The US economy, repeatedly buried by domestic experts, suddenly presented a number of surprises, one of which was the January budget surplus - the latter showed a three billion plus, instead of the 27,4 billionth minus a year earlier. America is slowly but surely moving away from the edge of the expected abyss - and this trend is based on fundamental factors.
First, look at what led the US economy to a crisis. The process of de-industrialization in the United States has been going on for a very long time. Actually, it began in the middle of 1960's. In the era of Reagan and Bush Sr., for example, the situation looked like this. Total employment increased by an average of 1,4% per year, but the industry was exactly the opposite process. The steel industry annually lost 6,1% of workers, metalworking - 4,5%, automotive industry and equipment production - 1,5%, clothing and textile industry - 2%. As a result, by the beginning of the Clinton reign, almost 2 million jobs in the manufacturing industry and half a million in the mining industry were eliminated. In 1997, about 17,5 million people were employed in the American industry.
Then the process acquired a landslide character. There were two collapses in 2000-2003 and 2007-2009, and as a result, 12 million people are now employed in the American industry, with a total employment of about 143 million.
What was replaced by industrial employment? Between 1990 and 2008, the number of people employed in the US increased from 122 to 149 million. 27 million jobs were created. At the same time, 40% fell on the public sector and healthcare. The rest was created mainly by retail, construction, hotel and restaurant business. Overall, 98% of jobs accounted for the "non-tradable" sector, producing goods and services for the domestic market.
In other words, by 2008 there were more people employed in American health care than in industry, while the government employed almost one and a half times more employees than health care (22 million versus 16 million). Within the export sector, industry was inferior to the service sector.
Thus, by the end of the 2000s, the States turned into the actual record holder of deindustrialization, second only to Hong Kong in terms of this indicator, whose economy is an appendage of China’s colossal industry. At the same time, in the export sector, industry was not and could not be replaced by the service sector.
The consequences of this were manifold. First, US exports grew rapidly - but more and more clearly lagged behind imports. So, American industry, in fact, was losing the domestic market and could not compensate for this loss in the external market - the trade balance of industrial goods, which was 1992 minus 2%, was 2008% in 8.
The result was a rapid deterioration in the trade balance. The US trade balance is deficient from 1976, but as early as 1997, the deficit was about $ 100 billion, which did not look significant in the scale of the American economy. However, then his fantastic growth began. Already by 2000, it was approaching $ 400 billion, and in 2007-2008, it was about $ 700 billion. The negative trade balance generated a negative payment, covered by foreign loans and dollar issues. US foreign debt, which was $ 1989 trillion in 2,7, rose to $ 5,7 trillion in 2001, 13 trillion in 2009, and 15 trillion in 2011. Now it is 16, 55 trillion, while the share of government debt accounts for less than a third.
Secondly, de-industrialization has led to a "mutation" of domestic demand. The latter has always been considered the strength of the United States, traditionally little dependent on foreign market conditions. However, since the days of Reagan, American domestic demand has grown at the expense of specific "tools." Real wages, having reached a maximum in 1970-x, fell to the middle of 1990-x, and after a brief increase in the second half of 1990-x - the beginning of the "zero" fell to the previous level.
At the same time, if the opinion of the well-known economist Phillips that the real level of inflation in the United States was higher than the official after 1983 and especially from 1996 is fair, the growth is fictitious, and the “zero” picture is even more depressing. As a result, the growth of welfare and domestic demand was provided by more and more affordable loans. The result was the extreme debt load of the population, "overloaded" with debts, and the collection of "bad" debts in the hands of banks. From this followed the "fragility" of domestic demand and the instability of the banking system.
In addition, the personal income tax takes the first place in the list of sources of income of the US federal budget. In other words, the stagnation of income meant the absence of an active growth of the taxable base. The appearance of the budget deficit and the rapid growth of public debt were in such a situation, as practice shows, only a matter of time.
The subtext of all these phenomena was the notorious de-industrialization. Salaries in the service sector are on average almost one and a half times lower than in production for obvious reasons. A skilled worker is more difficult to replace than a waiter; in the services sector, temporary and part-time employment is widespread, the giant growth of which has been observed for the last two decades, the trade union movement is less developed for equally obvious reasons. As a result, the contraction of industry was accompanied by stagnation or a decline in real wages, and even the latter did not lead to an increase in the competitiveness of the American economy — cheapening labor was concentrated mainly in the non-tradable sector.
Third, deindustrialization has largely generated social inequality growth seen in the United States since 1980. Then the most well-to-do 0,1% of the population received a little more than 1% of national income, now it gets 5%. This is even more than what the elite earned in the 1870-1880-x - in a sense, the States returned to the second half of the nineteenth century. Inequality as a whole roughly corresponds to 1920. The reasons are clear - this is the already mentioned specificity of labor in the service sector and, at the political level, the absence of a numerous, cohesive and "violent" "proletariat." Meanwhile, a high level of social inequality reduces the amount of domestic demand.
