Reorientation of economic policy: Lessons from the American scenario

Dhaka,  Sun,  24 September 2017
Published : 28 Nov 2016, 21:34:59

Reorientation of economic policy: Lessons from the American scenario

M. Rokonuzzaman
The whole world has been taken aback by the outcome of the 2016 US election. President-elect Donald Trump's position against race, Muslims, immigrants and U-turn to globalisation is now a matter of serious concern for many countries across the world. The triumph of Trump does not necessary mean that moral values of most Americans have reached an unacceptable low. It's the economic reality, which has apparently persuaded voters to vote for such a change. The pain of seeing no income growth for the majority Americans over the last 40 years is quite understandable. What angered the white Americans more was that, high-paying jobs were  being taken over by high-calibre immigrants and their children.  Although Trump's character was unacceptable to many, even to mainstream Republican leadership, he cleverly and successfully cashed on this discontent of the white Americans.

What are the core issues on which Trump focused on? Among many, two are: 1. Liberal trade agreement under globalisation was allegedly taking away labour-centric manufacturing jobs from high-school graduates, and 2. Liberal policy of immigration had been attracting high-calibre immigrant students to American universities who occupied high- paying jobs after graduation. Thus Donald Trump attracted many Americans who are disenchanted with globalisation and liberal immigration policy to his extreme right nationalistic agenda.  

According to a recent report of the National Foundation for American Policy (NEAP) cited in the Forbes, 70 per cent of full-time graduate students (masters and Ph.Ds) in electrical engineering and 63 per cent of the full-time graduate students in computer science are foreign students, primarily from Asia. Moreover, more than half of the full-time graduate students in industrial engineering, economics, chemical engineering, materials engineering and mechanical engineering are also foreigners. Upon graduation, these students are eligible for high-paying jobs which the economy has been creating in a race for high-tech revolution. On the other hand, many of the American high school graduates were left with low- paying service jobs in fast food shops, gas stations, or retail stores. This led many to believe that liberal Washington elites were not working in favour of the American-born white population, residing in industrial heartlands, or rural America.  Donald Trump cashed on this harsh reality.

Developing countries should take some lessons from the American scenario. Instead of looking at America as the export destination, they should innovate and manufacture for domestic consumption. Instead of going to America for employment in high-paying innovation and invention jobs, they should rather create such jobs in their own countries. They should, in fact, recreate America everywhere in the world. The obvious question: how is it possible?

Economies of many countries, particularly developing ones, do not have purchasing capability. Similarly, developing countries have not yet designed their economies to create high-paying jobs for high-calibre graduates for  invention and innovation.   

To address these two vital issues, every country, irrespective of development status, should focus on local capability development to meet these conditions to produce higher-quality product at lower cost and to make them affordable to a growing number of domestic customers, while causing less harm to the environment. 

To address these two vital issues, every country, irrespective of the development status, should focus on the local capability development (1) to produce higher-quality product, (2) at lower cost, (3) to make them affordable to a growing number of local customers, while causing (4) less harm to the environment, (5) creating high-paying jobs, (6) paying more taxes to the government, and (7) generating more dividends for shareholders. Apparently, these seven variables are conflicting in nature. The proposition appears to be unrealistic. If our thinking is limited by static efficiency, certainly such a proposition is naive. But what happens if we pursue product and process innovations simultaneously? With the recent growth in technology development, it is possible to improve the quality and reduce the cost of virtually any product - whether we process shrimp or produce shirts, shoes or software. Once we start pursuing learning and innovation-centric growth, high-paying jobs will be created for our high-calibre graduates to invent and innovate. Such innovation-centric growth increases both consumer and producer surpluses simultaneously. To produce better quality product at lower cost, innovation will focus on consuming less natural resources causing less harm to the environment. With the expansion of both consumer and producer surpluses, the government will also get more taxes.

The flawed strategy of economic growth, pursued by conventional economic and political economy agenda of special interest groups, has created a mess not only in America but also caused anxiety for the whole world. Due to labour-centric export-led growth, developing countries have not designed their economic systems to benefit from invention and innovation. As a result, bright graduates of these countries have found no opportunity of applying their mental capacity to wealth creation in their home countries. As a result, these graduates looked to the USA as a land of opportunity, occupying whatever high-paying knowledge jobs that country has been creating.

In a nutshell, to avoid further chaos and global unrest, every country of the world should take globally connected, but inward-focused development agenda. Instead of just taking away labour-centric jobs from advanced countries and sending high-calibre graduates to those countries to occupy high-paying jobs, the focus should be on aligning economic activities to increase local consumption and creating high-paying knowledge jobs through local capacity of invention as well as innovation. Basically, every country must focus on creating local job opportunities to invent, to innovate as well as to manufacture for local consumption instead of just taking them away from Americans, or citizens of other advanced countries.

Often we believe that developing countries, like Bangladesh, should invest more for increasing both quality and number of Science, Technology, Engineering and Mathematics (STEM) graduates. There is no doubt that such capacity development is essential to avoid premature income growth saturation. But, is there a linear correlation between STEM capacity and economic growth? If our strategy is to import capital machinery to replicate existing products, mostly foreign though, by just adding labour, how can we transform STEM capacity into economic wealth? With the emergence of nationalistic agenda in America and Europe, it's time to rethink about the purpose of STEM education and our economic policies. Globalisation-led economic policies to drive growth through labour-intensive manufacturing for export, pursued by most developing countries, appear to be highly detrimental to unlock STEM potential. In the absence of appropriate economic policies, investment in STEM appears to be wastage of both money and time in developing countries. 

The US presidential election of 2016 and Brexit could be a blessing in disguise for developing countries-particular their university graduates. Instead of just focusing on low-skill labour trading to show economic growth, economists and policy-makers of these countries should now pursue integrated economic growth plan, creating job opportunities for university graduates to invent and innovate. Such a change in focus of economic growth options is likely to open the door to make better use of our investment in producing graduates in Science, Technology, Engineering and Mathematics. Such a change in focus is a must to take advantage from STEM competence to enable developing countries to avoid premature income growth trap. 

M. Rokonuzzaman, PhD is Professor, Department of Electrical and Computer Engineering, North South University.

Editor : A.H.M Moazzem Hossain
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