Helium

How will the west compete economically in a globalised world?

I have always believed that all the modern empires dominated economics through population size and manufacturing, gaining essentially a monopoly on manufacturing goods. From the US to Britain etc.

Reading the book "Rougue Economics" I came to wonder how the west is going to maintain their own economic competiveness. The book describes how the fall of Communism led to the breaking down of barriers between west and communist (and communist ally nations specifically India) which opened up economic relations whcih led to the advent of 'Çheap Labour',. Up until then economics of the West was essentially focused on trade between Europe, Nth America and was a rather closed system where ideologically different nations did not associate economically (communist and capitalist, theocracy - democarcy). 2 billion people (China and India) effectively entered the workforce who were willing to work for drastically less pay than their western middle class (who used to perform the labour tasks the new labourers do now) therefore forcing the unions of Middle classes of European and North American nations to accept lower wages to remain competive or risk their jobs being outsourced.

As capitalism essentially attempts to operate from where ever they can achieve the highest capital return for the least investment we see business' AND jobs moving internationally - predominantly east - therefore bringing affluence to the east and balancing the affluence of east and west.

But now, the Eastern countries with education investment have industrialised and are now educating more higher skilled people per year than any western nation. Now not only do the eastern nations have the manufacturing power through numbers and factories but also the tertiary trained population to be independant from the West.

This is all good for the world and especially raising standards of living for people around the world but how can the west hope to compete economically when goods can be made on mass scale at cheaper prices than the west and now services (or higher educated services; which was once the monopoly/main domain of the west) can be offered to. How do you compete with such huge countries?

The only solution I see is innovation, nano-technology and/or robotic technolgy can make manufacturing more economically competive than labor of the east. Creations like the internet can create new economic markets aswell and if anyone knows how to make money out of new creations/discoveries its Americans . But I see this as a rather flimsy fall back, whereby a western nation places all its hopes on being economically competive on their scientists, especially when eastern countries have significantly higher numbers of scientists.

The book explains that eventually labour wage disparity between east and west will equalise as the individuals of India and China become more affluent and the economies fully modernise but this is at least 50-100yrs, especially if you consider setbacks in political initiatives to defeat poverty in India and China.

But in terms of sheer numbers how do you compete in manufacturing tradable goods and services? What will the economies of the West be like in 30-50yrs, what will be their main exports, money making practices?

Kansas Bear

Have you read "Paper Money" by Adam Smith? If not, I highly recommend it.

ChrisF202

Economic failure?

Honestly, the one thing thats been affecting me recently is the gas prices. Though I suspect that the already high cost of living here in the NYC metro area is normal compared to the rest of the nation.

Things are honestly really not going bad for me (or anyone I know for that matter); the wallet is bursting, my parent's home mortgage is paid off, were still going out to eat, im still buying computer games, etc.

I do agree with this part though and this is what is playing a major role behind the cost of oil; unlike what some of my fellow citizens believe it has nothing to due with Bush (believe it or not ), Iraq, etc.

Oscar

I agree there will be no economic decadence of the West, it will be more like a kind of rebalancing between the Asia-Pacific sphere and the Atlantic one.

But it will already be a great shift considering what has been the West's domination in the world economy for more than 250 years. So in other people 's (non-western) view that's right the west will experience a kind of decay, in relative terms, so to speak.

Ray

What is the repercussion?

__________________


"Some have learnt many Tricks of sly Evasion, Instead of Truth they use Equivocation, And eke it out with mental Reservation, Which is to good Men an Abomination."

I don't have to attend every argument I'm invited to.

HAKUNA MATATA

Shek

Helium,

A few points:

1) The decline in unions in the US is partly due to increased competition overseas, but also due to changing technology and increased competition within the US. The growth of Toyota has placed huge downward pressure on the Big Three and hence, the UAW. Additionally, advancing technology presents business with two models: substitute machine for man or labor. To compete, labor must accept lower wages due to a lower productivity.

2) US manufacturing is at its all time high. Not quite a decline in my book.

Cafe Hayek: The State of Manufacturing in the U.S.

