Transcript PPT_Slides - The University of North Carolina at Chapel Hill

Globalization: An Economic
Perspective
Professor Peter Brews
Kenan-Flagler Business School,
University of North Carolina at Chapel
Hill
World View Global Education
Leaders' Program
23 June 2011
Globalization has many facets/dimensions:
Historic...first globalization of peoples; then globalization for resources
(scramble for Africa...)
Most recently: economic globalization
Discussion today pertains to economic globalization, which relates to the
explosion of productivity experienced over the past three hundred years or so
Economic Globalization:
Relates to understanding differences between pre-industrial, industrial, post
industrial contexts, and what drives competitiveness in the last two
Pertains to knowing which factors/resources/competencies are
available/becoming available in other parts of the world, and then knowing
what to do/focus on to compete in this widening
productivity/resource/competence availability
Requires knowing the difference between market and supply seeking, and to
what happens to consumption/PPP as nations get in the game
The Industrial and Post Industrial Worlds
Industrial
Post Industrial
Main
factors of
production
Land
Labor (physical)
Capital
Land
Labor (mental)
Capital
Key work
units
Urbanized, vertically integrated,
hierarchically controlled factories
Small/large, centralized/decentralized, local/global, vert. deintegrated/IT integrated networks
Capability
of Capital
Dedicated, inflexible, electromechanical processors,
supported by dedicated humans;
hands and machines
Flexible, ‘smart’ programmable
processors, operating with little
human intervention once
programmed; minds and machines
Marketing
challenge
Meeting demands of
unsophisticated consumers with
little choice
Meeting demands of informed
consumers with much choice;
services and solutions intensive
Principles
of
production
High volume, low variety leads to
high quality/low cost;
specialization, standardization,
mass production/distribution
Automation, specialization, high/low
vol., high variety, speed, flexibility,
mass customization, continuous
innovation/advantage upgrading
Industrial versus Post Industrial Organizations: A Summary
Industrial
Post Industrial
Physical capital dependent; asset
and labor intensive
Intellectual capital dependent;
fewer ‘smarter’ people
Physical/tangible product based
Intangible, high value added
services/solution based
Employs many, mostly in the factory
Employs fewer, on the campus, at
home, anywhere
Balance sheet orientation
Income statement orientation
Low net income per person
High net income per person
Scale constraints
Easily scaleable
Low market value per person (MVP)
High MVP
Slow wealth creation dispersed to
outside suppliers of capital; few
inside shareholders
Fast wealth creation more
dispersed to inside suppliers of
knowledge; more inside
shareholders
The industrial to post industrial shift profoundly effecting:
• Role of humans in productive work
• Structure, scope, speed, operational performance of firms
and
• Nature/complexity of goods and services (and solutions) on offer
All organizations and workers around the world are currently adjusting
to the effects of this structural change
Why is Economic Globalization important to the state/citizens of North
Carolina?
• First, economic globalization for Americans was a supply seeking
enterprise; consumers in America greatly benefitted
• Over the 20th Century America was consumer of last resort to the global
economy
• Economic globalization will now become more a market seeking enterprise
for Americans; instead of selling only to 300 million at home the potential
market is billions of consumers elsewhere…go where the money is!
• Can producers in America offer products/services/solutions others in the
world will want?
At the leading edge innovating faster than those behind can replicate is best
route for competitive survival (remember Solow’s tfp as the major source of US
economic growth)
Political, community, and education leaders must ensure North Carolinians are
ready to compete in this post industrial, globalizing, fast moving world…
And that NC is an attractive location to invest in in the ongoing struggle for
productivity, as well as an attractive place to live in, holiday in, and retire in…
What must educators do?
• Prepare American human capital for knowledge intensive, creative work, so
we can innovate at a rate faster than others can replicate; here, high level
math and science skills are table stakes
• Discipline and deferred gratification must be instilled in students so they
make the educational investment and learn how to THINK, problem solve,
research, imagine, create, connect dots etc.
• Schools, Community Colleges, and Universities must develop curricula that
prepare workers for 21st Century, high value creative work, or for working with
smart machines and systems delivering smart goods, services, or solutions
• NC K-12 schools must give world class grounding in basic subjects across
the spectrum, instill strong work ethics, sensitize students to global issues and
cross cultural differences
• My contract with my children…
Potential Jobs in the Future ?
