If you thought our education problems did not have any simple answers, why would you expect turning economies around to have one? We’ve heard the pronouncements of would-be economists: The World is Flat! China is the future ! (Sort of reminds me of the advice given to Benjamin Braddock in “The Graduate”: Plastics!)
I, for one, agree with Dr. Neal Spence (who shared the Nobel Prize in Economics with Dr. Stiglitz). His new book, The Next Convergence, purports that we are in century three of the Industrial Revolution, rather than the dawn- or eclipse- of yet a different age.
From 1750 forward, the world economy revolved around poverty. For two centuries, countries roused their innovative growth forces to join Britain in their industrial revolution. The average income of those countries has risen by a factor of 20. But, only 15% of the world’s population benefited from these changes.
Since 1950, this force has become more global in scope. Just including China and India changes the percentage affected by another 35%. Dr. Spence expects the third century of the Industrial Revolution to affect more than 75% of the globe’s population. Which will mean a shift in where the action is- not a change in action.
Given those facts, he believes we need to understand how to prepare for more globalization and trade. He does not espouse the political malarkey that is usually associated with such endeavors. And, he also points out that while China may seem a success, there’s way more to that situation. As a country, it may be rich, but the bulk of its population is poor (with a fair number of rich oligarchs). And, their ability to continue to grow will be limited, since it is losing its low-cost labor advantages to other regions. It’s also unclear if China can progress from a manufacturing to service economy.
By the way- he also admits that his crystal ball is less than crystal clear! (How refreshing!) But, one of the key facts in his book is: Advanced countries don’t grow at 10% (or even 6%) annually for more than a few years in a row. A fact that has a great deal of import for American citizens, among others.
I agree that the Industrial Revolution is still in progress and slowly expanding to include 3rd world countries. We live in a world community and our country is going to have to adjust to this reality.
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Thanks for dropping in, Janette.
I, too, think that we- and China AND Europe- MUST recognize that the world is changing. And, that economic upturns will not be as high or as long, once a certain economic level is reached.
It’s like the rapid escalation of knowledge – but now it’s also the dissemination and exploitation of that knowledge by others.
Roy
Not sure depending on China is good. Have seen things in India that compete and supply better. There is no question that the economic models of old do not work but what concerns me is the advisors still live in the old world trying to do the same old same old. The world has changed. It is changing even more. The power bases have shifted.
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Roberta- you are absolutely correct! And, that’s exactly the sort of discussion I hoped my post would provoke.
Now, if we could only play telephone and extend that discussion :-)….
Roy
Funny thing… Rostow’s Model of Economic Development…
Thank, Roy, for reproducing it. You just gave me an idea for a new blog (http://www.solutionfinder.co.nz/) that I’ll put up in the next couple of days or when my amanuensis get around to it. It’ll be called something like “The S-Curve”. And I’ll have to have a read of that book:”The New Convergence”.
It’s a strong argument, but I think that there are other forces at work. Particularly with the U.S. and other developed economies. About 15 years ago, I suggested that the biggest problem with the developed economies, that they are getting too stuck on the non-productive jobs – at the time, I was suggesting that many developed economies were arranged so that, for every productive worker (those who really add value) there were often more than 10 non-productive workers (managers, researchers, etc.), while in the undeveloped countries, like china and thailand, the ratio was 10 or more productive workers to each non-productive worker. Since then, the ratios have changed, but the undeveloped economies are still running with more productive than non-productive workers, and the ratio for developed countries has gotten worse.
Anyway, thank you for your thought-provoking blogs – I’m working my way through them, to see what else will trigger ‘deep thoughts’
Glad to oblige, Peter. And, wonderful to have met your acquaintance earlier, as well.
I am not sure that the ratio you quoted obtains. However, it certainly seems to be the ratio with the road crews that work on our roads here in the States.
I think there is a greater ratio of non-productive to productive workers in the States compared to China and Thailand- but the difference is closer to 2 or 3 compared to them. Not 10:1 here and 1:10 there.
But, if you use the compensation ratio- that’s a whole ‘nother ballgame. The salary ratio here is closer to 50 to 100 to 1. And, probably 5 to 1 in China and Thailand.
That may be the proper focus for your new article.
I’m looking forward to it.
Roy
In 1995, when I first saw the figures, NZ’s ratio of value-adding workers (productive people) to other jobs was 1 to 8. At the same time, the U.S. ‘s ratio was 1 to 12. The U.K.’s figures were 1 to 10. I had a hard time getting figures for other “western” countries, but what I could get suggested that hey were in the same ballpark or higher. Surprisingly, with the plethora of information available now, it’s harder to get equivalent statistics, but what I am finding suggests that the ratios are even “worse” than they were in 1995, while the chinese and other ones are staying more or less the same.
I take your point about the compensation ratios. And they seem to fit. However, as far as I can tell, the undeveloped countries have ratios that are at least comparable to those in the States, but are dropping as workers get better paid, and more “western” style models move in.
Peter:
I am not quite clear on your ratios. But, if my surmization is you are saying that one employee is working and 7 others are doing supervisory work, then I believe your statistics are absolutely incorrect- at least when it comes the the US and Europe. The number of non-producing employees to employees in the States and Europe is closer to 1 to 10.
And, given that number, the fact that the total compensation ratio is closer to 5:1, there is a real economic problem.
