(THIS IS THE SECOND FILE OF "GLOBALIZATION: THE CONVERGENCE ISSUE" INTO WHICH THIS DOCUMENT IS DIVIDED.)
Edition 16 - April 2008 (Updated 11/1/08)

(1) ~ Introduction ~ (In another file)
(1-A) ~ Physics of Globalization ~
(1-B) ~ Historical Background of "Free Trade" ~
(1-C) ~ Current Status of the Globalization Process ~
(1-D) ~ Our Bipolar World - The Context of Globalization ~
(2) ~ Does Globalization Produce Convergence?~ (In another file)
(2-A) ~ Can Non-mobile Factors Prevent Convergence? ~
(2-B) ~ So is there a Faustian Bargain?

~ CHAPTER 3 ~ The Convergence Process ~
(3-A)~Economic and Social Effects of Trade Deficits (First Chapter in this file)
[3A1]~Employer-sponsored health-care benefits, [3A2]~Retirement benefits, [3A3]~Wages, [3A4]~Hours worked, [3A5]~Returns to work after layoffs, [3A6]~Severance pay, [3A7]~Welfare benefits, [3A8]~Part-time and temporary employment, [3A9]~Savings, debt and bankruptcy, [3A10]~Stress-related issues, [3A11]~Poverty-related issues, [3A12]~Work-force population shifts, [3A13]~Economic polarization, [3A14]~Sustainability issues, [3A15]~Housing, [3A16]~Dropping Out, [3A17]~The Deflation/ Inflation Vise, [3A18]~Jobs, [3A19]~Financial Capital, [3A20]~A Caste System for the Developed World?, [3A21]~The lag between US labor productivity and US wages, ~
(3-B)~Effects of Trade Deficits on the US Economy ~
(3-C)~Policies for Dealing with Globalization ~
[3C1]~Protectionism, [3C2]~Semi-Protectionism, [3C3]~Labor/ Environmental Standards, [3C4]~Convergence, [3C5]~Hindsight

~ CHAPTER 4 ~ Effects of, and Responses to, Convergence ~
(4-A)~The Subsistence-Level Labor Pool Constraint on Real Wages ~
(4-B)~Some Optimistic Studies ~
[4B1]~A World Bank Study, [4B2]~A Harvard University Study, [4B3]~Intrinsic Biases in Studies of Globalization Economics,
[4B4]~Escapes from Extreme Poverty, [4B5]~A Rand Study,
(4-C)~Some Case Histories of the Links between Globalization and Economic Growth
[4C1]~The Arab World, [4C2]~Viet Nam, [4C3]~China, [4C4]~Chile, [4C5]~Ethiopia, [4C6]~India, [4C7]~Russia, [4C8]~Southeast and Eastern Asia, [4C9]~Latin America, [4C10]~Japan's Experience in Resisting Globalization, [4C11]~The EU Experience with Globalization, [4C12]~ The Developing World's Experience with Globalization, [4C13]~The 50 Least Developed Countries, [4C14]~Cambodia, [4C15]~South Korea's Experience with Globalization, [4C16]~Conclusions, ~
(4-D)~Some non-Optimistic Studies ~
[4D1]~The Clark-Mander Study, [4D2]~The Weisbrot et al Study, [4D3]~A Recent IMF Study, [4D4]~The Milanovic Study, [4D5]~An Emerging Picture ~
(4-E)~The Out-Sourcing-In-Sourcing Debate ~
(4-F)~Blaming Globalization or Blaming its Context - And Does it Matter? ~ (Last section of this file)

(5) ~ Financial Capital Constraints on Convergence (Top of the third file of this document) ~
(5-A)~ The Role of Population Growth Rates ~
(5-B)~ Cost/ Time Frame for Reducing the Developing World's Financial Capital Problem ~
(5-C)~ The Role of Capital-Intensive Agriculture ~
(5-D)~ Capital-Intensive Agriculture: A Route to Developed World Status? ~
(5-E)~ The Role of Foreign Investments, Loans and Development Aid ~
(6)~ Natural Capital Constraints on Convergence ~
(6-A)~ Footprint Analyses ~
(6-B)~ Net Primary Production Analyses ~
(6-C)~ Neglected Issues ~
(7)~ The Convergence Point ~
(8)~ Strategies for Living with Globalization ~
(8-A)~ The Threats Posed by Deflation ~
(8-B)~ Capital Utilization Efficiency ~ A Partial Cure for the Ills of Globalization ~
(8-C)~ Natural Capital Utilization Efficiency and Conservation ~ Another Partial Cure ~
(8-D)~ Reducing Population Growth ~ The Crucial Issue ~
(8-E)~ The Time-Frame Issue ~
(8-F)~ Demographic Bonus Investment Options, ~
(8-G)~ Other Strategies ~
(8-H)~ The Limited Potential of Available Options ~
(9) ~ Politics of Globalization - déjà vu ~
(9-A)~ Old Rules and New Rules,
(9-B)~ The New Environment
(9-C)~ Polls

~ List of Tables found in this second file (Chapters 3 and 4): ~
(3A-1)~Percentage of Firms with more than 200 Employees that Offer Retiree Health Benefits ~
(3A-2)~Magnitude of Pension Plan Deficits ~
(3A-3)~Degree to which Single-Employer Pension Plans are Under-Funded ~
(3A-4)~Percentage of Working-Age Households that are at risk of being unable to maintain their Pre-Retirement Standards of Living in Retirement, by Age and Income ~
(3A-5)~Effect of Educational Attainment on U.S. Wages and Wage Growth ~
(3A-6)~Credit Card Delinquencies as a percent of Total Loans ~
(3A-7)~Comparison of Median Household Debt Outstanding to Median Household Income ~
(3A-8)~New Jobs Created in Various Pay Ranges ~
(3A-9)~The Premium Employers pay for workers with 4-year College Degrees over those with High School Degrees ~
(3A-10)~Assets under Management by Hedge Funds in the U.S. ~

(4-1)~Some Constraints Hindering Convergence at Developed-world Standards of Living ~
(4C-1)~Monthly wages in Japan and China ~
(4C-2)~The Informal Economy as a Percent of the Official GDP in 1999-2000 ~
(4D-1)~Some Key Changes in Global Social/ Economic Indicators, 1960-2000 ~

~ List of Tables found in the third file (Chapter 5-9): ~
(8D-1)~Effect of Population growth rate on the probably of civil conflict ~

Go to Home Page of this Website ~

Huge global gradients in labor prices, the cause of ever-increasing trade deficits (Table (1C-7)), have put pressures on developed-world labor to accept reductions in wages and benefits. (See Ref. (08S1) Section (G-1).) These pressures are spawning economic and social effects far outside the workplace. Data on 21 categories of these effects are given below (Section (3-A)). Large and rapidly increasing trade deficits also pose risks to the US economy as a whole (Section (3-B)). Strategies for reducing these risks need to be considered (Section (3-C)).

SECTION (3-A)~ ECONOMIC AND SOCIAL EFFECTS OF TRADE DEFICITS ~ [3A1]~Employer-sponsored health-care benefits, [3A2]~Retirement benefits, [3A3]~Wages, [3A4]~Hours worked, [3A5]~Returns to work after layoffs, [3A6]~Severance pay, [3A7]~Welfare and Unemployment benefits, [3A8]~Part-time and temporary employment, [3A9]~Savings, debt and bankruptcy, [3A10]~Stress-related issues, [3A11]~Poverty-related issues, [3A12]~Work-force population shifts, [3A13]~Economic polarization, [3A14]~Sustainability issues, [3A15]~Housing, [3A16]~Dropping Out, [3A17]~The Deflation/ Inflation Vise, [3A18]~Jobs, [3A19]~Financial Capital, [3A20]~A Caste System for the Developed World?, [3A21]~The lag between US labor productivity and US wages,

This section deals with the effects of trade deficits on those who supply labor, human capital and financial capital to the developed world economy. A subsequent section (3-B) deals with the effects of trade deficits on the overall US economy. These effects also affect the personal lives of us all, but in a macro-sense. Keep in mind that the US has not been competitive in world trade since 1976. (unlike the EU and Japan - that manage to remain competitive, but with ever-increasing difficulty), This puts the US in a precarious position because it is impossible for any nation to increase their current accounts deficit indefinitely. Section (3-B) gives reasons to believe that this state of affairs cannot go on much longer. When the US finally is forced to face up to its long-term fiscal mismanagement and its trade policy mismanagement, the only possible result is a significant worsening of the ills noted below. Also note that more than half of US goods trade currently takes place with other industrialized countries where wages are more comparable (04K3). The trend however is for the US to alter its mix of trading partners toward countries with lower wages. While Canada remains the largest trading partner with the US in terms of goods exported and imported, Mexico assumed the second-place ranking as of 1999, displacing Japan and its highly paid labor from that position. US trade with China has also grown dramatically, from less than 1% of US goods imports in 1980 to 11% in 2002, exceeding goods imports from Japan for the first time (04K3). Also note that the US is starting to run trade deficits in agricultural commodities despite heavy US government subsidies and despite sub-minimum wages for US farm labor. The US has also run trade deficits in forest products since 1914 and fish for decades despite heavy government subsidies for both industries. Since the world's forests are being heavily over-cut, and the world's fisheries are heavily over-fished, the US trade deficits in these two basic commodities (plus oil) seem destined to grow much larger in the decades to come as reserves dwindle and prices escalate. So the future of the US trade deficit is bleaker than most people would surmise. So avoid linear extrapolations of the US ills noted below into the future. Doing so could hardly do anything but grossly underestimate the future ill effects of globalization. On the other hand, Chapter 8 addresses the issue of "living with globalization," i.e. how the impacts of globalization on us all might be lessened, and how the really severe, more precipitous effects might possibly be avoided.

