ANALYSIS OF THE HIGH UNEMPLOYMENT RATE IN THE USA Jinhua Li Jinhua Li, School of Economics and Management, South China Normal University, Guangzhou, China. He is author of The Structure of Innovation Networks and Its Relationship with Knowledge Flow (2009). His research interests include systems engineering, analysis and modeling of the economic system. Email: [email protected] Abstract: The ongoing crisis of the US economy is the result of the US government’s neoliberal policies since the 1980s. The market liberalization and global economic integration advocated by neoliberalism hollows out industry, generates asset bubbles instead, and results in structural unemployment and the transfer of labor to sectors of the virtual economy. The severe financial crisis triggered by the collapse of the latest and greatest of the asset bubbles, the housing bubble, has led the unemployment rate of the United States to rise sharply. In contrast, Chinese economic policies have resulted in tremendous economic achievements. As such they pose a big challenge to the neoliberal policy paradigm of the United States. The US government’s numerous false accusations against the Chinese government are little more than futile attempts to deny this. Key words: neoliberalism; competitiveness; unemployment rate; virtual economy; real economy The Conflict Caused by the High Unemployment Rate Since the global financial and economic crisis caused by the US subprime crisis in 2008, the US economy has been depressed and the unemployment rate has risen to over 8 percent for 43 successive months. At the same time, corporate investment intentions are low and the government’s debt is ballooning (its absolute amount in 2012 was about 50 percent more than it was four years ago). In contrast, China’s annual GDP growth remains higher than 8 percent despite the challenges posed by the economic crisis. Some American politicians allege that China is responsible for their crisis as a way to prevent people from coming to the logical conclusions WRPE Produced and distributed by Pluto Journals www.plutojournals.com/wrpe/ The World Association for Political Economy (WAPE) CC BY-NC-SA 3.0 Homepage: www.wapeweb.com Email: [email protected] WRPE 4-2b text 218 13/09/2013 12:35 ANALYSIS OF THE HIGH UNEMPLOYMENT RATE IN THE USA 219 to which this scenario points. Instead, they condemn Chinese government policies, accusing it of trade protectionism so that they can claim to implement “retaliatory” trade protectionism. This is the background for the mounting Sino-US trade tensions amid which the United States has carried out a series of the “anti-dumping” and “anti-subsidy” investigations into Chinese products, such as TV sets, vehicle tires, seamless steel tube and photovoltaic products, which are exported to the United States from China. In his State of the Union message on January 24, 2012, President Obama showed a tougher attitude on trade with China, stating that the United States should tackle China’s unfair trade practices to revitalize the US manufacturing industry. In the meantime, the mainstream American media including The New York Times blamed companies like Apple for producing in China and causing unemployment in the US. Moreover, in the US presidential election of 2012, both Obama and Romney competed in blaming China for US economic woes: for engaging in unfair trade practices including the low yuan and taking jobs from Americans. In short, they attempted to divert the Americans’ attention and transfer the responsibility of a crisis of the US’s own making by attacking China. Well, is it true that the Chinese take away jobs from Americans? Let’s begin with a look at some elementary data. According to US Bureau of Labor Statistics data on the US unemployment rate from 1981 to 2011 (see Figure 1), during the period 2000–07, that is in the years before the financial crisis, the unemployment rate changed very little. Thereafter, however, the unemployment rate in the United % 9.7 9.6 9.6 10 9.3 8.9 7.6 7.5 7.5 8 7.2 7 6.8 6.9 6.2 6.1 6 5.6 5.6 5.8 5.8 6 5.5 5.3 5.4 5.5 4.9 5.1 4.5 4.7 4.6 4.6 4.2 4 4 2 0 1981 19821983 1984 1985 1986 1987 19881989 1990 1991 1992 19931994 1995 1996 1997 19981999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Figure 1 US unemployment rate, 1981–2011 Source: US Bureau of Labor Statistics, http://www.bls.gov/cps/cpsa2011.pdf World Review of Political Economy Vol. 4 No. 2 Summer 2013 The World Association for Political Economy (WAPE) CC BY-NC-SA 3.0 Homepage: www.wapeweb.com Email: [email protected] WRPE 4-2b text 219 13/09/2013 12:35 220 JINHUA LI States rose to 5.8 percent from 4.6 percent in 2008, and even soared to 9.3 percent in 2009, which was almost twice of that in 2007. Data from the US Department of Commerce show, furthermore, that the bilateral trading volume between China and the United States was $365.98 billion in 2009, 10.2 percent lower than