US President Donald Trump has focused on the need to "bring jobs back to America", and some US multinationals (Carrier, Ford, Sprint) claim they are doing just that. But are jobs really being created, and are they jobs of the future, or of the past?
"Reshoring", or returning offshore production to the intended final market, has already been happening in response to market forces of globalisation and technological change, and as more local governments lure corporate investment with competitive tax breaks and infrastructure subsidies (as the state of Indiana did to retain Carrier).
But such non-market "job creation" also causes job loss, as higher costs to taxpayers and consumers, or reductions in other beneficial public expenditures due to lost tax revenues, reduce real incomes and thus demand and job creation in other sectors.
Higher costs due to reshoring would also encourage technological upgrading, chiefly automation substituting machinery for labour. As President Barack Obama noted in his farewell speech in Chicago: "The next wave of economic dislocations won't come from overseas. It will come from the relentless pace of automation." Any new jobs are likely to require scarce higher skills, necessitating an increase in immigration, which Trump voters oppose - "jobs for whom" matters more than just jobs per se.
Then there is the very real risk that the jobs "brought back to America" are jobs of the past, not of the future, and will not last long anyway.
The prime example here is the car industry, which Mr Trump criticises for manufacturing in Mexico to export to the US. As comparative advantage dictates, car parts and models made in Mexico are more labour-intensive and less profitable than those made in the US. Taxing American consumers by imposing punitive tariffs on imports from Mexico, or "returning" production to the higher-cost US, would simply raise prices to US car buyers, disproportionately hurting lower-income consumers who are more price-sensitive. Consumers will have less income to spend on other domestically produced goods and services - for example, haircuts, restaurant meals or gym memberships - or will buy fewer cars. In either case, jobs will be lost (or not created).
Besides increasing automation to reduce costs, car companies would accelerate investment in new technologies like self-driving cars, just as they have invested in the ride-sharing companies Uber and Lyft. Fewer cars would be produced, each with fewer workers, and jobs would be lost not only in the factory, but also among drivers.
RELEVANCE TO SINGAPORE
Why does this matter to Singapore?
Like the US, we are a high-income, high-cost country facing competition from lower-cost neighbouring countries in labour-intensive, lower-tech tradable goods like manufactures. Unlike the US, we do not have a large domestic market that would spur innovation and incentivise domestic production. We also do not have local companies that are large global players in particular market segments that could locate the high-skill, high-wage parts of their global supply chains in Singapore.
Rather, we have prospered by shaping ourselves to fit particular occupational niches in the ever-changing global supply chains and product portfolios of foreign multinationals, as in manufacturing and finance. To do this we have relied on selective tax incentives and corporate subsidies that are increasingly imitated by others or disallowed by international trade and tax rules, and on liberal immigration policies enabling the hiring of foreigners with the locally-scarce skills required by these investors.
Now, the anti-globalisation threats of a Trump administration and others across the Western world responding to populist anti-globalism may limit our ability to continue with this follow-the-multinational strategy. At the same time, the collapsing timelines of disruptive technological change make it impossible for markets to predict, and for governments to anticipate, the jobs of the future and the skills they will require. It may well be, for example, that the job of Uber driver, unpredicted and unheard of just five years ago, lasts only for 10 years before being overtaken by self-driving vehicles, while artificial intelligence first swells and then depletes the ranks of computer programmers and software developers.
But absolute job creation is not the whole story. Record US job creation and full employment under President Obama did not mollify Mr Trump or his supporters, for whom jobs (and immigration) remain the biggest concern. The reasons for their dissatisfaction are many: many of the jobs created are part-time, temporary, low-wage or insecure, and the unemployment rate is low partly because labour force participation has dropped as "discouraged workers" stop looking for work.
A recent study by professors Lawrence Katz (Harvard) and Alan Krueger (Princeton) found that 94 per cent of the 10 million net new jobs created from 2005 to 2015 were in the "alternative work" category, which jumped from 10.7 per cent to 15.8 per cent of American workers. This reflects the rise of independent contractors, freelancers, contract company and temporary agency workers, who another study estimates could reach 40 per cent of the US labour force by 2020. The number of one-person businesses (the "self-employed" or "entrepreneurs") has also soared, even in manufacturing.
At the same time, conventional full-time salaried corporate jobs have decreased. Today's tech giants like Google and Facebook employ only a fraction of workers per dollar of revenue or market capitalisation, compared with traditional industrial firms like General Motors and Boeing, which themselves employ far fewer workers per dollar of revenue than previously.
These labour market shifts have been enabled by technology. The emergence of online platforms enable individuals to raise capital, sell goods and services, and share assets like homes and cars, online, while 3D printing has contributed to the rise of the "maker revolution".
Deriving from social and cultural as well as market and technological shifts, these trends are likely to continue in the US and other developed countries. The shift towards locally provided custom goods and personal services rather than globally provided mass manufactures suggests a limit to, if not a reversal of, global production networks, even without newly protectionist policies. It also contributes to the low productivity and GDP growth that developed countries have experienced since the early 2000s.
THE REGION TO THE RESCUE
Fortunately, Singapore is located in a geographical region whose economies will grow much faster in the next 50 years than the Americas, Europe, Japan or China, for demographic and catch-up reasons. Our location gives us an advantage over more distant competitors in servicing the regional market, while our superior infrastructure and education give us competitive advantages over our neighbours. But leveraging these advantages to ensure good incomes and occupations for Singaporeans will require nothing less than a post-industrial transformation of many of the institutions that served us well in the late industrial age, and the mindsets and expectations that go with them.
First, we can no longer rely on foreign multinationals, government-linked companies and other large local enterprises to "create jobs" and "raise wages" for us. Instead, we need to create jobs for ourselves, through entrepreneurial ventures, self-employment and, yes, "alternative work" arrangements (many of which can be well-paid).
Second, we can no longer rely on "job creation" through linkages with the slow-growing final markets of distant developed countries. Instead we need to expand our role in the faster growth of developing countries, with which we have complementary comparative advantages, particularly our neighbours. This may mean providing a different portfolio of products at different price points than we have been used to with rich customers and clients (for example, in medical services and tourism).
Third, our social safety net needs to be reconfigured to provide better security for citizens in more flexible but also more volatile "alternative work" arrangements (for example, provision for self-employment contributions to a revamped Central Provident Fund, perhaps a minimal basic income guarantee), and to avoid discouraging inherently risky entrepreneurial efforts.
Fourth, our education system needs to be more flexible and diverse, not only to allow students of different abilities, interests and backgrounds to maximise their individual potential, but also to encourage curiosity, different thinking, self-learning, action-based learning, and learning of other cultures and languages. Rather than academic credentialling to fit into particular occupational slots that are already disappearing in other people's enterprises, we should encourage the creation of our own enterprises fulfilling local and regional market needs.
At this juncture of our national and world history, "more of the same" development strategies that were effective in an earlier era will not work. Given how developed we already are, there are diminishing returns to yet more costly top-down state-directed investments in infra- structure, education and corporate subsidies. It is time to return to the bottom-up, market-driven, locally and regionally focused, small-scale individual entrepreneurship that made us successful in the past, and can do so again. This is where the jobs of the future lie.
- Linda Lim is Professor of Strategy at the Stephen M. Ross School of Business, University of Michigan.
- Benjamin Goh is a Master in Public Policy candidate at the John F. Kennedy School of Government, Harvard University.