• New US jobs offered health benefits: 43% in 1979 vs. 38% in 1993 (93Z2).
• Percent of new hourly jobs with health insurance: 23% in 1979 vs.15% in 1988 vs. (92A1).
• Fraction of all businesses with 100 or more workers that paid full cost of an individual worker's healthcare: nearly 2/3 in 1985 vs. 1/3 in 1995 (99K1).
• Employers that asked workers to pay part of the cost of health insurance through payroll deductions raised the workers' share from 13% in 1988 to 22% in 1996 (99K1).
• Percent of the 503 small businesses surveyed that said they offer health-care benefits: 46% in mid-1996 vs. 39% in mid-1998; (Wall Street Journal (6/24/98)).
• In a study of 56 retiree health plans offered by companies with at least 5000 active employees, it was found that 17% have virtually eliminated their liabilities for such benefits by requiring retirees to pay the full premium. 20% have eliminated such plans altogether for new hires (02G1).
• Share of private-sector companies offering health insurance to retirees under age 65: 21.6% in 1997 vs. 12% in 2000. Offerings to retirees aged 65+: 19.5% in 1997 vs. 10.7% in 2000 (02G1).
• Employers who continue to offer retiree health benefits to future retirees and new hires have reduced their share of the premiums, on average, from 80% for current retirees to less than 60% for future retirees. They are also requiring longer stints at the company to qualify, with only about 25% of the plans offering benefits as of 2001 to workers retiring with 5 or fewer years of service, vs. nearly 90% in 1984 (02G1).
• Although 25% of companies have imposed caps on their contributions to each retiree's health care premiums, 39% have imposed them for current employees who qualify for future benefits, and 45% have caps in place for new hires. Also the caps are dropping. The median cap of $4450 for current retirees under age 65 drops to $3900 for future retirees (02G1).
• In the 1980s, a 60-year-old employee with 10 years on the job contributed 39% of total lifetime retirement medical costs not paid by Medicare. By 2001 that share was 68%. By 2031, retirees shifted to medical accounts or plans with caps can expect to pay 92% of these costs (02G1).
• Companies providing dental coverage: 77% in 1984 vs. 57% in 1995. Among those who retained coverage (in 1995), 54% helped pay for individual coverage, vs. 34% in 1988 (Wall Street Journal (11/10/98)) (Bureau of Labor Statistics data).
• More than one third of the large employers that offer health care to retired workers have recently stopped such benefits for future retirees (13%), or expect to do so within the next three years (22%) (02K3).
• Pre-Medicare-eligible retired employees receiving medical coverage from employers (for employers with 500+ workers): 46% in 1993, 31% in 2000 (William M. Mercer Inc. data) (Wall Street Journal (3/13/01)).
• Americans without health insurance (from a graph): 31 million in 1987, 42 million in 1996 (Wall Street Journal (2/23/98) and (9/28/98)) (Census Bureau data)
• About 64% of college graduates in the US received health coverage in entry-level jobs in 2005, vs. 71% in 2000. 33% of workers with high school diplomas received health coverage in entry-level jobs, vs. 67% in 1979 (06G3).

Table (3A-1)~Percentage of firms with more than 200 employees that offer retiree health benefits (from a graph) (David Wessel, Ellen E. Schultz, Laurie McGinley, "Pension Curb Accelerates Broad Corporate Shift on Worker Guarantees," Wall Street Journal (2/8/06) p. A1.)

Part [3A2]~ Retirement Benefits ~
Percent of all new jobs in the US offered pension benefits: 23% in 1979 vs. 15% in 1993 (93Z2).

• During 1950-75, the percentage of US private sector, full-time, year-round employees in jobs where they were earning credits toward a pension roughly doubled to 52%. The employee Benefit Research Institute reported that the share of all civilian non-farm workers who were earning credits toward a pension dropped from about 50% of the labor force in 1979 to 46.1% in 1983 and to 44.2% in 1988 (91U1).
• An article by Ellen E. Schultz (Wall Street Journal (7/27/00)) discusses the trend of US employers devising all types of complex revisions to pension rules that result in reduced pensions without employees being aware of what is happening. A lawyer who runs a pension-consulting firm in Dallas was quoted as saying, "Never have so few plundered so much from so many."
• Percent of the 503 small businesses surveyed that said they offer retirement plans: 28% in mid-1996 vs. 19% in mid-1998, (Wall Street Journal (6/24/98)).
• Percent of new hourly jobs with pensions: 43% in 1979 vs. 30% in 1988 (92A1).
• During fiscal year 2002, 144 failed companies with 187,000 retirees turned worker pension plans over to the federal government, vs. 89,000 retirees in FY 2001 (03B4).
• In 2003, 1119 company pension plans were terminated. During the fires nine months of 2004, more than 1200 pension plans were terminated, affecting tens of thousands of workers across the US, according to the Pension Benefit Guaranty Corp. (PBGC) (04O1). Since 2000, companies have shuttered nearly 7500 pension plans (04O1). About 31,000 private sector pension plans still exist (04O1).
• Only about half of all workers participate in a pension plan with their current employer, according to the Center for Retirement Research at Boston College (05A1).
• Less than 25% of workers are covered by a traditional defined-benefit retirement plan (05A1).
• Savings through IRAs and 401(k) plans have been meager: in 2001 the average worker in the 55-64 age group had a balance of only $42,000 (05A1).
• In 2005, 20% of employees in the US had a traditional pension plan with their employers. Around 1985 that figure was 40% (05G1).
• State and local governments now owe their current and future retirees roughly $375 billion more than they have committed to their pension funds. Barclays Global Investments has calculated that if America's state pension plans were required to use the same methods as corporations, the total value of the benefits they have promised their current and future retirees would grow 22% to $2.5 trillion. Only $1.7 trillion has been set aside to pay those benefits. (Mary Williams Walsh, "Public Pension Plans Face Billions in Shortages," New York Times (8/8/06).)
• In the US, government workers' pensions are protected by guarantees even stronger than those on pensions in the private sector. These guarantees cover more than 15 million people. A number of state- and local governments are challenging those guarantees, and some have found ways of scaling back existing promises and shrinking current payments. (Mary Williams Walsh, "Once Safe, Public Pensions Are Now Facing Cuts," New York Times (11/6/06).)

Table (3A-2)~Magnitude of Pension Plan Deficits (05G1)
Row 1: Number of corporations reporting deficits in their pension plans in excess of $50 million.
Row 2: Aggregate deficit in these pension plans (in billions of US$).

Table (3A-3)~Degree to which single-employer pension plans are under-funded (Source: The Pension Benefit Guaranty Corporation) (From a chart in Pittsburgh Post Gazette (8/15/05), p. A8) (in billions of US$).

Table (3A-4)~Percentage of working-age households at risk of being unable to maintain their pre-retirement standard of living in retirement, by age and income (from a chart prepared by Retirement Research at Boston College) (06R1)

The tendency of younger workers to have more problems is attributed to (declining) rates of personal savings, changes (mainly reductions or eliminations) in employer pension plans, and changes in social security in recent decades (06R1).

• The median US worker's earnings, adjusted for inflation, haven't gone up at all since the current economic expansion began in 2005 (07K1).
• Compensation costs (wages and benefits) for US civilian workers rose 3.1% for all of 2005, vs. 3.7% in 2004. The 2005 increase was the smallest annual increase since 1996. US Wages and salaries were up 2.6% for 2005, not enough to compensate for inflation (3.39%). The costs of benefits such as health insurance rose 4.5% in 2005, vs. 6.9% in 2004. (US Labor Department data) (06P1).
• Of the 10.7 million new earners added to the US economy during 1979-85, 48.6% were paid less than $10,000 (in 1985 $), 30.5% were paid $10,000 to $25,000 (37.6% of the work force was in that range in 1979), and 20.9% were paid more than $25,000 (vs. 23.2% in 1979). Right across the earnings distribution, the new jobs were inferior to those the US economy had been generating before 1979 (87T1).
• After correcting for inflation, compensation to US labor per hour of work rose 2.7%/ year during 1960-69, but fell 0.4%/ year during 1979-85 (87T1).
• From 1976-85 the number of middle income male jobs (those paying from 75-125% of median male earnings ($13,334-$22,224) declined from 23.4% to 20.3% of the male work force. The decline was larger (38% to 32.6%) for male workers who worked full time all year (87T1).
• A 30-year-old American man with a high school diploma earned an average of $29,057 in 1998 - 20% less, adjusted for reported inflation, than in 1974 (US Department of Labor report) (00M1).
• Wage erosion in the US was also a characteristic of the 1980s, especially among poorer and less-educated workers. They had to replace lost income by working an average of two weeks longer each year, and rely on a huge influx of working wives. Without these factors, the median household income would have fallen sharply; with them it still stagnated (93Z2).
• Total employment rose by 8 million jobs from 1979-84. But the number of jobs paying $14,000/ year or more in 1984 dollars declined by 1.8 million, and nearly 60% of net job growth occurred in jobs paying less than $7,000.
• American household income during 1996 was $1083 below the 1989 peak of $36,575 after inflation is taken into account (Census Bureau data) (Pittsburgh Post Gazette (9/30/97)).
• Wage growth in service industries rose 2.7% in 2004 to 3.2% in 2005. In manufacturing (the sector most exposed to global competition) wage growth fell from 2.6% in 2004 to 2.3% in 2005 (06U1).
• Growth in US wage rates during 1979-93 was virtually flat, after adjusting for inflation and including all benefits. In this period, output per worker-hour (i.e. productivity) increased 10% (Gene Epstein, Barron's (11/8/93)).
• Since 1972 the median income of men aged 25-34 has fallen 26% after adjustment for inflation. For black men who did not finish high school, earnings fell by 50% between 1973-89 (report by Annie E. Casey Foundation (4/24/95)).
• Real wages for the majority of workers are declining in all three NAFTA countries. Real US median wages: $10.78/ hour in 1993, $10.35/ hour in 1996 (Pittsburgh Post Gazette (7/30/97)).
• For a US family headed by a high school graduate or a worker with some college, the hours at work per week since the 1960s increased by 17.4%, but real earnings increased during that period by less than 4% (Pittsburgh Post Gazette (8/17/98)).
• Inflation-adjusted weekly earnings for the bottom 10% of the US pay scale: $294 in 1979; $260 in 1997 (Wall Street Journal (3/28/98)) (from a graph).
• Average weekly earnings in the private sector: $300 in 1974; $256 in 1991 (less than 1959) (1982 dollars) (US Labor Department data) (from a chart).
• The inflation-corrected value of the minimum wage fell 30% during the 1980s. Despite legislative increases in 1990 and 1991 and again in 1996 and 1997, the inflation-corrected value of the minimum wage in 1999 was still 21% less than in 1979 (03S5). The buying power of the minimum wage is now at a 50-year low (06G2).
• In constant dollars, after-tax earnings of Americans in retail trade (in 1995) were equal to those during the Great Depression (98B1).
• The US Labor Department's inflation report of mid-May of 2005 noted that 80% of the US work force has seen its pay fail to keep up with price increases over the past year. For non-managers in both white- and blue-collar jobs, hourly wage gains have failed to beat inflation every month for the past year. The workweek lengthened in April of 2005, but inflation ate up all the added income from the additional work - and more; over the past year, average weekly earnings have fallen by 0.3% after inflation ("Wages Lag Inflation, Again", New York Times (5/23/05)).
• The current expansion during most of the past 5 years could become the first sustained period of economic growth since WWII that fails to offer a prolonged increase in real wages for most workers (06G2).
• The median inflation-corrected hourly wage for American workers has declined 2% since 2003 (06G2).
• Wages and salaries now make up the lowest share of the US GDP since 1947 when the data first started being tabulated. (Corporate profits have climbed to their highest share of the GDP since the 1960s.) (06G2)

