Apple became the world’s most profitable company edging out Exxon after it announced that its last quarterly profits more than doubled to $13.1bn. The result announced by this American company hides the fact that net US manufacturing as apercentage of GDP declined from 23% in 1970 to just above 11% in 2010; a whopping 47% drop. The stats highlightedtell the hidden story of Apple’s success; the R&D (research anddevelopment) takes place in the U.S. while the real production takes place in China where conditions of work are so bad that two workers withFoxconn (manufacturers of Apple products in China) commit suicide everymonth.
Enough of numbers; debt or jobs which should be tackled.
If youlisten to politicians on both sides of the Atlantic you may be tempted to believethat the debt in the G8 ($15 trillion in the U.S. and now £1 trillion in the UK) is about to drop on us like a rock. But the markets tell a different tale. Thecost of borrowing in the U.S. has been the lowest in more than 25 years (10year bonds) hitting a record low of 1.83% in September 2011 (down from 15.84%in September 1984), indicating investors strong confidence in the ability ofthe U.S. to pay its debt while offering cheap funds for economic resurrection. Thisconfidence is hinged on the strong showing of the U.S. economy which has seen22 straight months of private sector growth and in the final three months of 2011showed a robust growth of 2.8%.
Inthe U.K. the picture has been gloomier, as the economy shrank by 0.2% in the last quarter of 2011, experiencing the slowest recoveryfrom recession since the 1930s. This decline in the U.K. economyhas been catalyzed by the slump in manufacturing and construction, and this canbe attributed to the policies of the current U.K. conservativegovernment. It campaigned and adopted the austerity budget as soon as they weresworn into office, with massive and painful cuts in government expenditure withthe aim of reining in the deficit. But the results obtained have been opposite withrising debt-to-GDP ratio as a result of a shrinking GDP in the face of astagnant debt.
The ‘U.S.vs. U.K.’ approach described above highlight the ‘Jobs vs. Debt’ debate which has engulfed the Obama administration and the strong showing of the U.S. economy in the last quarter to 2011 further emphasizes the jobs imperative. Obama in the 2012 State of the Union address rightly hinged the future of America onenergy independence and the resurrection of the manufacturing sector based on high-tech jobs which the U.S. has acomparative advantage. This may be a lofty dream but it is the starting point ifa long lasting sustained recovery of the U.S. economy is desired.
TheU.S. debt which stands at a staggering $15 trillion must be tackled over the long-termif the U.S. is to maintain its competitive edge and the dollar remain as the currencyof choice. The big question here is “how” and “when” this will be done? The Bowles -Simpson Commission(The National Commission on Fiscal Responsibility and Reform) has the best blue print on how to tackle the deficit as it embraces reining in the coredrivers of the deficit (Medicare, Medicaid, Social security and defence spending), whileproposing a revamped pro-growth tax structure with savings that pay down thedebt.
The U.S. is on a rocky road to recovery which, with the right political will andbipartisan team work will see the world’s largest economy overcome the worst economic downturn since the great depression.
