How China and India will pay your bills

OK, send in the hate mail! I wrote an essay in this week’s magazine on how China and India will come to create jobs for Americans, Europeans, and just about everyone else, not “steal” them, as they are often accused of doing. I know at first reading, such an idea might sound completely ridiculous. China is sucking up manufacturing jobs from around the world. Indian engineers and IT specialists are battling it out with U.S. college grads for jobs in software development and R&D. With wages so much lower in China and India than in the U.S. and the rest of the developed world, how can the average American, Brit or Japanese ever hope to get a job offer?

My argument, however, is that the wealthier China and India become, the more and more jobs they will create globally. That will happen in two key ways. First, Chinese and Indian consumers and companies will become increasingly influential spenders in the world economy, providing new sources of demand and thus jobs. Secondly, Indian and Chinese companies will become ever greater investors around the world as they expand their operations globally, creating jobs wherever they go. I expand on this further in the magazine story, but I wanted to add a few extra thoughts here on how China and India will influence job markets, especially in advanced economies.

First of all, we have to finally drop the misguided hope that jobs which have been moved to China or India from the U.S. will ever return, at least in any significant numbers to make a difference in employment. There is simply no economic rationale behind that fantasy. Barring some unimaginable financial conflagration that thoroughly reorders the relative position of developed and developing economies, the cost and efficiency benefits of tapping into the Chinese and Indian workforces are simply too big to be ignored by the multinational corporation. The emergence of a global jobs market is a result of technological advancement – such as the development of the Internet and mobile communications – that cannot be reversed. Trying to prevent this process of the movement of work around the world would only make companies in developed economies uncompetitive versus emerging-market rivals and hasten their demise, while punishing consumers in the West with high prices, thus slowing down growth and, in the end, hurting the creation of jobs. So the globalization of the jobs market is here to stay. Grousing about that fact doesn’t get anyone anywhere. The only thing to do now is embrace the change, and find ways of benefiting from it.

And there are benefits, and there will be more of them. History tells us that is true. Back in the 1970s and 1980s, there was tremendous fear about the rise of Japan, and what impact the country would have on the U.S. economy and workforce. Japanese firms in autos, electronics, steel and other industries posed a terrifying challenge to U.S. companies. The American economy was changed by this competition. However, at the same time, the Japanese were so drawn to the U.S. market – it is the largest in the world, after all – that the growth of Japan led to the creation of jobs in the U.S. For example, the Japanese automobile industry employs more than 400,000 people in the United States. There is every reason to believe that as Chinese and Indian firms grow in a similar way, they’ll create jobs of such scale as well.

The change to labor markets brought about by the rise of China and India, remember, isn’t limited to America and other high-wage countries. The growth in China and India is having an equally dramatic impact on the workers of those countries as well, and that is transforming the Indian and Chinese economies. Despite the giant size of their populations, neither nation has a bottomless supply of cheap labor. China is going through major demographic changes as a result of its one-child policy. In India, no matter how many potential IT workers might live in the country, the reality is only a small subset of the available workforce is qualified for high-tech or business services jobs. As a result, wages in both countries, especially in export-oriented or high-skill sectors, are rising rapidly. In fact, the Chinese leadership has made improving worker incomes a top priority in its latest five-year plan.

What does that mean? As I mentioned above, the average Chinese or Indian will have more money to splurge on all kinds of stuff, creating jobs. But it also means that China and India will face challenges to their own competitiveness over time as labor costs rise. (It’s already starting to happen, with China losing out in basic manufacturing to lower-wage countries like Vietnam.) The labor-cost playing field will start to become more level between China, India and the developed world. That will help U.S. and European workers compete with Indian and Chinese workers (albeit far down the road). Even more, the rapid development of China and India could increase the demand for skilled workers around the world. To maintain their growth as costs escalate, China and India will have to compete more and more on technology, innovation, productivity, marketing and other aspects of business, and firms in those countries will need to seek out the talent necessary to compete in these areas. The workers in the U.S. and other developed nations already have clear advantages in those areas. So why wouldn’t Chinese and Indian employers want to hire them, perhaps in ever greater numbers? In other words, the competitive position between the world’s biggest economies is changing all of the time, and that will have implications for the creation (and location) of jobs in the future.

Yes, I’m speculating about events way in the future. But the point I’m trying to make here is that the world economy is never static. Changes today produce new opportunities tomorrow. That transition can often be destabilizing. Some people will suffer as others gain. But such transformations are the inevitable result of free-market economics, and they provide hope as well as challenges.

22 March 2011 Michael Schuman


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