United States of America. This is a nation that has dominated the global economy and the global conversation for so long. Yet its edifice is now crumbling.
A lot of people still dispute the fact that this nation is in trouble. Compare the unemployment rates of the leading nations, they say. The US has an unemployment rate of 5%, comparable to the UK’s rate of 5.1%. Surely all is fine and dandy?
Or is it?
Yet what is an unemployment rate? It’s the number of people who have no job and are actively looking for work. It leaves out all those who have given up looking for work. It’s actually more informative to check the employment than the unemployment rate.
In Britain the employment rate is 74.1%, which is as high as its ever been, and shows the economy is doing well. In the US it’s 63%. The difference is stark.
Yet people say American companies still dominate global business. If you were to ask people which firm they admired the most, many would say Apple (NASDAQ: AAPL), Alphabet (the company formerly known as Google), or Facebook. These are hugely successful, profitable, and some of the most valuable businesses in the world right now.
Apple has a market capitalisation of $587bn, a number so huge it verges on the ridiculous. This is a valuation that’s far higher than rival industrial giants that formerly dominated our consciousness, such as General Electric. Yet Apple only employs 115,000 people. Facebook has a market capitalisation of $322bn. Yet, remarkably, it employs only 12,600 people. In comparison, GE employs 305,000 and Walmart employs a massive 2.2m.
US manufacturing is in decline
Behind the scenes, what we’re seeing is the slow decline of US manufacturing industry, and the rise of an unstoppable China that has now become the workshop of the world. Tech in the States may be booming, but it provides only a fraction of the jobs that traditional manufacturing provided.
Facebook needs so few people because all it does is run a website. It just happens that this website is the most popular in the whole world. Apple employs people in its shops, to market its products, and in its design studios. But Chinese company Foxconn actually makes iPhones and iPads. And if the manufacturing is outsourced, so are the jobs.
It might sound strange coming from an investing website, but it seems US firms are placing too much emphasis on profits and share price, and not enough emphasis on preserving the jobs of its workers. Companies in the US simply can’t compete in terms of profitability with those in China. That is why I advise readers to invest not in the US but in China and India.
And all this is played out with a backdrop of a presidential campaign where much of the talk has been about protectionism and blocking immigration. In reality, the economy needs to be reflated substantially, US companies need to refocus, and America needs to view emerging markets not as the enemy, but as trading partners.
There is a road back for America, but it will be slow and difficult.
