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The recent shooting at an Arizona shopping mall has ignited an impassioned debate in America about political responsibility. Did over-heated Tea Party rhetoric inspire the gunman or was the carnage merely the product of a twisted individual mind? President Barack Obama has called for calm and a return to civility in debate. However, the anger over the economic crisis that underpins much of the political blame game continues to smoulder. The fact that politicians from both parties are unwilling or unable to accept the need for a painful overhaul to adapt to a globalised world does not, however, bode well for a return to civility.
Some figures reveal the challenges ahead. In the third quarter of 2010, US corporate profits rose $1,659 trillion (annualised), the sharpest surge in 60 years. Most of the gains were derived from overseas operations. According to the Federal Reserve, US companies have been sitting on cash reserves of nearly $2 trillion. Despite this, some 15 million Americans remain unemployed as corporations refuse to hire new workers for fear that there may not be a market for their products in the country.
The bitter debate between Republicans and Democrats has centred on how to kick-start the economy and create jobs. The Republicans call for lowering taxes and cutting government spending, while Democrats argue for further stimulus and protectionist trade policies. That facts defy both of these prescriptions does not seem to matter in a partisan debate over ideology. The tax cuts initiated by the Republican administration have increased government debt without reducing unemployment. Surveys after surveys show that companies have been holding back on expansion out of fear that unemployed and debt-ridden consumers will not buy their products. Even those who do expand their operations invest in machines rather than on workers. At current rates of job creation, Federal Reserve Chairman Ben Bernanke admitted that it might take “another four-to-five years for the job market to normalise fully”.
Democratic calls for greater government stimulus to create jobs hold appeal in the short term, but run the risk of adding to an explosive accumulation of debt. With public debt rising to dizzying heights, wary investors will demand higher bond yields, which would force an end to the near-zero interest rate policy that has propelled the economy so far. Calls to subsidise domestic industry would similarly produce minor short-term gains, while risking igniting a trade war. Demanding a revaluation of China’s renminbi is a double-edged sword that could reduce US trade deficit but would also eat into the profits of US corporations that use Chinese production facilities to export their goods. It would certainly end up costing American consumers more: the country’s shopping malls are largely stocked with made-in-China goods.
The unpleasant fact is that over the past three decades, most manufacturing jobs have left the US for lower-cost countries. It is thus no surprise that the manufacturing sector earns most of its profits from overseas operations and the major part of corporate profits in America is derived from the financial sector, which has global operations. What the data shows is that while the globalisation of finance and manufacturing and the technological revolution have been a boon to nimble corporations and smart individuals, most other Americans have been left behind facing crumbling infrastructure and failing education.
With income concentrated in the top 1 per cent of the population, and the recent Supreme Court ruling giving rich corporations unprecedented power to spend on political campaigns, the debate is now focused on narrower topics like lowering taxes and cutting deficit rather than the general direction of the economy.
Not that ideas are lacking. In a speech last month, Obama said the US cannot go back to its old ways and needs to wake up to a changed world as it did to the Russian space challenge in 1957. “Our generation’s Sputnik moment is back,” he said. “Once we put our minds to it, once we got focused, once we got unified, not only did we surpass the Soviets, we developed new American technologies, industries and jobs.”
In the growing rancour surrounding ways out of the economic crisis, big ideas have fallen by the wayside. Unless politicians wake up to the challenges of globalisation, mere civility in debate, however welcome, will not address the causes of the anger raging in America.