Can Technology Revive America?

1
Agenda
2
Background
US Economic Review: Past vs. Present
US Technology Industry And Its Problems
What Can Revive America?
Technology Alone?
Technology & Manufacturing?
What Else Can Revive America?
Skilled Labour?
Education?
Fiscal Policy Hunting The Rich?
Revaluing The Yuan?
Monetary Policy?
Conclusion




Background:
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3
USA In The Past
4
Pressures of globalization:
Manufacturing jobs declined by 40%
Before the crisis, US economy fueled itself with
excessive consumption
Savings in the household sector leveled off at zero
Government, too, dissaved by running deficits
Very low wage growth in the middle- income range

USA In The Past
5
Major Changes In USA:
1990s witnessed re-emergence of competitiveness,
innovative activity and job generation.
Bipartisan emphasis on policies to promote SMEs.
80 to 85 percent of the new jobs in this country are
created by small business
Restriction on International trade

-Bill Clinton
Our plan includes the boldest targeted incentives for small business in
history
6
USA As Of Now
7
Good News:
GDP back to its pre-crisis size of about $13.5 trillion
Bad News:
High unemployment rate of 9.1%
24 million Americans without a full-time job
Solution:
President Obamas target is to create 20 million jobs in
the next 10 years
However, only 1.7 million jobs were created in the last
decade.
USA As Of Now
8
USA Economy
No growth strategy
Global economic currents
continue to claim jobs
The poor are doubly hit-
Global market forces &
high tax rates evaded by
the rich
Biggest mountain of debt
Low skilled manufacturing
jobs have been lost to
international competition

USA As Of Now
9
Closures have pushed workers out
Lower wages, community college retraining and
unemployment checks
Demand for products manufactured domestically
Trade problems- Lower rates of growth of
manufacturing productivity
Background:
US Technology Industry
10
America & Technology
11
US has a technology policy since World War II
Spends more than $70 billion every year on the
policy
Focused on defence related R&D and development
of military technology
Money needs to be shifted from military to civilian
application
What America Can Do
12
For the United States to restore its international
competitiveness, it has to adapt the types of policies
targeting the leading large corporations prevalent in
Japan and Germany.
Process vs. Product tradeoff
Japan focused on process, unlike US that focuses
on product.
Impact on USA
13
People willing to pay higher for domestically
produced goods
Manufacturers have substituted brains for brawn
Manufacturers need fewer unskilled workers to
perform rote tasks, but more highly skilled workers to
operate the machines

Background:
US Technology Industry: Problems
14
Problems
15
Scaling Process Weakened:
Process of companies scaling up by building factories,
promoting affordability, increasing hires.
No longer functional in the US


Scaling Process Weakened
16
Effect :

Capital ploughed into young companies
These companies build their factories elsewhere
Results in bad returns in terms of American jobs

Failure of Economic Strategy and
Leadership
17
International
Competition
Failure Of
Macro-Economic Policy
Relatively Low
Productivity
Failure of Economic Strategy and
Leadership
18
International
Competition
Failure Of
Macro-Economic Policy
Relatively Low
Productivity
International Competition
19
Jobs for low-skilled workers in
manufacturing lost to International
Competition
In 2000s U.S. and Europe
Employment sustained only by
Housing construction Low interest
rates, reckless deregulation

Construction bubble collapsed
International Competition
20
Jobs for low-skilled workers in manufacturing lost to
International Competition
- Upgrading Skills
- Increased Exports
- Public Investments
- Infrastructure
- Austerity
-No Vision For Investment
Reality : Recovery Lies In :
Failure of Economic Strategy and
Leadership
21
International
Competition
Failure Of
Macro-Economic Policy
Relatively Low
Productivity
Failure of Macro-economic Policy
22
Failed to create jobs

Failed to create a proper balance between cuts to
social services and tax increases on the rich.
Failure of Economic Strategy and
Leadership
23
International
Competition
Failure Of
Macro-Economic Policy
Relatively Low
Productivity
Relatively Low Productivity
24

United states boosting productivity indeed

However, not as much as its competitors.

