Tectonic Shifts in the American Class System

It's not so farfetched. General Electric (GE - commentary - Cramer's Take) already has a team of 300 lawyers based in India who do nearly all of the firm's internal legal work. The average GE lawyer in India earns well under $10,000 per year. China has a nearly limitless workforce of 300 million people who are unemployed and ready, and are willing to work for $100 per month.

The American Impact

These trends have broad implications for the U.S., which provides perhaps the best nurturing environment for entrepreneurs. So I do believe that the companies and industries that create the most wealth in the 21st century will be born and based here, but most of their respective workforces won't be.

The shareholders of these businesses will do very well. The richest 2% (entrepreneurs and large shareholders) will get richer, and the bottom 80% is likely to end up poorer as nearly every type of white- or blue-collar job becomes portable offshore.

This is a massive tectonic shift, and it's heavily responsible for the prolonged recession we've been undergoing. It's why 13 Fed cuts -- bringing interest rates to 40-year lows -- have failed to stimulate the economy. Alan Greenspan can take interest rates to zero, and it won't make much of a difference.

Because it is a fundamental shift, I don't believe coming out of this recession anytime soon is in the cards. The official unemployment rate of 6% in the U.S. is a fairy tale. It counts the worker who went from a $40,000 salary to $7 an hour at McDonald's as fully employed. It also does not count the "discouraged unemployed," who haven't been able to find a job for more than six months and have simply given up.

I believe the real unemployment rate is easily in the double digits. If you include folks who found new jobs but make much less money than before, it approaches 20%.

---

Mohnish Pabrai is the managing partner of Pabrai Investment Funds, an Illinois-based value-centric group of investment funds. At time of publication, Pabrai held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. He appreciates your feedback at [e-mail]. You can access his Web site at www.pabraifunds.com.