Moral Trade
It is seriously time for American consumers who also call themselves Catholic to start thinking about ways to promote fair-trade policies between the US and other countries.
There is a baseline that we can keep in mind when deciding what is acceptable in a business partner: “would I want my children to work at this place?” If the answer is no, then there is no reason why anyone else’s children should work there.
But if that isn’t enough, we can turn to paragraph 301 of the Compendium of the Social Doctrine of the Church and insist that at least the minimum of human rights be met as a condition for continued partnership.
In many countries with which America does business, for instance, the right to form associations, such as unions, is denied to workers. The right to “social security connected to maternity” is also denied as young female workers are forced to obtain abortions as a condition of keeping their jobs. Even within America there are millions of undocumented workers denied many of these same rights.
Moral trade doesn’t necessarily mean a halt to global trade with countries that have less than perfect human rights records. It isn’t realistic to assume that we can stop doing business with China tomorrow because of how it treats its workers. But in conjunction with what I have previously written about – the need to form cooperative enterprises in America – we can consider rebuilding some of our own manufacturing base through our own initiative, and reducing the dependency we currently have on immoral firms that abuse worker’s rights.
For instance, a movement known as “New Monasticism” holds as one of it’s tenants “reclaiming the abandoned spaces of the Empire” (that means America). Presumably this could include old factories, Argentina-style; the capitalists walk away but the workers keep working.
In our own backyard and under the guidance of a Catholic vision of man and his rights, we might be able to remove at least some of the moral hazard of global commerce. It may mean higher prices for fewer consumer goods in the short-term, and for that reason such schemes have often been dismissed as playgrounds for the middle class affluent who can afford them.
If a firm’s prices can’t compete, that firm cannot exist; sometimes that is a polite way of saying that if a firm wants to respect human rights, it should take care to stay out of a sector of the global economy dominated by firms that do not. There aren’t enough “socially conscious” consumers to make the project viable.
But at the same time we will see one of the most expensive costs of all involved in running a major manufacturing business eliminated – that of the millions, adding up to billions, in compensation demanded by American executives. The same Catholic vision that would guide workplace policies, wages, etc. would also guide executive compensation. Profit and wealth are not immoral, but they become so when they become the sole end of economic activity, over and above the common good.
“A business enterprise must be a community of solidarity, that is not closed within its own company interests.” (304) If we start here, I think we’ll end up in the right place. For all of the excuses and evasions that we are often given to justify a set of amoral economic “laws”, the truth is that simply putting people before profit does not mean no profits at all.
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Joe,
I hope you are writing from the safety of an undisclosed location.
Joe,
I’m not entirely sure what you are advocating here. It seems to me that you could be saying:
1. That Catholics should pressure the government to restrict trade with countries where workers don’t meet certain standards regarding pay, working conditions, the right to organize, etc.
2. That Catholics ought to boycott products made in countries or by companies that don’t meet these standards.
3. That Catholics ought to develop alternatives and/or substitutes for such products, in the hope that one day we could engage in method one or two, but that for the time being these methods are too costly.
In the beginning of your post, it seems like you are advocating option one or at least option two. By the end of the post, though, it seems that you reject these as unrealistic for the time being, and focus instead on option three. Is that an accurate assessment?
I think we need #1, but that it probably won’t happen on a grand enough scale in the near future to affect anything. It is a political issue mostly, and political solutions take a long time. I still think it is a worthy goal.
I’m not sure I advocated #2. I only suggested that consumers try to make an effort to buy morally produced goods – not that they avoid all immorally produced goods, since that is nearly impossible for a lot of people right now.
As for #3, there are some alternatives already out there, and we can create more. I’ll admit I didn’t approach this as systematically as I could. What I think is most realistic is to begin work in areas that we can directly affect. I think it is more realistic to look into reclaiming old factories or even trying to finance new ones than it is to expect world governments to fall into line. That said, it is still necessary to pursue the political solutions as well.
I think we need #1, but that it probably won’t happen on a grand enough scale in the near future to affect anything. It is a political issue mostly, and political solutions take a long time. I still think it is a worthy goal.
While I’m sure your heart is in the right place on this, the ultimate effect of what you propose here would be to condemn hundreds of millions (if not billions) of people to severe poverty, increased degradation, starvation, and death. (For more on this point, see here).
