Globalization is here to stay. It cannot be turned back or avoided. But what has it meant, so far, for you and me, living in North America? And where do we go from here, in this time of recession and partial deflation?

Over the past ten years, many companies have managed to grow and prosper. However, wages and salaries, except at the highest echelon, have only crept forward, mainly tied to the rate of inflation. Why has the average Joe and Joanne not gone ballistic over this state of affairs?

Why have Wage and Salary Increases been so Sluggish?

There are two primary reasons.

(1) There has been a real and perceived threat of losing one’s job, in many cases through outsourcing to lower labor-cost industries in China, India, Southeast Asia and a host of other countries.

(2) We are still able to buy “stuff” cheap. That is because we are purchasing low-cost products (and sometimes services) from China, India, Southeast Asia and so on. In many cases, Wal-Mart and other giant retailers are acting as the middle-man.

We have also been able to maintain spending through home equity loans. Now house prices are dropping and this has serious implications. There may be more wiggle room on this front than is often recognized because many people have unused lines-of-credit based on their residences. But falling home prices, even when those homes are mortgage-free, present quite a problem.

The Kitchen-table Issues of Jobs, Incomes and Home Values

What comes next? The kitchen table issues center on jobs, incomes and home values. Foreign trade protectionism is not the answer. The Smoot-Hawley Tariff Bill is notorious for having compounded the economic woes of the Great Depression.

Anti-protectionism offers a better chance of success. Greater efforts should be made to convince China, Japan, South Korea and others that it is in their own best interests to open their doors wider to our exports. They have a major stake in our future prosperity if they want to retain customers for their own products.

Measures to Support Home Prices – Some Controversial

As for propping up home prices, here are several suggestions, a couple of which might prove to be somewhat controversial.

(1) Accept more immigration by potential high wage earners to pump up housing demand.

(2) Integrate illegal aliens more fully into the economy so that they will be able to qualify for and meet the payments on “prime” mortgages.

(3) Demolish more existing vacant homes to reduce excess supply. The best potential sites can be identified among government-purchased mortgages.

(4) Beyond that, let the cycle do its work. In an open economy, prices do find their “true” (i.e., equilibrium) level and market forces move on from there.

How to Achieve Job Creation and Higher Incomes

Finally, what can be done about creating more jobs and raising incomes?

(1) Governments should continue with and expand upon infrastructure construction programs because upgrades and new facilities are needed. Also, this form of fiscal stimulus is a “made-at-home” solution where money spent does not immediately go offshore.

(2) We need our business leaders and risk-takers to create jobs and raise incomes through GREEN building initiatives and carbon-free energy alternatives. This offers tremendous potential for high-tech and value-added production and employment at home and export sales in other countries.

And just as important, releasing the U.S. from its oil dependence on often unfriendly and unstable regimes abroad can only be good for the world at large.

Alex Carrick

Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News.

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