Globalization – What has it Really Meant to Trade, Jobs and Recovery

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This is a commentary you might consider passing on to your children, grandchildren, and friends with children and grandchildren. It speaks specifically to what jobs (and types of jobs) I believe will be available in the developed countries in coming years. If you agree with my observations you might want to consider passing this Newsletter along to friends and colleagues with children and grandchildren.

A recent article said:

the European Union will not back down from protecting its industries against Chinese competition it sees as unfair, but mutual self-interest will prevent a damaging trade war”.

That caused me to reflect on what I think globalization means in the context of trade, trade wars and jobs in the developed countries going forward.

First, it seems to me the following ‘types of jobs’ are protected for the long-term from offshore sourcing:

  • manufacturing and processing jobs that result in the generation of products that must be produced at or close to principal raw material sources, or are subject to rigid regulation and quality controls. The manufacture of food products and pharmaceutical products are examples;
  • service jobs that require direct application of specific skills ‘on the job’ in specific physical locations. Examples of such skills include electricians, plumbers, roofers, and labour associated with commercial, residential and infrastructure new construction and maintenance;
  • service jobs associated with high-end and localized professional services that require on-site personal interaction. Examples include business consulting services, financial audit and many accounting services, health care services, servicing of installed equipment, and multiple legal services;
  • service and maintenance jobs in the transportation sector where physical goods of any kind need to be moved from one place to another. Examples include rail and road transportation of commodities, foodstuffs, packages, and retail goods;
  • essential service jobs. Examples include fire, police and ambulance services;
  • jobs associated with resource extraction, since resources ‘are where they are’ physically;
  • agricultural jobs that require direct labour involvement – fruit and vegetable production for example;
  • government jobs, be they elected jobs or civil service jobs; and,
  • I am sure by now you get the idea – jobs where labour can’t be readily replaced by off shoring.

Simply put, in a globalized world, the only local jobs that are afforded long-term protection from off-shore sourcing are those that either:

  • result in manufacture of products that do not require significant labour hours per unit, or are so heavy or large as to make their transport economically prohibitive; or,
  • generate products or services that require local ‘hands-on’ labour to execute them.

For me, this makes talk of ‘trade wars’ with developing countries mere political rhetoric. Trade wars would exacerbate the current developed countries poor economic conditions. This is because where one of the two foregoing criteria are not met, the prices of consumer products would increase significantly as developed fully-benefited country labour rates were substituted for much lower developing country labour rates.

In the simplest terms, globalization after 1985 has:

  • resulted in an ability of developed country consumers to enjoy their lifestyles for longer that would have been the case without globalization. This is because they have been able to buy products at Wal-Mart or similar retail chains that have been ‘made in China and elsewhere’ at much lower prices than would have been the case had those products been manufactured in America or other developed countries; and,
  • seen the Internet link the world population, such that everyone now can see what is under everyone else’s kimono. People in developing countries like what they see, and it is human nature to want what others have.

Given the developed country debt build-ups and their fully benefited labour rates, globalization can’t be reversed – or can’t be reversed without serious pain in both the developed and developing countries. I don’t for a minute think such a reversal will occur, and in any event it would not solve the economic dilemma the developed countries find themselves in. That dilemma can be stated as:

  • most developed countries are over-levered at each of the Federal, State/Provincial and Municipal levels, as well as at the household level;
  • continuing globalization is not conducive to developed countries economic recovery from their debt and manufacturing job loss problems;
  • people today who make more money than they need are not all industrialists who employ people, and those who are industrialists don’t employ people only in their own countries. In many cases those who make more money than they need do so through the financial markets. Those who participate in the financial markets tend not to be (compared to industrialists) people who employ a lot of people. Moreover, the people they do employ tend to be the intellectual elite; and,
  • any country needs only a finite number of electricians, or auditors, or health care workers, etc.

I believe that what has, is, and will continue to transpire in the world economy is very Darwinian (i.e. very ‘survival of the fittest’) in nature.

You might want to review charts on globalization presented in Chart: 30 Years Of Increasing Global Economic Synchronization.

Topical References: Europe and China don’t need a trade war: EU trade chief, from Reuters, October 21, 2012 – reading time 3 minutes. Also see Topical Reference: Chart: 30 Years Of Increasing Global Economic Synchronization, from Business Insider, October 21, 2012 – reading time 2 minutes.

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About Ian Campbell