Countries like the US and the UK are badly in need of trade and industrial policies to rebuild manufacturing. Very large trade deficits are potentially unsustainable. Such deficits often make a country dependent on foreign investment for the capital account surpluses needed to pay for current account deficits.
The crucial factor now, however, is that technology must be used to increase manufacturing productivity and cut costs.
If we want to decrease the trade deficits of the US or the UK, I would suggest an industrial policy to domestically manufacture things imported from China and East Asia.
Strong use of automation and technology to increase productivity and to lower price is necessary. This process can be made faster and more efficient through public R&D programs, and state transfer of new technology to domestic manufacturers.
In an earlier post, I drew attention to a very interesting initiative in the US called the “Save Your Factory movement,” launched by a company called Fanuc Robotics America Inc.
There is an absolutely excellent analysis of this in a 2005 issue of Manufacturing Engineering magazine. It shows how automation can cut costs and even beat low wage countries like China::
Rick Schneider, “Robotic Automation can cut costs,” Manufacturing Engineering 135.6 (December 2005): 65–72.The US federal government needs to take up these ideas and implement this sort of policy at a federal level – which would make it more effective.
Moreover, the article cited above points out that from 1995 to 2002 the global labour force actually lost 22 million manufacturing jobs because of labour-reducing productivity gains through automation and robotics.
I would argue that it is extremely likely that the 21st century will see manufacturing employment as a percentage of the world labour force decline to a level as low as agricultural employment in most developed nations (2 or 3%).
Will this be a bad thing? Not necessarily. If output massively increases, prices are much lower and Western current account deficits fall or go into surplus, this will be a very good thing, and we will have an abundance of cheap goods.
But we will have to face the fact that, because of automation and technology, employment in tradable goods and services in many countries will probably fall dramatically. Our employment future will probably be mainly in services, education, and most probably in government-sector jobs or employment programs funded by government. There will probably be a great reduction in the hours that people need to work as well.
No doubt additional jobs will be created in new private industries as well, but government can step in and provide employment for those who are unemployed. It might well be that much of the government-funded labour force will be in education (e.g., universities), research or other services. A much greater labour force working in basic sciences and applied R&D in physics, chemistry, geology, biology, genetics, engineering and medicine would mean a much more rapid advancement of science and technology too – a virtuous circle.
In other words, in the face of massive productivity and output gains and cost reductions in many goods and services through technology, the government must use policies for full employment to maintain demand for such goods. The point is that should production go down the route of radical automation in the course of this century, then equally radical Keynesian demand management will be necessary to maintain demand for goods and services and ensure continuing rises in living standards.
I'm shocked--shocked that you haven't mentioned anything about resource delpletion. It seems fairly obvious that emerging economies will outbid declining western economies for liquid fuel such petroleum. A reliance on coal or natural gas to meet the needs of liquid fuel will cause the cost of coal and natural gas to skyrocket. The quantity of existing reserves are estimates.
ReplyDeleteA transition to a low carbon economy will cost several dozen billions of dollars and once again, the emerging economies will outbid declining Western economies for rare earth metals used in the manufacturing of solar panels. China is hording its supply of rare earth metals.
Th best thing the UK could do is move towards an agarian society with light industry and even that may not be sustainable in the end...
Reply to Anonymous 1
ReplyDeleteThanks for your comments.
On the issue of resource depletion, the answer is fairly obvious: we need to start looking for more resources and extracting them in larger quantities.
And once again this comes back to issues of technology and science.
If you want energy sources that don't rely on finite resources like coal or natural gas, then governments need to pump money into R&D now to create new technology like hydrogen fuel cells, more efficient solar cells, nuclear fusion and so on.
And, on the issue of rare earth metals, the fact is that many rare earth metals actually aren't that "rare" at all, they are just difficult to extract:
http://seekingalpha.com/article/103972-rare-earth-metals-not-so-rare-but-valuable
http://www.euroasiaindustry.com/page/508/China%E2%80%99s-Rare-Earth-Stranglehold
The issue of extraction is a technological and engineering problem.
What I am doubtful is whether technology will actually solve more problems as it creates more of them . The current energy and enviornmental problems were created by the use of fossil fuels and there is severe mass denial of that--because admitting it would require people worldwide admitting that there's something wrong with improving their standard of living and that without oil, most of them will barely be able to survive.
ReplyDeleteThe political will that it'll take to transition to a non carbon based society, isn't significant enough. For example, China is still increasing its dependence on coal and oil while supposedly spending more on developing green technology than any other industrialized country. It's still following
the U.S.' path of development by building a highway system larger than the U.S. one. They are making more traditional cars, not less. It remains to be seen how they will deal with oil scarcity. It seems very conflicted to me about the situation. The rest of the world is even less prepared than China. Aside from a few countries , most of the world isn't planning or acknowledging that there is a problem.
Energy demand is only a product of the problem. A booming global population is the heart of the problem that no one'll talk about. Population control is seen as inhuman. From what I've observed, economies keep growing rapidly as long as the working age population continues to grow and that is what is happening in the developing and third world. If the working age population is unemployed, it can threaten systemic stability. This is possibly why authoritarianism crops up in poor croweded countries. The need to repress potential chaos can be mitigated by the market economy. Improving living standards in poor countries is leading, as it has historically, to a population boom. It happened in Europe in between the 17th and 19th century. Population growth was followed by food shortages and threats to politcally stability. Europe was able to export its restless and surplus population to the New World. Then, the Industrial Revolution temporarily improved things until the Great Depression. International competition among European industrial powers degenerated into war, which you should know, is a natural check on human population for reasons that are obvious. In the early 20th century, when the semi-global economy's empires couldn't keep growing, war served as a demand and supply destruction tool. World War II simply obliterated economies, consumers and infrastructure, and most importantly competition. Ever since outsourcing began in the 1970s, the world has been moving incrementally towards more competition--towards a geopolitical climate similar to Europe in the early twentieth century. Getting back to population, current policymakers believe that democratizing college will solve all economic and enviornmental problems created, in a way, by the existance of more people to begin with. The triumph of the free market since the fall of the Soviet Union assures many that the people of the world will peacefully compete for resources while prosperity continues to grow. So far, in Asia, and in many emerging countries, that's what's happening.
ReplyDeleteWhat we probably disagree on is how long can global population and its subsets, energy use and resource depletion can continue before supplies get tight and things get ugly. Population growth is usually followed by [more resources or 'commodities, which allows population to keep growing ] or war, which cures the poplulation problem.[Resources and commodities aren't keeping up with economic growth, which is really a really intellectualized term for Human Growth. Corporations can't grow without humans]. The sharper the growth, the more severe and destructive the wars will be, if the 20th century's two World Wars are any indication. This is cyclic. Given the accelerating population growth towards the beginning of the 21st century, a serious conflict is overdue.
ReplyDeleteLet me put it this way, there are not enough tangible and intangible resources to sustain the global economy and there are not enough tangible and intangible resources to get humans to colonize space. The current manned space flights are very expensive. Commercial space tourism (a private version of what astronauts do now) would cost a billion dollars a traveller or customer.Complicated life sustaining structures would run into the trillions of dollars, at least. There's not even enough money in existance to pay for it, even if there was political will.
Been seeing the so-called "Driverless Car" in a few videos, lately. There's even a somewhat diverless 18-wheeler!
ReplyDeleteI think the Worker's Co-op movement as seen in Argentina may be the future for those not ready to sit in a rocking chair.