In an interview with French weekly news magazine, Le Nouvel Observateur, Jon Moynihan, chairman of PA Consulting Group, is asked about the causes of the current economic crisis in the West. Jon argues that the crisis is not due to a “normal” economic downturn, but rather to fundamental structural problems caused by the West living “beyond its means” for a long time.
In the interview, Jon argues that the decline of the West is a result of the following causes:
Jobs that have been lost to the East and South will not come back. This is primarily due to the pay gap between the West and the emerging economies, which can be as high as $135 (OECD) versus $2 in rural China. The good news is that salaries will converge in 2025, but the bad news for the West is that they will meet at around $60.
Our leading companies continue to outsource jobs to emerging economies. Jon argues that all the jobs which can be moved to the East and South will be moved there in the near future and contrasts General Motors (GM) in the 1950s with Apple today. GM in 1955 had 500,000 jobs in the US and 80,000 abroad; Apple today has 4,000 jobs in the US and 700,000 with its suppliers in Asia.
Jon goes on to say that the level of education is now higher in the East than the West: “This will lead to more job losses for the least-qualified in the developed world, with these jobs going to the better educated masses in Asia. This will get worse as China, for example, invests considerably more in education and R&D than the US and the UK.”
Jon explains: “In the West we have been living beyond our means for too long. We have been awarding too many social benefits to too many interest groups.”
Asked how the decline of the West can be slowed down, Jon recommends that the West should re-orientate its investment towards education and infrastructure and do so immediately: “In the long term, these two sectors have proven to be the best fertilisers for economic growth.” He also suggests: “Governments should do more to support technologies like biotech, nanotech and clean energy.”
This article is based on a talk given at the LSE by Jon Moynihan, click here for more information.
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