James Anderson writes from Washington: As the race to the White House enters its last lap, the prospects are not looking good for the Republicans who are the white collar party, in case you were not aware of it.
Republicans need to demonstrate that they know how make the economy work for the middle classes and not just for the super-rich. Especially as the top earners have never had it so good. Here’s an example for you: 10 years ago the top one per cent of Americans grabbed 13 per cent of the Gross Domestic Product. These days they corner 23 per cent. And this figure is set to rise.
So what ‘s up, you may wonder. The middle classes are being squeezed, that’s what up. Their household disposable income has been declining for the past 15 years. And there’s little likelihood of this changing in the near future. The reason for this is that wages are being forced down as the manufacturing sector contracts and becomes more automated. Gone are the large factories employing tens of thousands of qualified workers and skilled managerial staff. Service industries have taken over. Staff are now often self-employed and work when McDonald’s or someone else summons them.
US manufacturing costs are now up to 20 per cent lower than those of Germany, France, Italy and Japan. They are only 7 per cent above those of China. So the comparative advantage of the Middle Kingdom is fast eroding. The result? US exports are rising. Energy costs per unit of output are declining because of the shale gas revolution but rising in China.
The new technological revolution – called additive manufacturing or 3-D printing – is making the US a world leader. The problem is that the new technology does not require much labour. This is set to widen the gap in American incomes. The companies, engineers and scientists, who will develop the new way of producing things, will prosper mightily if they get it right.
These new companies will put old companies out of business. More jobs lost. Capitalism is wasteful. It wastes material assets and human capital. That is unavoidable as science and technology advances. Those who lose out are unlikely to regain their former standard of living unless they are very innovative. So the outlook is becoming bleak for more and more Americans.
Karl Marx devoted a lot of attention to wages. He argued that capitalists are forced to cut wages in order to stay in business. Those who pay workers more go to the wall. This Darwinian world is softened by the state employing large numbers of workers. They are sheltered from competition. However, the only way for the state to sustain such a system is to borrow on the money markets. Tax payers are not willing to fund the full cost of government employees.
The new technology companies need consumers capable of buying their products. If the disposable income of almost all households is declining, where is the money to come from? The simple answer is credit. People are becoming more and more indebted. But this cannot continue for ever.
This scenario suits the Democrats. Capitalism is working for them. So look forward to a Democrat run America for the foreseeable future.