g3 can technology revive america

8/11/2019 G3 Can Technology Revive America

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Can Technology Revive America?

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Agenda

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BackgroundUS Economic Review: Past vs. PresentUS Technology Industry And Its Problems

What Can Revive America?Technology Alone?Technology & Manufacturing?

What Else Can Revive America?Skilled Labour?Education?

Fiscal Policy Hunting The Rich? Revaluing The Yuan?Monetary Policy?

Conclusion


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Background:

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USA In The Past

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Pressures of globalization:Manufacturing jobs declined by 40%Before the crisis, US economy fueled itself withexcessive consumption

Savings in the household sector leveled off at zeroGovernment, too, dissaved by running deficitsVery low wage growth in the middle- income range


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USA In The Past

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Major Changes In USA:1990s witnessed re -emergence of competitiveness,innovative activity and job generation.Bipartisan emphasis on policies to promote SMEs.

80 to 85 percent of the new jobs in this country arecreated by small businessRestriction on International trade


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-Bill Clinton

Our plan includes the boldest targeted incentives for small business in

history

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USA As Of Now

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Good News:GDP back to its pre-crisis size of about $13.5 trillionBad News:

High unemployment rate of 9.1%

24 million Americans without a full -time jobSolution:

President Obamas target is to create 20 million jobs inthe next 10 yearsHowever, only 1.7 million jobs were created in the lastdecade.


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USA As Of Now

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USA EconomyNo growth strategyGlobal economic currentscontinue to claim jobs The poor are doubly hit-Global market forces &high tax rates evaded bythe richBiggest mountain of debt

Low skilled manufacturing jobs have been lost tointernational competition


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USA As Of Now

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Closures have pushed workers outLower wages, community college retraining andunemployment checksDemand for products manufactured domestically

Trade problems- Lower rates of growth ofmanufacturing productivity


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Background:US Technology Industry

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America & Technology

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US has a technology policy since World War IISpends more than $70 billion every year on thepolicyFocused on defence related R&D and development

of military technologyMoney needs to be shifted from military to civilianapplication


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What America Can Do

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For the United States to restore its internationalcompetitiveness, it has to adapt the types of policiestargeting the leading large corporations prevalent inJapan and Germany.

Process vs. Product tradeoffJapan focused on process, unlike US that focuseson product.


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Impact on USA

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People willing to pay higher for domesticallyproduced goodsManufacturers have substituted brains for brawnManufacturers need fewer unskilled workers to

perform rote tasks, but more highly skilled workers tooperate the machines


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Background:US Technology Industry: Problems

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Problems

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Scaling Process Weakened:Process of companies scaling up by building factories,promoting affordability, increasing hires.No longer functional in the US


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Scaling Process Weakened

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Effect :

Capital ploughed into young companies

These companies build their factories elsewhereResults in bad returns in terms of American jobs


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Failure of Economic Strategy andLeadership

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InternationalCompetition

Failure OfMacro-Economic Policy

Relatively LowProductivity


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International Competition

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Jobs for low-skilled workers in manufacturing lost toInternational Competition

- Upgrading Skills- Increased Exports- Public Investments

- Infrastructure

- Austerity-No Vision For Investment

Reality :Recovery Lies In :


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Failure of Macro-economic Policy

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Failed to create jobs

Failed to create a proper balance between cuts tosocial services and tax increases on the rich.


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Difficulty In Attaining GDP Growth

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The U.S. GDP Growth depends onthe economys domestic andexport-oriented components

Requires structural change, greater competitivenessin an expanded tradable sector


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Reliance On Domestic Demand

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Excess reliance on Domestic Demand

Structure of economy biased towards non-tradablesector

Insufficient reliance on foreign demand and exports


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What Can Revive America?

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Technology Alone?

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Technology Alone?

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Yes! says Barrack Obama The first step to winning the future is encouraging

American innovationRise of low-wage manufacturing in China and low-

wage service in India is moving jobs overseasUSs only durable strength: Innovation But would innovation suffice?


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Technology Alone?

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Case Study: Apple vs. Foxconn Apple:

American companySecond most valuable company in the world

Innovative kills have led to rich rewards for itsstockholders and managers

Foxconn:Taiwan-based firmMaker of Apples products


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Technology Alone?

