Bankruptcy filings by major U.S. companies have become commonplace of late. Most of the major airlines have filed for Chapter 11 protection and now Delphi has joined the crowd. The common thread seems to be high labor costs.
Is this the result of overly zealous union contract negotiation or is something else at play? Is the problem limited to companies employing high-cost union labor or is this the beginning of a broader trend that could ultimately impact all of us?
The decade of the 1990s may have marked a turning point in American business history. The telecommunications revolution, advances in computer technology and free trade agreements shrunk the world considerably.
Lower skill manufacturing jobs had been moving offshore for decades but, during the 1990s, entire manufacturing processes were moved to lower labor environments. Additionally, lots of service-type jobs were re-located to India and beyond. All made possible by instantaneous communications to any part of the world.
Further, oil-producing nations discovered their economic clout during the early 1970s and have demanded higher oil prices ever since. Americans first experienced gas lines in 1974 and the rules of the economic game changed forever. The impact of increasing oil prices was so gradual that we absorbed it without much ado until the recent dramatic escalation following Hurricane Katrina. Truth is, America hasn’t been building enough oil refineries in recent years to keep up with demand.
As bleak as it may be to discuss, it appears that America may be starting to transition toward a lower national standard of living brought on by improved technology, higher oil prices, free trade agreements and sufficient political stability in some non-Western countries to allow them to participate in the new world economy. And, if I’m right, it’s not going to be a pretty sight.
Our long-held assumption that we were entitled to a higher standard of living than other countries is being challenged. Mexico and India are developing a middle-class after years of third-world existence. China is a rising threat, as well as a huge opportunity. China has more people than most Americans can even imagine and they want the same things we want. True, they offer a huge market for American-made products, but they’ve got to get the money to pay for those products somewhere and that somewhere will likely entail loss of more American jobs.
Perhaps it’s premature to convene the gloom and doom society, however, it seems to me that the handwriting is on the wall. If I’m right, America’s standard of living may decline slightly, or, more likely, stagnate while the undeveloped countries play catch-up with us. Again, assuming that I’m right (an iffy proposition, at best), it will be a very long transition.
So, what does all this mean to us now? For our kids to prosper in the coming years, we need to put even more emphasis on training and education. An educated person is more flexible and will find it easier to roll with the punches.
Plus, if our ever-increasing standard of living is going to slow down to a trickle, it might be a good time to re-connect with the things that are really important, like relationships.
Americans seem to be infatuated with buying a lot of things which are of dubious value and then having to rent storage space to put all these things and, eventually, build bigger houses to store all our stuff. For those of us in the middle class, a little soul searching about what really matters in life could be a good thing.
The real downside to this gloomy prognosis is that I see families struggling ever harder to keep up with the Smiths and having an increasingly difficult time doing it. The treachery of credit, and credit cards more particularly, is that they presume that financial prosperity is right around the corner.
Buy it today; make more money tomorrow to pay for today’s stuff is the rule of the road. But, it’s a bad rule. We need to discipline ourselves to spend today’s money today and resist the temptation to spend tomorrow’s money before we get it.
Another consideration is investment strategy. For most of my adult life, I have trusted the American economy to deliver the goods. I’ve never thought much about international investing because I figured overseas operations of American businesses would provide the benefits of the global economy without actually buying foreign stock. I’m not so sure anymore. Maybe adding some international stocks to the portfolio might be a prudent move.
So, regardless of what happens on the economic front, preparing ourselves to function in a fast-changing environment is the best way to protect our livelihood. We are the CEOs of ourselves. Conveying that understanding to our children would be one of the best lessons we could teach.
Thought for the Moment
I am beginning to learn that it is the sweet, simple things of life which are the real ones after all. — Laura Ingalls Wilder (1867-1957)
Joe D. Jones, CPA (retired), is publisher of the Mississippi Business Journal. Contact him at firstname.lastname@example.org.