Teach a Man to Fish: Recovering From the Global Economic Crisis

The global economy is still suffering and while there’s no single panacea, new jobs would make a world of difference

In the second year of the second decade of the 21st century, it’s becoming clear that what the world needs now are jobs, preferably with decent salaries.

This is not specific to any one country or economy. A lack of job opportunities lies at the root of unrest that has spread from Tripoli to Tel Aviv, from Wall Street to Athens. After decades of ‏(mostly‏) peaceful global economic growth, the economic system hit the wall. It needs recalibration, and people need work.
But what kind of work? Think of the following tale. Once upon a time, there was a small fishing village on the shores of a bucolic, picturesque lake. As the decades passed, the villagers came to realize that they needed to set quotas or they would deplete the fish population. Since this was a peaceful village where people cared about each other and the environment, the community members followed the laws.

Meanwhile, one of the fishermen saved his money and went out and bought a fishing boat. He gradually became more efficient and effective. In order not to violate the quota system, he began buying his neighbors’ quotas. Soon, some of his neighbors were working for him. Now fishing became very efficient, and the weekly quota for seven men could be filled in less than a day. The few villagers who adopted the new methods became very wealthy, while others found themselves unemployed or working for the rich.

Eliahu Hershkovitz
Eliahu Hershkovitz

Now let’s look at retail behemoths Walmart and Amazon, chip maker Intel, computer giant Dell, Teva Pharmaceutical Industries − the world’s biggest generic pharmaceuticals maker − or Citibank.

Each is a star in its own industry. Once, each of these companies had many competitors just like itself. But each proved to be more efficient, to have a new technology or a better method. Each became a market leader − with fewer and fewer people needed to reach the same end point, and less and less competition as it bought out or ran out of less capable competitors. Too many companies became too big to fail.

Desperately wanted: everything

Most of us are pleased as punch with this basic market dynamic. That’s because we get newer, better products that cost less and less. The problem, of course, is what to do with all these poorly paid or unemployed fishermen.
As this process has been global, and many developing countries have gone through a catch-up process, the demand for higher-paying jobs is spreading. Almost everywhere in the world a social uprising is calling for renewing the economic system and redistributing wealth − which hopefully will not block the entrepreneurial fisherman, but will give others something else to do, a way to make a decent living.

Different countries seem to face variations of the same basic problems, and are developing different measures to cope with them. One source of optimism is that, if rebalanced, the developing world could still be a driver of global economic growth for at least a decade or so.

In our analogy, this is equivalent to finding a way of adding quotas without depleting the lake’s supply of fish.

Take India and China, for example. Both need to feed approximately 1.2 billion mouths, are facing mass migration into cities and have a rapidly growing middle class. On a recent visit to India, one businessman told me that the major difference between India and China is in communication: In India, the press is constantly reporting on what goes wrong, so the impression is that nothing is right. In China, meanwhile, the press reports only on what is right, so the impression is that nothing is wrong.

More prosaically, there are many differences between the two giants, but they both need more of practically everything as long as it’s cheap − more energy, more water, more food, more jobs, more transportation, more education, more manufacturing, more ... more, but cheaper.

They both face the stark, basic dilemma of which comes first, the chicken or the egg. If more people get to work, more people will be able to buy − but until they start buying, it is difficult to get work.

India seems intent on breaking this chain. There, last year’s social protests focused on corruption, on ousting fishermen who not only bought boats but also overfished their quotas.

The Indians quite a few obstacles before the economy can start flowing freely. But they also seem to know what these obstacles are and how to get past them. They know they need to reduce the endemic corruption not only through harsher measures against offenders but also by reducing opportunities to cheat − for example, by adopting technologies such as “unique ID” ‏(which gives a 12-digit number to each person based on fingerprints and iris scans‏). They know they need to reach the illiterate via television and cell phones, which are both readily available amazingly cheaply. They are concentrating, as the Chinese did 10 years ago, on improving basic infrastructure − airports, seaports, roads, energy and water.

The million-employee question

If we leap from one area of acute concern to the next, Greece is probably the next stop.

Though the need for decent-paying jobs is a critical problem in Greece as well, the focus of restructuring is different. As a euro-zone member state, with no trade barriers and debt that would daunt Hercules and reduce Sisyphus to tears of despair, the Greeks are facing a difficult task. The first step is rebalancing between the public and private sectors. Focusing on restructuring this balance will at least give them the funds and ability to reduce debt and, if executed correctly, also generate growth.

Greece is in the process of privatizing government-held assets such as water and sewage companies, transportation companies ‏(from seaports to airports to trains and buses‏), electric utilities, real estate projects and more. New and exciting technologies have developed over the last decade in many of these fields, and if some of these are adopted during the privatization process, the benefits could be huge.

The United States may have birthed the current virus, causing the economic downturn in most of the other troubled economies, but it is apparently on the road to recovery. American unemployment has been declining, but it doesn’t look like wealth is being distributed more equitably, or that there’s been any reduction in salary gaps between the CEO and his hundreds of thousands or even millions of employees. When you run a mega-chain such as Walmart, which has 2 million employees, could the gap between the CEO and the cashier reasonably diminish?

Precisely what can revive the U.S. economy is, of course, a very big question. As in the past, investments in infrastructure, education and health services will no doubt be a major part of the solution. But social marketing might become the game changer − reinventing Main Street by reducing marketing costs and changing consumer preferences, so local trade and maybe even manufacturing could again be competitive.

The Jaguar said namaste, and bowed

Consider this basic fact of globalization: The Economist reported last month that Jaguar Land Rover, a British carmaker now owned by India’s Tata Motors, took the first step toward setting up a manufacturing base in China by proposing a joint venture with Chery, a Chinese car company ‏(in which Idan Ofer’s business group has a stake‏). As long as borders around the world are low, goods and services will flow over them.

Before the 2008 market crash there was a joke making the rounds that each country should focus on what it does best − China should manufacture, India should provide call centers and the United States should consume. Post-2008, we stopped laughing and began to focus on how to rebalance trade, currency, manufacturing and consumption without closing borders.

Writing in Vanity Fair this January, Joseph E. Stiglitz reminded us that in the 1920s every fifth American worked in agriculture. World War II facilitated a swift transition to industrial manufacturing. As industrial manufacturing moved to emerging markets and then became more efficient, the need for jobs has become a shared issue faced by countries from the United States to India, to Russia, Argentina, Spain and so on.

The world now has three times as many people as it did in the 1920s. By that criterion alone, the task ahead is not simple. But it seems that for the foreseeable future, many countries have diagnosed the problem and found the basic medicine they need. The key question remaining is which will truly go ahead with the treatment regimen?

The author is business development manager at IBI
Investment House.