| Why the US is not recovering author：By Handel Jones |
| link China Daily 2011-06-21: |
| The GDP growth of the US economy was 2.8 percent in 2010 and 1.8 percent in the first quarter of 2011. The indications are that GDP growth will be 1.8 percent to 2.0 percent in second quarter of 2011. This is not the level of growth that is normally associated with a recovery from a recession. The unemployment level in May 2011 in the US was 9.1 percent compared to 9.0 percent in April 2011, and this compares to 5.0 percent in early 2008, when the recession started. The level of employment and types of jobs are key factors in countries increasing their levels of wealth. The US has not rebuilt its employment base, and many of the unemployed are unemployable in the high-growth segments such as high-tech. Some of the key reasons for the slow recovery of the US include the following: The US has lost a large amount of its manufacturing base through outsourcing, and once the basic skills are lost, it is very difficult to rebuild a new base. While the automobile industry is adding employees, the number is small. In December 2006, the number of people employed in the automobile industry was 2.955 million, while as of May 2011, it was 2.365 million. While the US automobile industry is recovering, automobile companies have recovered at a faster rate and, in many cases, are more innovative. There needs to be a large industrial or other base that provides employment to 50 percent to 60 percent of the workforce to build wealth. In the past, this base was agriculture, but it was replaced by manufacturing. The latest phase is high-tech, but in many high-tech companies, a high percentage of employees are outside of the US. It is important to stimulate the growth of industries that can absorb the decline in employment in manufacturing. The workers also must be trained so that they are able to contribute effectively within the new work environments. There are growing high-tech jobs, such as at Internet-centric companies in Silicon Valley. The skill levels in these types of jobs are very high. A problem in the US, however, is that many of the 14 million that are unemployed are either in different parts of the country or are not well-educated. There is also an increasing mismatch between the education programs in the US and the needs of the high-tech industry. With the cost of education increasing in the US, this gap will become larger rather than smaller in the future. Strengthening education is a critical long-term investment, but it can take 30 to 40 years before the benefits become extensive. Based on the weakening education system in the US, the competitive position of the US will be much weaker in a number of industries in the next 30 to 40 years. Long-term as well as short-term plans need to be in place to maintain the strengths of an industrial nation. Salaries and employee costs continue to be much higher in the US than in many other countries. This is why large companies such as IBM, GE, HP and others are increasing employment outside of the US at a faster rate than in the US. Also, many of the customer opportunities are outside of the US, and it can be advantageous to have people interface with each other that have the same cultural background. The strengthening software and skill base in India is a major competitive threat to employment in the US in the longer term, and while salaries in India are increasing, they are lower than in the US. There is competition from the manufacturing base in China and the software base in India. The government in Washington is trying to stimulate growth of industries such as solar energy, electric vehicles and forms of alternative energies, but without a long-term plan on the impact on employment, cost competitiveness and other factors. The level of technology and business planning in Washington is very low. The result is that employment gain from government-supported projects is low, and many of the projects are not financially prudent. The bailout of the US automobile industry was necessary, but it was not well-implemented. However, a positive step is better than no action at all. A counter factor is that the cost of conforming to the government regulations is increasing rapidly for most corporations, which is an effective tax on business. The government in Washington, however, has not established an environment that will stimulate corporations to accelerate hiring of employees in the US while maintaining global competitiveness. Most of the US corporations are participating in highly competitive areas and need to be world-class. The large US government deficits and also the large deficits in many of the states, for example, California, New York and even Texas, are resulting in consumers and corporations becoming very cautious regarding the future. One of the critical requirements for the US economy to grow is for corporations to increase investments and hiring. This means large, medium and small companies. The basic steps of what needs to be done are clear, but with no leadership in establishing priorities. The political fighting in Washington at present is to try to win the presidential election in November 2012 rather than in addressing why the economy is not growing. Reductions in government social services spending need to be made so that stimuli can be provided to boost job creation within corporations. Political leaders are reluctant to take these steps because they are concerned about losing votes. The brinkmanship regarding the liquidity of the government and raising of the national debt might give the political leaders television exposure for re-election but does not show the characteristics of a well-led country. It is certain that taxes will be increased in the US in the next 18 to 24 months. President Barack Obama has publicly stated this. When economies are weak, increasing taxes has historically amplified the weakness. The increase in taxes will reduce consumption, and it is likely that most of the money will be used to support the continuation of social programs. The US is not recovering, and there is no clear leadership to drive the growth in employment. It is in a downward spiral, which will become worse. And it needs to start developing five-year plans for the growth of the economy, where spending by government must be based on achieving long-term financial goals rather than on how political parties can increase their power. The author is founder and CEO of International Business Strategies Inc, an international consulting company based in Los Gatos, California. He also authored the book, Chinamerica: The Uneasy Partnership That Will Change the World. |
| (2011-6-22 14:10:00hits:699) |