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Case Study: Apple vs. Foxconn Analysis:

Comparable revenuesMassive difference in employees employeed

Apple 50,000 employees Foxconn 1,000,000 employees


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Technology Alone?

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Case Study: QualcommBackground:

Developer of mobile-phone chips and technologybased in San Diego

Last year, developed Mirasol, an easy-to-read, energy-efficient phone display


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Technology Alone?

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Conclusion:Technology alone cannot revive AmericaNeeds To Include:

High-End Manufacturing

Why?The benefits of the new technology will be maximized


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80 85% of jobs are created by small business andstartups

Therefore, can startups alone revive employment?


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Startups & EmploymentStartups cannot by themselves increase technologyemployment.Important for technology to go from prototype to massproduction


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Assembled In China Apple not a startup but relatively new innovationiPhone: Designed by Apple in California; Assembled inChina

Startups good jobs in their countries of originBUTOnly for relatively small numbers of highly qualifiedpeople.


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Silicon ValleyUnemployment rate in Silicon Valley is actually higherthan the US national average


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America Needs OthersAll the advanced techniques in the world wont matterif you cant find the people to capitalize on them Smart techniques can be advantageous to America but not by themselves


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An Ideologically Driven Choice:Manufacturing jobs have moved to ChinaJust a fact of lifeEconomic version of Newtons first law (law of inertia)

Patriotism = An outmoded concept for majorcompanies


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Why Manufacturing?

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Year Manufacturing Output Manufacturing ShareOf Total Employment

1960 27% of GNP 24%

2003 13.8% of GNP 10.5%


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Why Manufacturing?

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Why Manufacturing?

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Why Manufacturing?

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Manufacturing:Powerful source of external benefits that accelerateeconomy-wide productivity growthCan absorb large amount of workersWhere the worlds middle class take shape


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Some Factors Hurting USA Manufacturing

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ChinaDearth of Skilled workers


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China

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Loss of manufacturing accelerated with globalcompetitionWhere China expanded, US lost greatest number of

jobs


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China

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Economic Policy Institute (EPI) estimates: At least 2.4 million manufacturing jobs were lost between2001-2008 in USA

China has been eating away at U.S. middle class jobs and most have not been replaced, according toEPI


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The Great Location

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An "industrial complex" is a cluster of suppliers thatrepresent different levels in a value chainRise in RMB would help US

Global manufacturing is carried out by regionalcomplexesIndirect competitive effect


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What Else Can Revive America?

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Skilled Labour and Education

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ProblemUnemployment in manufacturing is at 8.4%, below theoverall rate of 9.1%.240,000 open jobs in manufacturing, up 38.7% from ayear agoTypes of jobs also changing

More service: Strongest growth in healthcareManufacturing lost its appeal in the 1990sProbably why lesser math and science grads

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Skilled Labour: Current Gap


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Skilled Labour: Current Gap

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Mismatch of skillsEducated with the wrongskillsHow Germany succeeds:The BMW model or Pratt &Whitney model


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Skilled Labour: A Necessity Crucial to revival of economy apart from technology andmanufacturingTo operate highly sophisticated machinery and forintricate tasksSuccess of manufacturing dependent on skilled labourforce

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Skilled Labour: Ageing Population

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Retirement of American baby boomers with years ofexperience


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Skilled Labour: Ageing Population 40% of skilled labour force set to retire between 2007 2012

2/3 of manufacturers surveyed: an average of $50 million (each)will be lost

Average of over $100 million from 2007 to 2012

In 2005, 43% of manufacturing workers were > 45 yearsold, up from 32% in 1995

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Skilled Labour: Building It Through Two Ways:

Short Term: Training current labour forceLong Term: Educating future labour force

Effective training to close skills gap and improveemployment rate

Training includes mentorship, apprenticeship, internship America

s educational system

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Skilled Labour & Education

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Correlation

Wages by education level traditionally behave as human capitaltheory predicts


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America

s Education System Acknowledge, introduce and encourage manufacturing

As a viable career optionInduce knowledge change

Increasing post-secondary education graduatesReducing number of school dropouts

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What Else Can Revive America?

