1. 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

2. 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)

3. 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

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

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

6. SC, US & Global Economies at Start of 21st 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

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

8. US Mfg Employment 1979-2005 Year Jobs (000)
1979 (historical peak) 19,426
,819
,695
,241
,263
,441
,259
,510
,329
2005 (1st Qtr) 14,258(p)

9. SC Mfg Jobs—1980 to 2005 Year SC Mfg Employment 1980 398,411
,411
,400
,800
,540
,900
,570
Mar ,800

10. 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 $)

11. 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

12. Shifting Demand for Goods versus Services within U.S. GDP

13. 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%

14. 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.

15. Open Economy Math In an open economy, US company success and US jobs
depend upon
Global demand growth and
US global competitiveness

16. 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)

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

18. 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 (following slides)

19. 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”

20. 2 out of 3 involve controlling workers’ purchasing power
Low wage rates
Low value of Dollar

21. 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

22. Growth in Productivity Abroad 1990-2003
Canada %
Australia %
Japan %
Korea %
Taiwan %
Belgium %
Denmark %
France %
Germany %
Italy %
Norway %
Sweden %
United Kingdom 132 %

23. Changing Shares of Global Mfg Value Added

24. Percent Change in Mfg Employment 1992-2003

25. Global Loss of Mfg Jobs 1995-2002
Mfg Jobs Mfg Jobs
Change
Region (000) (000) (000)
Africa 4, ,
Americas 31, ,
Asia 76, , ,199
Europe 58, , ,662
Oceania 1, ,
Globally 172, , ,355

26. China Mfg Employment 98 million Mfg jobs in 1995
Out of global total of Million
200 million potential new workers yet to come out of rural China

27. 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

28. “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

29. End of Presentation Supplementary Slides Follow
Shifting sectors of employment
Declining Mfg share—selected countries
Mfg jobs mirror Ag jobs in 20th century

30. Shifting Sectors of Employment
Male Male
Upper Middle Income Countries
Agriculture (1) 22% 8%
Industry (2) 32% 22%
Services (3) 46% 70%
High Income Countries
Agriculture (1) 6% 4%
Industry (2) 38% 19%
Services(3) 55% 76%
United States of America
Agriculture (1) 4% 1%
Industry (2) 33% 14%
Services (3) 62% 85%

31. Declining Mfg Share of Jobs
United States 18.0% 11.8%
Canada % 14.4%
Australia % 11.3%
Japan % 18.3%
France % 16.3%
Germany % 22.7%
Italy % 21.8%
Netherlands 19.1% 14.0%
Sweden % 14.9%
United Kingdom 22.3% 14.9%

32. Manufacturing Productivity and Employment in Early-21st Century Mirror Agriculture in 20th Century
Farm Workers
As % of Total
Year US Employment % % % % % % % % %