WHY THE FOCUS SHOULD BE ON JOBS AND EMPLOYMENT

Auburn Hills, Michigan, Nov. 02, 2008
Lloyd Williams

Not for political gain. But because this is the only true way to lift the economy.

If there are no jobs there is no income and there is also no ‘produce’. If there is no ‘produce’ where is the collateral for the financial sector? Commercial paper is as valuable as its collateral. At least that is what traditional economics taught us, until highly ‘creative’ financial products taught us to ride an unreal wave. Financial markets across the world followed in the footsteps of the so called geniuses of Wall Street, ignoring all traditional wisdom. Even India that stayed financially conservative for the last 10 to 15 years started to roll the dice in the global financial markets. But to its credit India had a growing GDP (translated, produce and jobs) and developed the kind of surpluses that can bail out any country from any tsunami, in literal and figurative terms. Yes, no production (goods and services) means no jobs, means no income, and that means no purchasing power. No purchasing power means low demand and that leads to cutbacks in supply. Very soon, with the growing inflation in India and China, middle class America may find Wall Mart expensive.

The economy has set itself into a vicious circle that initiated with greed and some arrogance. Low cost countries proffered higher profits to a few. Production moved overseas. Services moved too (call centers and BPOs). More people lost their jobs in America and that directly reduced the purchasing power of the Americans and the ability to pay their mortgages, which in turn adversely affected the demand for products and services. The spiral nature of this cause and consequence has led the economy to where it is today. The greed did not stop and now ‘cost cutting’ has become absolutely imperative. The irony is, cost cutting was necessary in ‘good times’ too, if not for self then at least for the community at large. Just because you paid for your hotel bill does not mean you could leave the lights on when you not in the room. Conservation is, and will always be, an ethic.

As an aside: There is no way the American workforce can compete with its Chinese counterpart who makes $5 per day and lives in sub-human conditions. In fact the International Labor Organization should establish a level playing field and the interest of the Chinese worker too protected. With the passing of a new labor law in China and new labor rates in some of its provinces, the cost of production will eat into Chinese profitability. And, with the US customer unable to consume all of Chinese, albeit cheap, production, there is hope that the labor markets would stabilize.

You can get anything cheap. But at what cost? That is the paradox we are dealing with. Cheap has an invisible price tag. Sometimes we feel that it is not our problem, it is a Chinese problem. But think again. You can only reclaim that much land from the ocean before the ocean starts to push back. The unfair playing field has finally affected the economics of the people who initiated this game, us. We have created and fed the Frankenstein that is now out of control. Fortunately for us, and ironically so, unless this Frankenstein starts to feed on a healthy and realist diet plan the creature will crash and burn too, and with it will go all the hyped up investments in Asian markets. Layoffs in China and India are starting to happen.

It is time therefore, to look at strategies to create employment in the US. It is time to re-ignite the production machine here. No amount of bail outs on the already superficial financial sector is going to bring confidence back, at least not until till the family can earn a living and put food on the table. It is also going to require some sacrifice from all groups of the American populous. Wages cannot be as high as they were inflated (UAW please pay attention); business owners have to sacrifice some profits to keep prices down; consumers may have to pay a little more for goods and services to support the American workforce; governments can sacrifice some of their pet programs to reward industry for creating employment; congress can ensure that the cost of education is lowered so that the future of the country is ensured; politicians require to sacrifice some ideology to reach across the isle and make the system work. This may all seem idealistic and a very tall order. But we rather start working on these objectives before the middle class is completely annihilated and the poverty of America compromises the security of the nation. A stronger America is better for the world, including India and China. There is no substitute and no better solution to having people gainfully employed and creating domestic product once again. Let’s get the force back to work. Let’s invest in industry and motivate employers to keep the workforce employed.

Lloyd Williams, Chief Operating Officer, Ranal Inc. Michigan