Today I wanted to explore the subject of the migration of capital (both monetary and human) to meet the demands of growing global economies and what it might mean for citizens of the United States.
First a little history: from about 1820 to 1914 more than 30 million Europeans migrated to the U.S. The reasons were simple, we needed workers and they needed jobs and better economic opportunity. Our country at the time was rather sparsely populated but due to the advances of the Industrial Revolution (1820-1870) a cheap labor force was needed to ramp up production (and profits) and the struggling European immigrants fit the bill perfectly. It might be said correctly that without this immigrant influx, we would have grown much more slowly as a nation and perhaps the economic tables would have turned in another direction.
The situation today is quite different for America. We have a large but aging population, a broken economic engine in need of some lubrication and emerging competitors on the global stage that are trying (somewhat successfully) to eat our collective lunch. The great quandary we face currently is that we still need workers; not so much for ramping up industrial production, but more for helping us maintain the financial expectations we have built for ourselves. We need workers to contribute to our Social Security system, we need workers to provide a cheap labor force to enhance corporate profitability, and we need workers to presumably do all the jobs Americans either do not want or because of their standard of living are priced out of. Another problem is that symbiotic relationship is missing in that while there may be greater opportunity than they could find in their native lands, the opportunities are dwindling for both sides as we struggle with a faltering economy and a broken governmental process to repair it.
I think the most important story for America currently may be internal migration instead of immigration from abroad. The first "Great Migration" took place from about 1910 to 1930 as African Americans living in the South moved to the great industrial cities of the Northeast and Midwest. The reasons of course had to do with economic opportunity but there was also the dark shadow of slavery and its cultural after effects that caused those living in deplorable conditions to seek a better future elsewhere. The current situation finds many Americans disenfranchised from the economic success of their peers and contemplating migration as a way to find better economic prospects. One mitigating factor is the continuing housing mess that we have allowed to fester and it ultimately is tying people to geographic regions where opportunity may not exist instead of allowing them to easily migrate to where a job might be found. This needs to be addressed by a revaluation, either by the market or by the banks, in renegotiating loans -- yet another program that our government is not effectively administering. The banks don’t want to write down the loans because it would ruin their game of taking from the taxpayer and keeping all the profits for themselves. Waiting for housing values to move upward is thwarting a potential economic recovery. Preventing the action of the free market is precisely what the Fed has been doing and keeping people in overpriced homes is not going to help the country as a whole in the long run.
Compounding the home value problem is the unwillingness of many Americans to retrain for careers that may be in demand. The typical guy who has been laid off from his white-collar job is not likely to seek employment in anything but another white-collar job. This is an impediment to economic progress and part of the reason we still need immigrants to fill positions like nursing home attendants and health care workers. As a nation we need to provide better paths to retraining and education so that we can realize our full economic potential instead of "living in the past." This is really critical as many of the positions that have been lost will not be coming back and the sooner people realize their job is gone for good, the sooner we can get moving forward. I would tie unemployment insurance compensation to retraining in some way, perhaps paying a premium to those willing to explore other career fields. Let’s get creative because we have no other options.
So the problems of the U.S. are not unsolvable but we need some better polices to effectively deal with the economic dislocation that has taken place. Earlier I mentioned that economic opportunity might not be as great for immigrants as it was previously because of our own economic malaise. Could there be opportunity for immigrants, both American and others, in the emerging economies of the world? Below I have listed a representative sampling of rapidly growing global economies (7% or more) as of October 2010 (data from International Monetary Fund):
|Country||GDP Growth %|
I think in assessing global opportunity, we can knock Iraq and Afghanistan off the list. Their economies are growing like gangbusters simply because of the massive U.S. military presence and additionally in Iraq the resumption of their petroleum exports.
The developed world is growing far less rapidly or contracting. The poster child of deflation, Japan, issues only about 50,000 work visas a year, a fraction of the 700,000 immigrants needed annually to prevent its population from shrinking. Culturally they have a society that does not lend itself well to accepting immigrants and are facing a huge problem. Most "Western" developed societies have such a low birth rate that immigration is the only thing they can realistically do to prevent the same fate. Here in the U.S. we need people and are amazingly accepting of most cultures but the structural problems are such that we are engaging in another huge Ponzi scheme (one of many). We allow almost unfettered immigration to bolster our future prospects of keeping the Social Security and tax revenue systems in the black yet we allow health care costs to run out control so that the immigrants may not provide a "net" benefit to us over the long term. Without some structural reform and growth policies, we are another Japan with an aging population and no real way to pay for it.
The emerging economies presented in the previous table may offer some hope to Americans seeking a better future but the problems of taking advantage of these opportunities are not trivial. Many of these societies, especially those in Asia, are much less culturally accepting of immigrants than we happen to be. Many of these societies would not present current living or working standards near what most middle class Americans are used to. So the potential for migration of Americans to emerging economies seems to offer little hope for the average American seeking employment globally. Not to mention the average U.S.citizen’s reluctance to travel abroad for any reason (sorry but Disney’s Epcot Center is not an overseas destination).
What has happened, however, is that the migration of monetary, technological, and innovative capital has freely flowed to these emerging economies. Essentially, our government’s policies have actually encouraged the movement of capital from the U.S. where it is sorely needed to emerging economies that offer little in the short term for the average worker. Longer term, theoretically, if these emerging economies become large enough they will offer a lucrative market for our goods and services, but 25 years of outsourcing operations in U.S. companies have ensured that jobs created will most likely be located locally in these markets as opposed to within our borders.
The bottom line is that we have been outsourcing jobs principally because our standard of living is higher on a relative scale than emerging economies and companies will do anything to keep expenses low and profits high. We are now outsourcing our capital, with the best and brightest capitalists of our society focusing their efforts in the emerging world instead of at home. Jim Rodgers, the well-known commodity investor, was at the vanguard of this movement and not only moved his capital, but his entire family overseas to take advantage of the growth in the emerging world. We simply cannot afford to continue our current policies and expect to come out on top anytime in the near or distant future.
We need to:
- Stop debasing our currency so the banks can continue running their salary and bonus scam.
- Fix our tax policy so firms are encouraged to keep jobs in America.
- Formulate domestic pro-growth polices instead of policies that encourage the best and brightest among us to take their business overseas.
- Stop meddling in asset markets that need nothing more than the free market to bring things back to reality (can you say "housing?")
- Fix our broken healthcare system. The legislation of 2010 was a poor imitation of any real healthcare reform and costs are rising at an even greater pace.
We must understand that the standard of living in emerging economies is on the rise and this may bring opportunities to the American workforce. However, it will take a very long time to transpire and our current policies are not sufficient to ensure that these opportunities will be open to Americans. We need better polices or are doomed to suffer the fate of the Japanese who are currently resorting to robots (I’m not kidding!) to help care for their aging population. The problem is that robots don’t pay taxes but given enough time Congress may yet have them sweating it out with the rest of us on April 15th.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.