Difficulty In Attaining GDP Growth
25
The U.S. GDP Growth depends on
the economys domestic and
export-oriented components

Requires structural change, greater competitiveness
in an expanded tradable sector

Reliance On Domestic Demand
26
Excess reliance on Domestic Demand
Structure of economy biased towards non-tradable
sector
Insufficient reliance on foreign demand and exports
What Can Revive America?
27
Technology Alone?
28
Technology Alone?
29
Definition of Technology:
Innovation Alone
Creation of better ideas, technologies and products that
are accepted by markets, governments and society
Does not include the translation of these ideas into
products (Manufacturing)


Technology Alone?
30
Yes! says Barrack Obama
The first step to winning the future is encouraging
American innovation
Rise of low-wage manufacturing in China and low-
wage service in India is moving jobs overseas
USs only durable strength: Innovation
But would innovation suffice?


Technology Alone?
31
Case Study: Apple vs. Foxconn
Apple:
American company
Second most valuable company in the world
Innovative kills have led to rich rewards for its
stockholders and managers
Foxconn:
Taiwan-based firm
Maker of Apples products

Technology Alone?
32
Case Study: Apple vs. Foxconn
Analysis:
Comparable revenues
Massive difference in employees employeed
Apple 50,000 employees
Foxconn 1,000,000 employees

Technology Alone?
33
Case Study: Qualcomm
Background:
Developer of mobile-phone chips and technology
based in San Diego
Last year, developed Mirasol, an easy-to-read, energy-
efficient phone display

Technology Alone?
34
Case Study: Qualcomm
Background:
Paul Jacobs complained about high corporate-tax-rates
and the difficult of getting immigrant visas for foreign-born
engineers and scientists.
No manufacturing of its own since selling its last handset
plant in 2000.
Although Mirasol was developed in America, the displays
will be made in Taiwan.

Technology Alone?
35
Conclusion:
Technology alone cannot revive America
Needs To Include:
High-End Manufacturing
Why?
The benefits of the new technology will be maximized



Can Technology Revive America?
36
80 85% of jobs are created by small business and
startups

Therefore, can startups alone revive employment?


Can Technology Revive America?
37
Startups & Employment
Startups cannot by themselves increase technology
employment.
Important for technology to go from prototype to mass
production

Can Technology Revive America?
38
Assembled In China
Apple not a startup but relatively new innovation
iPhone: Designed by Apple in California; Assembled in
China
Startups good jobs in their countries of origin
BUT
Only for relatively small numbers of highly qualified
people.

Can Technology Revive America?
39
Silicon Valley
Unemployment rate in Silicon Valley is actually higher
than the US national average

Can Technology Revive America?
40
America Needs Others
All the advanced techniques in the world wont matter
if you cant find the people to capitalize on them
Smart techniques can be advantageous to America
but not by themselves
Can Technology Revive America?
41
An Ideologically Driven Choice:
Manufacturing jobs have moved to China
Just a fact of life
Economic version of Newtons first law (law of inertia)
Patriotism = An outmoded concept for major
companies

Can Technology Revive America?
42
Its A Flat World
American corporations have an obligation just like the
federal government
Belief that corporations have a wider social
responsibility to the societies which provide them with
the skilled and educated people who make them so
innovative and profitable

What Can Then Revive America?
43
What Can Revive America?
45
Technology
Innovation
Manufacturing
More Employment?
More Exports?
Why Manufacturing?
46
Year Manufacturing Output
Manufacturing Share
Of Total Employment
1960 27% of GNP 24%
2003 13.8% of GNP 10.5%
Why Manufacturing?
47

Why Manufacturing?
48

Why Manufacturing?
49
Manufacturing:
Powerful source of external benefits that accelerate
economy-wide productivity growth
Can absorb large amount of workers
Where the worlds middle class take shape
Some Factors Hurting USA Manufacturing
50
China
Dearth of Skilled workers

China
51
Loss of manufacturing accelerated with global
competition
Where China expanded, US lost greatest number of
jobs