[Updated to include correct link]
#1 assumes that trade restrictions work and don’t make matters worse. See Cuba.
Blackadder,
Why is this about “my heart”? I grow so weary of these assumptions about motivations. It can’t be that I’ve heard the arguments and reject them, but rather, I had an emotional fit and decided they didn’t matter. Maybe you think this of me, maybe you don’t, but in the future it sure would be nice to get the benefit of the doubt for once.
The author of this piece you linked to agrees with our fundamental premise:
“Should their own governments provide more social justice? Of course–but they won’t, or at least not because we tell them to.”
That’s the only substantive point to be made against anything I’ve said.
And here it must be said the author here admits that “of course” they should have social justice, which is all I am advocating for. He doesn’t say social justice will have, in your words,
“the ultimate effect of what you propose here would be to condemn hundreds of millions (if not billions) of people to severe poverty, increased degradation, starvation, and death”
He just says it should happen, but it won’t. And I already said in the original piece we can’t cut off trade, but we can make attractive aspects of trade deals contingent on progress in human rights, we can do any number of things to make this at least begin to happen in a sustainable way.
What we absolutely must remember is that in each and any of the countries in question, there ARE labor movements, there ARE movements for human rights, there ARE solidarity movements – this is not about some Western college kids trying to bring “their morals” to the masses.
It is about who our government and our businesses choose to support – the organic labor movements in these countries that fight for workers and human rights, or the local bosses, landlords, and governments that systematically deny them.
The people of these countries who insist on their own human dignity do not regard their efforts as leading to the utter collapse of their societies. Rather what we will see is a greater equalization of wages on a world scale, we will (or must see) greater collaboration between workers movements in every country to prevent this sort of exploitation, this race to the bottom.
The comparative labor argument falls flat on its face because vigorous enforcement of workers and human rights would NOT negate the cheap labor advantage. It would STILL be cheaper to produce in India or China than it would in the US, it just wouldn’t be AS cheap as it is now for those who violate human rights. No law or provision can equalize different standards of living over night, fair wages and human rights standards won’t do it.
Joe,
Equalization of wages?
Do you actually know what you’re advocating here?
It seems you are not aware (or deliberately neglect) the kind of economic havoc you are actually proposing here.
Say if a U.S. company were to pay a worker in one of their factories situated in a foreign country (or even third world nation) a wage equivalent to that of a worker in the United States.
This kind of pay may actually be significantly higher than the kind most people in that country actually earn.
You do the math: which profession would the average person in such a country choose?
Being a teacher, etc., in a country where the pay is incredibly subpar or, in fact, even neglible or a factory worker where the salary is considerably equal (or, depending on the typical salary, even higher) than even their some of their notable professions in that country?
“Do you actually know what you’re advocating here?”
Do you?
I said there would be a greater equalization of wages as workers in third world countries – hopefully with our support – themselves fight for their rights as workers; for a living wage adequate to their locale, for the right to form unions, for shares in the companies they work for, for health care and other benefits, etc.
I’m not talking about a centrally-mandated, top-down establishment of fixed wages, but an organic process that takes place through social struggles over time.
If third world wages go up, and ours stay roughly where they are in real terms (not adjusted for inflation), then would this not be an “equalization”?
This:
“Say if a U.S. company were to pay a worker in one of their factories situated in a foreign country (or even third world nation) a wage equivalent to that of a worker in the United States.”
Is not what I am proposing. People don’t seem to realize that there are two reasons for low wages in the third world, at least two among others: 1) low cost of living, 2) abuses of human rights and exploitation.
Taking away 2 doesn’t do away with 1. Where it costs less to live, wages are and should be lower. That has nothing to do with 2, where wages are suppressed by bosses and governments that don’t care about worker rights, and suppress them with violence and terror.
Two separate issues. Why is this hard to recognize?
Unless of course by “equivalent” you mean, a just living wage, such as what most Western workers are either entitled to or have good reason to expect.
In that case it is what I am proposing – wages that adequately meet the needs of an individual and his or her family, which obviously vary from place to place.
Rights are universal. The right to a just wage can’t be abrogated for higher profits or convenience. But their application isn’t identical. It isn’t wrong to pay someone less who lives in an area where it costs less to live. I don’t care about that. What I care about are overt human rights abuses and political suppression of labor movements that fight for their rights. I don’t see how any Catholic could possibly be against these movements.
