We have been hearing a lot about the weak American recovery and the soft Chinese landing as well as the Indian economic slowdown. In this Saturday's Financial Times we read of the stalling of the Brazilian economy and last week reports out of Europe note not only the continued UK contraction (which parallels that of Japan) but that the EU appears to be falling into recession. One factor in this general decline is the general reduction of wages over the past 30 years in what were the most developed economies (USA, UK) and the recent decline in the EU. While Chinese workers are just beginning to develop consumer patterns, their behavior is more demonstrated in saving. Your correspondent Martin Wolf has made this a focal point of his analysis of the need for rebalancing for several years.
At this base of the increase in productivity and profits has been a trend of "deskilling" industry that began in the 1970s. Deskilling in manufacturing and services allowed for factories to be designed to be run by workers with little or no formal education and provided the basis to off-shore once skilled jobs abroad and internally in the USA to Right-to-work states where union representation was low. Mark Grey described this process in an article in Human Organization in 1999. This worked for a short time as such factories could be sent to Indonesia and India. However, China and Korea took a different road investing in worker education which has supported skilled manufacturing and a more adaptable workforce producing high quality products and efficiencies. The Germans have followed this path as well. The result is that the world needs consumers who can spend and buy new products. But low wages and cultural barriers to spending and consumption in Anglo-American patterns that have driven the post-WWII economic boom, do not promote recovery. The result, no matter how much people like Dr. Wolf complain about the lack of Asian consumers, is stagnation. At the same time we have seen a marked increase in inequality across the globe. One way out of this situation is for wages to rise across the developing and developed world along with taxes on the top 10% of earners. Such a redistribution of wealth can restart the global economy. Without it we will continue on a dysfunctional vector.
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