President Romney Would Face Immense Economic Challenges Due To Negative Transformations That Go Way Beyond Washington – Could Romney Forge A Real National Consensus About Major Structural Reforms?

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By Paolo von Schirach

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September 1, 2012

WASHINGTON – In a previous piece (see link above) I expressed concern about oversimplified Republican feel good “we-can-turn-this-around” economic recipes. While I agree that a more pro-business environment (fewer regulations, lower corporate taxes, smaller and more efficient public administration) would help, America’s economic troubles go much deeper than that. A change of leadership in Washington could help, but that alone would not be enough to transform a deeply wounded economy whose ills were not caused only by ineffective public policies.

America hit by globalization

To start with, current high (8.3%) unemployment is not just about Barack Obama. It is about the cumulative negative impact of globalization on America. The globalization of labor markets means that corporations can now easily source (this is no longer just about outsourcing) almost any function where it is both cheaper and better.

This incredible and fairly rapid transformation means that the American labor force in order to have a chance now has to compete on cost and on quality at the same time. While most of the Chinese and Indian engineers are not that good, some are, while a few are exceptionally good. And they can legitimately compete now for jobs that used to be performed in America. This is tough for the American middle class which is now literally under siege. And this is why millions of mid level service and manufacturing jobs have disappeared. They are the most easily replaceable and therefore the most vulnerable to globalization.

Jobs are gone

Let’s make it absolutely clear. Most of these mid level jobs are gone –for good. Even assuming a higher rate of growth and more hiring, those positions are not coming back.

To make things worse, the IT revolution coupled with more automation of basic office functions and the wider use of industrial robots, means that factories and even services can keep or even increase output with a smaller and smaller labor force. Again, hundreds of thousands of typical assembly line positions are gone, for good. Clerical jobs are also gone. And to make things even worse for the average medium skilled worker, the remaining jobs have much tougher skills requirements. Everybody has to be computer literate. The average factory worker, as a minimum has to understand complex operations and manage efficiently state of the art equipment, some of which did not even exist just a few years ago.

Needed: super qualified workers

A super qualified, nimble work force supervising an array of smart machines is good news for innovative companies and for economic productivity; but it is horrible news for the millions of so-so skilled people who are currently unemployed or under employed. The direction of technological innovation right now leads companies to be able to do the same or more with fewer but more qualified people. For all the others, there are no seats at the table. Period.

And so the millions of long term unemployed right now have nowhere to go except further down the socio-economic ladder. Going down means joining the ranks of unqualified manual labor, or competing for fewer jobs with other somewhat educated people performing unsophisticated tasks.

There will still be jobs for construction workers, waiters, janitors, barbers and landscape workers. But not too many, and they do not pay well because of the low skills required and now the competition of additional would-be workers pushed down by globalization, IT and automation.

Expand the innovative sectors

Right now, the only possible way out of this bad predicament is in expanding the sophisticated sectors that require super qualified workers. However, this woud require a lot of innovation (that cannot be magically willed into place) and also intensive and effective retraining for those who seek work but lack the qualifications to work for super high tech, innovative companies. Finally, we would also need a total rethinking of our public education system, so that America’s future workforce will have the skills that will make young graduates appealing recruits for the high end jobs that we assume will be there.

Only so much a president can do

Let’s be clear. These are huge problems resulting from tectonic shifts in the global economy. Nobody can come into the White House and claim that they know how to fix this. Obama could not, probably because he has no private sector experience and therefore lacks the right instincts. Romney may have better instincts; but the problems are just to big for any president who has to show results within four years.

The retraining of millions of Americans, coupled with the hope of expanding high tech business, accompanied by a total reformulation of public education (as we also work on basic stuff like better literacy) is a truly daunting task.

Obama could not forge a consensus

In 2008 Barack Obama promised a complete reformulation of the way we do public policy in America. Had his instincts been better than his rhetoric, this president could have forged the long term public policy consensus necessary to embark in complex multi-year transformations.

Could Romney deliver?

Unfortunately it did not work, and I doubt that should president Obama be re-elected the next four years would be much better. Can we hope that president Romney will be able to forge a genuine bipartisan consensus on the broad public policy changes that America would need in order to become competitive again? The acrimonious tone of this campaign is a bad omen. We can only hope that the political instincts of president Romney will be up to the task.

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