Tags: Capitalism, democracy, Human Rights, Manufacturing, United States, Urban, world politics, World-economy
Detroitism has emerged a while ago to encapsulate the emergence of urban ruins in North America and Europe–from Camden NJ to Naples and Bucharest–with the decline of manufacturing and the outsourcing of production to low- and middle-income economies in Asia and Latin America. Populations of these cities have declined sharply–from 1.8 million fifty years ago to 700,000 today in Detroit, shrinking tax revenues and depressing property values leading to a degradation of city services and civic amenities and spiking the crime rate. Abandoned houses are stripped of their valuables–metal and copper are sold to junk merchants to be sent to India and China to be melted down and recycled to fuel these ’emerging economies.’
Smaller towns and cities in the United States have been declining even longer–for more than a century as the mechanization of agriculture and the exhaustion of natural resources set in even before manufacturing began to move to the non-unionized states of the ‘Sunbelt’ and later to even lower-wage locations overseas. And the emergence of ‘big box’ retailers like Wal-mart hollowed out their commercial cores as Edward Alden noted.
And so it has been with Binghamton, located at the confluence of the Susquehanna and the Chenango rivers in southern New York State. A small farming community till the Chenango Canal was constructed in the mid-1830s, linking it the the Erie Canal at Utica. In addition, the arrival of the railways in the mid-19th century transformed the area into a minor industrial hub for the production of cigars, and later shoes, and high-tech electronics. Between 1860 and 1880, the population of Binghamton rose from 8,325 to a little over 35,000. Tanneries and shoe factories–most notably the Endicott Johnson shoe factory–made Binghamton and its neighboring Johnson City one of the major shoe manufacturing centers in the United States
By the mid-1950s however, competition from several other locations led to a steep decline of shoe production though its impact was cushioned by the rise of several high-tech firms: IBM which was founded in nearby Endicott, Edwin Link who invented the flight stimulator, Valvoline which was to become Whirlpool Corporation
At the same time, the construction of the interstate highway system, led to a fall in ridership on the trains and the last passenger train rolled off the tracks of the Lackawanna Station in Binghamton in December 1964.
The continuing growth of IBM and other technology companies related to defense and the location of one of the four university centers of the State University of New York system led to further growth over the next two decades.
Yet, the gradual decline of IBM and the closure of the last shoe factory in the 1990s led to a precipitous decline in the fortunes of the city. The arrival of big box retailers like Wal-Mart finally hollowed out the city’s commercial core.
The population of Binghamton, which had peaked at 80.674 in 1950 slid to 47, 376 in the census of 2010–less than it was a 100 years ago in 1910.
Tags: 21st Century Capitalism, East Asia, European Union, Global South, Japan, Manufacturing, US Economy, World-economy
Scarcely believable images of the destruction wrought by a 9.0 earthquake that struck 250 miles northeast of Tokyo and unleashed a tsunami that generated 10 meter high waves–of entire communities being obliterated–and made worse by triggering a nuclear meltdown at the Fukushima Daiichi plant has been at the center of world news. While concern has understandably been on the human cost of the tragedy, the economic costs are also staggering. While it is too early to make an assessment, early estimates already suggest that world economic growth may fall by at least a full percentage point.
In the most immediate instance, it would cause enormous supply chain disruptions to production as Japanese manufacturers produce a whole array of sophisticated components and finished products. For an economy vitally dependent on exports this could be a vital blow–but it would also affect manufacturers world-wide as they source components from Japan, Additionally, the demand for reconstruction funds for Japan could reasonably be expected to lead to a redirection of financial flows with adverse consequences not only for debt-ridden economies like those of the United States but also for the ’emerging economies’ of the Global South.
The estimated $200 billion required to rebuild Japan after the earthquake on March 11, 2011 and the tsunami already triggered a 6 percent rise in the yen with 5 days–from a peak of ¥76.25 to the dollar to ¥81.20–as investors started repatriating funds for Japanese reconstruction before the G-7 economies intervened in currency markets in a concerted effort to drive the yen lower and help stabilize the Japanese economy as a higher yen would have made Japanese exports dearer overseas and hence driven down demand for them.
Fears that radiation from the crippled nuclear reactors at Fukushima Daiichi may be transported through Japanese exports has led to many restaurants to ban Japanese food items like sushi, Kobe beef, and sake. But there has also been apprehension that consumers may be exposed to radiation when driving a Prius car or using a Japanese DVD–a severe blow to an export dependent economy. Even though such fears may be misplaced because the main manufacturing centers are located away from areas near the crippled nuclear reactors and most manufacturing occurs indoors in factories and hence is not directly exposed to airborne radioactive particles, apprehensions are by nature irrational and could lead to a steep decline in consumer demand.