Why is this about “my heart”? I grow so weary of these assumptions about motivations. It can’t be that I’ve heard the arguments and reject them,
If you’ve heard the arguments and reject them, does that mean that your heart isn’t in the right place?
And here it must be said the author here admits that “of course” they should have social justice, which is all I am advocating for.
Well, no. What you advocated was that our government should restrict the ability of people to trade with people in other countries unless their governments give them social justice. Do you see the difference?
The comparative labor argument falls flat on its face because vigorous enforcement of workers and human rights would NOT negate the cheap labor advantage. It would STILL be cheaper to produce in India or China than it would in the US
This is a factual claim, and one, I think, that doesn’t have much factual support. Fundamentally, the reason workers in the developing world can’t command better wages, etc. is that their productivity is much lower than workers in the developed world. The only way for them to effectively compete is to work for low wages.
“What you advocated was that our government should restrict the ability of people to trade with people in other countries unless their governments give them social justice. Do you see the difference?”
I don’t know – do you see the difference between two things that are complete opposites? What I advocated for is what I wrote:
“Moral trade doesn’t necessarily mean a halt to global trade with countries that have less than perfect human rights records. It isn’t realistic to assume that we can stop doing business with China tomorrow because of how it treats its workers.”
Does that sound like what you attributed to me? No, it sounds like the complete opposite of what you attributed to me.
Later I only agreed with the words you came up with. I’ll admit it was my fault for saying I agree with a statement that says “restrict trade” without further explanation – by which I would never take to mean, as I clearly indicated in the original post, an overnight cessation of trade with countries that are guilty of human rights abuse.
At best I would advocate a gradual approach that is grounded in giving support and legitimacy to workers’ and other movements making completely just demands that every Catholic should support. For decades the US used its political and economic resources to “pressure” (to use a polite word for it) governments into towing its line on the economy, on the Cold War, on any number of issues. I don’t believe for one second that it can’t do the same with respect to the issues I raise here.
“Fundamentally, the reason workers in the developing world can’t command better wages, etc. is that their productivity is much lower than workers in the developed world.”
This is a spurious claim if we are talking about relatively unskilled labor, though, isn’t it? Technology more than anything else enhances the productivity of labor. Part of the reason production is moved to third world countries is because technology is mobile – factories can be moved piece by piece or simply built elsewhere.
If productivity were truly poor among third world workers, then wouldn’t that reflect itself in the bottom line, the profit margins? And if so, why would the practice continue for decades? It isn’t about productivity. Third world workers are, with the same technology and training, as productive as first world workers, otherwise their products wouldn’t be competitive on the world market.
Meanwhile it is simply undeniable that the vast majority of third world workers, to different degrees of course depending on the country, do not have the same worker and human and even democratic rights that Western workers have.
That translates into higher profits. That’s why companies go there. That’s why whenever workers try to form unions or make other demands, companies threaten to go some place where workers can’t – places like China.
Does that sound like what you attributed to me? No, it sounds like the complete opposite of what you attributed to me.
It’s true that some of the things in your post made it sound like you were not in favor of trade restrictions. Other parts of the post, however, made it sound like you might be. That’s why I asked you to clarify what you meant. The view I attributed to you was based on your response to my request for clarification. Since apparently you don’t think this attribution was accurate, let me attempt a clarification again. Your view, as I understand it, is that the government should restrict trade with nations that commit human rights abuses, but that it should do so gradually. Is that correct?
Technology more than anything else enhances the productivity of labor. Part of the reason production is moved to third world countries is because technology is mobile – factories can be moved piece by piece or simply built elsewhere.
Well, yes and no. Technology is a big factor is enhancing the productivity of labor, but it is far from the only factor. Nor is capital quite as mobile as you seem to suggest. It takes quite a bit of money to move a factory overseas, particularly when the country involved doesn’t contain much of a skilled workforce or many of the services that are widespread in the developed world.
If productivity were truly poor among third world workers, then wouldn’t that reflect itself in the bottom line, the profit margins? And if so, why would the practice continue for decades?
In the short term it does reflect itself in the bottom line. Profit margins are lower and fewer firms would relocate to the developing world than would do so if they could get developed world worker productivity for developing world level wages.