• New goods, services, or solutions (post industrial creative work);
• Building, maintaining, operating, and improving machines that perform
physical work (post industrial mechanical work);
• Helping industrial organizations negotiate the transition to post industrial
status by finding more efficient ways to organize and produce existing products,
services, or solutions (post industrial transformational work); and
• Performing manual tasks machines do not do, or manually assisting machines
in work they do (post industrial manual work)
• All must aspire to join Creative Core of organization they work for, and
become post industrial entrepreneurial capitalists
• Know how to join Creative Core: technical/scientific vs. industry/ business
knowledge route; where are opportunities for high value added human work in
your industry segment
Big question for all 21st Post Industrial workers: Do you have any ideas that
are worth funding????
Rebalancing and Innovating:
America in the Post Meltdown
World
Professor Peter Brews
Kenan-Flagler Business School,
University of North Carolina at Chapel
Hill
World View Global Education Leaders'
Program
23 June 2011
Why Rebalancing and Innovating…
America is out of balance, this will be remedied one way or the
other...
While rebalancing is accomplished America must innovate to
resume economic growth, retain its primary position in the global
economy
The US is in worst shape it has been in for generations:
• 25 years living beyond means have finally caught up
• Economically, out of balance both publically and privately
• Politically divided, facing legislative gridlock with little convergence at center
• Some core industries in trouble (banking, automobiles, construction, retail)
while important support industries face serious funding issues (healthcare,
education, military…)
Not really credit crisis but over-consumption/living beyond means
crisis: credit symptom, not cause
Two propositions:
• Americans could cut consumption by 20% and probably wouldn’t
notice: 20% smaller houses, 20% smaller cars; 20% less food; 20%
less clothing etc.
• In face of global imbalances and global competition/scramble for
resources, 2006/7 American consumption levels unsustainable
US Political Economy: Public Sector Imbalances
US Federal Gross Debt as % of GDP: 1940-2009
.
Source: zFacts.com
US Gross Federal Debt is now around 100% of US GDP
Source: http://www.usgovernmentspending.com/downchart_gs.php?year=1792_2010&view=1&expand=
Federal Public Debt (US$bn)
8,000.0
7,000.0
6,000.0
5,000.0
4,000.0
Federal Public Debt (US$bn)
3,000.0
2,000.0
1,000.0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
0.0
Source: CBO http://www.cbo.gov/ftpdocs/108xx/doc10871/BudgetOutlook2010_Jan.cfm, Historical Budget Data.xls
Federal Public Debt (%GDP)
60.0
50.0
40.0
30.0
Federal Public Debt (%GDP)
20.0
10.0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
0.0
Source: CBO http://www.cbo.gov/ftpdocs/108xx/doc10871/BudgetOutlook2010_Jan.cfm, Historical Budget Data.xls. CBO expects Federal Public Debt
to reach 62% of GDP by end of 2010, highest since WW II
Even before the Credit Crisis:
• Social Security/Medicaid surpluses raided to balance federal
budget
• Federal government borrowing to meet expenditures; foreign
savers meeting some of need…Japan, China, Saudi Arabia etc.
MAJOR FOREIGN HOLDERS OF TREASURY
SECURITIES (in billions of dollars)
Country
Nov 2008
Nov 2009
Jan 2011
China
681.9
798.9
1,154.7
Japan
577.1
751.5
885.9
United Kingdom
360.0
249.3
278.4
Caribbean Banking Centers
220.8
171.7
166.5
Oil Exporters
129.6
185.3
215.5
Brazil
78.1
144.9
197.0
2047.5
2,301.6
2,898.0
-
-
4,453.4
Total Top Six
Total Foreign Holders
Source: Department of the Treasury/Federal Reserve Board, March 2011
US Political Economy: Private Sector Imbalances
US Macroeconomic data: Home prices, building costs, interest rates, population
Source: http://www.econ.yale.edu/~shiller
US Macroeconomic data: Consumption and Mortgage Equity Withdrawals
Graph constructed by Professor Christian Lundblad, Kenan-Flagler Business School, University of North Carolina at
Chapel Hill.
