Disappointing employment growth numbers out of the United States highlights the deepening employment crisis. Growth is positive, profits are up but there are few new jobs. American workers are in despair.
Bob Halpern of the ‘Let’s keep Americans working’ campaign says “We have seen millions of jobs exported, and one in five graduates are now unemployed. We have heard the arguments of open markets, free trade and new waves of technology. None of this puts food on the table today”.
Respected economist Joe Silva says, The current situation is baffling the best brains in the nation. We have a problem that no amount of rhetoric or political pressure will solve. There seems to be depression and fear in the investment community. They seem to have forgotten that their role is to take risk. There are tens of billions of dollars in the venture funds, waiting to be invested. Unblock the venture capital and you will take the brakes off the next economic wave”.
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ANALYSIS >> SYNTHESIS: How this scenario came to be
We trust in the economic cycles having consistent characteristics. Each major cycle causes the traditional jobs of the previous cycle to be commoditized, many automated and others outsourced to cheaper locations. The new economic cycle is hoped will create a plethora of new jobs. For example, agricultural workers once accounted for more than half the workforce, today less than 3% of the workforce produce all of the US’s agricultural output. Manufacturing jobs once accounted for more than half the jobs, and now account for just 14%.
Job losses are a reality globally, not just in America. The belief has been that that problem in first world countries has been caused by jobs being exported to low-wage economies, but that’s only part of the story. The real cuprit has been unprecedented improvements in productivity.
Productivity gains for the past few years have been running at more than 3% p.a. (versus an anticipated growth rate of 2% p.a.) – and versus the modest 1,5% p.a. annual growth rate during the past 30 years. The global economy is destroying jobs at a much higher rate than we are able to create them. These efficiency gains are especially evident in large corporations, and that’s where the major job losses have been occuring.
The world’s 20 largest economies lost 22 million manufacturing jobs from 1995 to 2002, this includes China which lost 15 million jobs in that period and America’s loss of 2,7 million jobs in just the past three years. A 1% growth in US productivity translates directly into 1,3 million jobs being lost per annum. America’s productivity is at an all-time high. In fact globally production is up 30% more over the same period.
Technology, and especially, info-tech has been a key catalyst. The big surprise of the increasingly productive, info-tech fuelled, friction-free, nowhere-to-hide economy, is that instead of working less, we end up working more in order to compete effectively. Compounding the problem, the new jobs that are being created tend to be less well paid than the old.
The job-rich boom starting in 1994 created unprecedented prosperity. This made the downturn of 2000 all the more stark by comparison. Today, although economic recovery in America is looking quite real, the jobs are not following the same curve. A truly deep shift has been wrought by digital technology and created a really new economy. Craig Barrett, CEO of Intel: “The world has arrived at a rare strategic inflection point where nearly half its population – living in China, India, Russia – has been integrated into the global market economy, many of them highly educated workers, who can do just about any job in the world. We’re talking about three billion people”.
That combined with the fluidity for much of the worlds work to be done anywhere, defines the magnitude of the problem. Any thinking, educated worker need to consider this and its impact on the availability of work and careers in the future.
2004: Soaring economic productivity and growing off-shoring
Continued job losses and in particular the exporting of jobs has become a political hot potato. White-collar unemployment peaks at an unprecedented 16% of the total unemployed. They are better educated than ever before but are suffering from a double whammy: technology-led productivity gains and re-location of jobs off-shore. Only four in five graduates from top B-schools like Harvard are getting any job offers, about 16% of graduates now don’t get any job offers. The outlook is that 3,3 million professional American jobs will move offshore in the next ten years or so. The once prized MBA is becoming a commodity to be outsourced to the lowest cost supplier.
Carly Fiorina, CEO, HP is quoted as saying “There is no job that is America’s god-given right anymore”. This seems to sum up future realities.
Unemployment has become an upper-class problem, gaining new prominence and becoming a pressure point in politics. A powerful lobby group has formed which calls itself the “Let’s keep Americans working” campaign.
It is not that there is no growth in jobs. Some sectors like restaurants, education, financial services and health care jobs are growing, but these tend to be much lower paying jobs. Current job growth favours low-paid jobs – and low-wage economies.