Fourth, deindustrialization inevitably leads to the appearance of bubbles (in the stock market, mortgage market, etc.) and distortions in the banking system. Industry for obvious reasons is more capital-intensive than the services sector and the economy on average. As a result, the result of deindustrialization sooner or later becomes the situation "a lot of free money - few good deals." Situational actions of financial authorities may improve or worsen the situation, but in general it is inevitable. Its first consequence was the mentioned progressive availability of credit, including mortgage. The second is the expansion of speculative capital in financial markets. The result of both is known - it was the crisis of 2008.
The phenomenon of deindustrialization is not new - it can be said that the United States suffers from the “Old Dutch” disease. In the middle of the seventeenth century, the Netherlands was a leading industrial power. However, she then experienced a model "deindustrialization" that affected the entire real sector — for example, cloth production in the largest wool industry center (Leiden) fell fourfold, the number of vessels under construction decreased 10-15 times, commercial fishing decreased 7-10 times. The country's trade balance has become negative. At the same time, the collapse of local industry was accompanied by the flight of industrial capital — mainly to England, which, in combination, was the most dangerous adversary of the Dutch. Not only industrial capital fled — by the end of the 18th century, non-residents (mostly the same Dutch owned 20% of the largest British companies (Bank of England East India Company, South Sea Company), often direct competitors of the Dutch, and 14% English public debt, largely formed due to the wars with the Dutch same.
The result of Dutch deindustrialization was economic stagnation, which lasted the entire 18th century, permanent political instability and, as a sad outcome, the population welcoming the French army, which was to free it from its own government.
Apparently, the United States understands where the origins of the crisis lie and understands the danger of a scenario like the “Old Dutch” scenario. Moreover, the immediate effects of deindustrialization are visible "to the naked eye." The economy is flooded with money - but growth is recovering with difficulty. To a significant extent, because money actually finances foreign industry and hydrocarbon suppliers. Domestic demand, supported by debt load and the “by-product” zero savings rate, can hardly be restored in principle.
However, the US has strengths. Firstly, this is a technological advantage - the gap between the states even from Germany or Japan is still very large. Secondly, unique opportunities to promote their economic interests in foreign markets. Third, as a consequence of the first two points, competitive and rapidly growing exports. Fourth, a very impressive resource base and much lower domestic prices for energy, electricity, etc., than in Europe and Japan. Fifth, a much younger population compared to the EU and Japan, which creates a not-so-heavy burden on the pension system and budget — and is capable of providing industry with labor.
As a result, the long-term strategy voiced by Obama in the form of seemingly unrelated initiatives comes down to the following. First, re-industrialization and the return of overseas production in the United States. At the same time, since it is difficult and unprofitable to compete with the Chinese and Ko in the lower price segment of the domestic market, the driver of industrialization should be high-tech exports - which “at the same time” will correct the trade balance. The prerequisite for its rapid growth should be massive investments in advanced research and development - the good, the world is on the verge of a technical revolution. Moreover, the use of new technologies in manufacturing (for example, robotization and 3D printers) can significantly offset the advantage of "Asians" in the cost of labor. The second prerequisite for the growth of exports and re-industrialization as such is the decline in domestic prices for energy and energy carriers, and ideally the achievement of complete independence from the export of expensive hydrocarbons. On the one hand, this will increase the competitiveness of industry in domestic and foreign markets and, naturally, will have a positive impact on the trade balance.
Secondly, Obama's re-industrialization and relative "socialism" can also revive domestic demand.
In the short term, the United States is unsuccessfully trying to cut spending and increase tax revenues. The instruments, for example, are the "deoffshorization" of business and the increase in taxes on the incomes of wealthy citizens. As a result, positive developments are quite obvious - budget revenues increased in January to $ 272 billion, with $ 234 billion in January, 2012. Income tax revenues increased from $ 403,8 billion to $ 468,4 billion, from corporate income tax from $ 60,2 billion to $ 70,3 billion. In fact, the United States has enough reserves to get out of debt "pit" - the budget deficit will be fast enough to shrink.
As for more fundamental indicators, then, as noted by the US Department of Commerce, in 2012, exports reached a record $ 2,2 trillion, the trade deficit is rapidly declining. A record level was reached in such exports as industrial equipment, automobiles, parts, engines, consumer goods. Exports of petroleum products rose by 1056% compared to the level of 1999 year, coal exports reached a record size. The US is actively reindustrializing, restoring the basic sectors of the economy that have collapsed over the past thirty years. For example, Dow Chemical and Royal Dutch Shell are building chemical plants, one of America’s largest steelmaking corporations, Nucor, is increasing steel production, and is experiencing a multiple increase in profits based on cheap shale gas.
In other words, if nothing extraordinary happens and current trends continue to develop, the United States will regain its traditional role in the global economy - the role of an active exporter of goods and an industrial giant. Despite the apocalyptic predictions, the internal reserves of the States are too large for the country to leave the stage.
Evgeny Pozhidaev: Re-industrializing the United States - the return of the giant
- Evgeny Pozhidaev