Note: The data above include only cash wages, not health benefits, pensions, stock options, etc.

• The best-paid 20% of workers on private payrolls are three times more likely to have (employer-financed?) health insurance as the least-paid 20% (06W4).
• It is in the middle - where many 4-year college graduates work - that imports, overseas outsourcing and technology seem to be reducing US employer demand for labor most significantly (06W4).

• An average US middle-class husband and wife worked 3885 hours in 1998, up 247 hours since 1990. Most of this increase reflects more working women and longer hours for women (01U1).
• Average hours worked by US workers: 1920/ year in 1992; 1980/ year in 2000 (02S3).
• In 2002, 60% of US women worked for pay in the labor market. In 2000 61% of married women worked in paid employment (02U2) (04K3).
• In 1960, 18% of women with children under age six were in the workforce. By 1995, 65% were in the workforce (98B1).
• Proportion of mothers of households with kids working full time, year-around: 39% in 1996, 17% in 1969. The median income for married couples with children expanded 25% between 1969-96 (inflation-corrected), but without the increased participation by mothers in the labor force, median income would have expanded by only 2% during the same period (Wall Street Journal (9/1/98)).
• US multiple-job holders: 4.9% of labor force in 1979, 6.3% in 1997. (Economic Policy Institute data) (Pittsburgh Press (9/15/98)).
• Households with more than one paycheck: 53 million in 1980; 68 million in 2000 (00M1).
• Percentage of US married couples in which both husband and wife work: 35.5% in 1970; 42.5% in 1980; 50.0% in 1990 (US Bureau of Labor Statistics data) (from a chart).
• The rates of labor force participation for men age 55 and older, previously on the decline, have begun to level off and even increase at older ages (Bureau of Labor Statistics data cited in Ref. (04K3). See Figure 2.14 in that reference.). Causes include a variety of factors, including fewer pension plans being offered, smaller employer contributions to pension plans, and revisions in Social Security regulations (04K3).

Part [3A5]~ Returning to Work After Layoffs ~
Only 15% of workers displaced in the recession just prior to 1993 expected to return to their former jobs, vs. 44% in four previous recessions (93Z2).

• Maximum average severance offered by 168 US employers to rank-and-file employees: 30 weeks in 1997 vs. 24 weeks of pay in 2001, says a survey by Manchester Inc. a career-management firm. Because employees stay on jobs for shorter periods in 2001, tenure-based packages may not be as big for that reason also (Wall Street Journal (6/5/01)).
• In 1997, Spanish employers and unions agreed to new regulations reducing severance pay to 33 days/ year worked from 45 in return for lengthening the duration of labor contracts for first-time hires (98C1).

• Value of US Food Stamps issued in fiscal years ending Sept. 30 (Agriculture Department Data) (from a chart) $10.5 billion in 1986; $23.0 billion in 1994.
• Since the Canadian-US free trade agreement came into effect, the Canadian Unemployment Insurance Program has been repeatedly reformed so that less than 50% of unemployed workers now qualify for benefits, vs. over 90% in 1988. Welfare benefits have been cut severely. Social spending in Canada has fallen sharply as a share of the economy (Wall Street Journal (12/23/97)).
• According to the Canadian Center for Policy Alternatives, the percentage of unemployed Canadian workers who qualified for unemployment insurance (now known as "employment insurance") dropped from 87% in 1989 to 39% in 2001 (04M2).
• About 3.6 million American workers ran out of unemployment insurance benefits in 2004, the most in at least 3 decades (05L1).

• One of K-Mart's corporate goals is to staff the company's 1800 stores mostly with part-time people (who will not be eligible for benefits) (Pittsburgh Post Gazette (9/4/02)).
• A decade ago, BankAmerica had mostly full-time employees. Soon, only 19% will work full time; nearly 60% will work fewer than 20 hours/ week and receive no benefits (93Z2).
• A series of articles (93Z2) notes that US companies are turning to contingent labor - part-timers, temporaries, contract-labor -to avoid fringe benefits.
• US and Europe have been adding temporary- and part-time workers to their work forces (01O1).
• Average job tenure in the US: 9 years in 1999, 8 years in 2000 and 7 years in 2001 (From a survey of 2000 laid-off clients of outplacement concern Drake Beam Morin as reported in Wall Street Journal, early in 2002.).
• Percent of the 503 small businesses surveyed that hired temporary workers: 22% in 1996 vs. 31% in 1997 (Wall Street Journal (6/24/98)).
• Europe's temporary-labor market is growing by more than 10%/ year (98C1.).
• In France, 86% of new hires are on short-term contracts, usually for 6 months, renewable once, and they frequently have to work nights and weekends (98C1).
• The Bush administration announced, on 11/14/03, plans to eliminate about half of the 1.7 million federal civilian workers by contracting out jobs. Advocates estimate savings of more than 30% (02H4).
• Part-timers (no benefits) in Japan now make up 23% of Japan's work force, up from 17% in 1995, according to government data. Many of these "part-timers" work 48 hours per week. Both the US and Europe have been adding temporary- and part-time workers to their work forces (Yumiko Ono, Wall Street Journal (12/19/01)).

Almost 10% of US workers are in an alternative or flexible work arrangement (independent contractors, on-call workers, temporary-help agency workers, and workers employed by contract firms). If self-employed individuals and those working part-time are also included, about 25% of US workers are in a "nonstandard work arrangement" (03W2) (04K3). Many analysts predict that the number of workers in nonstandard work arrangements will increase (02N1). The data above support this view. Part-time employees, whether in nonstandard or standard employment relationships, typically do not qualify for health insurance and pensions, and are less likely to receive company-sponsored training to update their skills. Even full-time workers in nonstandard arrangements are less likely to receive these benefits (03W2) (04K3).

• Personal Savings as a Percentage of Disposable Personal Income in the US (Commerce Department data) (from a plot) (Wall Street Journal (8/29/00))

• Personal savings have declined fairly steadily for more than two decades, even as tax incentives for savings have proliferated. According to a recent analysis by Elizabeth Bell, Adam Carasso and C. Eugene Steuerle at the Urban Institute, the federal government now spends more on tax breaks for retirement savings than Americans actually save. Tax breaks for retirement programs cost $112 billion in 2004 (Office of Management and Budget data). Personal savings for any purpose totaled $100.8 billion (Federal Reserve estimates) (05A1).
• Since 1987, US consumer debt increased from $2.7 trillion to $11.0 trillion in 2006 (07H1).
• Since 1987, US home mortgage debt increased from $1.8 trillion to $8.2 trillion (07H1).
• Total average debt of US households headed by someone aged 65+: $8000 in 1992, $23,000 in 2000 (Pittsburgh Post Gazette (7/8/02)).
• Median net worth of households headed by 25-34-year-olds, in 1998 dollars (Source: Economic Report of the President) (See Greg Ip, "Report Plays Down Economic Woes", Wall Street Journal (2/14/06) p. A2.) $6072 in 1962, $19504 in 1983, $15500 in 1998.
• Consumer credit debt per cardholder: $9750 in 1986 vs.$18,300 in 1990 (National Foundation for Consumer Credit report) (Wall Street Journal (8/12/92)).
• US consumer debt (from plots) (Federal Reserve data) (01P1): $0.78 trillion in 1990; $1.5 trillion in 2000.
• Between 1987 and 2006, US household debt quadrupled (07H1).
• Losses by US credit-card issuers: 2.8% in 1990; 5.6% in 2000 (from plots) (01P1).
• Table (3A-6)~Credit Card Delinquencies as a percent of total loans (smoothed data from American Bankers Association that appeared in the Pittsburgh Post Gazette on 9/29/05) (1988 data is from the Wall Street Journal (6/18/97).)

• Among those aged 65-69, the average credit card monthly balance increased from $1842 in 1992 to $5844 in 2001 (04H2).
• The number of US families headed by people aged 55 or older with housing debt has increased steadily from 24% in 1992 to 36% in 2004, according to the Employee Benefit Research Institute in Washington DC (07G1).
• Among people over 65 with monthly credit card balances, the average self-reported balance rose 89% since 1992 to $4041 in 2001 (04H2).
• College loans were taken out by 45% of full-time students in 2000, vs. 30% in 1990 (Wall Street Journal (6/2/04) p. A1).
• US school district debt rose 12% to $226 billion in the 2001-02 school year (Census Bureau data) This figure does not account for the bulk of costs associated with the federal "No Child Left Behind" Act signed into law in 2002 (Pittsburgh Post Gazette (6/10/04)).
• Bankruptcy filings (credit card holders) (01P1): 0.8 million in 1990; 1.3 million in 2000.
• Personal bankruptcies in the US in millions (from a chart) (ABI World data) (02S1): 0.3 million in 1980; 1.45 million in 2001. Note: More than 90% of people who file for bankruptcy do so because of job-loss, illness or divorce (02S1).
• Personal bankruptcy filings have almost doubled in the past decade, reaching 1.58 million in 2004 vs. about 800,000 in 1995 (data of Administrative Office of the U.S. Courts). The Bankruptcy Coalition says these bankruptcies cost them $40 billion/ year and is lobbying Congress to tighten bankruptcy laws and make them more favorable to lenders (05L2).
• Personal bankruptcies per 100 US households (Wall Street Journal (8/18/99)) (Administrative Office of the US Courts): 0.8 in 1995; 1.36 in 1999.
• The number of Americans over 65 filing for bankruptcy more than tripled between 1992 and 2001 (04H2).
• Estimated US claims handled by collection agencies (billions of US dollars) (American Collectors Association) (from a graph): $14 billion in 1980; $67 billion in 1990.

