Let’s look at three presumably unrelated pieces of information: a) consumer spending represented 71% of the U.S. economy in 2013; b) stock investors are concerned about corporate revenue growth on the grounds that American companies have wrung as much cost-cutting as they can out of their operations — revenue growth is all that’s left; and c) almost half of all public school students in the U.S. now receive free or reduced price lunch, qualifying them as low income.
What binds these three items together? Automation, globalization, and the relentless pursuit of both efficiency and profit are in the process of cannibalizing the world’s largest consumer market. And it’s happening faster than we thought.
The Wall Street Journal article references that most American multi-national companies now derive at least a third of their revenue from overseas. What the article fails to note is that means half to two-thirds of a typical American multi-national’s sales come from the the U.S. domestic market. Revenue growth is soft because Americans have seen their purchasing power deteriorate.
What will American companies do when we reach the point at which a majority of American families cannot afford to purchase the new cars, phones and washing machines American companies are so good at making? Without major course correction, we’re bound to find out and it’s not likely to be pretty.
For those on the political spectrum who consider this to be someone else’s problem, read the third article below about what this means for American power. The article’s author, Dr. George Friedman from Stratfor, says people smarter than he will be responsible for constructing the solution. The solutions are obvious, it’s the implementation that’s hard:
Faster economic growth is the foundation upon which all solutions rest. It is the only way we create the right number and kinds of jobs we need to work our way out of this. Faster growth doesn’t solve every problem, but without it we solve none of them.
Secondly, a significant percentage of the population does not have the skill set that’s required to earn a solidly middle-class living. Job training is a core government function. We need to overhaul the way we do it. The primary problem with our current job training system is it’s not driven by employers. They loudly complain that American workers don’t have the skills they need, which is part of why they want to increase immigration. Well, do something about it.
Thirdly, if anyone is happy with the current state of our education system, they’re either in denial or delusional. Whatever we’re doing, it’s not enough. More radical changes are required to get us to the results we must have.
And fourth, American companies — on their own — without coercion — are going to have to decide that a larger chunk of their cash is going to go towards employee compensation. Call it enlightened self-interest.