Some years ago, the Washington-based Cato Institute published It’s Getting Better All the Time: 100 Greatest Trends of the Last 100 Years. In a period characterized by guarded pessimism regarding the future (see for instance the recent speech delivered by Larry Summers at the IMF Economic Forum), it is important to remind ourselves of the global picture and of underlying long-term trends worldwide, and avoid extrapolating in our perception from the impact of some misled policies in some large Western economies on the global economy.
In the Cato publication, one of the most important areas of our lives, namely employment, seems to be missing. This element becomes even more relevant in times of high unemployment in OECD countries, such as today, when many people come to the conclusion that we are running out of work, that we have to redistribute through successive stimulus packages and by way of low interest rates, rather than let companies do their job in a free market economy.
So, how has employment evolved over the last 50 years? According to World Bank statistics, jobs in manufacturing and services increased from 660 million to 2.12 billion in 2012. Thus, economic globalization has turned out to be an unprecedented job generator. In fact, the number of jobs added every year (net of job losses) has in fact accelerated in each consecutive observation period in line with economic globalization to a rate more than 2.5 times the average annual increase before 1982. The only (minor) slow down happened after 1991, when unproductive jobs in the former Soviet bloc were eliminated in large numbers under the pressures of economic reality.
Of course, this acceleration did not happen to the same extent everywhere; much, if not most, of the acceleration occurred in emerging and developing countries. Jobs that were added in advanced economies certainly experienced growth, albeit at a lower rate. And there are exceptions, particularly in the present debt crisis. Today, as a result of this, youth unemployment has become a serious issue in a number of European countries.
And this brings me back to today’s fear regarding the spectre of jobless growth in many Western economies. In my view, we are not going through a general systemic crisis of the market economy as some may believe. Rather, what we are seeing in the US, in parts of Europe and in some other OECD countries are signs of malinvestment, as well as attempts to correct errors made in the past.
For example, the reduction of excessive private debt in the US, which accumulated in a period of very low interest rates and encouraged households to spend beyond their means and was encouraged by the government-generated housing bubble. In fact, we see similar problems in some European countries following the introduction of the Euro, and other structural problems that most likely cannot be solved with Keynesian policies and artificially cheap money.
We must keep in mind the success achieved in our recent past in increasing the number of jobs globally. We must build on these successes, with politics ensuring that the “private companies in increasingly free markets” job-generation machine continues to work even more effectively.
Stimulus packages do not generate sustainable prosperity and jobs. But, as the former South Korean President Lee Myung Bak stated at the 2010 G20 meeting that he chaired: “Governments must encourage the private sector to now assume the leading role in generating growth.”
Image: A worker builds components of wind turbines at a wind power equipment factory in Zouping, Shandong province REUTERS/China Daily