Globalization:Is it Good?
How to get our livlihood back home
by Cathy Sims, et. al.

For the past several months, reports on job growth in the US have been uninspiring. The giant US services sector expanded at its fastest rate on record in January, but that growth failed to create many new jobs, according to the Institute for Supply Management's monthly services poll. The services industry, which includes businesses ranging from hotels and restaurants to travel agencies and chain stores, accounts for roughly 80 percent of the US economy.

Most economists are not pleased with the progress in the job market. "Two and a half years into this recovery, and the economy can only muster up 112,000 new jobs?" asks Richard Yamarone, chief economist at Argus Research. "That's a bad number, not a good number."
Since February 2001, more than 2.4 million payroll jobs have been lost, according to the Department of Labor.

Globalization of Jobs

CNN’s Money staff writer, Mark Gongloff questions whether the labor market is on the road to a full recovery, typical of past economic expansions, or if structural changes in the economy will keep job growth anemic. These changes include technological advances and a growing trend for cheap offshore labor. Gongloff notes that globalization has been “making it easier -- even critical, in fact -- for businesses to move work overseas, where workers' skills are growing at a fast clip.”

For example, IBM plans to transfer 3,000- 5,000 jobs overseas, many of them white-collar jobs like computer programming, to the lower-cost labor markets of India and China.

“Countries like China, India and Russia educate large numbers of engineers. Add the low-cost, nearly instantaneous communication afforded by the Internet, and an Indian computer programmer making $20,000 a year or less can replace an American programmer making $80,000 a year or more,” writes Steve Lohr, New York Times business columnist.

Wachovia Securities chief economist John Silvia points out that "Because of the globalization of the labor market, the relationship between economic growth and employment is different this time than it has been in the past."

In other words, he said, "the models are permanently broken." Silvia thinks the solution is to better educate workers so they can get higher-paying jobs when their current jobs move overseas.

But Morgan Stanley’s chief economist Stephen Roach warned that US workers may already be behind in educating themselves. He cited statistics showing that the number of Asians getting science and engineering degrees has jumped more than 50 percent in the past two decades while the number of Americans getting similar degrees has been stagnant.

30 bills are pending in 20 states to curb the use of offshore contractors by state and local governments, according to the National Foundation for American Policy.

These steps, some economists warn, would increase costs to consumers, make American businesses less competitive and risk more trade conflict.
"The United States has long drawn comfort from the quality differential of its educational system," Roach said. "However, in the Internet Age with its ubiquitous diffusion of knowledge, innovation, and technological change, that may turn out to be an increasingly false sense of security."

Alan Greenspan, Federal Reserve Chairman, also stressed several times in his February report to the House Financial Services Committee that the US work force needed to be better educated, in order to find new jobs when old jobs were shipped overseas or replaced by technology, and to reduce a growing inequality between low-income and high-income Americans.

Eric Johnson, director of the Center for Digital Strategies at Dartmouth College’s School of Business, agrees that “we are far better off letting a lot of those jobs go. Low-skill jobs like coding are moving offshore and what’s left in their place are more advanced project management jobs.” He adds that “It's all about innovation and productivity. As long as we maintain those two engines, we'll continue to have a very high standard of living.”

And there are benefits to Asia with more lucrative jobs coming to their countries. More people will be coming off the poverty line and into the global economy. Diana Farrell, director of the McKinsey Global Institute for research, points out, “You only need 10 percent of the population to have a critical mass of income.”

Josh Bivens, an economist with the Economic Policy Institute, a nonprofit research group in Washington, believes globalization is good at increasing the productive capacity of the world, “but to make sure there are enough jobs for everybody, you need demand to keep pace with that increase in supply.” He says globalization presents a real challenge for society. “Government's big roles in the future are to make sure global demand matches supply, and to provide social insurance schemes to make sure the living standards of the workers being left behind aren't sacrificed on the altar of global progress.”

Morgan Stanley’s chief economist Stephen Roach reminds us to “recognize what has made America. Our virtues lie in a flexible and open, technology-friendly, risk-taking, entrepreneurial, market-driven system. This is exactly the same type of challenge farmers went through in the late 1800's, sweatshop workers went through in the early 1900's, and manufacturing workers did in the first half of the 80's. We've got to focus on setting in motion a debate that pushes us into new sources of job creation rather than bemoaning the loss.”

Some Positive Job Growth

Positive job growth did occur in some specific areas, though. Construction, education and health care among them. Payrolls in education and health care grew by 105,000 jobs in January, and retailers added 76,000 jobs.

Construction spending in December rose to its highest level ever. Residential projects by private builders led the way, with spending on those projects also rising to a record monthly high.

The Household Survey

The Bureau of Labor calculates employment two ways. First is the Payroll Survey. It polls net job changes at 400,000 companies representative of the nation's nearly nine million incorporated businesses. Second is the Household Survey in which members of 60,000 households are interviewed each month. Most economists regard the Payroll Survey as more reliable and comprehensive than the Bureau's Household Survey.

Self-Employment to the Rescue

The Household Survey is better at catching self-employment and off-the-books work than the Payroll Survey. The Household Survey shows that employment grew by nearly 500,000 people in January as opposed to 112,000. Andrew M. Sum, a Northeastern University labor economist and author of a recently released study of the two employment measures which underscores the value of the Household Survey said "At no other point in this nation's last five recovery periods have so many people been employed as independent contractors, as temporarily self-employed, or paid under the table."

The rise in self-employment is one bright spot in the job market.

With that, it is possible to point to one government survey that indicates that more people are working now than at any time before. John Vail, a senior strategist of Mizuho Securities USA, agreed, "Nonfarm payrolls were disappointing, but when combined with the rise in self-employed, which include many Internet-based entrepreneurs, the number was very healthy."

More than 11.3 percent of adults in the United States were engaged in entrepreneurial activity in 2003, representing an increase from 10.5 percent recorded in 2002, according to the 5th Annual Global Entrepreneurship Monitor (GEM), the study of worldwide entrepreneurship. GEM is conducted by researchers at Babson College and London Business School and is funded by the Kauffman Foundation of Kansas City.

"This report estimates that as many as 300 million people around the globe were trying to launch new firms in 2003 - that's more than the entire population of the United States,” said Kauffman Foundation President and CEO Carl Schramm.

GEM also found that more than 80 percent of entrepreneurs throughout the 41 countries studied expected to create new jobs as soon as their firms were more established, signaling widespread optimism.

The 2003 GEM includes a first-ever global look at "entrepreneurial like" activity in existing firms - that is, when businesses provide innovations, not just replicate existing goods or services. For example, Nokia began as a company that made safety matches and rubber boots but later engaged in entrepreneurial activity by developing innovative high-tech products, such as cell phones, and becoming a global leader in the market.

KEY STUDY FINDINGS
Prevalence of Entrepreneurship

• People with post-secondary or graduate educations were twice as likely to be involved in an entrepreneurial firm as those with less education.

• Entrepreneurship is contagious. People who know someone who started a business in the past six months are two to three times more likely to start a business themselves.

Carl Schramm suggests more government policies and programs aimed at nurturing entrepreneurship would benefit the economy greatly. "When you consider that these entrepreneurs create jobs and wealth for their communities, develop innovations that make people's lives better and contribute to national economic growth, you understand the importance of developing policies that make the ground fertile for entrepreneurship to thrive."

Increasing education and training in business start-ups and creating incentives to encourage more informal investment are crucial steps toward a healthy job market.