As for why this continues for decades, as workers become more skilled, and capital accumulates, productivity among the workers rises, and this translates into higher wages for the workers. For example, Johan Norberg describes the following progress in the life of a factory in Vietnam:
Third world workers are, with the same technology and training, as productive as first world workers, otherwise their products wouldn’t be competitive on the world market.
By this logic, one would have to conclude that a Big Mac must be as tasty as a steak from Ruth’s Chris, otherwise McDonald’s wouldn’t be competitive on the world market. If McDonald’s charged as much for a Big Mac as for a steak at Ruth’s Chris, they would go out of business. What allows them to compete is that they charge a much lower price. Similarly, what allows workers in the developing world to compete is that they charge a much lower price for their labor.
Meanwhile it is simply undeniable that the vast majority of third world workers, to different degrees of course depending on the country, do not have the same worker and human and even democratic rights that Western workers have.
This is certainly true. The question is what to do about it. In Cuba, for example, people do not have the same worker and human and even democratic rights that Western workers have. The response of the government to this has been to restrict trade with Cuba as a means of getting the government to grant these rights to its people (note: I understand that you don’t advocate this, I’m just using Cuba as an example to illustrate the point). My belief is that this hasn’t worked as intended. Not only has the Cuban embargo not convinced the Cuban government to respect the rights of the Cuban people, but it has ended up hurting the very people it was intended to help.
“Your view, as I understand it, is that the government should restrict trade with nations that commit human rights abuses, but that it should do so gradually. Is that correct?”
It really depends on what you mean by “restrict”. If you mean embargoes, or ridiculously high tariffs, or some other drastic measure, then the answer is no. If you mean negotiating over the particulars of a trade agreement, then the answer is yes. It should be the orientation of policy, not the sole, non-negotiable end.
Above all, I repeat again, our preference should always be for the workers movements that make just demands, especially as Catholic consumers and citizens. That means if a government is repressing, or is allowing businesses to repress, worker’s rights, that government needs to somehow be held to account for it. We can’t make them do everything we want, but we can give our support to these movements and make it clear that further progress is going to depend upon settling these disputes in a way that satisfies the just demands of the workers. Note: not all demands are automatically just.
“Technology is a big factor is enhancing the productivity of labor, but it is far from the only factor.”
When we’re talking about assembly line production, it’s pretty much the only one that matters. Better technology = greater productivity. Otherwise the argument reduces itself to some chauvinistic cultural one, where somehow being born in China or India means one can’t do the same job with the same skill that someone born in America can do. It sounds absurd to me.
“As for why this continues for decades, as workers become more skilled, and capital accumulates, productivity among the workers rises, and this translates into higher wages for the workers.”
Right – productivity rises. Wasn’t the point you made before that they are less productive, and that is why they make lower wages?
Let’s put it this way – a worker in a Vietnamese factory today, with modern technology, is several times more productive than an American worker in the 1950s with the technology of that day. Yet that American worker made enough to live a very comfortable life in the suburbs. His standard of living was several times greater than that of the Vietnamese worker today. Productivity can’t explain the gap.
Workers have no say in Vietnam, a communist dictatorship. If they try to have a say they face repression. Who knows how much they ought to be making? It could be much more than they do now, in a fair labor market. We won’t know until the repression doesn’t exist.
“By this logic, one would have to conclude that a Big Mac must be as tasty as a steak from Ruth’s Chris, otherwise McDonald’s wouldn’t be competitive on the world market. If McDonald’s charged as much for a Big Mac as for a steak at Ruth’s Chris, they would go out of business. What allows them to compete is that they charge a much lower price. Similarly, what allows workers in the developing world to compete is that they charge a much lower price for their labor.”
This isn’t a valid comparison.
What makes a company’s products competitive is, as you said, the low price at which they are able to sell their product. But that in turn is determined by productivity. A TV that costs 1000 dollars to produce is not competitive with a TV that costs 10 dollars to produce.
My only point is that the competitiveness of products from China and other places is proof enough of the productivity of third world workers. All things being equal, Chinese and American workers with the same training and technology will be as productive, and their products, equally competitive.
The reason they are unequal is because Chinese workers cost less to keep alive. They can do the same job, but they can do it on less pay because of the culture and lifestyle of where they live. American workers have a much costlier lifestyle to support, and that is reflected in the price of the product as well. That is essentially what it means when you say,
“Similarly, what allows workers in the developing world to compete is that they charge a much lower price for their labor. ”
But I object to the language here because it conveys a distorted picture of what is really taking place – third world workers would charge more if they could, but they are prevented from doing so by unjust regimes that ignore just social demands.
