roundtable 4 Advice for the U.S.
This summer, BusinessWeek brought together 13 of the smartest people we could find for an online roundtable on the past, present, and future of China and India (). On each of eight days, we posted a new question. Economics Editor Peter Coy moderated the discussion. The experts communicated both with us and with each other on everything from geopolitics to generation gaps. Now we're sharing the discussion with you -- and invite you to offer your comments. Please note that not all 13 participated every day, and comments have been edited for style and clarity.
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.?
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 to 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.
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 U.S. 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 rights protection.
American labor organizations have been concerned about jobs [going] offshore since the first car rolled off the Ford assembly line, yet the U.S. economy continues to gain strength, and the U.S. 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 U.S. government 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, U.S. 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 labor and regulatory conditions are attractive -- low tax rates, investment incentives, social cohesion, quality education and training, etc. -- the U.S. 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, U.S. companies need not fear any labor readjustment.
People in the U.S. 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 were another. Rising sentiment against Chinese exchange rate policy is merely the latest. Despite these concerns, by and large the U.S. 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 toward genuine free trade, expressions of protectionist sentiment by various groups in the U.S. are most vivid to other countries. There is, therefore, a perception of double standards. If the U.S. 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.
Calculating China's and India's impact on the job market in the U.S. is difficult. McKinsey argues that offshoring creates additional value for the exporting country. (Using offshoring to India as an example, for every dollar offshored, they estimate the U.S. 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 does not have its own manufacturing but gets better ROI and business growth by concentrating on building its brand.
As our experts say, the U.S. 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 U.S. will be better off with a government that encourages competition and partnerships rather than protestionist policies. The U.S. people should have more confidence in building value-added propositions and moving up the value chain. The U.S. should put more effort in marketing their culture and their proven education system and should relax their immigration policy to allow more students to come to the U.S. for continued education.
Foreign investments from China and India should be enouraged, so more Chinese business will expand to the U.S. rather than other countries. It will also increase the demand for the export of U.S. services.
To keep high-paying jobs, the U.S. should understand where their key competitive edge is and create an environment and enhanced education system to foster 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, U.S. innovation is market-driven. If the U.S. concentrates on fostering these strengths through training and education, and encourages partnerships with China and India, it will continue to lead the global economy and has nothing to fear.
In the near term, we are dealing with an emotional issue. Some issues will settle down 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: the passbook entry system and the uptime of their fund-transfer system. Both were running at a three sigma level at that time, which means 68,000 errors in 1 million. The cost of a passbook correction was $25 per error. Who was paying for it? The average U.S. bank customer. If that same error could be corrected at $5 an error by doing it from someplace 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 didn't 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 U.S., 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 U.S. will lead unless it chooses not to. These are R&D in every which field, capital markets, and international finance, global defense (it is an outsourcing opportunity if thought through well), and space. It will be difficult to upstage the U.S. in these areas. Everyplace else, water will find its own level -- that is the meaning of globalization.
The fear of losing jobs to Indians and Chinese is a subset of a more fundamental tussle within American society -- the contest of Main Street vs. Wall Street. Our exchange on this blog is premised on the absolute victory of the latter, since that is what is more visible. This handicaps our discourse in two major ways: One, we are straightjacket 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.
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."
Let's face it: This is a difficult question, and the prescription depends very much on the diagnose itself. Both the U.S. government and American people 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 U.S.
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 U.S., but Americans must realize that, as serious as the challenge of low-cost labor from developing countries is, the roots of their economic problems are deep inside the U.S. Even if the Chinese currency appreciates by 40% or manufacturing jobs double in salary in the developing world overnight, there is unlikely to be any major impact on the U.S. 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 U.S. 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 U.S. by purchasing large quantities of U.S. 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 U.S. 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
There are a number of things that are fundamental in keeping and creating jobs in the U.S. (I am not sure how to define high-paying jobs here).
For the U.S. government: To be fiscally responsible is the first step for creating an environment for job growth in the U.S. The Clinton era proved that it is possible to create jobs in the U.S. 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 the U.S. manufacturing industry, Washington needs to be patient in explaining its concrete concerns to the countries that may take jobs away, sector by sector. For example, when the WTO quotas for textiles were finally removed for the U.S. 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 U.S. government is not genuine in wanting to have a negotiated settlement to the trade dispute. Effective negotiations will help the U.S. 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 U.S. today, will provide a much needed cushion for those who have lost their jobs or are being trained 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 U.S. and other Western countries to cut or eliminate their own welfare system.
For the American people: There are many areas in which the U.S. is very competitive, and a good focus on one's own and the next generation's possible employment opportunities will definitely help. It is ideal to have a good college degree in a desired job category but even primary schools can make differences. Edmonton, Alberta [Canada], is the city in which I live, and it has a publicly funded bilingual program in many languages other than French, 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.
Living within one's means and learning to save and changing lifestyles if necessary for that goal. Chinese are putting away as much as 40% for either reinvestment or for future uncertainties.
The U.S. also must confront that it is both a rich country and a country that has a very unequal distribution of wealth. 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 U.S. jobs.
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 U.S. public discourse to challenge this model of growth, which depends on perpetually increasing credit-based consumption? I'm assuming that U.S. 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 U.S. 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?
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.
The only constant is change. Three hundred 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 U.S. is high must mean that labor rates in the U.S. also have to be high. With little to no accretion to its work force, this only suggests an inability to compete on labor.
Thus the U.S. has only two choices. One, it adopts a protectionist policy, and thus forces its high labor 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 cost. The latter remains the only way forward.
A competitive advantage on labor is never sustainable. The differences in per capita income between the U.S. and India-China are too great for them to not be arbitraged away by natural economic forces. This is just a natural way for global rebalancing. The U.S. has no choice but to find ways to compete apart from merely the cost of labor. These could result from innovation and development to retooling the economy for services-led growth.
I think there are some solid words of advice in the expert comments above, so I will keep mine brief.
Can the U.S. compete and not lose jobs to India and China? Sure. Today a McKinsey report talks about 4.1 million jobs lost by 2008 to outsourcing. I think that the hype -- like the bark -- is worse than the bite.
Corporate vice-president for strategy, HCL Technologies
Chief operating officer, MindTree Consulting
U.S. and India
Activist and author
Managing partner, New Horizon Investments
Group chairman & CEO, Grey Global Group
Chief economist, Crisil Ltd. debt-rating agency
Associate professor and associate chair
Department of Political Science, University of Alberta Canada
Research Manager, Media Communication Group, Microsoft Research Asia
Chairman, Boston Consulting Group (India)
Professor of management and human resources, Ohio State University Fisher College of Business
CEO, Deloitte, Asia-Pacific Region
Donald H. Straszheim
Chairman & CEO, Straszheim Global Advisors
Associate professor, School of International Studies
Director, Center for International Political Economy, Peking University