Consumption and GDP data from the Bureau of Economic Analysis (BEA). Mortgage equity withdrawals are measured as
the year-over-year change in mortgage debt (from the Federal Reserve Flow of Funds) minus 70 percent of residential
investment spending (from the BEA). (Source: L. Josh Bivens, Economic Policy Institute)
Private sector imbalances:
• Private consumption expenditure sustained by freely available low
cost capital, tax cuts, real estate asset bubble/boom, credit card
debt
• World’s largest ponzi scheme ever operating between US
consumers and PRC
• US private savings rate also very low/even negative over past
decade
• 1990s dot.com boom was investment bubble; in 2000s cheap
finance sustained consumption bubble; prosperity was borrowed
Immediate credit crisis result of many factors accumulating over last
decade or so:
• Securitization of financial instruments/misalignment of incentives
• Poor financial market oversight/regulation
• Political desire to increase home ownership through Freddie
Mae/Mac
• Expansionary US fiscal and monetary policy
• Real estate asset bubble that developed over 00s
All led to Borrow and Spend
Adjustments needed:
• < 5 - 10 % in US Consumption as % of GDP
• > in US Gross Savings to 5 - 10% of GDP
• > in US taxes 3 - 5 of GDP %
• < 20% in average US body weight
i.e. we all must save more, consume less, adjust consumption
expectations, de-lever
Note: Note: 2010 QIV Personal Consumption Expenditure was
estimated to be just under 71% of GDP, but personal savings rate now
over 5%
Key contingencies
• Where/when will US housing market bottom be reached?
• At what level will more careful, de-leveraged Americans spend?
(Consumption as % of US GDP: 1953 – 1983, 61- 64%; 1995
67.5%; 2003 beyond >70%)
• How will US Administration/Congress act
• To what degree/how quickly will others step in to replace lost
American consumers (i.e. what is the Growth story?)
Future US Scenarios:
Party On, Dude
To
Tighten Belts
Party On, Dude
• Bailouts continue/budget deficits grow, pandering rather than pain: no
pay as you go imposed
• Government borrowing increases, private investment/GDFI crowded
out, welfare grows - corporate and consumer
• Protectionist impulses lead to closing of American economy to buffer
against foreign competition/protect US jobs
• World eventually becomes nervous of US$/Economy, dumps US$,
status of world reserve currency lost to Euro or Rmb
• US descends into second class status, paying off today’s debt through
inflation, debasing currency into Mickey Mouse money
• This is worst case scenario, unlikely but possible; if we don’t discipline
ourselves the market eventually will…the US could be Greece in five
year’s time
Tighten Belts: Take the Pain, Adjust, Emerge..
• After stabilization, tightening occurs: interest rates rise to encourage
savings/counter inflation, budget deficit stabilizes, federal govt. >
discipline; adjustments at State and Local levels also probably required
• Short to near term economic growth moderate, unemployment
structural, Americans reduce consumption, increase savings to de-lever
balance sheets, increase savings/cushions
• After initial adjustment US economy resumes growth based on ongoing
productivity gains, clean tech/high tech/innovation, local and export led
growth
• China, Brazil, India, others become locomotives of global growth, lasting
well into the 21st Century, consumption model evolves
• US evolves from last Superpower to First Among Equals
Either way Americans must reduce consumption/living standards to
match productivity/income; and prepare for the additional overhead of
healthcare, baby boomer retirement costs, and for clean energy
development costs
We cannot borrow, grow, vote, cut our way out of the current mess;
painful adjustment will be required
More than likely, both future entitlement expenditure as well as living
standards of the average American will have to be curtailed
Cuts in govt. expenditure as well as tax increases will probably be
required
For the sake of our children/grand children we must deal with
our current economic imbalances (short term), as well as with
Global Warming/Climate Change (long term)
We are currently mortgaging their futures, economically and
environmentally…
BIG TIME
But don’t go from irrational exuberance to irrational depression
It is only a question of balance...
Whether US declines or revitalizes depends upon political
choices/leadership, and willingness of all to confront reality and
adjust accordingly
And remember end of world not nigh, it could be far worse…
You could be an Icelander, or in Ireland, or Mexico, or Zimbabwe
US economy still envy of the world, flexible, innovative, open for
business, productive
While recovering from our party and hangover, we must all work to
keep it that way!!!!