Tuesday, August 9, 2011

No Future in a Service Economy!

The current dispute about jobs and the recession is useless. We need to define the diagnosis of the situation and choose a solution accordingly. We are in the service economy and such an economy is too weak to produce growth and the demand for jobs. In Kalamazoo County we have 450 restaurants. Do we need 50 more? To return to prosperity we need to reindustrialize America. If we won’t do it—there is no future for the Americans in their country.

Economic globalization does not work for most American citizens because we are no longer citizens, merely disposable workers. It works for global corporations, which are looking for growth and want to sell to the “bottom of the pyramid,” which contains 4 billion potential customers. However, these new potential customers do not have money, since their income is about $1,500 per year. To transform them into customers, global firms provide jobs for them. For example, Apple Corporation employs 18,000 workers in the U.S. and 1,000,000 workers abroad.

To reindustrialize the U.S. one must tax those who export jobs. These taxes should finance the safety net of those Americans, who lost jobs due to globalization. Why should rich people invest in jobs in the U.S. if there are not enough customers with steady income, who could create a demand for new supplies? Any stimulus package perhaps may create some sort of demand. However, it will trigger production only in China and other foreign countries, where we outsourced manufacturing.

Some repeated mantra states that we are not competitive for other countries. Of course, we cannot compete at the labor cost level with China, India, and others. In doing so, we need to go back to labor cost that we had in the 19th century. Another mantra says that we are not innovative enough, however according to the Innovation Index, we are ranked #1 (The Economist Pocket World in Figures 2011, p.62). Why do we commercialize our innovations, only to outsource their manufacture abroad? Innovation, when not practiced responsibly, leads to societal corrosion: when we innovated customer service by automation, (i.e. phone trees), It resulted in the death of that service and increased unemployment. We don’t need such “innovations.”

The Keynes economy does not work in the current American situation. Also, the Friedman economy does not work today. This is 21st century, which needs own new economic theory. Unfortunately, our economists and politicians are not innovative and good for these new conditions. Needless to say, these conditions have created quite a mess. One cannot expect that our leaders and their advisors can both be the arsonist and the fireman. We need to stop counting on those that have created the current problem to possess solutions. Perhaps our own Arab Spring will help start the solution process? Perhaps, sooner than one can expect?

Prof. Andrew Targowski
Director of the Center for Sustainable Business Practices
WMU Haworth College of Business

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