It’s just wrong, its the height of ignorance, to assume that third world workers don’t want the same labor rights we have, the same safety standards, the same everything. They have labor movements, they have unions, they have all kinds of organizations that fight for these things, and they are often repressed.
That repression translates not only into lower prices, but more importantly, higher profits. My only argument is that the profits of repression are immoral and that we should be oriented towards taking the profit out of repression. That doesn’t mean imposing, as you have said elsewhere, some alien “Western paradigm” on happily exploited workers, but acknowledging the truth that they do struggle for their rights and that we ought to be assisting them.
But that has nothing to do with productivity, see?
I also want to repeat, one more time, that establishing workers rights doesn’t mean equalizing pay. Life will still be cheaper in some places than others. Whatever differences exist solely on that basis are fine.
It’s the extra, added profits of repression that bother me. Get rid of those, and yes, labor costs will go up. But they still won’t be close to American labor costs. The difference is that justice will now be satisfied.
Also, I hate to make a third post here (but I really do love these discussions can’t you tell?), the McDonald’s/Ruth’s Chris comparison doesn’t work because they produce different things.
McDonalds is in competition with Burger King, not Ruth’s Chris. And its more accurate to say that the comparison is between the productivity of McDonald’s suppliers and Burger King’s, since neither of them actually produce anything.
What you advocated was that our government should restrict the ability of people to trade with people in other countries unless their governments give them social justice.
I think this propagates one of the major myths pushed by opponents of fair trade. NAFTA and the other trade agreements American Presidents have negotiated are not a stripping away of clunky, out-dated rules, clearing the brush. It has been the replacement of one set of rules and standards with another set of rules of standards, with the new as thick as the Manhattan phone book.
The point of fair trade is that as these complex and detailed trade agreements are developed, there should be a moral dimension, a commitment to social justice, and the participation of all social sectors, not just the business elite of two nations (or multinational corporations that honor no flag) imposing rules to their advantage.
While Joe is right that worker oppression is a problem in some of these countries, I think Blackadder is right in identifying productivity as the primary dividing factor. Also, since wages are rapidly increasing in many of these developing countries, I’d tend to see the development of middle class environments in those countries as one of the best ways of combatting that oppression.
I know that customer service and manufacturing have somewhat different dynamics, but I’ll give a primary example from my direct experience. Six years ago I was working for a major company which had just outsourced a lot of their consumer sales and customer service phone queues to call centers India and Panama. My team was in charge of auditing them for quality. The difference was stark. They handled half as many calls as the US reps they were replacing, their sales rates were much lower, and their customer service resolution rates were much lower. However, they make about 8k per year (very good money in India) compared to similar reps making 35-45k in the US. So basically, the company was willing to accept 50% productivity because they were only paying 20-25%.
Over the course of the year and a half that I was involved in quality control with their queues, pay over there went up 40%, and their productivity improved quite a bit too. One of the main things driving up pay was that AmEx had opened a call center near ours in Bangalore, and they were hiring away our reps as soon as they had six months experience, offering them 25% more. So you had companies like the one I was working for which would hire anyone who could speak and read English well, and then other companies a cut above who would hire away all the best workers.
Now factories will often be hiring somewhat less skilled workers (ours were almost all college graduates) but from the basic statistics I saw from the plans the same company ran over there, the dynamic was the same: the factories being built in China and Korea were often less efficient (thus cheaper to build) than the ones in the US and had lower product quality and productivity, but the wages were so much lower that they still made it seem like a good deal to the company.
“While Joe is right that worker oppression is a problem in some of these countries, I think Blackadder is right in identifying productivity as the primary dividing factor.”
Why would so much production be shifted to countries where productivity was lower?
Since when does lower productivity translate into higher profits?
I don’t see this assumption as the basis of any rational business decisions. “Let’s trade these more productive workers for less productive ones”?
Even if the workers are paid less, lower productivity ultimately translates into higher prices. What manufacturer, what employer, goes backwards in productivity in a competitive market?
I think the primary factor for the differences is simply the different costs of labor itself, which is determined mainly by the cost of living in a given area. That more than anything else is reflected in the low prices and high profits of Western corporations operating in the third world. The second factor is political oppression.
