The days of near full employment and turning up for work in cushy well-paid job are at an end for millions of blue collar and white collar workers.
Anyone with any degree of understanding of economics knows that the ultimate end game of this economic transition is global wage rebalancing.
What this means is that people in Asia will move towards an era of prosperity that hasn’t been seen in the area for hundreds of years as their wages increase relative to the global marketplace. At the same time, wages in the West will come down so that these economies can be more competitive in the face of fierce competition for jobs from the emerging economies.
The oil and many other natural resources in both the UK and the US are now almost exhausted. The manufacturing capacity of both countries has been shifted to Asia. In order to bring this manufacturing back to America and the UK, the cost of labour has to fall dramatically. This is unlikely to happen within a year or even a decade. This is a long-term process.
The old argument of course is that America and the UK have huge entrepreneurial and intellectual capacity. If you examine the education figures you will see that this simply isn’t the case. India turns out far more highly skilled technicians and engineers than the US and the UK combined. The cost of living in these countries is far lower than it is in the West.
The Germans have a saying … we can’t run an economy giving each other haircuts.
Since the new millennium, the West, particularly the United States and the UK, have been living on a consumption boom funded by Asian savings. This boom increased consumption of goods and services throughout the economy but the wealth was a complete illusion, as we can now see.
Property prices went to ridiculous levels and people cashed in their home equity to buy toys and holidays. This provided a further stimulus to the economy and bars, cafes and all sorts of secondary businesses sprang up everywhere a lightning pace.
As the boom has turned to bust, most of these businesses are going out of business at a record pace. The reality of the economic wealth of the West is starting to be realised everywhere. House prices are still at ridiculous multiples compared to historical averages and if this bust is like previous busts, they still have a long way to fall in the UK although many parts of the US, especially in areas like Phoenix and Detroit, they may have already bottomed out.
Companies will no longer pay workers to produce cars which can be produced faster, cheaper and better in Osaka or Guangdong. Why would they? We are already seeing this move as companies like Wal- Mart, Nike, Apple and Dell move their assembly and production processes to these lower cost areas of the world.
The implications for previously middle-class and blue-collar workers are starting to be felt. What is making the matter worse is that future tax revenues are being thrown out zombie banks in exactly the same way as happened in Japan.
It didn’t work in Japan and it won’t work in the UK or America. The Japanese stock market, almost 20 years later, is still down over 75% and the property market is still down over 70%.
The bailout is stopping the productive capacity in the economy from moving to the competent entrepreneurs and is keeping the productive resources of the economy in the hands of the incompetent banks.
The same people who got us into this mess are now siphoning off our best chance of getting out of it quickly. If you aren’t angry about these bailouts … you should be. I have a simple solution to companies which are too big to fail…break them up before they become too big to fail!