China
52
Economic Policy Institute (EPI) estimates:
At least 2.4 million manufacturing jobs were lost between
2001-2008 in USA
China has been eating away at U.S. middle class
jobs and most have not been replaced, according to
EPI




The Great Location
53
An "industrial complex" is a cluster of suppliers that
represent different levels in a value chain
Rise in RMB would help US
Global manufacturing is carried out by regional
complexes
Indirect competitive effect




The Great Location
54
Industrial clusters can be seen throughout the world:
Electronics in far east
Finance in the US and Britain
Heavy industry in Germany
Industry clusters increase productivity by minimizing
transport cost

The Great Location
55
So what is holding back Latin America from
developing its own industrial clusters, which
indirectly holds back American Manufacturing?
Chinese Currency Policy
Learning From Germany
56
German Export powerhouse;
USA Massive annual trade deficit
US manufacturing: From 25% of GDP to 11% today
German Manufacturing: remains at 22% of GDP

How The Germans Do It?
57
80% of manufacturing from small mid sized
companies; many are family owned
Many German businesses are privately held, and
thus are not responsible to vast shareholders and
market fluctuations
German labor policy
What Else Can Revive America?
58
Skilled Labour and Education
59
Problem
Unemployment in manufacturing is at 8.4%, below the
overall rate of 9.1%.
240,000 open jobs in manufacturing, up 38.7% from a
year ago
Types of jobs also changing
More service: Strongest growth in healthcare
Manufacturing lost its appeal in the 1990s
Probably why lesser math and science grads

60
Skilled Labour: Current Gap
Skilled Labour: Current Gap
62
Mismatch of skills
Educated with the wrong
skills
How Germany succeeds:
The BMW model or Pratt &
Whitney model
Skilled Labour: Current Gap
Initiatives and policies by the US government to deal with
problem
Reflects desperation for skilled labour force
Example: Immigration policies
Reflection of demand for skilled labour
High wages as an indication of demand
Investments by company to train workers

63
Skilled Labour: A Necessity
Crucial to revival of economy apart from technology and
manufacturing
To operate highly sophisticated machinery and for
intricate tasks
Success of manufacturing dependent on skilled labour
force
64
Skilled Labour: Ageing Population
65
Retirement of American baby boomers with years of
experience
Skilled Labour: Ageing Population
40% of skilled labour force set to retire between 2007
2012
2/3 of manufacturers surveyed: an average of $50 million (each)
will be lost
Average of over $100 million from 2007 to 2012
In 2005, 43% of manufacturing workers were > 45 years
old, up from 32% in 1995

66
Skilled Labour: Building It
Through Two Ways:
Short Term: Training current labour force
Long Term: Educating future labour force
Effective training to close skills gap and improve
employment rate
Training includes mentorship, apprenticeship, internship
Americas educational system

67
Skilled Labour & Education
68
Correlation
Wages by education level traditionally behave as human capital
theory predicts

Americas Education System
Acknowledge, introduce and encourage manufacturing
As a viable career option
Induce knowledge change
Increasing post-secondary education graduates
Reducing number of school dropouts

69
What Else Can Revive America?
70
To Revive America
Fiscal Policy
Revaluing the Chinese Yuan
Monetary Policy

71
Fiscal Policy
Hunting The Rich
Buffet Rule
o Ensures that no household making more than $1m a year
pays lower average tax rate then middle-class families
do
72
Fiscal Policy Hunting The Rich
Two Reasons For It:
Reduce Americas Deficits Spending cuts
Learn from Britains four-to-one ratio: Higher taxes should
be part of the mix.
In addition, the tax take in America is historically low after
years of rate reductions.
Political Argument
Spending cuts fall disproportionately on the less well-off
Public supports taxing the wealthy

73
Fiscal Policy Hunting The Rich
Many Reasons Against It:
Richest 1% of Americans pay 45% of federal taxes
High marginal tax rates discourage entrepreneurship
The wealthy will simply move, taking their taxes with
them.
Shift their income into less-taxed forms such as capital
gains,
Implementing higher taxes on the millionaires cannot
close Americas deficit

74
Fiscal Policy Hunting The Rich
How To Implement It:
Make the tax code more efficient.
For example, do away with the large number of
deductions from income tax.
Raise as much as $1 trillion a year
Middle-Class families will not be affected
Why?
The main beneficiaries of the deductions are the
wealthy
75
Fiscal Policy Hunting The Rich
How To Implement It:
Make the tax code more efficient
Shift the burden from income to property
Why?
Collect more from the rich
Less impact on their willingness to take risks.
Example: UKs mansion tax has done less damage
than the 50% income tax rate.

