March 29, 2024

Economix Blog: Behind the New View of Globalization

After a recent Economix post (as part of the election-year project called The Agenda) explaining that many economists see globalization as a major cause of the income slowdown in this country, Edward Alden of the Council on Foreign Relations noted on Twitter that this view was a new one. For years, economists argued that increased global trade did not have a large effect on wages or employment in the United States. The editors invited Mr. Alden — the director of the Renewing America initiative at the council, who previously helped run a council task force on trade and investment policy – to send along a more detailed version of his point.

A closer look at big issues facing the country in the 2012 Election.

Economy, Planet, Security, World and Health.

For decades, economists resisted the conclusion that trade – for all of its many benefits — has also played a significant role in job loss and the stagnation of middle-class incomes in the United States. As recently as 2008, for instance, Robert Lawrence of Harvard, one of the country’s most respected trade experts, concluded that trade explained only a small share of growing income inequality and labor market displacement in the United States.

Rather than focusing on trade, economists argued that other factors – especially “skill-biased technical change,” technological innovation that puts an added premium on skilled workers – played the biggest role in holding down middle-class wages. But now economists are beginning to change their minds. Responding to The Times’s recent survey about the causes of income stagnation, many top economists have cited globalization as a leading cause.

While the evidence is still not conclusive, it is pretty strong. Trade’s effect on jobs and income, which was probably modest through the 1990’s, now seems to be growing much larger. Among the recent studies:

• In “The Evolving Structure of the American Economy and the Employment Challenge,” the Nobel-winning economist Michael Spence looked at job growth from 1990 to 2008 in sectors of the United States economy. He found almost no net job growth in sectors, like manufacturing, in which global trade played a large role. Nearly all of the net gains occurred in sectors in which trade plays a minor role. Government and health care, in which trade plays almost no role, accounted for more than 40 percent of all new jobs.

• David Autor, David Dorn and Gordon Hanson looked at regions in the United States where companies are competing most directly with China. From 1990 to 2007, they found that regions that faced growing exposure to Chinese competition had higher unemployment, lower labor-force participation and lower wages than might otherwise be expected. And the effects grew over that period. In 1991, just 2.9 percent of United States manufacturing imports came from low-wage countries; by 2007, that had risen to nearly 12 percent, mostly from China.

• In the Council on Foreign Relations Task Force on U.S. Trade and Investment Policy, my colleague Matthew Slaughter looked at employment at multinational companies with headquarters in the United States, companies that account for roughly 60 percent of American exports and imports. From 1989 to 1999, those companies created 4.4 million jobs in the United States and 2.7 million jobs at their foreign affiliates overseas. From 1999 to 2009, however, those same companies eliminated a net of nearly 3 million jobs in the United States while adding another 2.4 million jobs abroad.

The usual rebuttal to these findings is to argue that they stem mostly from manufacturing. And manufacturing, the argument goes, is facing a long-run, secular decline in employment that is largely technology-driven, not unlike the story of agriculture in the 20th century. The job losses in manufacturing may seem as if they have been caused by trade, according to this view, but they have actually been caused by technological change.

Through the 1990s, that story was largely plausible. But over the last decade it is not. Manufacturing output in the United States is no longer growing as rapidly as it once was (and as you would expect if technology had simply been replacing workers in factories). Real manufacturing output grew just 15 percent in the 2000s, compared with more than 35 percent in each of the 1970s and 1980s and more than 50 percent in the 1990s. And one sector where the statistics are of dubious meaning — computers and electronics – accounts for almost all of the recent gains. In 13 of 19 manufacturing sectors, real output declined over the last decade, in some industries quite sharply. There is no question that over the last decade United States manufacturing has declined, taking away jobs and driving down wages for those who are still employed. Robert Atkinson and colleagues have a useful paper on this topic, showing that the loss of more than five million jobs in manufacturing in a decade was not primarily a technology and productivity story.

The real-world evidence makes it surprising that it has taken economists so long to catch on. The recent strike in Joliet, Ill., at Caterpillar – a true global company — ended with union workers being forced to accept an agreement that includes a six-year wage freeze, even as the company is earning record profits. Elsewhere, two-tier agreements, in which new hires earn wages and benefits roughly half as large as those in the old union contracts, have become standard in many of the manufacturing industries that remain in the United States.