On March 17, General Motors became the first automobile manufacturer to announce that it will temporarily halt production in its truck plant in Shreveport, Louisiana because of a shortage of Japanese-made parts as a result of the natural disasters in that island nation. The fact that was GM rather than Toyota, Honda, or Nissan to be the first auto manufacturer to stop production because of supply-related problems stemming from the natural disasters underlines the gravity and extent of the disruption of supply-chains from Japan for producers the world over. 10 percent of Volvo’s parts for instance comes from 33 Japanese suppliers, 9 of which were in areas affected by the disasters and Volkswagen has warned of medium-term supply problems. Some Japanese manufacturers–Mitsubishi and Nissan–have opened some of their facilities while Toyota is due to open some of its plants early next week. It is uncertain how long these can operate because they and their suppliers may face problems obtaining raw materials and parts and in shipping finished products due to logistical problems caused by the earthquake, tsunami, and the exclusion zone imposed by fears of a nuclear meltdown at the reactors in Fukushima Daiichi. A Detroit based consultant, John Hoffecker, estimates that an average car had 20,000 components and the abrupt loss of any one component could halt production in its tracks, especially because most manufacturers have implemented just-in-time production systems that reduce inventories.
Given Japan’s advanced manufacturing technologies, disruptions are not limited of course to the automobile sector. Sony Ericsson and Nokia have warned that they face supply problems for their smart phones, for instance. Apple Computer’s latest gadget the iPad 2 depends on the advanced manufacturing technologies of Japan for crucial components like flash memory to store audio and video files that are manufactured by Toyota which shut down its manufacturing facilities due to the earthquake and tsunami. Other iPad 2 components sourced from Japan include “AKM Semiconductor and DRAM memory produced by Elpida Memory. A touchscreen overlay glass is likely from Asahi Glass.” Even if these suppliers are not directly hit by the earthquake, tsunami, or t, the logistical disruptions caused by the natural disasters including obtaining raw materials and parts and shipping finished goods are likely to hamper production.
it is impossible to assess the costs of reconstruction. Initial estimates of $200 billion were based on the experience of the 1995 Kobe earthquake. Not only was the present earthquake much more destructive in scale but it was also accompanied by a massive tsunami and a nuclear meltdown. With a debt-to-GDP ratio double that of the United States, and credit-rating agencies being more prudent after the financial crisis of 2008-09, raising funds at a tolerable rate of interest could be difficult. Unlike the United States which could pump $600 billion as stimulus during the financial crisis, the yen does not enjoy international reserve currency status and hence this is not an option for the Japanese.
This raises the possibility that Japan, which is the third largest holder of US Treasuries, will sell off large chunks of the $877 billion it holds to finance its reconstruction–a sell-off that will have a major impact on interest rates all across the world and depress the value of US Treasuries and could trigger an avalanche of sales of the Treasuries as other holders seek to minimize their holdings. It could cause another enormous liquidity crisis as the financial crisis just did and comes at a time when the economies of the US and the European Union are still weak.
Tags: 21st Century Capitalism, China, international relations, Manufacturing, United States, US Economy, US hegemony, US politics, world politics, World-economy
Far more fundamental that the charges and counter-charges of currency manipulation and trade imbalances traded at the November 2010 G-20 summit in Seoul to a shift in the terms of global economic competition was an announcement that the Commercial Aircraft Corporation of China, or Comac, plans the introduction of a 156-seat single-aisle passenger jetliner. The entry of China into the commercial passenger aircraft industry is noteworthy for two reasons.
First, most of the technology for the Chinese C919 plane will be provided by Western companies. The plane’s computer system, brakes, wheels, and power units by Honeywell; its navigation systems by Rockwell Collins; avionics by GE Aviation; fuel and hydraulics by Eaton Corporation; and flight controls by Parker Aerospace. These companies have agreed to a Chinese stipulation that they set up joint ventures with Chinese companies. Though the companies claim that they will safeguard their intellectual property, David Pierson suggests that the example of high-spreed rail proves otherwise. After European and Japanese firms shared their technology with their Chinese joint venture partners, they are now in direct competition with their former Chinese partners both in and out of China.
Yet, projections of China’s rapid rise compels there Western aviation companies to bid aggressively for the Chinese market. In the next twenty years, Chinese air traffic is expected to grow at an annual average rate of 8 per cent a year and to meet this demand the country’s domestic airlines are estimated to purchase some 4,330 planes worth $480 billion over the same period. No supplier of aviation parts wants to miss out on this lucrative market.
If the sheer size of its market confers a competitive advantage on China in technology transfer, it is also the case that 55% of Chinas exports are accounted by foreign-owned companies. Moreover, China’s large current account surpluses with the United States and the European Union is matched by large deficits with other countries as shown by a recent article in the Financial Times. In many cases, transnational production and procurement networks span across national borders to take advantage of wage and cost differentials and a substantial part of China’s exports are only assembled and packaged there from components made elsewhere. This means that these foreign-owned companies are not particularly receptive to calls for China to revalue its currency–or indeed, the attempt by the US Federal Reserve to force down the value of the greenback by releasing $600 billion to buy US Treasury bonds: what a former Chairman of the Fed, Alan Greenspan termed “a policy of currency weakening.”
