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US Split Into Two Countries And Both Must Prosper

Business, Company Strategy, Economics, Environment, US
By John Richardson on 15-May-2015


By John Richardson

WHAT is the most important job for any politician? Ensuring the long term economic health of her or his country.

And in the ideal world, our politicians should pick the policies that get this essential job done, whether they are from the left, the right or the political centre ground. Who cares about ideology if we can achieve the right results?

But before we can decide on what policies should be adopted, we first of all have to agree on what problems need to be fixed.

I therefore find it very worrying that the majority of people seem to think that the policies being employed in the US at the moment are actually working. “If it’s not broken, why on earth try to fix it?” seems to be their attitude.

This consensus view points to the success of quantitative (QE) easing in in creating new jobs.

But whilst overall employment levels have, of course, greatly improved over the last couple of years, I still worry that it the kind of new work that is being created which really matters. The middle class wage squeeze continues.

And as US Bureau of Labor statistics show, the percentage of the working age population who are in work was lower in April than it was in January 2010.

“Another 5.1 million people would be working today, if the economy still had the same percentages of people working as in January 2010 – 2.3 million men and 2.8 million women,” wrote fellow blogger Paul Hodges, in this blog post.

He identifies one key reason for this wasted potential: 47% of those without high school diplomas do not have jobs in the States.

And he adds that black and Hispanic employment rates are few below those for whites.

Why does this matter for the US chemicals and polymers industry? Because if you have a recovery that is essentially excluding a big percentage of your population, you end up with demand growth well below its potential. The more people than can afford to buy more goods and services made from chemicals and polymers the better.

In this context, despite all the talk of a US recovery, it is worth looking at chemicals markets again as an indication of just how weak growth has been in recent years.

Take polypropylene where real consumption, which is adjusted for inventories, was 5.8 million tonnes in 2010, during the Global Financial Crisis. By the end of 2015 this is forecast to have edged—up over so slightly to 6 million tonnes. Polyvinyl vinyl chloride (PVC) consumption is expected to have grown a little more, though, from 3.7m tonnes in 2010 to 4.2m tonnes 2015. But when you go all the way back to 2000, you find that US PVC consumption was 5.7 million tonnes during that year.

But I can hear you saying: “Come on, this is a very developed economy and so obviously growth has plateaued. This always happens. Plus, there is a big conservation drive in the US where more and more plastic is being recycled and thinner-gauge films are being used for packaging.”

This is of course true. But I would argue that the US is in, effect, two different countries. One country is the comfortably off upper middle class and the other everybody else. If this country of “everybody else” could largely escape relative poverty you would end up with the kind of growth momentum you see in emerging markets.

As everyone knows, what is driving growth in parts of Asia, in Latin America and in Africa is the ever-rising number of people who are escaping from poverty. When your essential needs are taken care of, you are more likely to be able to afford greater quantities of goods and services manufactured from chemicals.

Demographics is another reason why addressing this challenge in the US is of critical importance. The country’s rich people, the Babyboomers, are retiring in record numbers and are not being replaced by enough young, rich people. The statistically indisputable reality is that when people retire they spend less money. So a more equitable distribution of wealth is not socialism at all, it is instead just blinding common sense.

And talking about the “everybody else” country I referred to above, I was deeply saddened and shocked to read this in The Economist:

If it were a separate country [America’s black population], it would have a worse life expectancy than Mexico, a worse homicide rate than Ivory Coast and a higher proportion of its citizens behind bars than anywhere on earth. This is despite the fact that, overall, America is home to the richest, most successful population of black African descent that the world has ever seen.

Here is some more data from The Economist:

  • One-third of black men in their thirties have been in prison.
  • The median black family had net assets of only $11,000 in 2013. This compared with $142,000 for the median white family.

And no matter whether you are black, white, or whatever race you belong to, if you’ve been in prison you are much less likely to be able to go to college and thus get a decent job.

The core of the problem is the number of people who are sent to prison. Nearly one out of every 100 adults are in the US, which is five to 10 times higher than the rates in Western Europe and other democracies, according to a December 2014 study by the US National Academy of Sciences.

In terms of dollars and cents, a 2010 study by the US Centre for Economic and Policy and Research found that locking people up in the US cost $65 billion of US GDP every year.

How do we fix all of this? I had thought about making some suggestions today, but then decided that I first needed to outline the problems before spending a great deal more time thinking about the solutions. I can only hope that I am behind the curve here and that next year’s Presidential candidates already have the ideal solutions in hand.

Whatever the right approach, it strikes me that the US chemicals industry needs to be involved in this debate. US companies also need to build best, base and worse case local demand-growth forecasts for the next ten years and more, based on to what extent these issues are adequately addressed.