One reason that economists may be uncomfortable talking about trade’s impact on jobs and wages may be concern that it could set off protectionist responses. And economists are right that expanded trade has certainly been good for the United States. It has brought us better and cheaper consumer goods, opened new export markets, lifted up many poor countries and strengthened American alliances around the world.

But I think the fear of protectionism is overblown. One unexpected feature of the great recession was how little protectionism it led to, especially in the advanced economies. The lesson of the Great Depression – that protectionism is counterproductive – seems to have been learned.

Instead, the evidence should produce some soul-searching about the causes of this country’s declining competitiveness. The list is discouragingly long: crumbling infrastructure, inadequate educational performance, stifling regulation and a cumbersome tax system. But it might not take that much to tip the scales in favor of the United States. The Boston Consulting Group, which has looked at the slight uptick in the nation’s manufacturing employment over the last two years, argues that rising wages in China, high transportation costs and falling United States energy costs should bring more manufacturing back home.

With the rapid growth of middle classes abroad, trade should be an opportunity for the United States to sell into growing markets, increasing opportunities and wages for many Americans here at home. But over the last decade, that has not been the story.

Article source: http://economix.blogs.nytimes.com/2012/08/29/changing-views-of-globalizations-impact/?partner=rss&emc=rss

Economists See More Jobs for Machines, Not People

The automation of more and more work once done by humans is the central theme of “Race Against the Machine,” an e-book to be published on Monday.

“Many workers, in short, are losing the race against the machine,” the authors write.

Erik Brynjolfsson, an economist and director of the M.I.T. Center for Digital Business, and Andrew P. McAfee, associate director and principal research scientist at the center, are two of the nation’s leading experts on technology and productivity. The tone of alarm in their book is a departure for the pair, whose previous research has focused mainly on the benefits of advancing technology.

Indeed, they were originally going to write a book titled, “The Digital Frontier,” about the “cornucopia of innovation that is going on,” Mr. McAfee said. Yet as the employment picture failed to brighten in the last two years, the two changed course to examine technology’s role in the jobless recovery.

The authors are not the only ones recently to point to the job fallout from technology. In the current issue of the McKinsey Quarterly, W. Brian Arthur, an external professor at the Santa Fe Institute, warns that technology is quickly taking over service jobs, following the waves of automation of farm and factory work. “This last repository of jobs is shrinking — fewer of us in the future may have white-collar business process jobs — and we have a problem,” Mr. Arthur writes.

The M.I.T. authors’ claim that automation is accelerating is not shared by some economists. Prominent among them are Robert J. Gordon of Northwestern and Tyler Cowen of George Mason University, who contend that productivity improvement owing to technological innovation rose from 1995 to 2004, but has trailed off since. Mr. Cowen emphasized that point in an e-book, “The Great Stagnation,” published this year.

Technology has always displaced some work and jobs. Over the years, many experts have warned — mistakenly — that machines were gaining the upper hand. In 1930, the economist John Maynard Keynes warned of a “new disease” that he termed “technological unemployment,” the inability of the economy to create new jobs faster than jobs were lost to automation.

But Mr. Brynjolfsson and Mr. McAfee argue that the pace of automation has picked up in recent years because of a combination of technologies including robotics, numerically controlled machines, computerized inventory control, voice recognition and online commerce.

Faster, cheaper computers and increasingly clever software, the authors say, are giving machines capabilities that were once thought to be distinctively human, like understanding speech, translating from one language to another and recognizing patterns. So automation is rapidly moving beyond factories to jobs in call centers, marketing and sales — parts of the services sector, which provides most jobs in the economy.

During the last recession, the authors write, one in 12 people in sales lost their jobs, for example. And the downturn prompted many businesses to look harder at substituting technology for people, if possible. Since the end of the recession in June 2009, they note, corporate spending on equipment and software has increased by 26 percent, while payrolls have been flat.

Corporations are doing fine. The companies in the Standard Poor’s 500-stock index are expected to report record profits this year, a total $927 billion, estimates FactSet Research. And the authors point out that corporate profit as a share of the economy is at a 50-year high.

Productivity growth in the last decade, at more than 2.5 percent, they observe, is higher than the 1970s, 1980s and even edges out the 1990s. Still the economy, they write, did not add to its total job count, the first time that has happened over a decade since the Depression.

