The party's over-maybe for good.

• Author: Marsh, Gerald E.
• Position: United States economic condition - National Affairs

IN THE MID 1960s, Robert Theobald, in Free Men and Free Markets, proposed that the advanced nations seriously consider the possibility of instituting a guaranteed income as the "only way to prevent the emergence of a technologically dehumanized consumer society." He felt the problems raised by automation had no known solution, and that the present socioeconomic system would lose its legitimacy if it could not provide jobs which paid a living wage to those seeking them. In his view, automation would eliminate the high-paying industrial jobs and, because individuals with low skills and inadequate education would become more dependent on government programs, they increasingly would lose control over their own lives.

What has happened since then? Surprisingly, perhaps, automation has not been the principal reason for the loss of high-paying manufacturing jobs, and the U.S. has taken initial steps towards the introduction of a guaranteed annual wage--it is called the Earned Income Tax Credit. How did this happen?

The 1960s were a time when American corporations were beginning to feel the competition from the newly rebuilt productive capacity of Europe and Japan but, rather than expand and modernize existing facilities at home, these firms found it increasingly attractive to establish "export platforms" in the Third World. Since then, the operations of multinational corporations have evolved into an integrated, interdependent worldwide network of resources and capabilities best characterized as transnational--and while there are some structural differences, the same holds tree for European and Japanese firms.

While China may follow this evolution in the future, if and when the wealth of its population as a whole becomes comparable to the developed world, it currently follows a predatory mercantilist policy, where its wade surplus is maintained at an artificially high level by currency manipulation. Chinese companies also appropriate intellectual property "often [by] 're-innovating' technology sucked out of joint ventures," as so succinctly put by the Financial Times.

The principal reason for the loss of jobs in the U.S. and, increasingly in the other developed countries, has been the creation of a genuine world economy. The scale of the internationalization of production that has accompanied the emergence of this global economy is unprecedented in history, and developing countries--where the costs of labor and raw materials are low--will continue to have a competitive advantage over the advanced nations in the production not only of basic industrial goods, but relatively sophisticated products, ranging from consumer electronics to automobiles. The global economy has been made possible because of the revolution in communications and transportation that allows a global corporation to be managed effectively as a single coherent entity.

To understand the extent of the change, consider that, while the percentage of world markets held by American corporations exporting from the U.S. has declined steadily, such declines have been offset by the gains of American corporations exporting from other nations. The value of the output produced overseas by U.S. corporations far exceeds the value of the goods exported from our shores. In 2008, the value of U.S. exports of goods and services was about one-third of the $500,000,000,000 in revenues of American-owned foreign affiliates. According to the Commerce Department, only about one percent of U.S. companies do any exporting and, of those, 58% sell to just one other country. Nonetheless, the U.S. remains the largest manufacturer in the world.

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The real problem is that the manufacturing sector's share of the gross domestic product has shrunk over the last four or five decades to about eight percent. As put by Leo Hindery, former chief executive of AT&T, "No country as economically mature, large, and diverse as America...