Productivity on the other hand is a function of technology. Anyone can be trained to do any job within the range of jobs we are generally talking about here. In that regard I am a labor Hobbesian: all human beings have an equal capacity to perform the simple, repetitive labor that furnishes the world with the vast majority of its goods, and whatever differences exist are canceled out through averages.
To argue that “productivity” is the factor is to argue that, for some reason, a Chinese person is less able to put together a DVD player than an American person. It has no basis in reality. Third world workers are productive. They just cost less to maintain.
Part of the problem is some this language used to describe the situation – as if these folks “ask” for a price for their labor and the employer graciously considers it. No. They take what they can get. At the minimum they get what it takes to make sure they don’t drop dead and keep coming to work. At most, if they have an employer who cares, their wages might be tied to productivity. But no law says they have to be.
I want to add, though, Darwin’s example doesn’t necessarily apply because we aren’t really talking about production.
Especially sales, they require a much different set of skills. It’s skilled labor, in other words, and falls into a different kind of analysis.
I do want to add, however, that we may mean different things by ‘productivity’. No one really seems sure how to measure it, and it least one guy from the Von Mises website thinks it doesn’t even exist.
Others say that what is called ‘lower productivity’ is ‘under-utilization’ of labor.
I say, even if there is a brief ‘productivity drop’ moving from America to China, for instance, it isn’t long before Chinese workers are churning out the same amount of goods in the same amount of time as American counter parts. We’re talking about highly mechanized and repetitive processes. Whatever differences in productivity there are, pale in comparison to the difference levels of lifestyle the respective workers are supporting.
That’s why I brought up the example I did before – a third world worker today is several times more productive than an American worker 50 years ago but none of that is reflected in his real wages or standard of living.
I’m basically talking the number of units per hour per worker (of comparable quality) produced.
I’d agree with you that people are not (as populations) innately less apt to manufacturing, but there are two points that probably deserve consideration:
- When labor is cheap because it’s plentiful (say because there are millions of peasants eager to work for entry level wages so they don’t have to stand in hot rice paddies 14 hours a day) factory builders will often save themselves money on productivity increasing technology. So for instance, if you pay your workers $2/hr, it may not be worth your while to build a high speed conveyer belt from one section of the factory to another — you just have some workers move stuff around on carts by hand. If you’re paying the workers $30/hr in Toledo, you build the conveyer belt. I’d argue you maybe don’t even _want_ some of lost labor saving devices when lots of people are still without decent work — because from a humane perspective you’d want to see more people employed rather than less employeed more efficiently.
- It’s doubtless a much smaller factor, but if you’re drawing on a formerly agricultural population that’s only had manufacturing jobs available for the last 5-10 years, training up your new workers may take a lot longer (and be slower to achieve the same productivity) than if you have high school graduates from an industrial nation where many of them grew up tinkering with cars and such.
On my example, BTW, the foreign queues eventually got better (from what I heard) on customer service, and the company pulled all sales queues back to the US because they just couldn’t get them productive enough.
Darwin,
I was editing my comment as you posted, so there’s an additional point I made above your latest posts.
But let me say, I’m both surprised at, and in agreement with the basic idea behind this:
“I’d argue you maybe don’t even _want_ some of lost labor saving devices when lots of people are still without decent work — because from a humane perspective you’d want to see more people employed rather than less employeed more efficiently.”
If by “you” you mean, me as a Catholic interested in seeing people have employment, then yes!
Unfortunately I don’t think it works that way in a competitive market. It only takes one competitor to implement the labor saving technology before everyone has to follow suit or suffer losses. It might be possible to stay in competition if you’ve got a chain of cart rollers instead of a conveyor belt, but I just don’t see that being a viable alternative in the long run.
There’s no way to prevent the application of new technologies. It’s one of the main reasons I am attracted to the idea of some kind of economic planning. I don’t see how we can keep making labor redundant and still have anything left for people on this planet to do.
For instance, I was planning on writing about this soon:
“Die Globalisierungsfalle – Der Angriff auf Demokratie und Wohlstand is a 1996 book by Hans-Peter Martin and Harald Schumann that describes possible implications of current trends in globalization. It was published in English as The Global Trap: Civilization and the Assault on Democracy and Prosperity in 1997 .
