There, the Dow Jones Industrial Average has topped the level share prices hit just prior to the GFC. I question their sense of reality. As a person I spoke with yesterday on Twitter said, "the sharemarket in the USA has become seriously detached from the real economy," where in some US cities property owners cannot even offload houses because entire suburbs have become uninhabited, where the federal debt sits at above $16 trillion, where Republican congressmen refuse to allow the president to fund essential government services, where the middle class has actually lost wealth since the 1980s, and where poverty and disadvantage have pulled the US well out of the list of top OECD countries for quality of life.
In Australia, the All Ordinaries has struggled where the Dow Jones has soared. Apart from a good run in January, the All Ords has bumped along, steadily increasing in value, but at a snail's pace compared to its US analogue. This in a country with a federal debt probably sitting around $100 billion (it was $250 billion in the budget last May and the treasurer is aiming for a small surplus in the budget this year). It's a country where property prices continue to rise - especially since the beginning of this year - and where they had never really fallen, where the dollar still sits above parity with its US rival, where unemployment sits at about 5.4%, and where quality of life measures place us well up in the top five in OECD rankings.
Since Bill Clinton granted Most Favoured Nation trading status to China in 2000 jobs, especially in manufacturing, have fled out of the US to places with lower cost structures. But US corporations are enjoying strong profits and concommitant high share prices, which suggests that the US economy is undergoing a massive structural change that has not started to bite in Australia yet. It may just be that local workers are just not needed any more for companies to turn a profit; in a globalised economy people in Illinois and Kentucky are competing with people in Fujian and Jakarta for the same jobs, which effectively pulls down US wages. This is bad for the US government because it means income tax is not being paid on wages earned in the US, but it doesn't matter to corporations since they don't care where their products are made as long as they can turn a profit.
There have been stories in the media here recently about how the high Aussie dollar is causing Australian companies to become more productive. Increased competition from suppliers that have their manufacturing bases in poorer countries means that Australian workers have to lift productivity for their employers to remain viable. We also read regularly about how Australian companies are sending back office operations offshore to cheaper locations, including not just customer support call-centres but also some parts of such activities as accounting and IT. And it's not just India that is providing such services for local companies, China too is now doing so. But as yet the signal hollowing-out of the low-wage economy that has occurred in the US does not seem to have happened here. It probably will, though.
Clinton told Americans at the time of his historic decision that opening up trade with China would work to create US jobs. Well, it didn't, although clearly it has helped to create a lot of wealth for some Americans. In the New York property market the plutocrats are spending big on apartments worth tens of millions of dollars. Japanese software tycoon Masayoshi Son just bought a house in Palo Alto, in Silicon Valley, for $117 million. Russians and Brazilians crowd the offices of real estate brokers in London as well. Globalisation is helping to replicate conditions that obtain in the third world - extreme poverty mixed with extreme wealth - in the developed world as well. And companies that trade on the stock exchange belong to the category of winners.
This is a profound structural change that will impact on how people behave, and on how they vote, for decades into the future until we reach the point of equilibrium: the point where developed-world wages cannot sink any lower because they now match what people can earn in developing countries for doing the same job. But there is an upside. The situation we see now in the world reminds me of how the Australian economy was weakened in the short term as a result of trade liberalisation policies introduced in the 1980s by the Labor government. Unemployment rose, interest rates shot up. After taking over the party leadership, Paul Keating, the prime minister, said it was "the recession we had to have". But Australian companies and Australian workers adapted so that now the shape of the economy is very different.
When I think of an Australian worker I think of a guy I met at a party a few weeks ago who is a systems administrator with a large, publicly-traded firm based in my state. He is currently on secondment to a higher-paying job than his substantive role, and he helps look after the company's network. Some tasks he farms out to workers in poorer countries, including ones in India and China. His biggest problem is his daily commute to Brisbane. He's getting married soon; his wife is a project manager. This kind of couple would have been an exception in 1985 but today it is normal.
The US is undoubtedly undergoing a profound structural change as its economy adapts to a new global reality. Bill Clinton ensured that the US was ahead of the pack in the globalisation stakes, but the country is still in the pain zone. It will no doubt break out. Other countries will need to come to terms with the same economic forces operating there, if they want to continue to see revenues deriving from income tax. It's in the interests of governments to push ahead.
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