Monday, February 22, 2016

The US Rust Belt's Middle Income Trap

Doug Saunders is a remarkable journalist. I'm not sure how he does it. He camps out on the frontier of globalization and tells us where the puck is going. Wayne Gretzky's father would be proud.

His latest wonder connects Dongguan, China with 4th migration Cleveland, USA. 4th migration in Cleveland is latent. African-Americans long denied entry into the middle class geographies of the inner suburbs have arrived. Similarly, the Chinese of Dongguan have journeyed from rural to urban, a Great Migration. At least 60 years later, they find the same warmth of other suns.

5th migration vexes the aspirations of both places. Global wages running wild in Dongguan:

Two-bedroom apartments in Dongguan typically cost between $200,000 and $400,000 (and China’s mortgages require at least 30 per cent down); those prices fell in 2014, but last year shot up by almost 20 per cent, after a new high-speed bullet train made Dongguan a desirable bedroom community for the larger city of Shenzhen.

The high-speed bullet train brings post-manufacturing wealth to a manufacturing neighborhood. But manufacturing in China, as it is everywhere else in the world, is economically convergent. The wage only gets so high before industry become unprofitable. Vietnam looks increasingly attractive to robber barons. Divergent wages from Shenzhen obliterate the capped blue collar prosperity. Real estate developers raise up to meet the more lucrative financial flows. Gentrification. Progress.

The same highest common denominator holds sway in Cleveland:

“There are fewer people in the middle, and being in the middle is less of a boost than it once was, because of declining median incomes,” says Mr. Duke. “Real incomes aren’t going up, but the cost of things you want to buy to consider yourself middle class are going up real fast.”

Bidding up the price of things people in the middle want to buy are eds & meds workers at University Circle. Figuratively, the high-speed bullet train is Case Western University. A smaller percentage of the peak manufacturing workforce numbers will cull divergent demand for goods and services. The African-American 4th migrants are too late. They are caught in the same middle income trap as Dongguan.

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