Devaluing the dollar by releasing more greenbacks is “clueless” as the German Finance Minister Wolfgang Schäuble called it because it would raise the cost of living in the United States when the unemployment rate is hovering at double digits and is unlikely to create a spurt in job growth in the United States. In fact, though President Obama trumpeted that his visit to India would create 54,000 jobs in the US, that is merely a third of the jobs created in the country in just the last month as Alan Beattie noted in the Financial Times.
In part, trade imbalances have taken center-stage because during the financial meltdown in 2008 and 2009, trade contracted sharply and thereby reduced trade imbalances as Floyd Norris noted in the New York Times. A modest recovery however highlighted the imbalances and governments began to accuse each other of undervaluing currencies.
Such charges and counter-charges ignore the changes in competitive pressures. With the greater deployment of automated technologies and numerically-controlled machines, and the Taylorization of even skilled work, wage charts increasing resemble a time-glass: fewer and fewer extraordinarily well-paying jobs, and more and more sub-subsistence jobs as indicated in several prior posts. These underlying conditions can be addressed only in the long-run through well developed plans that do not respect two-year electoral cycles which is the focus not only of Washington politicians but also of the US punditocracy!
The one remaining competitive advantage the United States has is that its currency is the only reserve currency but if the Fed devalues the dollar–and already uncertainties in currency markets has led to the price of gold soaring to $1,400 a troy ounce–as Robert Zoellich, the President of the World Bank, has suggested it is likely to lead to multiple reserve currencies. And that will seal the end of the United States as an economic superpower.
Tags: 21st Century Capitalism, China, India, labor process, Manufacturing, trade wars, US Economy, US hegemony, World-economy
Persistently high unemployment figures in the United States have led to strident calls by politicians about ‘unfair’ trading practices by China, India, and other countries and demands to curb outsourcing of US jobs to lower wage locations overseas. Much of the discussion, especially in the context of President Barack Obama’s 10-day visit to Asia, has focussed on low-cost manufacturing in China and white-collar service work to India, a new type of outsourcing pioneered by Amazon.com’s Mechanical Turk service just five years ago, represents the potential to transform outsourcing in some sectors. This represents a further assault on incomes.
Claiming to take the tedium out of repetitive, monotonous tasks that are notoriously difficult to automate (recognition of handwritten messages or numbers, for instance), a handful of companies are creating software to further deskill digital labor. Essentially, these companies–Microtask, CloudCrowd, Cloudflower, and others–break up tasks into many different component parts both to shield the identity of their clients (as each worker gets to see only a miniscule portion of the document and therefore cannot identify the real client) and to lower labor costs by widely distributing the tasks: Cloudflower claims to have a virtual workforce of 500,000 people in 70 countries while CloudCrowd which was formed only in 2009 claims a virtual workforce of 25,000 and says it has completed 2 million tasks by September 2010 according to its promotional video.
Companies take different approaches. Microtask, a Finnish upstart, contracts with firms and provides software to its clients’ employees which enables them to do a small task–recognition of handwritten numbers, comparison of two images of a product, few minutes of speech transcription–without leaving their computer screen to get more information from the Internet. The software rotates and mixes up the tasks so that there is no monotony while the main computers of the client can compile the tasks performed by its employees–leading to an unprecedented level of control while minimizing the possibility of leaks.
Other companies directly contract with individual workers. At the Mechanical Turk website, there are are number of tasks on offer and once a person performs a test to show his or her talent at a job–identifying business locations, proof-reading, and such like–they can sign up and do tasks steadily at their own pace and when they want to work. However, Randall Stross reports in the New York Times that when Miriam Cherry, a law professor at the University of the Pacific and her research assistant tried an assignment offering 2 cents “each for finding the contact information of 7,500 hotels and 3 cents each for answering questions about 9,400 toys,” they did not even make the minimum wage!
As Stross notes, “Worker control is precisely what the Microtask model has engineered out–that’s the source of its insidious efficiency. Just as Ford’s assembly lines a century ago brought work to workers who performed a single, repetitive task, Microtask’s software, via the Internet, does the same. Every two seconds.”
Yet, the so-called ‘cloudsourcing’ (from the Internet ‘cloud’) model is different in crucial respects. By farming out work across the planet, companies do not have to confront organized labor–protests against low wages become infinitely more difficult if workers are spread across many, many jurisdictions. Cloudcrowd, for instance, takes translations of business documents that used to be done by a single person and initially submits it to translation software. The software translation is then broken up into pages and sent to people who look for nonsensical sentences. These are then submitted to native speakers and finally to editors who have no special expertise in the language, but simply make the text more readable. By farming out the work to several unconnected individuals, anonymity is assured and translation costs are minimized–from 20-25 cents a word to just 6.7 cents. And, of course, minimum wage legislation would not apply.
Even if these widely-distributed tasks do not earn minimum wages in the United States and other high-income economies, they beat the minimum wage in many low-income countries and hence many of the workers for Cloudflower and other ‘cloudsourcing’ companies are located in places like Malaysia and the Philippines. Seen in this light, too, it is not surprising that the new president of the State University of New York at Albany, George M. Philip, could eliminate the departments of Italian, French, Russian, Classics, and Theatre without hesitation!