« The ups and downs of productivity growth | Main | US productivity doubts »

Friday, October 13, 2006



Some industries just become outmoded faster than others and IT is chief among them. It probably does mean lower standards of living since so much was overinvested in them. Even now this overinvestment is far from being totally absorbed. The education and careers thrown away don't come cheap.

Arthur Eckart

I agree, giving up comparative advantages is negative for an economy. However, it's uncertain if that's really happening. IT hardware (or PC computers) has become a mature and commoditized industry. So, I doubt the U.S. still has a comparative advantage. Lower prices have become more important (except perhaps for Apple computers, Dell's low cost business model is under pressure, not sure if IBM still makes PCs, etc.). There are typically labor shortages in emerging industries, because it takes many years to acquire needed skills. Growth in those industries are dependent on its workers. The data don't suggest the U.S. is giving up comparative advantages, e.g. over the past three years, U.S. export growth is faster than U.S. import growth, U.S. export growth is faster than U.S. economic growth, U.S. terms of trade are high, unemployment is 4.6% last month, etc. The U.S. may be giving away some income growth in the global economy. However, it may also be gaining some income growth, along with consumer surplus.


"Putting the three pieces together, globalization has been good for the economy by driving down IT prices, increasing IT spending, and thereby spurring growth."

But not creating jobs, which is the most important. The theory supposedly goes that resources are "freed" to pursue other courses more remunerative. That theory falls flat on its face. Back to the drawing boards.

What has occurred in the American economy over the past five years since the dot.com boom and bust is that job creation has stagnated (or, at the very least, that remuneration to labor has done so). In Europe, it has simply never recovered since stagnating long before that of the US.

Global growth has been strong for the past 4/5 years. Given this fact and that above, where are the jobs being created? The answer to that question is oblivious. Globally, but neither in the US nor the EU.

And, what might the consequences of that fact? That most of the jobs created globally are not skill-rich hi-tech positions but unskilled manufacturing (that is, presently). Low cost but highly skilled Indian programmers are putting a hold on IT job creation in the original demand country. And Far East low skilled workers are absorbing many if not most of the jobs being dislocated from Europe and the US.

As a consequence outsourcing is reaping benefits for the corporation and stockholders, whilst destroying the earnings capacity of the lesser skilled population - thus worsening the "social fracture" within an economy.

For stockholders, this is tantamount to "having your cake AND eat it". Shareholders cannot expect one layer of the economy to always accept the deprivation brought about by outsourcing AND expect that same social level to remain active consumers promoting the economy - whilst another benefits from stock dividends or equity appreciation sparked by better corporate profit performance.

This must lead inevitably to the pauperization of the nation.

Arthur Eckart

A Perla, at one point, most of the U.S. labor force worked in agriculture. However, productivity gains freed-up resources for new industries, e.g. in manufacturing. Currently, less than 3% of the U.S. labor force works in agriculture and produces more than enough food to feed the entire country. The "Creative-Destruction" process can be slow or fast. Japan had a 15-year Creative-Destruction process, because of rigidies and immobilities (e.g. lifetime employment). Consequently, the Nikkei Index is still 60% lower than in 1990. However, the U.S. had a quick and massive Creative-Destruction process mostly over a two-year period, which freed-up resources from Information-Age firms. So, U.S. productivity has been able to speed-up in the Agriculture-Industrial-Information revolutions, while freeing-up resources for the Biotech Revolution and other emerging industries. Producing more output with fewer inputs raise living standards. Should we slow the inevitable? Would it be better if 10% of the U.S. labor force (instead of 3%) still worked in agriculture (and half still worked in manufacturing instead of 15%)?


I believe wholeheartedly in the destruction/creation process of economic development. Looking closely at history shows that it has existed since the origin of civilizations.

The western world began transitioning from the Agricultural Age to the Industrial Age about a century ago. It took Europe about 50 more years than the US to do so, but it is done. (About three percent of the work force is found on farms in the EU.)

Western societies are now transiting from the Industrial Age to the Information Age, largely sparked by the doubling of available manpower in Eastern Europe and the Far East. Had this not happened, I do not doubt for a moment that the US and the EU would have been very content to maintain an antiquated industrial sector had it been allowed to do so.

You give far too much credence to America's ability to "create" and not enough to its ability to "destroy" economic activity. (That is, allowing sectors to sink into oblivion without the slightest attempt to save them.) I cannot imagine why. Having spent an entire career in IT, I am very blasé about technological innovation. It no longer impresses me and much of it has been "commoditized" anyway. Most hi-tech generates wealth for its innovators but not jobs, since manufacturing is outsourced.

I am far more concerned about America (and to a larger extent Europe's) inability to focus on lagging industries that are ripe for destructive dislocation due to high labor factor costs or lack of productivity enhancement. In fact, few governments even give it a second thought - assuming that it is simply natural evolution. Those who lose their jobs, however, have a far different opinion of the phenomenon.

If ever there was a role of the state that was obviously an imperative it is that of the threat of job destruction due to aging industrial / commercial activities. Much can be done, from tax incentives to enhance productivity to retraining to government targeted procurement programs to sectoral consolidations.

All these fall short, thankfully, of outright state subsidization.


While the debate over the stats on outsourcing deals continues,Offshoring IT Services continues unabated. Notice the results posted by offshore service providers?


Offshoring IT Services : "Offshore IT sourcing offers many advantages, but executing offshoring is complicated. Since the number of books on this topic is limited, Mohan Babu K, a technologist at Infosys Techlologies Ltd and an IT Strategy Thought Leader"

My, my - an "IT Strategy Thought Leader". Will the marketing hype never cease?

Seems like Infosys has learned not only IT prowess but has absorbed the marketing garbage that goes along with it. Why doesn't the guy just call himself an "IT Guru", it would be less pretentious and so much more appropriate. ; ^ )

travesti video

istanbul hotel conrad istanbul/besiktas startravestiler This article is very beautiful, I really get very beyendım text files manually to your health as you travesti very beautiful and I wish you continued success with all respect ..

Thanks for helpful information travesti siteleri you catch up us with your sagol instructional çok explanation.
en iyi travestiler en guzel travesti

istanbul travestileri
ankara travestileri
izmir travestileri
travesti siteleri
travesti video
travesti sex
travesti porno
güncel blog
turkce mirc

The comments to this entry are closed.


  • TEST

  • Subscribe in NewsGator Online

Economist Weblogs



  • This is a personal web site, produced in my own time and solely reflecting my personal opinions. Statements on this site do not represent the views or policies of my employer, past or present, or any other organisation with which I may be affiliated. The information on this site is provided for discussion purposes only, and are not investing recommendations. Under no circumstances does this information represent a recommendation to buy or sell securities.