NEW YORK – The global economy is at a crossroads as the major emerging markets (and developing countries more broadly) become systemically important, both for macroeconomic and financial stability and in their impact on other economies, including the advanced countries.
Consider, for example, what has occurred over the past 20 years in the United States. Some parts of the tradable sector (finance, insurance, and computer systems design) grew in value added and employment, while others (electronics and cars) grew in value added but declined in employment, as lower value-added jobs moved offshore. The net effect was negligible employment growth in the tradable sector.
The US economy did not have a conspicuous unemployment problem until the crisis of 2008 because the non-tradable sector absorbed the bulk of the expanding labor force. That pace of employment growth now appears unsustainable. Government and health care alone accounted for almost 40% of the net increment in employment in the entire economy from 1990 to 2008. Fiscal weakness, a resetting of real-estate values, and lower consumption all point to the potential for long-term structural unemployment.
One response is to assert that market outcomes always make everyone better off in the long run. But that is not supported by theory or experience. In the US, for example, while many goods and services are less expensive than they would be if the country were walled off from the global economy, we cannot assume that these cost savings necessarily compensate for diminished employment opportunities. People might trade away cheaper goods for assurances that a wide range of productive and rewarding employment options would be available, now and in the future.