Creative Destruction is the term used by economists to describe the loss of jobs in one industry or sector as new, more efficient technologies and products arise to take their place.
From a post on John Mauldin’s website I wrote:
In case you don’t get the movie reference, Rollerball takes place in a futuristic society where a handful of mega-corporations rule the world and the violent game of Rollerball is used to control the populace by demonstrating the futility of individuality. (Also, like Rome’s “bread and circuses,” it is designed to keep people entertained and distracted.) James Caan (Jonathan E.) is the hero who fights to destroy this system.
Many people argue for free trade, and I’m not against it in theory, but in practice, I think it is creating a problem without a solution, and I invite greater minds than mine to make some suggestions. I will layout the problem as I see it and await the wisdom of others.
I believe this is the first generation that now looks forward to a lower standard of living than their parents’. I attribute this state of affairs to the rise of globalism, free trade, and international business. All the proponents of free trade extol the virtues of international sales and the profits to corporations. All well and good, for the lucky ones. But what I see is a loss of jobs in the USA. We have lost much of our manufacturing base and it is not coming back. Our blue collar skilled laborers have been replaced by third world laborers who are willing to work for a veritable bowl of rice per day. Not only that, but many of my well educated colleagues in the high tech field have also lost their jobs to overseas workers: outsourced to coders in India (where the quality of the software products have also suffered).
So not only are we losing factory and manufacturing jobs, we are also putting the well-educated and skilled into the unemployment line. And if either the tech workers or the laborers can find work, they cannot compete for higher and higher wages, but for lower and lower wages against those who will work for much less.
IOW, the rise of global capitalism has LOWERED ALL BOATS, creating international competition and profits by paying less and less for labor.
Which would be fine, I guess, if the companies that outsourced to other nations were hamstrung by the same laws regarding pensions, healthcare (now!), environmental regulations, and minimum wages as we. BUT they are not. Those who work for lower wages are also not saddled with incredible tax burdens, Social Security taxes, State and local taxes, and so in addition to their cost of living being much lower, they take home more of their measly pay.
Let me conclude with an example from my own life. I helped start a company with an invention of an adjustable grocery rack for grocery bags. For several years we had good sales, but then Formosa, a Chinese company, saw our racks (not patentable, btw), took them and made them overseas for one half the price of our materials costs. How? Well, the environmental regulations on powder coating or chroming in the US were so costly, there was no way we could produce racks at the same cost as the Chinese, who not only paid their workers much less, but also had no environmental regulations, no workman’s comp, no unemployment insurance, and who also had subsidized, lower cost, steel.
My question then is this: If the corporations are so happy to outsource their products overseas to maximize profits, to whom do they hope to sell their products when they destroy the purchasing power of the consumers in the US by putting them out of work? Where will their markets be then?
How can we have globalism and free trade if the playing field is not leveled in some way – either by a tariff that charges the foreign companies what they would have to pay if they had the same environmental regulations and pay scales, or by taking away the tax incentives for companies who ship jobs overseas? I don’t have a solution, as I said, but I can see the result in the unemployment lines and in the faces of friends who cannot find work.