U.S. worshipping at the Walmart altar is only a sound economic policy for China

BY ROY NERSESIAN

COMMENTARY

Why is the United States in such economically dire straits? Picture 1 is the balance of trade position of China and the U.S. The huge surplus of China and the even "huger" deficit of the U.S. is the direct result of our slavish attachment of the Walmart paradigm where everything has to be manufactured in China in order for consumer goods to be sold at rock-bottom prices in the United States.

PICTURE 1

The knee-jerk response to this gross imbalance of trade between the United States and China is high labor costs in the United States versus cheap labor costs in China shown in Picture 2.

PICTURE 2

Just to put some flesh on these figures, the hourly compensation for a worker in China in 2008 was $1.36 per hour, double the rate in 2004, whereas the U.S. worker costs an employer $25.65 per hour. You can get nearly 20 hours of labor (if not a lot more) out of a Chinese worker for an hour's worth of time for a U.S. worker. One can see the obvious benefit of the Walmart paradigm, one that made Sam Walton's family the richest in the world nearing the combined worth of Bill Gates and Warren Buffet.

As apologists for denuding the United States of its industrial base are quick to point out, part of the trade deficit is from importing oil. Picture 3 is the percentage of oil consumption that must be imported.

PICTURE 3

Oil imports as a percentage of consumption are comparable for both China (56%) and the United States (67%). For coal, both China and the United States are self-sufficient, but Germany must import 37% and Japan 100% of its coal needs. China imports about 5% of its natural gas consumption and the U.S. 8%, mainly from neighboring Canada, but Germany imports 90% and Japan 100% of its natural gas consumption.

Japan has comparable labor costs with the U.S. and Germany has significantly higher costs and both nations import substantially more energy as a percentage of consumption. So why do they have strong positive balances of trade and we have the world's worst? Obviously it can't be labor costs or energy imports. It has to be something else.

That something else is the Walmart mantra where everything, even fluorescent light bulbs with virtually no labor content, must be made in China. This business strategy, while great for the Walmart family, has been a disaster for Americans. This cannot be blamed on Obama. The roots of this problem can be traced through Republican (Bush I and II) and Democratic administrations (Clinton). It is a flawed economic policy that is reducing this nation to a general state impoverishment with a few rich folk — just like El Salvador.

What have Japan and Germany done differently than the U.S.? For one, they don't believe in the Walmart paradigm. Two, they actually have an economic policy to protect their domestic industry. Three, they have a long term plan to achieve long term objectives. We have no economic policy other than worshipping at the Walmart altar and we have no long term economic objectives worth achieving. The primary reason for this sad state of affairs is that we have the right to print money to fund our deficits. Japan and Germany don't have that right. They actually have to produce goods if they wish to import raw materials and energy and products from foreign lands. Unfortunately for us, the right to print money is about to be abrogated and we have no plan, no policy, nothing in place to deal with this inevitability. Our denuded industrial base produces virtually nothing worth exporting. So how are we going to pay for filling Walmart's shelves and our gasoline tanks? This is going to be one heck-of-a rough ride.

Roy Nersesian, a resident of Maplewood, teaches at the Leon Hess School of Business at Monmouth University in West Long Branch and also at the Center for Energy and Marine Transportation at Columbia University. He has authored several books, the last on Energy for the 21st Century published by M.E. Sharpe.