76
Fiscal Policy Hunting The Rich
How To Implement It:
Make the tax code more efficient
Tax on dividends and capital gains
Narrows the tax rate gap between salaries/bonuses and
dividends/capital gains
That gap explains why Warren Buffett has a lower
average tax rate than his secretary.

77
Fiscal Policy Hunting The Rich
Conclusion:
Tax rates on salaries and capital gain more equal
Encourage entrepreneurship and wealth creation.



78
Revaluing the Chinese Yuan
Timeline:
3
rd
October 2011
Bill to punish China for keeping its currency artificially
low
A company can demand an investigation of a country it
thinks is using an undervalued currency for unfair trade
advantages
11
th
October 2011
Voted to authorize the Commerce Department to
impose countervailing tariffs on Chinese imports it
deems to have benefited from an undervalue currency

79
Revaluing The Chinese Yuan
Why?
Bill claims that:
Chinese Yuan 40% undervalued
Driving away Chinese imports will bring jobs back
Evidence?
Paper by three economists:
Regions whose manufacturers had higher exposure to
competition from Chinese imports saw higher overall
unemployment, lower labor force participation and
reduced wages
Every $1,000 of additional Chinese import exposure in a
region per worker lowered the employment rate by 0.77%



80
Revaluing The Chinese Yuan
Effects:
Threats are useful
In 2005, China first
allowed its tightly
controlled currency to
rise
Halted during 2008
because of a global
recession
Resumed in 2010 when
the US government
passed a bill


81
Revaluing The Chinese Yuan
Consequences?
China has retaliated
Conclusion
Empty Threats?
Similar bill passed the House last year, and some has
made progress but none has yet reached the President
Obama has also kept his distance.
Declined officially label China a Currency Manipulator
82
Conclusion
84
Solutions

Long Term Solutions Short-Term Solutions
Manufacturing & Technology Re-Training
Education Fiscal Policy Hunting The Rich
Revaluing The RMB
85
References
86
References
Branscomb L., Does America need a technology policy, April
1992, Harvard Business Review., Reprint 2001.
McKinnon, R. I. (2004). Government deficits and the
deindustrialization of America. The Economists' Voice, 1(3).
Noahopinion. (2011). "Industrial Complexes" and the Great
Relocation.
http://noahpinionblog.blogspot.com/2011/10/industrial-
complexes-and-great.html
Rodrik, D. (2011). The manufacturing imperative. Project
Syndicate, from http://www.project-
syndicate.org/commentary/rodrik60/English
Rapoza, K. (2011). Is China bad for the U.S job market?
Forbes: Investing, from
http://www.forbes.com/sites/kenrapoza/2011/08/22/is-china-
bad-for-the-us-job-market/

87
References
Sachs J., The great failure of globalization, August 17, 2010,
IN The Financial
Times.http://www.ft.com/intl/cms/s/0/2b9dab2e-c817-11e0-
9501-00144feabdc0.html#axzz1VKvXD5aE
Scapozzola. (2011). What can the U.S learn from a high-wage
export powerhouse like Germany? American Manufacturing
Org, from http://americanmanufacturing.org/blog/what-can-us-
learn-high-wage-export-powerhouse-germany
Sherk J. , Technology Explains Drop in Manufacturing Jobs,
October 12, 2010, IN The Heritage foundation, Vol 2476
Spence M., Closing Americas growth deficit, September 2011,
IN The new wealth of nations.
88
Thank you!
89