Part [3A10]~Stress-Related Issues ~

• A program entitled "Time Frenzy" reported on how Americans are experiencing terrible time pressure (PBS, aired on the San Francisco affiliate on 8/30/00).
• Air rage, road rage, desk rage, surf rage, pedestrian rage etc. appear to be growing in the US (00J1). Air rage incidents, globally, increased from 1132 in 1994 to 5416 in 1997. Road rage killed 218 people during 1992-97 and left 12,610 people injured. Workplace violence -virtually unheard of until the 1970s - now costs businesses more that $36 billion/ year according to a 1995 report by the Workplace Violence Research Institute. About 14% of Americans are on the verge of exploding in acts of violence, according to the Anger Institute of Chicago (Pittsburgh Post Gazette (9/5/00)).
• Half of 1000 workers surveyed have much more to do at work than 2-3 years ago. 42% of those surveyed spent less time with their spouses in the same period. Among 150 couples seen in workshops and focus groups, those troubled by one partner's long work hours have doubled in 5 years. A study of impacts on the family of workaholism found that the number of spouses complaining about overworked mates have doubled in the past 10 years (Wall Street Journal (2/26/97)).
• Percent of Americans who report sleeping 7-8 hours/ night: 64% in 1983, 58% in 1992 (93R1). The average number of hours spent sleeping per 24-hour period was 7.7 in 1970, vs. 6.8 in 2001 (National Institute of Health data: See Wall Street Journal (1/26/04)).
• According to a Harris survey, the proportion of American feeling under great stress, either almost every day or several days per week, rose in the past decade from 28% to 33% (93R1).
• Nationwide research led by University of California Los Angeles and University of Southern California physicians and published in New England Journal of Medicine, and another study at the University of Pennsylvania found that pervasive economic insecurity was an important contributor to assaults on women. Primary risk factors for male abusers: intermittent employment and unemployment (99M1).
• People satisfied with their jobs: 59% in 1995 vs. 51% in March of 2002 (02O1).
• Job satisfaction among the higher-earning households: 67% in 1995, 55% in 2000-02 (02O1).
• People (aged 35-44) satisfied with their work: 61% in 1995 vs. under 48% in 2002 (02O1).
• Average time available for family leisure activities: 26.2 hours / week in 1973, 16.6 hours/ week in 1987 (89N1).

The effects of growing job-related stresses extend well beyond growing numbers of types of rage and growing numbers of incidents of each type of rage. Candidates for public office have found that mindless attack ads are an excellent way to win elections. These ads also help candidates avoid substantive discussions of substantive issues. Even fundamentalist churches, televangelists, and talk show hosts are discovering that hate-mongering is a great way to fill pews, increase donations, and increase media ratings. People now have hate lists, and if you examine these lists it becomes clear that they came from church sermons and Sunday school classes. In decades past this was unheard of. Public participation in social clubs, civic organizations, and similar organizations is dwindling as people discover themselves required to devote ever-increasing amounts of time to their jobs. All this paints a picture of weakening social fabric, loss of national cohesiveness, and societal disintegration.

• The number of adults, aged 25-34, living with their parents: 6% in 1960 vs. 12% in 1993, (93Z2).
• Since 1979 the number of poor in the US South has risen from 9.4 million (15.6% of the population) to 12 million (18%) according to the Southern Regional Council's report "Patterns of Poverty". The US Census Bureau reports that the number of poor across the US increased from 26 million in 1979 to 35 million in 1983 (Los Angeles Times (12/18/84)) (US Census Bureau).
• In 1999, demand for emergency food aid grew 18%, and for shelter by 12%. A little over 20% of homeless people have jobs, and more than 2/3 of those seeking emergency food aid are employed (Reuters (12/16/99)).
• Percentage of Americans below the poverty line: 12.0% in 1972; 14.5% in 1992 (93T1) (from a plot) (Census Bureau Data).
• The percentage of poor Americans who are living in deep or severe poverty is now 43% of the nation's 37 million poor people - the highest rate since 1975. (A family of 4 with 2 children and an annual income of less than $9903 [half of the federal poverty line] was considered severely poor in 2005. So were individuals who made less than $5080/ year.) The analysis was based on the 2005 federal census. The number of severely poor Americans grew by 26% between 2000 and 2005. That number has been growing over the past 3 decades. This was 56% faster than the overall poverty population growth rate (Tony Pugh, "Millions in U.S. falling into "severe" poverty," Pittsburgh Post Gazette (2/26/07) p. A14.).
• According to the US Census Bureau, nearly 37 million Americans (12.6% of the population) were living in poverty in 2005. The poverty rate in 2001 (the bottom of the last recession) was 11.7%. This means that the 4 most recent years of economic expansion have increased, not decreased, the US poverty rate ("Counting the Poor," New York Times Editorial (4/17/07).).

• In a period when total male employment was growing by 7.4 million jobs, 400,000 middle-income male jobs were disappearing (87T1).
• As recently as 1950 there were 3 unskilled jobs for every skilled position. In 2000, jobs requiring skills are 4 times more prevalent than those for which manual labor suffices (00M1).
• Since mid-1989, the American Electronics Association says, the number of jobs in the US electronics industry is down by 300,000 (93P1).
• The US high-tech work force shrunk by 100,000 in 1992 (93P1).
• The 500 largest manufacturers have slashed nearly four million jobs since 1982 (93Z2). Defense workers and military personnel stand to lose 2.5 million jobs in the 1990s (93Z2). Aerospace industry workers, among the highest-paid blue-collar workers in the US have lost 1/3 of their jobs, and huge additional cuts are in the offing (93Z2).
• A series of articles (93Z2) argues that major industries such as banking, construction, aerospace and defense are shrinking, perhaps permanently.
• The US Labor Dept. projects that the US economy will produce about 26 million new non-farm jobs from 1990-2005, assuming a moderate 2.3% annual growth in GNP. More than 21 million of these jobs will come in the service sector and other low-wage occupations such as retail clerks, janitors and nurses aides. Two World Bank economists conclude in an internal study, unregulated trade will push wages "downward due to the vast number and rapid growth rate of underemployed populations in the Third World (Jonathan Tasini, Wall Street Journal (1/21/93).)
• During 1979-93 the proportion of white-color non-production employees to all employees in manufacturing rose from 28 to 32%. During 1979-93, the US manufacturing sector shed more than 3 million blue-collar workers (Gene Epstein, Barron's (11/8/93)).
• A report by Foote Partners LLC said up to 45% of US and Canadian information-technology workers will be replaced by contractors, consultants, offshore technicians and part-time workers by 2005 (03U1).

Table (3A-8) ~ New Jobs Created in Various Pay Ranges (expressed as a percentage of total job-creation) (Low wage level is under $7400/ year; medium wage level is $7400-$29,600/ year; high wage level is more than $29,600.) (All figures are in constant 1986 dollars.)

Part [3A13]~ Economic Polarization ~
NOTE 1: Economist Lester Thurow also attributes the rising inequality in the distribution of earnings in the US to a rising proportion of female workers (87T1) (See "Hours Worked").

NOTE 2: Lower-wage workers tend to compete more directly with developing world labor.

• A Brookings Institution study of June of 2006 found that, as a share of all urban and suburban neighborhoods, middle-income neighborhoods in the 100 largest metropolitan areas of the US have declined from 58% in 1970 to 41% in 2000 (06H2). ("Middle-income" is defined as incomes between 80% and 120% of the local median income.)
• Four-year college graduates in the US in 2000 earn about twice as much as those with high school diplomas - double the 50% premium of 1980 (00M1).
• Around 1980, the average US male college graduate earned 49% more than his counterpart with a high school diploma; by 1993 he was earning 83% more (US Labor Department data of around 1995).
• Between 1973 and 2001, the wage premium for a college degree compared with a high school diploma increased 30 percentage points, from 46% to 76% (04K3).
• In 1980, a new employee with a master's or doctoral degree earned a bit more than twice as much as someone who didn't complete high school. Today that spread is more than 4 to 1 (00M1).
• According to the US Bureau of the Census, the share of total income that went to the top 20% of all families was 43.5% in 1985, the highest level recorded since the data were first collected in 1947 (87T1). The income share of the bottom 60% of the population in 1985 was 32.4%, the lowest level ever recorded (This group's share was slightly less than 36% in the late 1960s (87T1).) Data of the Federal Reserve board on income distribution suggests that the move toward inequality is even more pronounced, because it includes capital gains and retained earnings, not counted by the Census Bureau.
• US real family income growth, 1979-93 (in 1993 dollars): Top 20% +18%; Fourth 20% +5%; Middle 20% -3%; Second 20% -8%; Bottom 20% -17% (Labor Department data).
• In 2004 the US economy grew 4.2%, yet the Census Bureau reported that real median family income fell, and poverty increased (06K1).
• In 2004, even if capital gains are excluded from a rising stock market, the real income of the richest 1% of Americans surged by almost 12.5%. The average real income of the bottom 99% rose 1.5%. People in the 95^th percentile of income distribution (people richer than 19 out of 20 Americans) gained only modestly (06K1).
• The real earnings of the typical college graduate fell in 2004 (06K1).
• US minimum wages, in real terms, are at their lowest level in 50 years (06K1).

