The McKinsey Quarterly has a new issue out with an article entitled "Globalization's Critical Imbalances". I have written about previous articles from McKinsey here, here, here and here.
This article raises some very important issues, including:
- The amount of high quality, high productive labor entering the world market in the near future from advanced developing countries such as China, India, Brazil, etc. will dwarf the labor force in the U.S. and Europe and lead to considerably greater unemployment in the developed world; such unemployment may become structural rather than cyclical as in the past and lead to permanently higher unemployment.
- "As the GDP growth of emerging-market nations continues to outstrip that of the developed world, the pressure on currency values will continue to build"; developed country currencies will need to devalue to create a competitive labor rate in world markets or face unemployment rates permanently above 20 percent.
- Emerging-market nations' demand for production inputs will put increasing pressure on upward pricing for commodities and particularly food stuffs; such increasing commodity prices, freely trading without government control, could force developing countries to revalue up their currencies against the Dollar, Euro and Yen because it will be the only way to control local prices for manufactured goods and foodstuffs.
Except for citing the increasing global shortage of drinkable water, McKinsey mentioned most of the structural issues facing the global economy. My own opinion is that the hedge funds and such have contributed to the potential volatility in foreign exchange and commodity prices not as the cause but as a contributing factor. McKinsey made no mention of the increased involvement of institutional money in free trading markets.
What McKinsey mentioned that is particularly concerning is that structural unemployment in developed countries will not be improved by government stimulus packages. Only cyclical unemployment responds to stimulus monies. The implications are that individuals must take greater responsibility for their own employment, intellectual property-based jobs will be more secure than manufacturing jobs and that we may see a return of capital to farming and an increase in employment in that sector. (When HBS starts offering agricultural management courses you'll know I was right.) Personally I am thinking of moving to Bali, taking a job as a gardener (access to home grown food) and writing books for sale through Amazon. My first Bali-based book will be "Reflections of a Gardener on Surviving the Global Economy".
