!#71# Coming - Lower Living Standards and Lower Wages - Leading to a Modest and Equitable Way of Life

!±8± Coming - Lower Living Standards and Lower Wages - Leading to a Modest and Equitable Way of Life

There is no doubt that globalization will benefit more people than it will hurt in the United States and abroad. It is certain that it will also create new challenges, oftentimes quite painful though temporary. Today's harsh economic situation seems to be an example. It has caused a deep economic slowdown already affecting tens of millions Americans with no recovery in sight. Capitalistic globalization has a lot to do with this situation.

Consider the housing bubble which was fueled by extraordinarily cheap money provided by lenders. It caused the prices paid free of any connection to real value of the property in relation to rent or market supply and demand. The abundance of cheap money didn't come from Americans since they haven't been saving for years. It came from other countries known as the "global saving glut," amounting to hundreds of billions of dollars made available in the U.S. market. With money available to borrow, people bought overpriced houses far beyond their financial capability to pay monthly mortgage payments or sell for the price paid for. It is quite clear that without the global saving glut, America couldn't have a housing bubble or the resulting housing collapse.

Employment and jobs have taken also a very important global dimension. The most significant effect seems to be the opening of a huge global labor market. Along with thousands of Americans looking for work, millions of job seekers around the world are able now to compete for tens of thousand jobs offered by the American firms within the country as well as abroad. What is devastating for American workers is the presence of millions of substantially lower-priced foreign workers with the same skills. Even if they are not hired, they hold down the wages of high-priced American workers. Yet worse, instead of creating jobs at home, this immense pool of cheap labor relentlessly induces employers to create new jobs wherever workers with required skills are available for substantially lower wages. In reality, the main problem is not so much the outsourcing of jobs, which is relatively small, but creating them abroad rather than at home.[1]

Under the global free trade agreements, globalization has been causing an enormous societal upheaval- economic, political and social- approaching an inevitable global peaceful revolution tending to substantially upset the status quo in both developed and developing countries. It is causing downward slide in living standards in the advanced countries and upward moves of the same in developing ones. No one country or group of states can control or stop this phenomenal transformation which is taking shape and strength. At the most, any contrary effort by a state may only cause some minor delays in progress which would actually be detrimental to its economy rather than beneficial. The reality is that the world market needs cheap and abundant goods and services and to provide these, producers need cheap labor and favorable environment to maximize profits under a keen and unavoidable competition in global environment.

How is this transformation affecting the United States? Let's see first how much of America is owned by foreigners. The following few examples well illustrates the situation: Mining, 27%; information, 24%; manufacturing, 20%; professional, scientific, and technical services, 20%; and finance, 11%. But these statistics include all production firms large and small, if we look at the major and key firms, the foreign ownership picture is quite alarming. For example, foreign capital controls sound recording industries by 97%; commodity contracts dealing and brokerage by 79%; motion picture and sound recording industries by 75%; metal ore mining by 65%; database directory, and other publications by 63%; cement, concrete, lime, and gypsum products by 62%; engine turbine and power transmission equipment by 57%; rubber product by 53%; nonmetallic mineral products manufacturing by 53%, plastic and rubber products manufacturing by 52%; boiler, tank, and shipping container by 50%; coal mining by 48%, nonmetallic mineral mining and quarrying by 47%.

Now, let's look at the percentage of Americans annual consumption of foreign imports. These are goods that come from abroad instead of being produced at home. Here is just a few examples from 2005 showing the percentage and value in billions of dollars: Footwear, 92% [.590]; audio and video equipment, 90% [.967]; computer equipment, 70% [.404]; Apparel, 75% [.576]; miscellaneous manufactured commodities, 57% [.467]; communication equipment, 53% [.137]; semiconductors and other electronic components, 51% [,349]; motor vehicles, 39% [2,842]; pharmaceuticals and medicines, 32% [.613]; motor vehicle parts, 32% [.066]; iron and steel and ferro alloy, 29% [.443]; basic chemicals, 24% [.011]; medical equipment and supplies, 23% [.290], a total of 3.8 billion.[2]

Then there is no wonder that according to a senior administration official, the federal budget deficit for 2008 will set a record high close to 0 billion [3] which the government has to borrow from certain sources abroad more likely from the so called "global saving glut." by issuing government treasury bonds. Considering the past behavior of the lending countries, a good part of this huge amount will be spent to buy more of the American production and communication means, increasing foreign influence over extraction of the natural resources, production of goods and services. According to Fortune Magazine ( February 18, 2008, p. 58) foreign buyers set a record in 2007 by purchasing 4 billion of American assets. Many of the biggest deals were made by Asian or Middle Eastern buyers. Our annual trade deficit remains massive amounting to hundreds of billion dollars each year. It is this enormous amount of money spent abroad that comes back to acquire our means of production, transportation and communication. This trend is troublesome more so now than ever before. 'According to the Bureau of Economic Analysis, the rest of the world currently owns way more of America (stocks, bonds, real estate, etc.) than America owns of the rest of the world, by margin of .6 trillion.... Where it leads is grim: As a nation we eventually cease to be capitalists and become simply wage earners.... a country that goes too far down this road can be 'colonized by purchase rather than conquest.'"[4]

One would expect "Americans, in a period of falling home prices, a wobbly stock market and an ongoing war, to be less than satisfied with the direction of the country. It's natural. But Americans are not simply dissatisfied. They are very unhappy. O.K., deeply, pessimistically unhappy. Un-American Dreamy: 85% of respondents in an exclusive TIME/Rockefeller Foundation poll believe that the country is on the wrong truck." [5]