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To Revive America Fiscal PolicyRevaluing the Chinese YuanMonetary Policy

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Fiscal PolicyHunting The Rich Buffet Rule o Ensures that no household making more than $1m a year

pays lower average tax rate then middle -class familiesdo

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Fiscal Policy Hunting The Rich Many Reasons Against It:

Richest 1% of Americans pay 45% of federal taxesHigh marginal tax rates discourage entrepreneurshipThe wealthy will simply move, taking their taxes withthem.Shift their income into less-taxed forms such as capitalgains,Implementing higher taxes on the millionaires cannotclose Americas deficit

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Fiscal Policy Hunting The Rich How To Implement It:Make the tax code more efficient.

For example, do away with the large number ofdeductions from income tax.Raise as much as $1 trillion a yearMiddle-Class families will not be affectedWhy?The main beneficiaries of the deductions are the

wealthy

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Fiscal Policy Hunting The Rich How To Implement It:Make the tax code more efficient

Shift the burden from income to propertyWhy?

Collect more from the richLess impact on their willingness to take risks.Example: UKs mansion tax has done less damagethan the 50% income tax rate.

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Fiscal Policy Hunting The Rich How To Implement It:Make the tax code more efficient

Tax on dividends and capital gainsNarrows the tax rate gap between salaries/bonuses anddividends/capital gainsThat gap explains why Warren Buffett has a loweraverage tax rate than his secretary.

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Revaluing the Chinese YuanTimeline:3rd October 2011

Bill to punish China for keeping its currency artificiallylow

A company can demand an investigation of a country itthinks is using an undervalued currency for unfair tradeadvantages

11 th October 2011

Voted to authorize the Commerce Department toimpose countervailing tariffs on Chinese imports itdeems to have benefited from an undervalue currency

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Revaluing The Chinese YuanWhy?Bill claims that:

Chinese Yuan 40% undervaluedDriving away Chinese imports will bring jobs back

Evidence?Paper by three economists:

Regions whose manufacturers had higher exposure tocompetition from Chinese imports saw higher overallunemployment, lower labor force participation and

reduced wagesEvery $1,000 of additional Chinese import exposure in aregion per worker lowered the employment rate by 0.77%

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Re al ing The Chinese Y an


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Revaluing The Chinese Yuan

Effects:Threats are usefulIn 2005, China firstallowed its tightlycontrolled currency to

riseHalted during 2008because of a globalrecessionResumed in 2010 when

the US governmentpassed a bill

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Revaluing The Chinese YuanConsequences?

China has retaliatedConclusionEmpty Threats?

Similar bill passed the House last year, and some hasmade progress but none has yet reached the PresidentObama has also kept his distance.Declined officially label China a Currency Manipulator

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Conclusion

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Solutions

Long Term Solutions Short-Term Solutions

Manufacturing & Technology Re-Training

Education Fiscal Policy Hunting The Rich

Revaluing The RMB

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References

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ReferencesBranscomb L., Does America need a technology policy, April

1992, Harvard Business Review., Reprint 2001.McKinnon, R. I. (2004). Government deficits and thedeindustrialization of America. The Economists' Voice, 1(3).Noahopinion. (2011). "Industrial Complexes" and the Great

Relocation.http://noahpinionblog.blogspot.com/2011/10/industrial-complexes-and-great.htmlRodrik, D. (2011). The manufacturing imperative. ProjectSyndicate, from http://www.project-syndicate.org/commentary/rodrik60/EnglishRapoza, K. (2011). Is China bad for the U.S job market?Forbes: Investing, fromhttp://www.forbes.com/sites/kenrapoza/2011/08/22/is-china-

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References Sachs J., The great failure of globalization, August 17, 2010,

IN The FinancialTimes.http://www.ft.com/intl/cms/s/0/2b9dab2e-c817-11e0-9501-00144feabdc0.html#axzz1VKvXD5aEScapozzola. (2011). What can the U.S learn from a high-wageexport powerhouse like Germany? American ManufacturingOrg, from http://americanmanufacturing.org/blog/what-can-us-learn-high-wage-export-powerhouse-germanySherk J. , Technology Explains Drop in Manufacturing Jobs,October 12, 2010, IN The Heritage foundation, Vol 2476

Spence M., Closing Americas growth deficit, September 2011,IN The new wealth of nations.

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g3 can technology revive america

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