Federal Reserve Board data show growing disparities in income (87T1):

• Between 1969-82, people in the top 10% of the US population raised their income share from 29 to 33% of total income;
• Those between the 60^th and 90^th percentiles held even at 39%;
• The bottom 60% fell from 32% to 28%.
• The top 1% of wage earners in the US got 16% of all wages in 2004, vs. 9% in 1984 (06W4).

Table (3A-9)~The Premium employers pay for workers with 4-year college degrees over those with high-school diplomas (in percent) (from a graph)

Karoly and Panis (04K3) have discussed the issue of economic polarization at considerable length and discussed some of the arguments found in the literature as to underlying causes. They seem to conclude that mainly increasing degrees of computerization have driven the price of college graduate labor upward to a far greater degree than the price of high school graduate labor. They also appear to imply that globalization has had little effect on the price of labor - only minor sectoral shifts upward and downward with the net of all effects being positive. All this seems extremely far-fetched, given the large mass of data given in this Section (3-A) and elsewhere in this document.

The more recent data on wages (See above) show that only the wages of PhDs, MBAs, JDs and MDs have beat inflation during 2000-2005. Benefits have beat inflation, probably due mainly to exploding health care insurance premiums. Employers are dropping health insurance but probably mainly for lesser-skilled labor simply because the pressures of foreign competition lets employers get away with it to a greater extent than for more highly paid labor which does not (yet) compete as directly with developing world labor. Average US labor wages and benefits since 1980 have tracked below productivity growth (See Section (3-A) [A21] below.). Prior to 1980, wages and benefits have tracked productivity very well for many decades. The overwhelming bulk of computerization has been in software like word-processing, spreadsheets, reservation systems, bookkeeping, billing, and a wide variety of other basically bean-counting software programs that virtually all high school graduates can (and do) handle. Data-entry comprises a large portion of computer-related labor, and this does (should) not even require a high school diploma. Writing computer software does not require a college education. (The fields of software programming and software engineering are now plagued with high levels of unemployment as a result of globalization-based competition.) In most business settings, computers are called upon to do far less than what they are capable of. So the ability to work with computers in business settings probably varies little over the full range from high-school-level labor to college-level labor. In the huge health care industry with large numbers of highly skilled workers, computers do very little beyond basic bean-counting, mainly because of extreme software incompatibility problems that result when hundreds (about 300) of health-care software companies can see no reason why their software ought to be compatible with the software of competitors.

Karoly and Panis (04K3) appear to virtually ignore the millions of manufacturing jobs (mainly high school level labor) that have gone overseas in the past few decades, the strong downward trend of inflation-adjusted minimum wages, strong declines of union membership in recent decades, elimination of benefits for mainly less-skilled labor, reductions of employer contributions to pension funds, rapidly increasing rates of immigration (mainly lesser-skilled labor), large-scale increases of the number of women entering the labor force (labor biased toward lesser-skilled jobs), and increasing use of "non-standard" work arrangements (which typically wind up eliminating health care benefits, pension benefits and skills training) for lesser-skilled labor simply because the pressures of globalization-based competition let employers get away with it.

Part [3A14]~ Sustainability Issues ~
Michael Milken attributes the unusual US complacency over stagnating, or falling, wages over the past quarter-century to:

• High stock market yields
• Falling interest rates
• Increasing numbers of paychecks per household.

But he notes that none of these trends are sustainable (00M1). Milken neglects the fact that US fertilities have dropped significantly since around 1970, reducing living expenses for wage earners. However this trend, also, is non-sustainable, and thus also the complacency. Consider:

• In 1984, half of all retirees had a net worth (aside from their homes) of under $20,268 (91U1).
• Total average debt of households headed by someone aged 65+: $8000 in 1992, $23,000 in 2000 (Pittsburgh Post Gazette (7/8/02)).
• Neglecting homes and real estate, the bottom 55% of wage earners have zero or negative financial assets (87T1).

The bottom half of the US economy (the half with wages falling the fastest) can thus expect to see their financial assets becoming even more negative and, upon retirement, can expect their net worth to fall below $20,000 while their average debt continues to double every few years. Complacency may be shorter-lived than some people think.

• More than 4 million US households spend at least 50% of their salaries on rent or mortgages. This number is 67% greater than the 1998 figure (data from the Center for Housing Policy) (02A2).
• Between 1999 and 2001 the number of US homeowners who spent more than half their income on housing rose 36%, vs. 24% among renters (02A2).

A $1 billion ad campaign run by Citicorp from 2001-2006 urged Citicorp customers to take out "home equity loans" (previously called "second mortgages.") Such loans were once considered to be the borrowing of last resort, to be avoided by all but people in dire financial straits. Since the early 1980s, the total value of home equity loans outstanding increased from $1 billion in 1982 to $100 billion in 1988 to more than $1 trillion in 2008. Nearly 25% of Americans with first mortgages have them. Part of the reason for this was that portions of home equity loans were tax-deductible (08S7). In mid 2008, the portion of people who have home equity loans more than 30 days past due is 55% above its average since the American Bankers Association began tracking it around 1990; delinquencies on home equity loans are 45% higher (2008) (08S7). For the first time since WWII, the portion of home value that Americans own (in 2008) has fallen to less than 50%. In the 1980s, that portion was 70% (08S7). The cause of this huge transformation in indebtedness began in the 1970s and early 1980s when federal laws were changed to allow mainstream banks to offer second mortgages as well as loans with interest only, adjustable rates and so-called piggyback features combining first and second mortgages. Prior to that time, such products were marketed primarily to lower-income customers by savings and loan companies and financing companies such as Beneficial and Household Finance (08S7). All this is just another example of the ever-growing indebtedness of Americans as they struggle to deal with declining real wages that globalization is imposing upon them as the wage scales in the developed and developing world converge.

Part [3A16]~ Dropping Out ~
In 2002, 1.1 million US men and women between ages 25 and 54 described themselves as "retired"(9/2003 study by Bureau of Labor Statistics). In 1991, 330,000 in the same age group described themselves as "retired" (04H1).

In August of 2006, nearly 5 years after the end of the last recession, the share of the population at work (the employment rate) is 1.7 percentage points below its peak in April 2000, indicating that millions of potential workers have dropped out of the labor force completely and thus are no longer counted as unemployed. A recent study by Uchitelle and Leonhardt found that about 13% of prime-age (ages 35-55) American men are not working - more than double the percentage during the 1950s and 1960s - and most of them have quite looking for jobs (New York Times Editorial of 8/8/06).

Part [3A17]~ The Deflation/ Inflation Vise ~
The degradation in wages and benefits documented above suggests a significant risk of deflation. This would result in the need to print money in order to avoid massive default on loans. But this would produce major risks in terms of US creditors pulling their money out of the US (See Section (3-B) below.) At the same time, rapidly increasing prices in such commodities such as soybeans, cement, metals and oil (See Chapter 4) are being attributed to growth in demand from nations like China. China and India together have 2.5 billion people, slightly over 50% in China. China consumes nearly 33% of the world's rice production, over 25% of the world's steel production and nearly 50% of its cement production. Oil consumption has doubled in India since 1992, while China went from near oil-self-sufficiency in the mid-1990s to becoming the world's second largest oil importer in 2004 (06U1). Since the start of 2003 through mid-2006, the bid-price for 3-month nickel futures contracts on the London Metal Exchange roughly tripled, from about $8000/ metric tonne to $25,000/ metric tonne (06B2). Oil prices also roughly tripled during this 3.5-year period.

If the number of Chinese and other developing world folk involved in producing for export (or internal consumption by export producers) doubles or triples (easily possible) commodity price inflation could spiral out of control. The deflation/ inflation mix might reduce the risks of US creditors pulling their money out, but it would catch US labor in a terrible bind of wage deflation/ commodity price inflation. This might offer one mechanism by which living standards of US labor might be reduced by 90% or so to bring them into synch with developed world labor. However it would create terrible political/ economic instability problems. Lesser political/ economic instability problems produced WWII in Europe.

In recent years there have been four consecutive grain harvest shortfalls, each larger than the one before. The grain shortfall of 105 million tons in 2003 was the largest on record-5% of annual world consumption of 1930 million tons. The world's carryover stocks of grain are now at their lowest level in 30 years - 59 days of consumption. (70 days is the minimum considered necessary for food security.) Wheat and corn prices are at 7-year highs. Rice prices are at 5-year highs. (See supporting data in http://www.earth-policy.org/Updates/Update40_data.htm) Farmers, fishers and consumers have had to deal with numerous worsening trends: falling water tables, reallocation of water supplies to urban uses, urbanization of croplands, rising temperatures, spreading deserts, reduced dam backwater capacity per capita, population growth, depletion of wild fisheries and increasing food demands from nations like China. If these trends cannot be overcome, food prices must trend ever higher. The effects on world trade are growing increasingly evident. In the past few years, Canada, Australia, the EU and Russia have imposed constraints on food exports. (See recent articles by Lester Brown of the Earth Policy Institute.) The rules of globalization tend increasingly to forbid constraints on exports. Developing world folk, who spend far larger fractions of their income on food than developed world folk, are destined to become even more wretched as a result of these trends.

Part [3A18]~ Jobs ~
From 2000 to 2003, employment by US multi-nationals rose by 193,000, or 2.4%, at their foreign affiliates. During the same period, US employment by American multi-nationals declined by 2.2 million, or 9.1%, to 21.7 million (05H1). Capital spending by US multi-nationals has also been declining in the US and increasing abroad (05H1).