Americans are increasingly feeling that they have become the losers. A majority of 68% of the respondents in a Fortune Magazine survey indicate that free trade benefits the most the U.S. partners rather than the Americans. They fear about jobs lost overseas and wages reduced by global competition and now worsened by the failure of giant financial institutions, housing crisis and credit crunch. It is felt that globalization so far is undermining the middle class and enriching only the economic elite. As opinion polls demonstrate, this disparity seems to be a reason for unprecedented concerns about inequality in income distribution as well as upward economic mobility. According to a Gallup poll nearly 70% of Americans think that there should be a more even distribution of wealth. The earning gap between the highly skilled workers and the rest of the labor force has been widening since 1980s. Particularly, in the last few years the top few percent has seen an accelerating gain while the rest have stood still or fallen back. A huge number of Americans, 80% of them, think it is harder to maintain a middle-class lifestyle now compared to five years ago.[6]

Putting aside the housing crisis, let's see why is this happening to the working class in the United States? The basic reason is globalization of capital, production as well as marketing during the last decade. Availability of cheaper labor abroad, and far favorable production environment such as minimum or no requirements for health care or retirement benefits, minimum or no regulation regarding the work environment, and harshly competitive global market, all together have been causes for strong inducement for American firms to move their production of goods and services abroad. This process is still going on with an increasing pressure to be enlarged further. The first effect of this surge is imposing a cap or reducing wages. This is being seen all over the country from the airline pilots all the way down in nearly all firms involved in global trade. As demonstrated by the studies mentioned above, wages as well as middle class family income has remained nearly the same during the last five years.

Based on the character of the globalized trade and keen competition it creates in global market, the production firms have been pushed to resort to any means which would bring down the cost of production. Unavoidably, when the cost of production at home, despite of all possible reductions, cannot compete in international market, the firms are obliged to move their operation where the cost of labor, health care, retirement benefits put all together leaves some ground for competition and expectation of profits. The outcome has been an accelerating outsourcing the production.

Consequently, based on all the facts presented above, This process of stagnation in domestic production, reduced wages, health care and retirement benefits with increased unemployment, will impose unavoidable pressures on the middle and lower income families to cut down in their spending. As the process continues, these families will end up spending only in basic necessities, trying at the same time to save some for their health care and old age, if at all possible. Purchasing luxury or multiple items such as cars, television sets, cameras, many shirts, pants, shoes and dresses will be gradually reduced to basic needs. As the domestic production of goods and services along with consumer spending declines, so do the government revenues while its expenditures particularly in welfare programs, such as unemployment compensation, food stamp, antipoverty, medicaid etc., increases. There will be no other way but substantial tax increase to balance the budget. Because, we won't be able to borrow money to do so, as we have been doing for years, since presently we are borrowing billion a day to balance our budget and paying over 0 million interest daily on the accumulated national debt of nearly trillion. Since our projection of lover living standards as presented above is about a decade or two away, and if the level of budget deficit stays around to hundred billions per year, the nation will approach to the brink of bankruptcy by then and the United States will lose credibility to borrow particularly that our creditors will be foreign financial institutions as they are now. The imposition of any tax increase, specially a substantial one, would be a great but inevitable burden on the impoverished taxpayers.

The huge unemployment in addition to the new young workers entering the tied job market, will push the nation for substantial transformation in the workplace. One possible and democratic way would be to guaranty equality of opportunity at work place. The concept would require the production firms to hire anyone looking for job in their area of competence. If there is no open positions then those who are employed must let go an hour or two per week of their weekly work to the extent that it will provide employment for everyone. It will cut a little from the weekly or monthly pay of those already employed but will provide work and income for those who were unemployed. This process will guarantee full employment all the time.This concept is not easy to implement but well possible. For details of the process see Technodemocratic Economic Theory: From Capitalism and Socialism to Democracy by the author

Under this system, more likely, most people will work some hours less per week. Accordingly, they will have more time for leisure, enjoyment of life and self-fulfilment. Individual attention to exercise, art, music, poetry and literature will flourish, and necessarily results in creation of thousands of new and meaningful positions.

While this process of lower living standards taking place in advanced countries, developing countries also go through a quite different transformation. This process has already started in many developing countries where wages are extremely low and requirement for a healthy work environment, health care and retirement benefits are minimal. It has already caused outsourcing the production and marketing from the advanced societies and an urge from the part of the global corporations to establish production firms in these countries rather than in their own. China and India are two major examples. Such development of production of goods and services in these countries will gradually cause increase in wages and workers demand for a better working environment, health care and retirement benefits. It will eventually result in a higher living standards in these societies. Ultimately, the income level will be modified in both developed and developing societies and the living standards reach a comparable level under a global standards tending toward an equitable living ways. I estimate this end to be attained within five decades.

References:

1. Geoff Calvin, "A Recession of Global Dimension?" Fortune, February 4, 2008, p18. 2. http://www.economyincrisis.org, July 28, 2008. 3. Andrew Taylor, "Budget Deficit Nearing 0 Billion," Time, JULY 28, 2008. 4. Geoff Calvin, "America for Sale," Fortune, February 18, 200 8, p.58. 5. Bill Sporito, "85% of US Unhappy With Economy," http://www.time.com/ 6. "Workman's Blues," The Economist, July 26, 2008, pp.33-36.