The US should, like Singapore, upgrade workers through training – not wage doomed trade wars

  • Winston Mok says trade wars make better politics, but heightened investment in education and vocational training is the key to a US workforce that does not lose jobs. Blaming China is only a distraction
PUBLISHED : Wednesday, 31 October, 2018, 12:02pm
UPDATED : Wednesday, 31 October, 2018, 10:27pm

Technological innovations and globalisation have been the twin engines behind economic growth and, at the same time, social dislocation. Compared to four decades ago, the world’s largest companies by market capitalisation, while still US-dominated, have witnessed a sea change. Those “older” corporate giants which can effectively exploit globalisation and innovation are more likely to remain on top.

Within the developed world, these two forces combined to increase social inequality – polarising the economic fortunes between the displaced blue-collar workers in older industries and the new knowledge workers. It is against this backdrop that President Donald Trump was elected.

Can the waning fortunes of some American workers be blamed on China? Take the auto industry as an example. Japanese and Korean cars have made strong inroads, globally and in the United States. They achieved this with heavy government guidance in once highly protected domestic markets. In contrast, the Chinese market – dominated by foreign car brands – has been much more open. General Motors sells more cars in China than in the US. If anything, Chinese consumers have saved GM. The decline of Detroit is shaped by competition from Japan and Korea.

As well, it’s worth noting that globalisation creates as much as destroys jobs – such as in the car plants of Toyota and Mercedes-Benz in the US.

These global forces don’t just affect America, of course. In the early decades of China’s economic liberalisation, workers in its state-owned enterprises were displaced by new workers (mostly young rural people) at the more efficient foreign-invested enterprises. Now, Chinese workers are being replaced by robots or lower-cost counterparts in Indochina – in a way similar to what happened in the US. All enterprises and workers, American and Chinese, face potential creative destruction in global capitalism – the very wellspring of US economic dynamism.

China’s US brain drain is ending … and it’s partly down to Trump

The stark reality is, in a globalised world, some US workers are not productive enough to justify their once-high wages. The US once had the most educated workforce in the world. A higher proportion of young people now graduate from universities in Japan and Korea. Through a combination of factors such as skills, work practices, process management, automation and supplier integration, some US autoworkers were not as productive as their German or Japanese peers.

Blaming “the others” is an easy distraction from the much harder task of dealing with the real issues. Opposition to globalisation will only undermine the competitiveness of US companies and the innovativeness of its economy. Starting a no-win trade war is an easy gesture compared to the long-term challenges of improving productivity and reducing inequality among US workers.

Making America great again must start with its workers. In developed economies, solid post-secondary education and training is essential to decent earning prospects. Nevertheless, despite the growing popularity of higher education, the college premium for lifetime earnings in the US remains high. At the high end, the US has the best universities – attended by fewer than 1 per cent of American students. But university education is extremely expensive, often resulting in the crushing burdens of student loans.

Furthermore, America’s tertiary education has high enrolment but staggering drop-out rates. Improving graduation rates with government support would be a good start.

Government support for education should also extend beyond the universities, as a university degree no longer guarantees a good job. A successful example is Singapore, whose per capita gross domestic product exceeds Japan’s, although it produces proportionally fewer university graduates. The secret lies in Singapore’s high-quality polytechnics offering vocational education. Hong Kong once had but lost them in upgrades to universities, in ways arguably less unsuccessful than such waves in the UK and Canada.

Indeed, vocational training is indispensable to strong manufacturing industries. The US’ community colleges provide a natural platform where upgraded or expanded vocational training may be provided. Vocational-oriented programmes at universities and colleges may be expanded with government support.

Singapore prioritises education reform. Why doesn’t Hong Kong?

A solid education from kindergarten to the pre-university level, another area where Singapore excels, provides the foundation to successful tertiary and vocational education. As seen in its performance in the Programme for International Student Assessment (Pisa), which tracks the academic performance of its 15-year-olds, the US has much to improve, particularly in maths and science.

While public high schools in affluent Palo Alto or Lexington can provide superb education, the same is not true for most inner-city schools. No investment would yield a higher return to the US economy in the long term than fixing its so-called K-12 education system.

To make America great, it should look to tiny Singapore for inspiration rather than China for excuses. Globalisation inevitably dichotomises the workforce – particularly for post-industrial developed economies. The government should support disadvantaged workers with skill training and welfare programmes.

Finding external scapegoats may be politically expedient. Fixing its long-term human capital development challenges, with the US’ short-term political cycles, will be difficult. But there is no other way to keep America great.

Winston Mok, formerly a private equity investor, is a private investor