Since the 1960s, the number of women in the work force has been increasing. Since around 2000 that number has been declining (Bureau of Labor Statistics data) (08U1). It was found that this is not a matter of choice (e.g. to raise children) but a matter of economics. Women are being afflicted on a large scale by the same problems as men: downturns, layoffs, outsourcing, stagnant wages or outright pay cuts (08U1). Women have tended to bring home about a third of family income, and only those families with a working wife have seen real improvement in their living standards. The proportion of women holding jobs in their prime working years (25-54) peaked at 74.9% in early 2000. (72.7% in June 2008) (08U1). The pattern is roughly similar among the well-educated and the less-well-educated, among the married- and never-married, among mothers with teenaged children and those with children under age 6, and among white women and black women. Some 96% of men held jobs in 1953, their peak year (86.4% in 2008) (08U1). The biggest retreat has been in manufacturing, where more than one million women have disappeared from payrolls since the year 2001. Median pay for women aged 25-54 was $15.04/ hour in 2004 and $14.84/ hour in 2007 (inflation-adjusted) (Economic Policy Institute data). The corresponding wages for men today are about $2/ hour more (08U1).

Part [3A19]~ Financial Capital ~
The sum total of all the effects noted above cannot possibly affect only those who provide labor and human capital to the GDP. One would think, intuitively, that there ought to be spillover effects to the other segments of the developed world's economy. These spillover effects are now becoming increasingly apparent, at least in terms of the spillover effects on providers of financial capital and on providers of natural resources to the GDP. This Section [3A19] is limited to spillover effects on providers of financial capital. Articles in the Wall Street Journal (05I1) (06L2) (06P3) and the New York Times (05A4) (06U3) provide thorough analyses of these effects, although these articles make no connection between these effects and globalization. Since President Bush took office, the combination of rising productivity and stagnant wages has led to a veritable profit gusher, with corporate profits more than doubling since 2000. In 2006, profits as a share of national income were at the highest level ever recorded (07K1). Non-residential investment (investment other than housing construction) in the US has grown very slowly by historical standards. As a share of GDP, US non-residential investment remains far below its levels of the late 1990s, and has been declining in recent quarters (07K1). Low investment may be one reason why US productivity growth slowed dramatically during 2004-2006 (07K1). The likely reason for this is that, with the earnings of labor stagnant, there is no reason to expand physical capital. But with all that huge corporate profit growth, the owners of financial capital are finding a shortage of investment opportunities. This results in capital being invested in increasingly risky investments in a desperate attempt to obtain a reasonable return on investment. The end-result is becoming clear - high-risk hedge funds and housing bubbles among others.

(Less and Less to Invest In) The effects documented in Section (3-A) [3A1] - [3A18] and in Section (4-C) [3C11] can hardly avoid reducing the purchasing power of those who provide labor and human capital to the developed world's GDP. These people form the bulk of the developed world's consumers. When the rate of consumption drops, the need for production- and service facilities drops, and the rate at which financial capital is invested in such facilities must also drop. In fact the need for investments of new financial capital might well drop to zero. At the same time this is happening, corporate profits are near record levels even as personal savings rates (in the US at least) are essentially zero. The obvious net result is that owners of ever increasing amounts of financial capital are having increasing difficulty in finding new investment opportunities. As a result, earnings on invested capital are dropping and investors are investing ever-increasing amounts of capital in high-risk investments in order to achieve apparent returns in excess of the rate of inflation. These are the effects documented in the above-mentioned Wall Street Journal articles (05I1) (06L2) (06P3).

Laura Tyson (dean of London Business School) notes that with the emergence of China, India and countries from the former Soviet bloc, companies from the established economies of North America, Europe and Japan have more choices on where to invest. That puts them in a stronger bargaining position with workers in their home countries. The result is a "compression" of wages as a result of the number of workers competing for jobs. As a result, an ever-larger share of national income in the U.S., Japan and Western Europe is going to company profits. The share that flows to workers is dwindling. This explains why worker anxiety is becoming an election issue in the U.S. and elsewhere (07W1).

Global pension, insurance and mutual fund assets under management increased from $31 trillion in 1998 to $46 trillion in 2004. During the same period, global central bank reserves have doubled to $4 trillion (05I1). Also steep price increases in oil and other commodities have greatly increased the financial wealth of commodity-producing countries. These growing floods of new financial capital into a marketplace with little need for additional financial capital have translated into:

1. Money market yields only slightly above the rate of inflation,
2. Global investors pouring money into risky investments such as emerging countries' stocks and bonds, real estate, real estate-backed debt, commodity funds, fine art, private equity funds and derivatives, and
3. Mutual funds increasingly adopting hedge fund tactics (06L2) such as short selling (selling borrowed shares of stock in hopes of profiting from a price decline), buying securities on margin, or with borrowed money, and/or using more complex derivatives, or financial contacts whose value is based on an underlying investment. Such tactics impose both added risks and higher management fees on investors.

(Increasingly Bubbly) This, in turn, results in wildly escalating prices of these kinds of assets and hence rapidly falling returns on investment (as a percent of asset value). Investors are now willing to accept yields on risky ("high yield") corporate bonds and emerging market bonds only about 2.5 percentage points above the yields on comparable Treasury securities (05I1). The price: earnings ratio of the S&P500 common stock index is 19 - well above the historical average of 14 (1945-1996) (05I1). The higher the price of risky assets the greater the risk of owning these assets. This is why we so often hear terms like "real-estate bubble." Obviously there are a lot more bubbles around than that one. All this froth comes only a few years after the Internet stock bubble burst, even though the bubbly nature of Internet stocks was widely known long before that bubble burst. A minor downturn in the economy could easily impose huge losses on investors in high-risk-low-return investments.

(Growing Risks in Mortgage-backed Bonds) In order to accommodate the huge amounts of capital looking for investment opportunities, US lenders have been playing increasingly fast and loose in lending money for home mortgages. In 2005 and 2006, US lenders wrote an estimated $3.2 trillion in new home mortgages (a record). To do this they lowered their credit standards considerably. In 2005, 20% of mortgages taken out were "sub-prime" (made to borrowers with poor credit). Many more mortgages had risky features like interest-only payments. As interest rates rose in 2006, mortgage delinquency rates soared and are expected to peak in 2008 at over 3%, well above the level of the last recession. Many of these risky mortgages were sold to investment bankers who sold them to investors worldwide. More than 20% of global private debt securities are now tied to housing in the US -- $7.5 trillion - far larger than even the investment in US Treasury securities ($4.3 trillion on 12/31/06) (07E1).

Lewis Ranieri (who helped to create the vast business of selling bonds backed by Americans' home-loan payments) is worried about the proliferation of risky mortgages and the convoluted ways of financing them. Many sub-prime borrowers bought homes with no down-payment. In 2006, more than 40% of sub-prime borrowers weren't required to produce pay stubs or other proof of their income and assets (Credit Suisse Group data). Many mortgage loans made in 2005 and 2006 were made without the lenders being sure of what the house was worth (07H2). All this took place during a "Bubble" in the housing market during an explosion in home sales that was the main driver in keeping the economy healthy (or apparently healthy). But even then all sorts of corners had to be cut in order to accommodate the flood of cash looking for homes.

(Hedge Funds) Even pension funds (total assets in 2005: about $9.4 trillion (06S3)) are now being affected by the glut of financial capital in the developed world. Growing numbers of pension funds, universities, endowments, and charitable organizations are investing billions into "hedge funds" which are secretive, lightly regulated investment partnerships with risks that are hard to measure, returns that are hard to predict and charges that are some of the highest on Wall Street. They normally manage money only for wealthy investors. Hedge fund managers do not need to give investors specifics about trading activity, and there are no daily updates on the value of investors' holdings as there are with mutual funds. Hedge funds often take long or short positions on stocks, and invest in credit derivatives and commodities (05A4) (06S3). Pension funds and other large institutions are expected to invest as much as $300 billion in hedge funds by 2008, vs. $5 billion in 1995. Pension funds account for roughly 40% of all institutional money (05A4). Some pension funds have more than 20% of their assets invested in hedge funds (05A4) (06S3).

In Congress there has been a push for amendments that would make it easier for hedge funds to manage even more pension money without having to comply with the federal law that governs company pensions (05A4) (06S3). The Pension Benefit Guaranty Corporation, a federal agency, covers corporate pension failures. Taxpayers cover pension failures by state and local governments (05A4). Long-Term Capital Management, a hedge fund, nearly collapsed in 1998. Bayou Group, a $450 million hedge fund shut down after most of its money disappeared. Its two officers have pleaded guilty to fraud charges (05A4). The net amount of money flowing into hedge funds that focus on emerging-market investments rose from $4.7 billion in 2004 to $5.3 billion in 2005, bringing total assets to $44.5 billion. Pension funds, endowments and other institutional investors such as universities and charitable organizations (06S3) are pouring money into hedge funds - funds that they have been avoiding for years (06P3). (There are nearly 600 Asia-dedicated hedge funds with nearly $100 billion under management, up from 100 funds with $15 billion under management in 2000 (06P3). The current size of the US hedge fund industry is $1.23 trillion (06R4). Between January of 2005 and September of 2006, 2622 new hedge funds opened, but 1071 hedge funds closed (06R4).)

Peter Bernstein (age 89) has observed (or dealt with) the Great Depression, the recession of 1958, the bear market of the 1970s, the 1987 crash, the Savings-and-Loan crisis of the late 1980s, and the 2000-2002 bear market following the tech stock bubble. Bernstein argues that the current economic situation is worse than all that he has seen since the Great Depression, and believes that it will roil the financial markets into 2009 and beyond. He contends that today's serious economic problems and recession were sparked primarily by hedge funds that are both unregulated by the federal government and, in many ways, unregulated by their owners who gave their hedge fund managers a very broad set of marching orders (08B3).

