Thu, Feb 02, 2012 - Page 9 News List

A new global economic pact a necessity in interdependent world

The world needs economic and social institutions working across national borders; no one country or institution can make the needed changes alone

By Will Hutton  /  The Guardian, London

Britain has become a hub in the global web of car and engine production. This year, 1.4 million cars and more than 3 million engines will be produced here, most of them for export. The research-and-development spend in the industry is high and rising, while Tata’s purchase of Jaguar Land Rover has proved one of its best-ever investments, as it now produces nearly three-quarters of the company’s total profits. All considered, this is a modern capitalist success story and if and when the economy rebalances, production of this type will grow even further.

However, all this success is accompanied by very few new jobs. Fewer than 150,000 jobs are directly involved in the making of all those cars and engines and the numbers have been gently falling for years as modern production techniques transform productivity. Tata is building a new engine plant in the English city of Wolverhampton that will be a world leader in low-carbon engines; it might create 750 jobs.

Meanwhile, McDonald’s has announced that it will be creating another 2,500 jobs this year. Hamburger flipping creates jobs and these jobs do require more than a modicum of skill and capacity to handle often truculent customers. But MacJobs are never likely to be highly paid, high-value-added jobs. Nor will McDonald’s earn Britain much in the way of export revenue.

There’s a similar pattern across the industrialized West, raising anxious and urgent questions about whether the modern economy can create mass employment at worthwhile wages. Yes, there is a manufacturing core that puts production on sites across the globe, but that creates few jobs in a country such as Britain. And there is a modest service sector, which is either integrated with the manufacturers or, as is the case with fast food, which provides self-standing services in its own right. Beyond these, there’s a vast web of “cream-skimming” services associated with brokerage and agency — everything from investment banking to headhunters, estate agents and football agents — taking a cut on some transaction or deal, but adding precious little value despite sky-high personal rewards. Let’s call this “agentist” capitalism.

At a dinner with Apple’s Steve Jobs, US President Barack Obama asked him if the US’ most successful and profitable company would ever bring some of the work it is generating back to the US. Never, replied Jobs. Apple, like Britain’s car industry, is embedded in its global production networks.

Without globalization, this new economic structure and accompanying pattern of reward would be impossible. However, there is another twist: this “enabling” globalization is itself unstable. It rests on countries such as Germany, China, India and Japan — which do most of the producing in the new global supply chains — building up never-ending trade surpluses, while other countries carry deficits, with no mechanism compelling either side to change. The banking system is then obliged to recycle the surpluses, exploiting the many loopholes to create an unregulated shadow system, which has now imploded.

British Chancellor of the Exchequer George Osborne writes in the Financial Times that we are living through less a crisis of capitalism than a crisis in confidence, without ever inquiring whether those who have lost confidence might have some very good reasons for doing so. Lord Mandelson, once no less an innocent cheerleader for markets and globalization, last week issued an extraordinary recantation. He told BBC Radio’s Today program that he would never now, as he did in 1998, say he was intensely relaxed about businessmen becoming filthy rich doing whatever they chose.

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