1. The International Dimension: Changing Flows of Capital, Manufactured Goods & Jobs Conversation on the SC Economy October 21, 2005 Bill Ward Center for International Trade Clemson University

2. Economic Growth & International Realities Large US trade deficit, low US saving rates & large inflows into US capital markets (“non-competitive” $) Declining manufacturing employment – Globally as well as nationally SC traditional Mfg base (textiles) at the tip of the spear of change SC unemployment rate above US average (but below Europe’s rate)

3. Global Imbalance & the Juxtaposition of Two Factors Growth in global supply of tradable manufactured goods, caused by –Market liberalization in LDCs & FPEs –Dramatic rates of productivity growth US as sole global demand generator –Endogenous to the US economy –Exogenous to other national economies that pursue export-led growth

4. Comparisons to Period following 2 nd Industrial Revolution (after 1860s) Supply shock comparable to 2 nd Industrial Revolution in late-19 th & early 20 th century Then juxtaposed against 19 th century gold standard that limited national and global options for monetary expansion

5. US & Global Economy at Start of 20 th Century US price level dropped by half during 19 th century Mercantilist views and beggar- thy-neighbor trade environment going into 20 th century

6. SC, US & Global Economies at Start of 21 st Century No “pricing power” for Mfg goods producers Increasing Mfg output coupled with decreasing employment—US and globally Talk of “labor force competitiveness” solution for Mfg job creation

7. US Mfg Output versus Employment (Source: US Bureau of Labor Statistics)

8. US Mfg Employment 1979-2005 Year Jobs (000) 1979 (historical peak)19,426 198517,819 199017,695 199517,241 200017,263 200116,441 200215,259 200314,510 200414,329 2005 (1st Qtr)14,258(p)

9. SC Mfg Jobs—1980 to 2005 YearSC Mfg Employment 1980398,411 1982367,400 1987365,800 1990389,540 1992366,900 2000352,570 Mar 2005264,800

10. The Demand-side Problem Endogenous demand limited by –PCE shift towards services –Low prices of competing Mfg imports Exogenous demand limited by –Export-led growth policies in major countries (including Japan & China) –EMU constraints in Europe –Labor competitiveness equation in the face of resulting Global Imbalance (exchange rate for $)

11. The Endogenous Side: e.g., Growth of U.S. GDP & PCE From 1990 to 2004, U.S. real GDP grew 54% This does not translate into comparable growth in demand for Mfg goods

12. Shifting Demand for Goods versus Services within U.S. GDP

13. From GDP Growth to Endogenous Demand for Manufactured Goods GDP grows 54% 1990 to 2004 41% of PCE goes for goods Straight-forward math: growth in domestic demand for goods 1990 to 2004 was only 21%

14. Productivity of U.S. Mfg Labor Meanwhile, Mfg Output per Worker in U.S. increased 83%* between 1990 and 2004 In a closed economy, that is a recipe for job loss.

15. Open Economy Math In an open economy, US company success and US jobs depend upon Global demand growth and US global competitiveness

16. Global Demand Constraints EMU fiscal balance agreements & policy on monetizing deficits Japan financial sector instability & continued use of export-led growth Asia Mfg cluster all have weak financial sectors and follow export- led path post-1997 (3 Chinas, Thailand, Malaysia, Korea)

17. Global Demand Growth Limiters Willingness of investors and risk managers to hold more US and UK financial instruments—Making them the “gold mines” of 21 st century Particularly in the face of growing global imbalances posed by forces discussed here

18. The Global Supply Shock Market liberalization of large LDCs and FPEs –China (20% of global workforce) –India (15% of global workforce) –Rest of East Asia + FPEs push totals to more than 50% of global workforce Dramatic productivity growth 1990- 2005 (following slides)

19. International Manufacturing Competitiveness factors tracked by BLS These three factors taken together –Productivity –Wage Rate –Exchange Rate Give you “Dollars of labor cost per unit of output”

20. 2 out of 3 involve controlling workers’ purchasing power Low wage rates Low value of Dollar

21. The third competitiveness factor Productivity –Increases competitiveness of U.S. companies, but –Decreases the number of jobs if Global demand does not grow even faster, and/or U.S. does not gain increasing share of market

22. Growth in Productivity Abroad 1990-2003 Canada 79 % Australia109 % Japan145 % Korea247 % Taiwan284 % Belgium134 % Denmark 73 % France164 % Germany 77 % Italy 45 % Norway 43 % Sweden179 % United Kingdom132 %

23. Changing Shares of Global Mfg Value Added

24. Percent Change in Mfg Employment 1992-2003

25. Global Loss of Mfg Jobs 1995-2002 Mfg JobsMfg Jobs 19952002Change Region(000)(000)(000) Africa4,2423,926- 317 Americas31,94431,691- 253 Asia76,59458,395- 18,199 Europe58,31955,657- 2,662 Oceania1,3211,395+ 74 Globally172,421151,066- 21,355

26. China Mfg Employment 98 million Mfg jobs in 1995 80 million Mfg jobs in 2001 83 million Mfg jobs in 2002 Out of global total of 150-200 Million 200 million potential new workers yet to come out of rural China

27. Mfg Jobs in Industrial Countries US about 14 million Canada less than 2 million UK less than 4 million Japan about 11 million Germany about 8 million EU (25) as a whole about 25 million Ireland a few hundred thousand

28. “Competitiveness” SC must help keep Mfg COMPANIES competitive Nevertheless implying reductions in traditional Mfg employment And implying need for new strategies for work and wealth besides Mfg job creation Thus, verifying the importance of work of the OTHER presenters

29. End of Presentation Supplementary Slides Follow 1.Shifting sectors of employment 2.Declining Mfg share—selected countries 3.Mfg jobs mirror Ag jobs in 20 th century

30. Shifting Sectors of Employment 1990-19922000-2002 MaleMale Upper Middle Income Countries Agriculture (1)22%8% Industry (2) 32%22% Services (3) 46%70% High Income Countries Agriculture (1) 6%4% Industry (2) 38%19% Services(3) 55%76% United States of America Agriculture (1)4%1% Industry (2) 33%14% Services (3)62%85%

31. Declining Mfg Share of Jobs 19902004 United States18.0%11.8% Canada15.7%14.4% Australia15.0%11.3% Japan24.3%18.3% France21.0%16.3% Germany31.6%22.7% Italy22.6%21.8% Netherlands19.1%14.0% Sweden22.3%14.9% United Kingdom22.3%14.9%

32. Manufacturing Productivity and Employment in Early-21 st Century Mirror Agriculture in 20 th Century Farm Workers As % of Total YearUS Employment 191932.8% 193029.8% 194025.3% 195018.0% 196011.5% 1970 6.0% 1980 3.9% 1990 2.6% 1999 1.3%