The skills of machines, the authors write, will only improve. In 2004, two leading economists, Frank Levy and Richard J. Murnane, published “The New Division of Labor,” which analyzed the capabilities of computers and human workers. Truck driving was cited as an example of the kind of work computers could not handle, recognizing and reacting to moving objects in real time.

But last fall, Google announced that its robot-driven cars had logged thousands of miles on American roads with only an occasional assist from human back-seat drivers. The Google cars, Mr. Brynjolfsson said, are but one sign of the times.

As others have, he pointed to I.B.M.’s “Jeopardy”-playing computer, Watson, which in February beat a pair of human “Jeopardy” champions; and Apple’s new personal assistant software, Siri, which responds to voice commands.

“This technology can do things now that only a few years ago were thought to be beyond the reach of computers,” Mr. Brynjolfsson said.

Yet computers, the authors say, tend to be narrow and literal-minded, good at assigned tasks but at a loss when a solution requires intuition and creativity — human traits. A partnership, they assert, is the path to job creation in the future.

“In medicine, law, finance, retailing, manufacturing and even scientific discovery,” they write, “the key to winning the race is not to compete against machines but to compete with machines.”

Article source: http://www.nytimes.com/2011/10/24/technology/economists-see-more-jobs-for-machines-not-people.html?partner=rss&emc=rss

DealBook: Sony, Hitachi and Toshiba to Merge LCD Units

From left, Norio Sasaki, chief of Toshiba, Hiroaki Nakanishi, president of Hitachi, and Hiroshi Yoshioka, a Sony executive unveiled their venture on Wednesday in Tokyo.Issei Kato/ReutersFrom left, Norio Sasaki of Toshiba, Hiroaki Nakanishi of Hitachi and Hiroshi Yoshioka of Sony on Wednesday in Tokyo.

TOKYO — Sony, Toshiba and Hitachi announced on Wednesday that they would work with a government-backed fund to spin off and merge their liquid crystal display businesses, joining forces in the face of rising global competition.

The deal could create the world’s biggest maker of LCDs for mobile phones and cameras, with 22 percent of the market for small and
midsize screens, according to DisplaySearch.

The fund, the Innovation Network Corporation, will invest 200 billion yen ($2.6 billion) in the new company for a 70 percent stake, while the three manufacturers will equally split the other 30 percent, they said in a statement.

The Japanese government has long encouraged the nation’s manufacturers to consolidate as a way to increase their presence in global markets and better fight mounting competition from rivals like Samsung Electronics of South Korea, which is now far bigger and profitable than any single Japanese electronics maker.

But the use of public money to invest in private companies, especially in volatile industries, could draw fire at a time the government is struggling to pare down its burgeoning public debt. Sony, Hitachi and Toshiba have lost money in their LCD businesses, though Toshiba’s returned to profitability last year.

Still, the overall market for small and midsize LCD screens is booming. Sales are likely to jump 22 percent this year, to $24 billion, according to DisplaySearch, an industry research firm.

“By integrating each partner company’s wealth of display expertise and know-how, I am confident the new company will become a driving force for technological innovation and new growth in the rapidly expanding” market, Howard Stringer, Sony’s chief executive, said in a statement.

The newly formed business, named Japan Display, will hire managers from outside the three companies and invest in new production lines, the statement said. The companies, which expect to complete the merger by the spring, plan to increase sales by then to 750 billion yen ($9.8 billion yen), up from the expected 570 billion yen ($7.4 billion) for the three units collectively.

The venture must gain approval from antitrust regulators in Japan. Authorities here have been supportive of the government push to
consolidate Japanese industry, however.

Since 2009, the Innovation Network Corporation, 90 percent of which is owned by the government, has helped Japanese companies make acquisitions abroad and invested in promising new businesses in the manufacturing and new energy sectors.

This year, the fund took a 33.3 percent stake in Japan’s first low-cost international airline, a joint venture between All Nippon Airways and a fund based in Hong Kong.

For Sony, Japan’s largest exporter of consumer electronics, spinning off its LCD business will help the struggling company focus on areas where it is more competitive, like advanced sensors for digital cameras and mobile phones. In July, Sony reduced its annual profit forecast by 25 percent, to 60 billion yen ($771.24 million), as a result of lackluster sales.

Article source: http://feeds.nytimes.com/click.phdo?i=145f4dda3c4d840018df924bff8065bc