The $1.7 trillion hedge fund industry lost $180 billion during August, September, and October 2008. Money managers fear hundreds or even thousands of hedge funds could be driven out of business. This creates problems for public pension funds, foundations and endowments that have poured billions of dollars into these private partnerships since they pulled their money out of Internet (bubble) stocks in 2001. Worldwide, the hedge fund industry (which started in 1990) is shrinking for the first time. The number of hedge funds dropped by 217 during August, September, and October 2008 to 10,016 according to Hedge Fund Research. (Total liquidations for the first half of 2008 were 350.) The Massachusetts state pension oversight committee will soon vote on whether to allow some towns with pension funds smaller that $250 million to invest in hedge funds. However the US House Committee on Oversight and Government Reform will meet in November 2008 to consider increased regulation of the hedge fund industry. (Louise Story, "Investors Flee as Hedge Funds Woes Deepen," The New York Times (10/23/08))

(Returning Corporate Assets to Shareholders) Even though corporate America has been piling up cash for some time, business spending (on expanding production facilities, modernization, etc.) has not been particularly robust (06U3). Instead of investing in themselves, many companies are choosing to distribute their cash to shareholders by buying back the company's own stock. (In the year ending 3/31/06 US companies spent a record $367 billion in stock buybacks, an extraordinary amount (06U3).) In the second quarter of 2006, big companies bought back shares at an annualized rate of $464 billion. More than 40% of S&P500 companies reduced their shares outstanding with buybacks in just the second quarter of 2006. Never before has the magnitude of buybacks been at this level (06Y1). The obvious implication of this is that US companies can see no investments in themselves that represent a better use of corporate capital. There is an obvious explanation for all of this. When you pay overseas employees to produce goods to sell to US consumers who earn 10-20 times what the employees make, you can hardly avoid making loads of money. But as US consumers grow poorer and less secure, and as they spend more of their income on oil and other natural resources, consumer spending must drop further, so the need for industrial expansion diminishes even further. As a result, the only good use for profits is on stock buybacks. As consumer buying power continues to falls, US companies must eventually (if not already) find themselves in a state of gross over-capacity which can hardly produce anything but a self-perpetuating cycle of plummeting stock prices and further rounds of layoffs.

(Summary) The upshot of all this is that, after corrections are made for inflation and the increasing costs of risk, real rates of return on financial capital have gotten extremely small -possibly even zero or negative. As consumers grow increasingly less flush and max out their huge credit card debts, the rate of return on financial capital can only decrease. All this leaves only the providers of natural resources as the sole beneficiary of globalization. But with shrinking purchasing power of the developed world's consumers and the purchasing power of the developing world's consumers dependent on how much the developing world can sell to increasingly impoverished developed world consumers, the position of providers of natural resources can only grow increasingly precarious also.

Part [3A20]~ A Caste System for the Developed World? ~
India is noted for its caste system in which everyone is divided into "castes" from which social norms make escape impossible, regardless of what you do, or what talents you have. Also, as a backup, the system is set up so as to insure you never accumulate enough capital to change castes even if the social norms suffer a few lapses. Also, if you somehow accumulate assets and education beyond that typical of your class, you and your family could be slaughtered by a group from a higher caste (See a Wall Street Journal sometime during March of 2008.). In an analysis of the "informal" economy of the developing world (08S1) it was noted that policies and procedures have been (and are being) established to prevent those in the "informal" economy from ever becoming part of the "formal" economy, suggesting the early stages of a caste system. If one examines the EU, Japan, the UK, and the US (08S1), one cannot help but notice the beginnings of a developed-world caste system. All the early stages of the caste systems in these developed nations show striking similarities, suggesting a common origin. This suggests that these caste systems have their origins in globalization. An analysis of this caste system issue for both the developed world and the developing world is given in detail in Section (G1) of Ref. (08S1) so it will not be repeated here.

Part [3A21]~ The lag between US labor productivity and US wages ~
As noted in Section (2-A) [A2], prior to 1980, a close correlation between wages and labor productivity in the US existed for many decades. A portion of this correlation can be seen in Table (2A-7). But since around 1980, US wages have been falling increasingly behind productivities. Extrapolating the trend to 2002 would suggest that US wages in 2002 were about 24% behind productivity. Labor productivity in the US rose steadily during 2003-2006, but the median inflation-correct wage declined 2% during that period. Between 2000 and 2005, labor productivity rose 16.6% but median total compensation for workers rose 7.2% (06G2). After a long period in which it seemed that the information revolution (computers, etc.) was having no impact on (labor) productivity, an acceleration of the annual rate of US labor productivity increase began in 1995 and was not slowed by the post-2000 economic downturn (04K3). Data on trends in the earnings of US labor do not appear to show any acceleration during the period between 1995 and the present. Thus the extrapolation noted above showing US wages lagging behind productivity trends by about 24% in 2002 could be a significant under-estimate, i.e. the actual lag could be significantly greater. Stephen Roach, chief economist at Morgan Stanley, notes that in the past decade, real labor incomes have grown at roughly half of the rate of labor productivity (07W1). This suggests a continuation of the trend that began around 1980.

SECTION (3-B)~ EFFECTS OF TRADE DEFICITS ON THE U. S. ECONOMY ~
The net foreign indebtedness of the US in mid-2005 was more than 25% of the US GDP. At the current pace it will reach 50% of GDP in 4-5 years (05G2). The U.S. net indebtedness at the end of 2005 was a record $2.69 trillion, a 14% increase over 2004 (06P2). In 1980 the rest of the world was indebted to the US by about $0.3 trillion. The net foreign indebtedness of the US was zero around 1985 and has been increasing since then. At the end of 2005, total US foreign debt was $13.6 trillion (about $119,000/ household). Net foreign debt (which excludes the $11.1 trillion in US-owed foreign assets) was therefore $2.5 trillion (06W3). This amounts to 20% of the US GDP (vs. 15% for the 12-nation Euro zone, 17% for the UK, and 44% for Mexico). These debts, plus the rapid pace of US accumulation of new debt, plus rising interest rates, could lead to a vicious cycle of increasing borrowing causing (and being caused by) increasing interest rates. The situation could get out of hand quickly (06W3).

The 2004 US current account deficit (the broadest measure of the trade imbalance) hit a record of $666 billion (6.3% of the GDP) (vs. 4.8% in 2003). The (2005?) US current account deficit was 6.5% of the US GDP, and the US spent considerably more than it saved. In fact, the US was absorbing roughly 70% of the world's external savings (06R3). This fact alone tells us that the US current account deficit cannot go on doubling for much longer without encountering serious problems. For the first time in at least 90 years, the US is paying noticeably more to its foreign creditors than it receives from its investments abroad (06W3). (That gap was $2.5 billion in the second quarter of 2006 (06W3).) A study by Catherine L. Mann (Institute For International Economics) examined Canada, Australia, Finland and seven other economically advanced nations that experienced large current account deficits during the past two decades. On average, the current-account deficit was found to hit its limit at 4.2% of GDP. Deutsche Bank Research warned that capital flows into the US could dry up, causing the US dollar to drop, interest rates to increase, and stock markets to dive. A sustained drop in US stock markets could precipitate a downward spiral of these events. The scenario seems similar to the events during the financial distress of the early 1990s (00P1). Whether 4.2% is the critical point or not, it hardly matters, because the US current account deficit has been growing rapidly (Table (1C-8)), while the US GDP grows much slower. If the actual limit is 7 or 9% of GDP, simple extrapolation suggests that this limit is only a few years away.

Former Federal Reserve Chairman Alan Greenspan has intimated that the US can't expand its current account deficit borrowing forever. In the nightmare scenario, foreigners would react to the out-of-control current-account deficit by pulling their money out, causing the dollar to sink and stock markets to plunge. Americans would have to pay higher interest rates (and higher oil prices) at the worst possible time, and the US economy could lurch to a halt (Wall Street Journal (4/22/02)). Although this view seems to be widely held among economists, there is a holdout. John Taylor, the Treasury Department's undersecretary for International Affairs, says the current-account deficit "is reflective of good investment opportunities in the US, and the effects on financial markets are not a concern" (02P1). One might suspect that this view is forced by the fact that the more widespread view would conflict with the Bush administration trade policy. The Taylor statement really just begs the question. Would foreign investors see "good investment opportunities" in the US if the dollar and stock prices were dropping, and interest rates were rising, as a result of escalating current account deficits?

The US trade deficit surpassed 4% of US GDP for the first time in August of 2000 (00P1), and 5% for the first time in September of 2002 (02P1). This prompted concern among economists that, unless the imbalance shrinks, the US could have serious problems attracting the foreign capital needed to finance such huge trade deficits (05P1). A 1/7/04 report (04B1) by the International Monetary Fund (IMF) was the most recent, lengthy and pointed, of a series of reports on the growing threats posed by the US trade deficit. When viewed in conjunction with the rapidly growing federal budget deficit ($374 billion in 2003), the IMF warned of "significant risks" not just for the US but for the rest of the world as well. It warned that the US' net indebtedness to the rest of the world could equal 40% of its total economy within a few years - an unprecedented level of external debt for a large industrial country, and one that could play havoc with the value of the dollar and international exchange rates, push up global interest rates and slow global investment and economic growth. (The US dollar has been declining since February 2002. In December of 2004 it was down by 55% against the euro and 22% against the yen. But even then, US imports continue to rise faster than US exports.) Under-funding for social security and Medicare at the same time as the exploding external debt makes the long-term fiscal outlook far grimmer. The Institute for International Economics supports the IMF outlook, as does Robert E. Rubin, former secretary of the Treasury, who warned that the federal budget was "on an unsustainable path." Warren Buffet, the legendary investor, said that the US is destined to become, not an "ownership society" but a "sharecropper society" (05G2).

Princeton economist Alan Blinder contends that, of about 140 million jobs that presently exist in the US, between 42 million and 56 million could be moved offshore during the next decade or two. This estimate includes all 14 million current US jobs in manufacturing and between 28 and 42 million jobs in the services sector (07M1).

The influence of foreign investors on the US economy is in no way minor. The US is now more dependent on foreign capital than it has been at any point in the past five decades (04M1). During the 12-month period 7/1/02 to 6/30/03 foreigners bought $231.5 billion in US Treasury Debt - more than during any 12-month period in the previous six years (04M1). This was nearly two thirds of all borrowing the Treasury did in that period. Foreigners (including foreign central banks) now hold more than $1.3 trillion of U.S. Treasury debt - about 36% of all Treasury paper outstanding (04M1). During 2002-2005, foreign investors (by buying US Treasuries) put up more than 80% of the $1.3 trillion the federal government borrowed during this period to help pay for tax breaks, Medicare prescription drug benefits and its two current wars (06W3). During this same period, foreigners put more than $700 billion into mortgage-backed securities, providing the money for millions of Americans to buy new homes or extract cash from existing homes to spend on consumables (06W3).