2005: Crunched in the supply-and-demand cycle
The off-shoring trend in America is deepening; latest research indicates that as much as 14 million service jobs may be shipped overseas.
There are too many people with the same qualifications competing fro the same jobs worldwide. An over-supply develops and the price drops. Many professional white-collar jobs are at risk from being off-shored. Millions of administrative and financial jobs are streaming from the USA to other parts of the world. China and India are geared to grow on the back of the commoditization phase of the economic life-cycle. These jobs are moving to the cheapest source of supply. Theoretically, there is nothing wrong with this.
What is not working is that the new jobs are not being created as part of a new economic cycle and so take up the slack of highly qualified, but unemployed, engineers, scientists, designers, accountants, MBA’s, marketers etc.
One reason for this appears to be lack of venture capital to feed the new cycle.
There has been a lot of the noise from the ‘Let’s keep America working’ campaign. It has high visibility but little effect. It does not seem like a problem that politicians can fix. The campaign itself seems to be stuck in the old ‘entitlement’ mindset and appears to be doing very little to assess and deal with the fundamental issues.
2006: The new boom is late
Realization dawns that we have a new problem. The new boom is not happening on time as it is supposed to.
The new technology sectors, bio-tech and nano-tech, are in good shape and set to boom. Both have seen many new innovations with major potential for investment. The problem appears to be in the venture capital sector which has hit an all time low in terms of sentiment. There seems to be a deep-seated fear of commitment still hanging over from the dot.com collapse.
Tens of billions of dollars are in funds waiting to be invested but relatively few investments are flowing. The IPO rate, although somewhat improved, also lags significantly behind the curve of the Internet boom. Investors seem to be so worried about choosing the wrong wave that they are choosing to do nothing at all. They seem to have forgotten that they make money even when 90% of their investments fail. The key to success has always been to invest in many startups to see what clicks, not to attempt a perfect science. Can they possibly regain the ways of old?
Various new growth points are emerging for bio-tech. Britain is becoming the new cradle of the bio-tech movement.
The good news is that American technology-related firms are feasting on a talent glut not seen before. Where the best talent came at a premium a few years ago, there are now ten great applications for each position. It is again a question of what doesn’t kill you, makes you stronger.
Corporate America seems to be hiring a new breed of graduate, there is a distinct disinterest in B-school graduates and the top recruiters are visiting the top Arts Graduate Schools. More firms are realizing that, to differentiate their goods and services in today’s overstocked, materially abundant marketplace, they have to make their offerings remarkable – physically beautiful and emotionally compelling.
2007: Is America asleep on the job?
The efficiency and productivity drive continues to deepen. Corporations are focusing on that and getting the job done wherever it can be done best, and for the lowest price. Corporations are not the ones to create new markets and new jobs. For them it is too early in the new economic cycles. This is the traditional role of entrepreneurs, small companies and venture capitalists – think Microsoft, FedEx, Amazon and eBay.
It is the most competitive marketplace ever. This is the post-consumer society, in developed countries everyone has everything they need and much of what they want. They are smarter and much more demanding. Future differentiation is in design and innovation.
All developed countries have reason to be worried. Opportunities abound but they are not geographically bound. An interconnected world, especially driven by ubiquitous broadband continues to be the catalyst for this major global shift, but is no longer a differentiator for anyone. The game has moved up a notch. There has been a marked progression in the globalization of skills and expertise – all the way from off-shoring lowly paid factory jobs, to off-shoring a multitude of professional jobs whether they be accountants or designers. What is the next rung on the ladder? Product innovation, brand building, management?
A competitive advantage for America has long been its entrepreneurial ability and the complimentary venture capital. This has allowed it to take advantage of skills and innovation and to create the major waves which fueled its economy. This was the engine of the American dream, and it has stalled. Will America get it right this time? That is the burning question, not only for Americans but also for the world economy.
2008: The search for the next big thing
A powerful global debate has started: What exactly is the next big thing to be? Where will the next economic growth cycle begin? Bio-tech and nano-tech have shown huge promise but have delivered neither the unbridled economic growth nor the jobs.
I am out of work and need to re-train, but at what? What will be the new skills demanded?
What courses should my kids take in school, college and university in order to relevant when they graduate?
It really is not all that obvious what the next economic cycle is likely to be. The debate continues as the world economy slumps.