We Are All International Bankers Now

The broadcasts on CNBC (where I serve as chief commentator) often are dominated by discussion of weak employment numbersu00e2u20ac”worries about jobs that have not reappeared with the economic recovery. The effect of the global economy, or, stated in political terms, shipping jobs offshore, particularly to China, gets a lot of the blame. As a result, the globalization of our economy has become an issue in every town and city in the United States.

For example, I grew up in Grand Rapids, Michigan, which has long been the capital of the world for office furniture (Steelcase, Herman Miller, etc.). In Grand Rapids, it was often said that furniture manufacturing was one of only two industries in the United States that couldn’t be hurt by imports. (The other one, incidentally, was and is real estate.) We assumed this industry was safe because furniture products are big and bulky and require skilled labor rather than high-tech production. Furthermore, the cost of shipping furniture across the oceans would be prohibitively expensive for overseas competitors. But today you’ll see that foreign competition is driving many domestic furniture manufacturers out of business or forcing them to go abroad to manufacture products. No matter what our politicians say, they’re not likely to stop the flow of foreign goods, like furniture, into our country. The reason is quite simple: U.S. citizens desire furniture at a 20% or more discount with equal quality to domestic-made productsu00e2u20ac”and are able to get it. Therefore, protecting U.S. furniture manufacturers will not fly, politically, in the long run.

Where is the imported furniture coming from? It is mainly coming from China, the new booming exporter in the world economy. China is primarily an agrarian society with about 1 billion people working and living on farms in conditions that haven’t changed much in the last 100 years. So when we’re talking about China and its impact on the global economy, we’re really only talking about 20% to 25% of its current population. This is in many ways fortunate, for if you extrapolate what would happen if every person in China had as many automobiles as we have in the United States, the world would be hard put to find clean air anywhere. But the Chinese are coming off the farm at the rate of approximately 25 million people every two years. As a result of this migration, China has to create 25 million new jobs every two years in order to avoid an unacceptable unemployment problem and social disturbance. China seeks to grow at 8% to 9% a year because that’s the only way it can hope to manage the results of the farm-to-city migration. (Remember, the U.S. had percentages like that a little over 100 years ago.) So China has just begun its growth as an exporter.

What does this mean to bank directors? Every financial institution in the United States will be affected by this growth, whether on the coast or in the Midwest, or whether in a town of 10,000 or 10,000,000.

Therefore, there are two things for community bankers to consider in this regard:

First, keep an eye on the world economy and how it will affect local banking operations, particularly with regard to those industries subject to direct world competition (as more and more are). Loans may be good or bad depending on foreign competition. Second, the most global of all industries is finance, thus factors like interest rates will be affected almost as much by the world financial markets as by the Fed.

This year “job creation” has already become a hotly debated topic in our national elections as we decide which presidential candidate can provide the best job growth and protection from foreign competitors. No matter who promises what, the likelihood of the winner changing the course of world competition is pretty small. Learning how to live with the new world economy is likely to be more rewarding than betting on our elected president to change it.