3) Capital inflows into the US are huge. For example, in 2007, net capital inflows were $657.4 billion, down from $833.2 billion the year prior

http://www.bea.gov/newsreleases/inte...nual07_fax.pdf

Although a slightly different measure, let's look at developed (US, Europe, Japan, etc.) vs. developing (China, India, etc.) foreign direct investment:

Hopefully, it is clear that the West is still the FDI "winner".

4) Cheap labor isn't necessarily what businesses want. They want productive labor at cheaper prices. Wage inflation in China is increasing as it's economy is at the red line. It has essentially tapped out its skilled labor force and cannot keep pace with its university graduates in the higher skilled jobs. Having to pull for these spots from the region has caused huge increases in wages in these sectors. China's output is still a fraction of the US and they are running up against real barriers.

5) The US and West still dominate higher education, and as long as the higher paying jobs are in these same locations, you'll still see the most productivity out of this hemisphere. Also, with greater political stability, you'll see more stable growth that is less suceptible to political shocks that can derail economic growth. China faces huge challenges in this area in the coming decades.

__________________
"So little pains do the vulgar take in the investigation of truth, accepting readily the first story that comes to hand." Thucydides 1.20.3

7thsfsniper

I have heard several different analysts(cnn and fox) say that we are only a small step away from $10 a gallon gas. ie, Something that interrupts production or refinement such as another Katrina or some other natural disaster. The other would be a mideast situation that results in more speculation and panic.

What do you think would happen and how would that affect some of the current views expressed above?

__________________
The nation which forgets its defenders will itself be forgotten

Shek

This would severely disrupt forward progress in India and China. It would hurt the West, but not as much as the major developing economies. Europe would be better able to cope since they could turn off some of their taxes so that the macroeconomic impact isn't as great as in the US. I'd expect to see lots more Prius on the road and dozen of new nuke plants in the US in about 10 years as well . . .

7thsfsniper

I usually try to look at the bright side of things but my scenario is a bit more glum. Do you think the food shortages caused by such a thing would cause civil unrest, here and abroad.? It seems that something like that could have a snowball effect, thoughts? I'm just seeing some of the questionable food crises that are being reported now and it seems too early in the game for that kind of panic, or am I wrong there?

gunnut

I don't think high food prices affect developed nations as much as they do in developing nations.

High food prices along with high fuel prices are inconvenient and annoying in the west, but represent possible starvation in the rest of the world. Just today there was a food riot in Egypt. People can't afford food there. We, on the other hand, can still afford food and gas, just need to cut down on that $4 latte every morning.

We are also better situated to cope with high food prices because we have a stable population. There are not more mouths to feed with every passing day. That's not the case in developing world. Africa and the middle east have the highest birth rate in the world. What's enough for today is not enough for tomorrow. They will need ever increasing supply of food.

Interesting to see that OPEC members have some of the lowest contributions toward world food programs that help primarily poor nations. This current food price hike is also partially, some say largely, caused by high oil prices. We can easily see who the real culprit is here.

__________________
"Only Nixon can go to China." -- Old Vulcan proverb.

7thsfsniper

So it basically comes down to oil for food. At what point does it become unprofitable for american farmers to produce, if at all? Does this fit any scenario?

Government won't be able to subsidize farmers, farmers can't afford to farm because of fuel prices, US won't be able to send needed aid. Am I totally off track here?

At what point does the US decide to take what it needs to help the rest of the world? Or is that not plausible? Why? How does food production in the rest of world fare?

1947

the west will be there and still play a significant role

1947

im just waiting for some Einstein to deliver us with some other alternative independent fuel source
the day OPEC realizes its in the fecal matter and oil will no longer deliver the power it did in the past
oh sweet sweet revenge

7thsfsniper

That would be sweet justice, but how can long can we maintain at this rate. Big oil is a big power. Even if we developed something like you are saying, they still have a shipload of cash that could buy up or retard the progress of alternate energies. Lobbyists are busy as we speak in the halls of congress trying to keep us on the tit. I think it may take the threat of non-existence to beat the greed monster, which is what propagates our current situation.

gunnut

The conspiracy theorist in me would say that we're doing our best to drain middle east while not touching our own stockpile. We actually refuse to even explore how much reserve we have under Alaska, the 2 coasts, and the central plains.

After middle east runs low on oil, let's see them try to grow food on that patch of sand. Oh it will be so funny.