Roy
Whats with all the Made in China stuff I see everywhere. There’s nothing that not “Made in China”… 🙂 And really, are we as consumers depending on one country to do the manufacturing for us. And why doesn’t all that manufacturing and export make them among the richest countries. About it moving from manufacturing to service providers, going by what’s happening, that might take time.
Also, does the graph become flat later on. In the lay man sense, will there be a time when industrial “development” or development of any sort cease to exist because we might reach saturation of some sort, or just might run out of ideas 😉
Am I the only one talking nonsense here 😉
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Actually, it’s the growth that gets flattened. Like I wrote to someone yesterday, people are amazed when I tell them that America manufactures a higher volume of goods than does China. We just arent’ growing those businesses as much, Hajra.
And, I am sure if we (or anyone) developed some vital new technology, that sector of the economy will grow dramatically. It’s just a question of how much of the overall economy it consumes…
Thanks for dropping in!
Roy
Thats news to my ears… thanks for keeping us informed!
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Hajra:
It’s also important that we align our businesses to the trends that exist. Not the ones we want- unless we have the power to make them happen.
Thanks for your comments.
Roy
You touched a bit if China could change from manufacturing to more of a service industry. I see the future with a stronger need for the service industry, manufacturing seems to be finding its way wherever they can find lower cost labor, taxes, materials, etc.
It’s intersting Roy that what you discuss seems to me to boil down to ‘change’…. a real change in what we do as a country and as individuals. We have been spoiled far too long. Now it’s back to using our brains and stepping out of the box to achieve an economic success.
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Lynn:
You broke it right down to the essence. That was a great summary!
We seem to want to solve every problem by never changing our perspective. Using your son’s love as an example: You keep coming to bat expecting only fastballs. And, you are striking out. Maybe you should see whether the pitch is a curve or a slider, adjust your thinking, and aim for that base hit! This works for business and governments, too!
Thanks for dropping in.
Roy
This sounds like a much better understanding than the Peruvian president has who wants to keep everything within the country!
I’m curious about the consequences of such changes to traditional cultures who may not be so happy to welcome the industrial revolution in their area. Will everything be taken over by productivity?
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Samantha:
Not everything has to be focused on productivity. That is just the way the conventional management has been taught.
If you look at what some of the car companies are doing now with their manufacturing and some of the progressive steel manufacturers, you would be surprised. By ceding some control to teams, and letting them self-design the workflow, the employees are happier and the production is at least as high (usually much higher) than in theory X organizations.
Thanks for the comment- and the additional reference!
Roy
Very intriguing and lively conversation going on here, Roy — kudos for invoking discussion!
I’ve enjoyed reading each and every comment and your replies. Now I’d love to have your opinion on something I’ve had stuck in the forefront of my mind for the past two years …
And please pardon me if this sounds rudimentary. Government and problems of democracy was NOT my favorite class. However …
What do you suppose would happen if the entire bottom were to fall out on our economy? I mean the royal freakin’ “flush” … right down the toilet. Total collapse.
Would we be standing in soup kitchen lines again? Would a loaf of bread actually be priced at what it’s really worth? Like about 39 cents? And how about bartering for goods and services? Would that practice come back en vogue again? Would people want to get to know their neighbors?
No, my middle name is not Pollyanna. But sometimes I wish we could start from scratch again and this time around …
Do things right!
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Melanie:
First, I would like to steal the comment from Dr. Spence: My crystal ball is slightly foggy. Given that caveat, I need to add one more point. I am not sanguine about America given the (unfortunate) rise of the know-nothings that seem to be empowering the Republican Party. (There actually is a proposal- that will presumably hit the floors of Congress in a week or so- to raise the taxes on the lower and middle class, while lowering the tax rate on the rich.) Yes, I know, I try to keep politics out of this blog- but your question does not leave enough leeway.
The rich have gained tremendously in the economy of the last 20 years- at the expense of the middle class. And, the primary means by which a country remains stable is to have a healthy middle class. (Note the tremendous – by population percentage- demonstrations in Israe-l against the fiscal policies that dramatically tilt to the rich; if the same percentage marched in America, it would mean 30 million people!) And, with out ridiculous subsidy to the petroleum companies to incorporate ethanol into their gas blends- which is required by law- this not only reduces the coffers of the treasury, enables the petroleum entities to pay virtually no taxes, it raises the price of food. (If you can get 50% more selling your corn to make ethanol than you can for selling it for food- which would YOU do?)
Further, even Business Week, that ultraliberal magazine (yeah, right) called for banks to reduce the principal of the mortgages and forgive the loans to companies- for the good of the world economy (which would mean, I guess, that the ridiculous pay to their executives might drop to only 50X their average wages).
Regarding your question about bartering- you can do that now- at your own risk. The IRS considers a barter to be made at the RETAIL price of your service or goods. So, it’s as if you received that income. Yes, I know you charge $ 100 an hour for your consulting, but only consider $ 25 of it your compensation. It makes no difference. You must list the retail value of your barter in your revenue- and the retail cost for the received item- if a reasonable and customary need for your business- as an expense.
We need to have a change. I, for one, agree with Business Week (heavens to Betsy!).
Roy
Thanks, Computer Mannheim, for the visit.
Glad you like my blog.
Roy
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Nice to meet you, Freeman!
Thanks so much for your visit and comment.