The US trade gap (a record $726 billion in 2005) and the federal budget deficit ($319 billion in 2005) are financed by foreign lenders, manly central banks in Asia and offshore hedge funds (06U2). Congress helped to prop up the US dollar in 2005 by offering a one-time tax break that induced many American companies to convert their foreign earnings into hundreds of billions of US dollars. That tax break has now expired for most companies. For the past few years the US economy has overcome the drag of big trade gaps and budget deficits, mainly because the housing boom let Americans borrow and spend, despite stagnant wages (06U2). But that boom has ended, a slowdown that will only worsen if American foreign indebtedness leads to sustained downward pressure on the dollar and upward pressure on interest rates. China recently stated its intentions to invest more of the dollars it earns via its trade surplus with the U.S. in other currencies (06U2).

All this is in sharp contrast to the performance of other developed nations. Western Europe, whatever its problems, manages economic policy to maintain modest trade surpluses (05G2). Germany and Japan both manage to keep advanced manufacturing sectors anchored at home, and to defend domestic wage levels and social guarantees. When they do disperse production and jobs overseas, as they must, they do so strategically. By contrast, Washington defines "national interest" primarily in terms of advancing the global reach of our multinational enterprises (05G2).

Ignoring huge US trade deficits as they continue to double every few years in an environment of exploding budget deficits and under-funded social security and Medicare subjects the US economy to increasing risks. It is not just US trade deficits and budget deficits that put downward pressure on the US dollar. Capital outflows from the US (US residents' acquisition of assets abroad) since 1983 have always been less than capital inflows into the US, indicating a consistent annual net indebtedness of the US to the rest of the world. In terms of the stock of assets, the US shifted from being a net creditor since the late 1920s to a net debtor by the end of the 1980s (04K3). There is a self-correction feature in this. A falling dollar effectively lowers US wages in the global marketplace, and this tends to reduce trade deficits. But so much of the developing world's population is outside the global economy, with subsistence-level wages of less than $2/ day (currently the global median wage) (00S1). (The World Bank estimates that 1.3 billion people subsist on $1/ day or less (96W2) (06W2).) Until these four billion people are integrated into the global economy (producing huge and non-sustainable increases in developed world trade deficits, and being impossible in other ways (Chapters 6 and 7)), developing world wages within the global economy are not likely to increase much above subsistence-levels. So US wages would need to fall extremely far to significantly reduce US current-account deficits. Also note that a falling dollar promotes inflation, hence rising interest rates, rising natural resource prices, and trouble in US stock markets.

The massive deficits virtually everywhere one turns in the US economy is having dangerous effects on the basic infrastructure of the US - trends that cannot possibly continue indefinitely. A report "Infrastructure 2007: A Global Perspective," released on 5/9/07 by the Urban Land Institute and Ernst & Young LLP concluded that US airports, roads, rail lines, bridges and other transit infrastructure are deteriorating across the US because of insufficient investment. The report says that the failure to address this "emerging crisis in mobility" will undermine the ability of the US to compete internationally. In 2005 the American Society of Civil Engineers graded as "poor" the condition on the US transit infrastructure as well as US power grids, dams and systems for drinking water and waste water. The US faces a $1.6 trillion deficit in needed infrastructure spending though 2010 for repairs and maintenance according to the ULI/ Ernst & Young report. China spends 9% of its GDP on infrastructure; India spends 3.5%. The US spends 0.93% of its GDP ($112.9 billion/ year) on infrastructure according to the ULI/ Ernst&Young study (Thaddeus Herrick, "U.S. Infrastructure Found to Be in Disrepair," Wall Street Journal (5/9/07) p. B4.).

Stephen Roach, chairman of Morgan Stanley Asia, said, "The very low US savings rate and related huge balance of payments deficit to attract funds from overseas are not sustainable things." The adjustment is likely to be long and painful. Roach estimates US net national savings at 1.4% of national income, and household debt at 133% of (one year's worth of) personal disposable income (08C1).

In the latest study by the World Economic Forum (Geneva), four Nordic nations ranked among the six most competitive economies, despite having some of the world's highest tax rates (04W3). (The US was #2.) Scores are based on criteria critical to sustained economic growth, e.g. the quality of economic policies, the fairness and transparency of public institutions such as courts, and technological prowess. Business people in these high-tax-rate Nordic countries benefit from huge state investments in education, training and infrastructure that these taxes fund. These investments make the Nordic countries competitiveness more sustainable than countries with lower taxes and higher debt (04W3).

None of the three basic trends - high stock market yields, falling interest rates, and increasing numbers of paychecks per household are sustainable (00M1). Nor are decaying infrastructure, ever-increasing credit-card debts, or selling the equity in one's home to finance current consumption. One might point out that US fertility rates have dropped significantly since around 1970, reducing living expenses for wage earners. However this trend, also, is non-sustainable, and net immigration is producing one of the highest population growth rates in the developed world, raising costs to the average American.

SECTION (3-C) ~ POLICIES FOR DEALING WITH GLOBALIZATION ~ [3C1]~Protectionism, [3C2]~Semi-Protectionism, [3C3]~Labor/ Environmental Standards, [3C4]~Convergence, [3C5]~Hindsight

• The US is nibbling around the edges of a major problem;
• The US is in denial about the currency devaluation risks being incurred;
• The US is in denial about the need for significant reductions in real labor prices
• Americans seems to have swallowed the Faustian bargain (Section (2-B)).

The situation, if anything, is likely to get worse because: (1) mobilities are increasing and (2) Multi-national companies are increasingly seeing greater returns on investment by locating new, state-of-the-art facilities offshore. Multinational corporations must ultimately find it impossible to ignore the financial drain resulting from developed-world labor working in obsolete facilities while drawing wages a factor of ten higher than those in the developing world.

Over the past few decades, US wages have fallen from first place among developed nations to the middle of the pack (Appendix B). So becoming more competitive within the developed world does not seem to fix much of anything. And even if that was the answer in the past, it is not likely to be the answer in the future. A breakdown of data on real growth of exports during 1985-96 gives the following: Developing economies: up 217%; World as a whole: up 94.2%; Industrialized economies: up 69.6% (DRI/ McGraw Hill data, Wall Street Journal (2/24/97)). With developing nations increasing their exports three times faster than developed nations, it is clear that the focus must be on US wage competitiveness with the developing world. Unfortunately this is where even export-industry jobs often pay subsistence-level wages (Appendix B). Might developing-world wages rise over the next few decades to match those in the developed world? For starters, this would require that about four billion additional people enter the global economy - people who are largely in subsistence-level conditions now. Problems related to this are examined in Chapters 5, 6 and 7. There, a case is developed for the global convergence point of labor prices being around those of today's developing world.

Clearly the pace of convergence of labor prices is too slow to reduce the risks noted in Section (3-B). Pains accumulated since around 1980 (Section (3-A)), are mere nibbling at the margins. Far faster nibbling rates, or alternative responses to the problem, are needed. Below are some alternatives.

Part [3C1]~ Protectionism ~
A return to protectionism has been the most common response to globalization-related problems in the past (Section (1-B)). Prior experience does not bode well for this response. Restoration of protectionism following periods of "free trade" has done little to slow import/ export rates (93M1). Import/ export rates are now far larger than in the historical past. So prospects for dealing permanently with globalization through protectionism would seem slight in this day of extremely high (and rapidly growing) mobilities of all components of economic activity - and high driving forces (labor price gradients) for Type B globalization (defined in Section (1-D).) Thus, even if the historical past did find protectionism to be workable, future workability seems improbable. One advocate of protectionism, Patrick Buchanan, has argued that, historically, protectionism has benefited the US (Section (1-B)), but the historical past was a time of far smaller mobilities than the present is confronting.

Japan is doing well, economically, with a policy of covert protectionism (See the end of Chapter 4). It seems to be able to protect its high labor prices with a combination of covert restrictions on imports, strict limitations on immigration, and an intense focus on quality of exports and efficiency of production. For example, by using such procedures as critique to debug its electronics manufacturing processes, Japan has been able to reduce rejection rates to about one in 10,000, as compared to one in 3 in some American electronics manufacturers (that have now largely gone out of business). Germany, too, protects its high labor prices with a focus on quality of exports and efficiency of production. It is also tightening up on immigration. Joblessness and economic stratification are increasing in both nations however. (See Section (G-1) of Ref. (08S1).)

There are examples of "protectionism" that are undeniably beneficial, if not essential, for mankind's survival. For example, the EU, Japan, Switzerland and Norway subsidize their farm sectors (03M3). This practice is quite defensible up to some ill-defined limit. Farms in the EU, Japan, Switzerland and Norway operate with an eye toward sustainability of their outputs. Most of their agricultural competitors do not. Agricultural sustainability costs money (For details, see this author's analysis of the sustainability of the global outputs of food, wood and freshwater found on this website.) So forcing these farmers to compete directly with farms in North America, Australia, and the developing world where sustainability considerations are largely, if not totally, ignored would have serious repercussions, suggestive of a "race to the bottom" in terms of global agricultural sustainability.

In the US, "mixed agriculture" (a mix of livestock and crops) is far more sustainable than a more profitable mix of large corporate farms (with their vast monocultures) and feedlots and "Concentrated Animal Feeding Operations" (CAFOs). In the latter case, it is usually not economical to transport livestock manure to croplands. This seriously limits the rates of chemical fertilizer application if serious damage to cropland soils is to be avoided - limits often ignored. It also results in breaching of manure-holding ponds, resulting in major damage to downstream water supplies. Acknowledging the sustainability benefits and other societal benefits of "mixed agriculture" with greater subsidies would have clear societal benefits. Modern-day globalization rules would forbid such practices however. This sort of thing tends to result in the often-heard characterization of globalization as a "race to the bottom."

Another alternative response to Type B globalization is trade agreements fashioned to maintain trade deficits of every nation at zero, or at some other upper limit - "semi-protectionism" for want of a better name. It offers the following advantages:

• It would eliminate, or greatly reduce, the economic risks alluded to in Section (3-B).