Global Economy




28 November 2003

The Global Economy

Part I: An Enormous Sucking Sound

By Gwynne Dyer

“That enormous sucking sound you hear,” third-party candidate Ross Perot told American voters during the 1992 presidential campaign, “is American jobs disappearing south to Mexico.” But now the enormous sucking sound comes from west across the Pacific: US Treasury Secretary John Snow reckons that America has lost 2.4 million manufacturing jobs to China. If his numbers are right, Chinese competition accounts for about 90 percent of the drop in US manufacturing jobs (from 17.3 million to 14.6 million) since the Bush administration came into office three years ago.

They won’t be coming back — not when labour costs an average of $16 an hour in the US and only 60 cents in China. Revaluing the Chinese currency by 40 percent, as many American officials now demand, would merely raise the cost of labour there to 84 cents an hour, which is hardly going to change the picture. Desperate union officials offering concessions to US manufacturers to save jobs are told that American workers could work for nothing and still not match the cost structure in China, once overheads are taken into account.

British manufacturers have been saying the same thing for years, because Britain is much further down the road to de-industrialisation. Yet Britain has prospered mightily in recent years, with a much higher growth rate than the other big countries in the European Union, because it has managed to balance its lost industrial jobs with new jobs in the service sector. Some are unskilled, low-paying jobs in call centres and the like, but many more are in high-paying fields like financial services, computing and design, and average incomes have gone up. So far, so good, but now Britain’s new service-industry jobs are starting to drain away too.

The American economy has actually been following the British model with some success in the last few years. The so-called ‘jobless growth’ under the Bush administration has seen industrial jobs vanish in large numbers, to be replaced by about the same number of service-sector jobs at higher average wages. These new jobs don’t necessarily appear in the same places, so ‘rust-belt’ cities that depend on traditional manufacturing have taken big hits, but the overall US economy is growing very fast at the moment. The threat to American prosperity from China may be greatly over-rated — but the US has not even begun to contend with the challenge from India.

The immense Chinese export boom — heading for a trade surplus of over $100 billion with the US this year — is based on industrial goods and largely financed by American business, which cannot resist the cost savings of out-sourcing production to China. Manufacturing processes are easy to transfer to another language and culture, and manufactured goods move easily between countries in a more or less free-trading world. It used to be assumed that services are far harder to out-source, but that was before people realised the full potential of internet-based technologies. The British have just woken up to discover that a lot of their service industry is moving to India.

It has to be India, not China, because the services must still be delivered in good English and only India has the large numbers of educated, English-speaking people who can do the same job for one-tenth of the British salary. But over the past few months the announcements by British companies moving thousands of jobs from their home-based call centres to India have been falling like rain — BT, British Airways, HSBC, Lloyds Bank, National Rail Enquiries, Prudential, Reuters, Standard Chartered, and half a dozen more — and that is only the tip of the iceberg.

So far the work being out-sourced to India is mainly data-processing (which already accounts for several hundred thousand jobs) and now the call-centre jobs, but in a year or two it will also include accountants and corporate lawyers, managers and insurance underwriters, architects, designers and engineers. In August, London’s ‘Evening Standard’ published leaked consultancy documents which concluded that Britain would lose at least 30,000 executive-level jobs in the finance and insurance industries to India in the next five years. In the same month, US consultants Forrester Research forecast that United States will export 3.3 million white-collar jobs between now and 2015, mostly to India. It is almost certainly an underestimate.

Not every service-industry job is equally mobile. Some 60 percent of the economic activity in any country is almost impossible to out-source beyond the borders: construction, health and education, retail sales and leisure services. Natural advantage or consumer preferences will continue to favour some countries even in manufacturing: most snowmobiles will continue to be made in Canada, Sweden and Russia, and most espresso machines will still be made in Italy. But a very large chunk of the world’s jobs is now open to the lowest international bidder.

This is not just a trend; it is an earthquake that is going to reshape the global economy. Fifty years ago, a small fraction of the world’s people living in Europe, North America and a few other places like Japan and Australia had a virtual monopoly on the world’s good jobs: they did all the designing, engineering and manufacturing, and owned most of the professional, technical and scientific jobs as well. Fifty years from now, these jobs are going to be more or less evenly distributed among the countries of the world. It’s only fair, and it’s high time too, but there are going to be a lot of casualties.


To shorten to 725 words, omit paragraphs 4 and 8. (“The American…India”; and “Not every…bidder”)