, , , , , , ,

There was an opinion piece by Professor Tim Jackson in the May 27, 2012 Sunday Review section of the New York Times. Professor Jackson teaches sustainable development at the University of Surrey and believes that prosperity can and needs to be achieved without growth given the world’s finite resources. His May 27th editorial I believe takes another tack by asking, is employment reliant on economic growth and increased productivity? He does not seem to believe that they are necessarilty correlated and opts for a lower labor productivity through shorter work weeks. It not a new argument and ignores technological displacement of labor.

I have been thinking that we need to convert to an “inefficient” economy to have sustainable growth and stable governments. This idea borders on either lunacy or Marxism/Communism to many neither of which I subscribe to. Nonetheless, for consumption based mature economies such as the U.S., it will be a necessity. Unlike China and India the U.S. and other Western nations have populations that while aging, are not growing geometrically. The demographic of an aging population presents it own problems, which can be partially addressed by continuing to employ elder workers as expert advisor/employees, allowing younger workers to rise through the managerial ranks. The problem of an excessively large potential labor pool as exists in a number of emerging nations is another matter.

Labor is a double edge sword for China and India and other countries with large populations of low income citizens. It provides a source of cheap labor which attracts Western and emerging local industries, but the size of the population risks political instability should labor be displaced, technologically or otherwise. China and India each have economic policies that are labor, rather than capital centric. This is not to say that they don’t make use of their capital and will continue to exact intellectual property from Western countries that seek to access their markets. The corruption and bureaucracy that may seem to impede efficiency from a Western capital centric economic viewpoint enhances local wealth to workers on a trickle down basis at all levels. While historically the economic disparities of trickle down corruption and bureaucracy have led to the overthrow of earlier regimes, each country is cognizant of this risk and periodically tries to achieve a greater balance to avoid a tipping point. This parallels social welfare in the capital centric systems of Western economies. The current debate over austerity and debt relief in the Eurozone is a reflection of this tension.

Western businesses and governments have been promoting globalization as a catalyst for economic growth. On a global macro basis it is a valid thesis as the economic condition of emerging nations has improved. It also has increased consumerism in Western economies by shifting some labor and capital costs abroad, lowering tax costs and providing cheaper goods to the Western home market. For Western labor, with diminished union power, this shift has been compounded by technology permanently displacing workers, leaving new but reduced employment opportunities in high tech and service sectors. This will continue to advance and poses the greatest threat to world economic prosperity, as diminished labor wealth reduces Western consumer purchasing power. China and India are still derivative economies. While at some future time Western countries may regret wishing that China and others supplant domestic consumption for their export economies, at present China in particular will have a hard landing should both Europe and the U.S. go into a sustained recession. China and other successful emerging markets with large currency reserves want to increase their investment in Western countries to mitigate this exposure. For these potential investors and for these Western countries, it is essential to continue to encourage consumption and to do this they need to maintain higher employment, with sustainable wages and lower public debt. Western corporations and governments need to realize that their survival will be based on this. It is not a matter of “capital” growth, but of labor growth.

On a micro level business makes profits by becoming more efficient. Accordingly, technological replacement of more expensive and less efficient labor is a good thing. In the aggregate, however, this will deprive these companies of customers. Emerging nations will buy from their own companies, not in the long run from foreigners. They have and will progressively restrict foreign capital investment in their own productive industries leaving Western companies to focus on their own domestic Western markets. They need to develop this market for their own long term good, by adopting a more macro labor focus in their economic policies. To achieve economic growth to retire the U.S. and European debt, workers in these countries will need to slow down productivity and have the labor force expanded. This is in essence what I believe Professor Jackson is saying. It seems counter-intuitive, but its not.

It is not without risk. It will selectively lower wages and individual purchasing power, likely produce some near term inflation and will increase the economic impact on the fixed incomes of the aging Western population. It will allow more labor mobility, ultiimately grow purchasing power and reduce the risk of political stability. It is not a panacea. Concentrated capital needs to be addressed as well, but that presents a political and business challenge. Expanding labor is something business can do themselves if it looks at its problem beyond its immediate circumstance.