Friday, November 4, 2011

[Video] Niall Ferguson Asks if he West is Doomed, and Blames Income Inequality on Poor Education System

Harvard professor, smart guy, and shameless self promoter Neill Ferguson is out with his latest book and is making the rounds hawking it.  That said, he always has thought provoking, if sometimes controversial, views - so he is a fun listen.  Today he talks about the long term future of the West, and blames the poor education system for not helping the middle class keep up with the havoc caused by globalization.  

I wish I were famous, because it is amazing to see so many news stories in the past 12 months, on topics we were pounding on furiously 3-4 years ago.  As usual, we're very early here at FMMF - but then again even Ross Perot was pointing out the issues that globalization would cause.  It definitely has created winners (those who own capital, cheap labor overseas) and losers (expensive labor in the West).  And I don't think the solutions are as simple as 'more education'.  (although statistics bear our the failings of the U.S. public education system versus competitors in northern Europe and Asia)  That said, not everyone can be a scientist or engineer - what the West has to grapple with is what to do with these tens of millions who no longer have the old school middle/lower end jobs because they are priced out of the market by those in the East.  As I wrote quite a few times in 2008-2009:

Here is what I have to hope per economic dogma - some string of perfect outcomes that are predicted by a textbook: By (a) these 350 jobs going to China, (b) a new small group of middle class will be developed. As I extrapolate this 350 jobs to countless others moved overseas - (c) a huge swathe of middle class will eventually be built. Who will then, (d) in some number of years, demand products from America ... which will allow (e) the 850 people I fired in March to have work in America creating something the Chinese want. At some point in the future - but who knows when.

That all sounds quite convenient and fantastic on the surface - as long as I can figure out a place to stuff these people in the near term (Walmart? more restaurants? bars? can we please reinflate the housing bubble so they can be a realtor, broker, or construction worker? More healthcare jobs we cannot afford?). But some questions
  1. How many years will take place between the displacement of "today" in America and the "middle class demanding things in China" from America?
  2. What do we do with those workers in the meantime aside from plugging them into government work or pseudo government (health care)?
  3. What will happen to the income of said "displacements" as they move out of jobs from a very good high tech company to... (crickets chirping)?
  4. What exactly are Americans making today that the Chinese want and need to import excluding large scale industrial weapons / defense?
  5. What exactly will Americans be making in "some day in the future" (5? 10? 15 years?) when the Chinese middle class get to a level of wealth and can buy things from us... ?
  6. Whatever those products are you named in question 5, why can't the Chinese make them internally in 5, 10, 15 years?
I don't know these answers - I am just here to ask them, since almost everyone I talk to is in the happy boat of "it will all work out in the end; that's what the textbooks say". A rising tide lifts all boats - that has a nice ring. In 15-20 years a massive class of middle class Chinese will stop demanding products already made in their own country (have you been through a Walmart of late to see where the stuff is from?) and suddenly want American exports of XYZ products instead.



Anyhow onto Mr. Ferguson who sat down with Yahoo Tech Ticker for 2 videos - email readers will need to come to site to view

Video 1 - 5 minutes

After 500 years of predominance, the West is facing some huge challenges. At least that's the premise of Harvard professor, Niall Ferguson's latest book, Civilization: The West and the Rest.

The good news, according to Ferguson is, "we're not absolutely doomed to decline." The bad news, when things turn south it'll happen in a hurry. "Things don't decline gradually, they tend to fall off a cliff," Ferguson tells The Daily Ticker's Aaron Task and Henry Blodget in the accompanying clip. "We don't have as much time as people assume."

In a nutshell, the West is struggling right now because of a decline in the same ideas that propelled us to dominate the global economy. To borrow a phrase from technology, Ferguson calls these ideas the "Killer Aps."  There are six he highlights in the book: competition, science, property rights, modern science, consumption and work ethic. Unfortunately, Ferguson says while the rest of the world has copied that model, the West has rested on its laurels.

Big declines in competitiveness and work ethic are especially troublesome. "The fact that these new workers from Asia work very hard and have very rapidly rising productivity is the key part," he says. "The average South Korean works nearly a thousand hours more a year than the average German." That does not bode well for Europe and can easily happen in America as well.

He sees proof of this in his classrooms. I fear most teenagers in the West have a certain complacency about the future," notes Ferguson. In the interview he recaps a conversation he recently had with his 17 year old son that captures the thought well. He tells his son, "there are probably about 26 Chinese boys your exact age who are working twice as hard as you to have the lifestyle that you think you're just going to be handed on a plate."  [Feb 2008: Two Million Minutes - a Global Examination of Education in China, India, and the U.S.]

 As said earlier, that doesn't mean the West's demise is set in stone. He notes that while China does have a growing middle class and educated class, they still lack basic property rights and self representative government that is also key to the formula. Until, those are granted, China will face its own difficulties.

Video 2 - 4 minutes

"Many things about Wall street were wrong," he tells Henry Blodget. "But, you can't say all of our problems are because of the criminality of one percent of the population."

What IS to blame for America's growing wealth gap?

In a word: globalization.  "It's globalization that mainly causes inequality by exposing the unskilled in the United States to competition from much cheaper labor in Asia," he says. "That's a much bigger cause of inequality than malpractice on Wall Street."

Ferguson blames the lack of skilled workers in this country on a "very poor public education at the high school level. We are failing kids in the poorer parts of this country."

The remedy, Ferguson contends, is not to tax the rich and expand federal programs as Sachs recommends. Instead, Ferguson says public high schools need more competition to raise the bar. The best way to do that, in his opinion, is to create more charter schools. "The charter school movement is one very straightforward way in which the ordinary citizen can actually help improve the quality of high school education."

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