The International Dimension: Changing Flows of Capital, Manufactured Goods & Jobs Conversation on the SC Economy October 21, 2005 Bill Ward Center for International Trade Clemson University

Economic Growth & International Realities Large US trade deficit, low US saving rates & large inflows into US capital markets (“non-competitive” $) Declining manufacturing employment – Globally as well as nationally SC traditional Mfg base (textiles) at the tip of the spear of change SC unemployment rate above US average (but below Europe’s rate)

Global Imbalance & the Juxtaposition of Two Factors Growth in global supply of tradable manufactured goods, caused by – Market liberalization in LDCs & FPEs – Dramatic rates of productivity growth US as sole global demand generator – Endogenous to the US economy – Exogenous to other national economies that pursue export-led growth

2 nd Comparisons to Period following Industrial Revolution (after 1860s) Supply shock comparable to 2 nd Industrial Revolution in late-19 th early 20 th century & Then juxtaposed against 19 th century gold standard that limited national and global options for monetary expansion

US & Global Economy at Start of 20 th Century US price level dropped by half during 19 th century Mercantilist views and beggar thy-neighbor trade environment going into 20 th century

SC, US & Global Economies at Start of 21 st Century No “pricing power” for Mfg goods producers Increasing Mfg output coupled with decreasing employment—US and globally Talk of “labor force competitiveness” solution for Mfg job creation

US Mfg Output versus Employment (Source: US Bureau of Labor Statistics)

US Mfg Employment 1979-2005

Year

1979 (historical peak) 1985 1990 1995 2000 2001 2002 2003 2004 2005 (1st Qtr)

Jobs (000)

19,426 17,819 17,695 17,241 17,263 16,441 15,259 14,510 14,329 14,258(p)

SC Mfg Jobs —1980 to 2005

Year 1980 1982 1987 1990 1992 2000 Mar 2005 SC Mfg Employment 398,411 367,400 365,800 389,540 366,900 352,570 264,800

The Demand-side Problem Endogenous demand limited by – PCE shift towards services – Low prices of competing Mfg imports Exogenous demand limited by – Export-led growth policies in major countries (including Japan & China) – EMU constraints in Europe – Labor competitiveness equation in the face of resulting Global Imbalance (exchange rate for $)

The Endogenous Side: e.g., Growth of U.S. GDP & PCE From 1990 to 2004, U.S. real GDP grew 54% This does not translate into comparable growth in demand for Mfg goods

Shifting Demand for Goods

versus

Services within U.S. GDP

PCE for Goods versus Services (1950-2004)

80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 1950 1960 1970 1980

Years

1990 2000 2004 Goods Services

From GDP Growth to Endogenous Demand for Manufactured Goods GDP grows 54% 1990 to 2004 41% of PCE goes for goods Straight-forward math: growth in domestic demand for goods 1990 to 2004 was only 21%

Productivity of U.S. Mfg Labor

Meanwhile, Mfg Output per Worker in U.S. increased 83%* between 1990 and 2004 In a closed economy, that is a recipe for job loss.

Open Economy Math

In an open economy, US company success and US jobs depend upon Global demand growth and US global competitiveness

Global Demand Constraints

EMU fiscal balance agreements & policy on monetizing deficits Japan financial sector instability & continued use of export-led growth Asia Mfg cluster all have weak financial sectors and follow export led path post-1997 (3 Chinas, Thailand, Malaysia, Korea)

Global Demand Growth Limiters Willingness of investors and risk managers to hold more US and UK financial instruments—Making them the “gold mines” of 21 st century Particularly in the face of growing global imbalances posed by forces discussed here

The Global Supply Shock

Market liberalization of large LDCs and FPEs – China (20% of global workforce) – India (15% of global workforce) – Rest of East Asia + FPEs push totals to more than 50% of global workforce Dramatic productivity growth 1990 2005 (following slides)

International Manufacturing Competitiveness factors tracked by BLS These three factors taken together – Productivity – Wage Rate – Exchange Rate Give you “Dollars of labor cost per unit of output”

2 out of 3 involve controlling workers’ purchasing power

Low wage rates Low value of Dollar

The third competitiveness factor

Productivity –Increases competitiveness of U.S. companies, but –Decreases the number of jobs if Global demand does not grow even faster, and/or U.S. does not gain increasing share of market

Growth in Productivity Abroad 1990-2003 Canada Australia Japan Korea Taiwan Belgium Denmark France Germany Italy Norway Sweden United Kingdom 79 % 109 % 145 % 247 % 284 % 134 % 73 % 164 % 77 % 45 % 43 % 179 % 132 %

30 15 10 25 20 5 0

Changing Shares of Global Mfg Value Added

Share of Value Added in Manufacturing

1982 1994 2004

NET CHANGE: 1982-2004 Korea 3.0% Germany -3.5% China 7.5% Japan -2.7% U.S. -1.1% U.S.

Japan China Germany France Korea

Percent Change in Mfg Employment 1992-2003 -5 -10 -15 -20 5 0 -25 -30 Data for The Netherlands and China are for 1990-2002.

Source: W.A. Ward, Manufacturing Productivity and the Shifting U.S., China, and Global Job Scenes, 1990-2005. Center for International Trade, Clemson University, Clemson, SC.

Global Loss of Mfg Jobs 1995-2002

Region

Africa Americas Asia Europe Oceania Globally

Mfg Jobs 1995 (000)

4,242 31,944 76,594 58,319 1,321 172,421

Mfg Jobs 2002 (000)

3,926 31,691 58,395 55,657 1,395

Change (000)

- 317 - 253 - 18,199 - 2,662 + 74 151,066 - 21,355

China Mfg Employment 98 million Mfg jobs in 1995 80 million Mfg jobs in 2001 83 million Mfg jobs in 2002 Out of global total of 150-200 Million 200 million potential new workers yet to come out of rural China

Mfg Jobs in Industrial Countries US about 14 million Canada less than 2 million UK less than 4 million Japan about 11 million Germany about 8 million EU (25) as a whole about 25 million Ireland a few hundred thousand

“Competitiveness”

SC must help keep Mfg COMPANIES competitive Nevertheless implying reductions in traditional Mfg employment And implying need for new strategies for work and wealth besides Mfg job creation Thus, verifying the importance of work of the OTHER presenters

End of Presentation

Supplementary Slides Follow 1.

Shifting sectors of employment 2.

3.

Declining Mfg share—selected countries Mfg jobs mirror Ag jobs in 20 th century

Shifting Sectors of Employment Industry (2)

1990-1992 Male Upper Middle Income Countries

Agriculture (1) 22% 32% 46% Services (3)

High Income Countries

Agriculture (1) Industry (2) Services(3)

United States of America

Agriculture (1) Industry (2) Services (3) 6% 38% 55% 4% 33% 62%

2000-2002 Male

8% 22% 70% 4% 19% 76% 1% 14% 85%

Declining Mfg Share of Jobs United States Canada Australia Japan France Germany Italy Netherlands Sweden United Kingdom 1990 18.0% 15.7% 15.0% 24.3% 21.0% 31.6% 22.6% 19.1% 22.3% 22.3% 2004 11.8% 14.4% 11.3% 18.3% 16.3% 22.7% 21.8% 14.0% 14.9% 14.9%

Year 1919 1930 1940 1950 1960 1970 1980 1990 1999

Manufacturing Productivity and Employment in Early-21 st Century Mirror Agriculture in 20 th Century

Farm Workers As % of Total US Employment 32.8% 29.8% 25.3% 18.0% 11.5% 6.0% 3.9% 2.6% 1.3%