Table presented in World of Work Report 2011, International Labor Organization, October 31, 2011, Pg. 9.
“Non-financial firms have increasingly invested in financial assets at the expense of physical assets. … This is particularly the case with firms in advanced economies, but in recent years, developing and emerging economies have started to exhibit similar trends. … Empirical evidence shows that rising profitability in the financial sector has played an important role in drawing in investment from the non-financial sector towards the financial sector.”
World of Work Report 2011, ILO, October 31, 2011, pg. 41.
“The great thing about the new I.T. revolution, says Jeff Weiner, the C.E.O. of LinkedIn, is that ‘it makes it easier and cheaper than ever for anyone anywhere to be an entrepreneur’ and to have access to all the best infrastructure of innovation.”
Thomas Friedman, One Country, Two Revolutions, New York Times, October 22, 2011.
“… technology investments are playing an increasingly larger role in mid-market companies’ bottom line. Business process automation and technology improvements are the two top contributing factors to the jump in mid-market productivity; new hiring ranked fifth overall. …
“’Technology is on the mind of most mid-market executives,’ said McGee [Tom McGee, national managing partner, Deloitte Growth Enterprise Services, Deloitte LLP]. ‘ … 74 percent of respondents believe globalization is forcing U.S. companies to become more productive to stay competitive … and set themselves apart from the pack ‘”
Deloitte: Mid-Market Executives Increase Long-Term Investments Despite Economic Uncertainty, Deloitte Press Release, Oct. 10, 2011.
“Despite representing only … 19 percent of employment [in 2007], multinational companies contributed 41 percent to overall productivity growth from 1990 to 2007.”
James Manyika et al, Growth and renewal in the United States: Retooling America’s economic engine, McKinsey Global Institute, February 2011.
“His solution is to offer a new and altogether different kind of TV set, although in typical CEO fashion, he refuses to elaborate on what that might involve. He simply offers the assurance that a great deal of R&D investment is going into designing a new TV that could reverse Sony’s fortunes.”
Vlad Savov, Sony CEO Howard Stringer: Every TV set we make loses money, Washington Post (originally published in The Verge), Friday, November 11.
“First, in a global economy, we need to be thinking more about the sources of apparent productivity growth. It matters greatly for wages and employment whether rising value-added per worker is being driven by domestic production improvements, supply chain efficiencies, or by productivity gains abroad. …
Second, government policies designed to increase incentives for business investment, such as accelerated expensing, may have the effect of increasing supply chain efficiency rather than domestic productivity. …
Third, we are effectively flying blind in terms of the effect of the global economy on US workers.”
Michael Mandel and Susan Houseman, Not all productivity gains are the same. Here’s why, What Matters, McKinsey & Company, June 1, 2011.
The transformations in communications, transportation, transnational trade and investment flows, geopolitics, and access to advanced technologies that we summarize with the term globalization have greatly multiplied the number of businesses in every sector of the world economy competing for customers.
Moreover, companies are competing for a stagnant number of consumers and consumer dollars. Although the buying power of working families is growing in the countries experiencing rapid economic growth (called the emerging economies), it is declining or barely growing in many of the advanced economies and in many other parts of the world. This is greatly intensifying the competition among the worlds much larger number of competing business enterprises.
This environment of overheated competition puts enormous downward pressure on global job growth. It drives the owners and managers of almost every business enterprise to pursue strategies that are good for the business but destructive to the world’s labor force much more aggressively than would be the case in an environment of moderated competitive pressures. These strategies include:
- Investments in financial assets as a way to park money that can’t be profitably invested in production of goods and services
- Large investments in technologies that reduce work hours without reducing the capacity to meet existing customer demand
- Large investments in product innovations designed to displace similar products rather than to create new products that meet new needs
- Large investments in ad campaigns designed to lure current consumers to change consumption activities (e.g., switch from watching TV to playing video games)
The impact of these strategies on employment is fairly straight forward:
- Profitable investment opportunities are in short supply, so money parked in financial assets is more likely to help generate financial bubbles than to generate new jobs
- Productivity gains eliminate jobs when demand for products and services is not growing
- Investments that only lure consumers to replace one product for another, to replace one consumer activity with another, and/or to buy the same product from a different company only move consumers around in the market place; the net effect on the labor force is job churning not job growth.
Overheated global competition will continue to do harm to global job growth until a global policy response creates a mechanism for market sharing and puts boundaries on the use of competitive strategies. Without that response, global rates of unemployment, underemployment, poverty, and political upheaval will continue to increase. And the U.S. will not avoid sharing in these miseries.