In recent months, something striking has quietly occurred at Exim Bank, the US export credit guarantee agency. For the fourth year in a row, the agency is watching an export boom. So far this year, Exim has provided $35.8 billion of export financing to support $50 billion of export sales, 25 per cent up on last year.
But while that might seem good news for the American economy, there is a crucial catch: so far in 2012, the number of jobs backing those Exim-supported exports has fallen by 12 per cent.
Yes, you read that right. In 2012 Exim-supported companies have been selling more widgets and services, helping them to post profits and the economy to grow. But fewer workers were needed to produce these sales, even in sectors which are booming (such as engineering design).
It is a telling saga for investors, particularly in a week that Ben Bernanke, Federal Reserve chairman, has declared that the Fed will not tighten monetary policy until the US jobless rate drops below 6.5 per cent. In some senses, the Exim data may be extreme as it only reflects a tiny slice of corporate America. But it is not an aberration.
After all, this year the economy is on track to post growth of more than 2.5 per cent. However, the unemployment rate has barely fallen, running at 7.7 per cent. Just like those Exim-backed companies, the American economy as a whole now seems to be doing more with the same, or fewer, people. This is jobless growth.
Does that matter? The answer depends on what you think lies behind these productivity increases. Some economists are apt to blame the pattern on cyclical factors. In the early stages of a recovery, the argument goes, companies tend to be wary about hiring people, preferring instead to squeeze more output from their workers. Many prefer another culprit: China and other emerging markets countries. Jobs are being lost to cheaper locations, the complaint goes, because American companies are being undercut by cheaper factories, or are themselves moving their factories overseas.
But the Exim data suggest that these two explanations do not explain all of the trend. After all, the agency funds US companies that largely employ American workers and typically see emerging markets as a source of demand growth not a production threat. To make sense of the trend, you also need to look at digitisation, or the growing tendency of businesses to use computers not simply to perform self-standing economic functions, but to communicate with each other via barcodes, and other digital networks.
The work of Brian Arthur, an academic at the Palo Alto Research Centre, is instructive. Arthur argues that since digitisation really took off in 1995, it has performed an ever-greater proportion of economic functions. Indeed, he suggests that digital networks account for 60 to 80 per cent of productivity gains.
Often, these swelling digital networks go ignored, for while voters can easily see pictures of rival Chinese factories a cyber network is largely hidden. However, Arthur calculates that the economic functions performed by this digital network will be equal to the physical economy by 2025; and while his calculation might be disputed, what is crystal clear is that this growth is displacing many human workers.
Now, an optimist might insist this does not matter. When technology transformed 19th century agriculture, displaced workers were eventually absorbed in the cities. And no US politician today would ever dare to suggest that productivity increases are a bad thing, or that barcodes should be banned. Instead, Exim officials prefer to celebrate rising productivity as a sign that American companies are competitive on the world stage.
But what nobody acknowledges is that there is still little sign of how workers being displaced by barcodes will be reabsorbed, if, indeed, they can be reabsorbed at all. There is also precious little debate about how America might cope where the economy seems to be growing healthily, but where only a small proportion of the population is employed in good jobs. The phrase "economic redistribution” is almost taboo, particularly in a country where "growth” is the holy grail.
But what investors need to recognise, as Bernanke tacitly acknowledged this week, is that everybody now needs to watch far more than just the GDP data – 2013 may indeed bring reasonable rates of American "growth”.
And Exim officials, for their part, will probably watch exports boom. But don’t expect Bernanke to hit his new jobless target too soon. Not unless Congress starts talking about a ban on barcodes with the same enthusiasm with which it keeps sabre-rattling against those Shanghai sweatshops.
Copyright The Financial Times Limited 2012
American workers' digital destruction
Ben Bernanke's employment targets are an acknowledgement the US is facing a not unfamiliar unemployment problem: digital networks are replacing workers and nobody knows what to do about it.
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