the previous year, and the trade deficit of the United States was $226.83 billion, decreasing by 15.4 percent. These data indicate that while US unemployment was soaring, the Sino-US trade volume and the trade deficit of the United States fell. Therefore, the soaring US unemployment after 2008 has been mainly the result of the financial crisis, not that of Sino-US trade. It is unconnected with China. Related empirical studies also support this argument. Xia (2010) points out that the international industrial division of labor determines international employment structure and international trade: trade surpluses do not create jobs and nor do trade deficits destroy them. The imbalance in Sino-US trade is therefore not the malign influence leading to high US unemployment that the politicians allege it is. Huang and Xie (2011) point out that one of the major factors leading to the unemployment is the US industrial structure: Americans should seek the reason of high unemployment in its sluggish economic growth. We hold the point of view that unemployment is a multi-factor, high order and nonlinear problem. Though the two aforementioned studies are not exhaustive, they reveal the cause of US unemployment to some degree. The idea that “the Chinese take away jobs from Americans” is not only untenable in theory but also inconsistent with reality. Rome was not built in a day. High unemployment in the US is not rooted in China, but caused by some deep and complex factors. They point to a profound reality: the US economy is very unhealthy. The Ill effects of Neoliberalism Neoliberal doctrine asserts the superiority of the free market system and opposes government intervention, and advocates privatization and liberalization of economies and trade and opposes public ownership, socialism and government intervention in economies (“Study on Neoliberalism” Task Group in Chinese Academy of Social Sciences 2003). Neoliberal policies were not only implemented in developed countries such as the US and UK, but also promoted and attended to by the World Bank, International Monetary Fund, and WTO for transitional and developing countries. Given the US’s leading world role, neoliberalism was successfully imposed on much of the world over the past 30 years (Cheng and Wang 2005). The US too, since the 1980s, has implemented its own version of neoliberal economic policy—and this is the fundamental factor determining the current economic status of the United States. In the 1970s, western countries, especially WRPE Produced and distributed by Pluto Journals www.plutojournals.com/wrpe/ The World Association for Political Economy (WAPE) CC BY-NC-SA 3.0 Homepage: www.wapeweb.com Email: [email protected] WRPE 4-2b text 220 13/09/2013 12:35 ANALYSIS OF THE HIGH UNEMPLOYMENT RATE IN THE USA 221 the United States, faced stagflation. The result was a crisis of Keynesianism. The neoliberalism now emerged from the margins to become mainstream. In the 1980s, the Reagan administration greatly promoted neoliberal reforms (referred to as Reaganomics, a mixture of monetarism and supply-side economics). However, the US economy at that time relied on “Reagan’s Imperial Circle” which appeared to involve plundering global resources more centrally than neoliberal reforms in the effort to get out of the stagflation and enter a new growth track. The George H. W. Bush administration (1989–92) pursued neoliberal policies further and they now came to be designated the “Washington Consensus.” In this form, neoliberal policies were imposed the world over in the form of privatization, marketization, and integration of the global economy. Its results were, however, economic depression in the United States and economic volatility in the rest of the world. In the early 1990s, the Democratic Clinton administration (1993–2000) sought to “develop the economy before the military,” and obtained a great breakthrough in the strategically important industry, information and communications technology, and adopted some Keynesian policies while still being neoliberal, and this inaugurated the era of the “new economy.” However, the Republican George W. Bush administration (2001–08) returned to the policy of Reagan and the older Bush, and once more promoted neoliberalism around the world, resulting in economic depression in the United States. When the Obama administration of the Democratic Party took charge in 2009, the US economy had already slipped into deep recession. Since 1981, different US governments have promoted neoliberalism to different degrees, resulting in certain differences in economic growth and employment levels. According to GDP data provided by US Bureau of Economic Analysis, and unemployment (see Figure 1) and CPI data provided by the US Bureau of Labor Statistics, the unemployment rate, the GDP growth rate and the CPI inflation rate in various US governments were markedly different (see Table 1).