In particular, the book is known for defining a possible “20/80 society”. In this possible society of the 21st century, 20 percent of the working age population will be enough to keep the world economy going. The other 80 percent live on some form of welfare and are entertained with a concept called “tittytainment”, which aims at keeping the 80 percent of frustrated citizens happy with a mixture of deadeningly predictable, lowest common denominator entertainment for the soul, and nourishment for the body.”
Even if the workers are paid less, lower productivity ultimately translates into higher prices.
Higher than what? Higher than if the workers were more productive but wages were the same? Of course. Higher than workers who were more productive but cost more to employ? Not necessarily. Suppose that Darwin’s example is correct, and that workers in the developing world are half as productive as workers in the West, but that their wages are one fourth of what they are in the West. The developing world workers are less productive than their Western counterparts, but it still makes economic sense to to locate their under those conditions, all else being equal.
I think the primary factor for the differences is simply the different costs of labor itself, which is determined mainly by the cost of living in a given area.
I would agree that the main difference is the cost of labor, but I would disagree that the difference in the cost of labor is due to differences in the cost of living. In fact, this idea is inconsistent with your view that inequality of wages between the West and the Rest isn’t simply a matter of cost of living.
Productivity on the other hand is a function of technology. Anyone can be trained to do any job within the range of jobs we are generally talking about here.
Even if true, this wouldn’t show that workers in the developing world were as good at performing a given job as being in the West, anymore than the fact anyone can be taught to read means that everyone can read.
I don’t agree that all differences in productivity between the West and other countries have to be due to differences in technology and training (technology and training weren’t that different in the Soviet Block than in Western countries, but that didn’t stop the latter from being a lot more productive). However, even if all differences in productivity were due to different levels of technology and training, this would hardly imply that productivity wasn’t far less in the developing world, since developing countries lack the level of technology and training that exists in the West, and these things can’t be transferred to the developing world except at a significant cost. Not only that, but the best way we have found to increase the technology and training available to developing world workers is through free and open trade.
Part of the problem is some this language used to describe the situation – as if these folks “ask” for a price for their labor and the employer graciously considers it. No. They take what they can get.
Well, sure. Likewise, the employer will take what it can get. The point is that the employee won’t go to work for an employer unless he thinks doing so will leave him better off than the alternatives and the employer won’t hire a worker unless he believes doing so will leave him better off than the alternatives. Unless both parties thought the situation was preferable to the alternatives, it wouldn’t happen.
At the minimum they get what it takes to make sure they don’t drop dead and keep coming to work. At most, if they have an employer who cares, their wages might be tied to productivity. But no law says they have to be.
It’s fairly well established that developing world workers in Western companies get paid wages that are significantly higher than those who don’t have such jobs. It’s also fairly well established that the wages of these workers tend to rise pretty quickly over time. Neither of these facts makes any sense on the assumption that employers can just pay workers whatever they want, and that if workers end up getting paid above mere subsistence, this is due to some kind of generosity on the part of employers. If we assume that wages are ultimately a function of productivity, and are governed by things like supply and demand, free competition, etc., then these facts make perfect sense.
I don’t think it works that way in a competitive market. It only takes one competitor to implement the labor saving technology before everyone has to follow suit or suffer losses.
Maybe. Maybe not. If implementing the conveyor belt will save the company money, then not doing it will cost them. On the other hand, if you can produce whatever it is more cheaply by using human labor instead of a conveyor belt, then it is using the conveyor belt that will cost you.
In the long run, of course, the tendency will be towards more use of technology and less use of labor. The reason for this, though, is that the cost of using labor saving technology tends to fall over time, whereas the cost of labor tends to rise. So the worry that increasing use of technology will leave us all with nothing to do and unable to support ourselves is based on an inconsistency.
I don’t see how we can keep making labor redundant and still have anything left for people on this planet to do.
Think of it this way. Two hundred years ago, most people in the U.S. were in agriculture. Today only a very small percentage of the population works in agriculture. Why? Chiefly because agricultural productivity has increased to such an extent that we can grow a lot more food than we did 200 years ago a lot more cheaply using a lot fewer people. Yet the fact that almost no one works in agriculture today doesn’t mean that most people are unemployed or can’t find work. Likewise, 60 years ago most people in this country worked in manufacturing. Today manufacturing output in the U.S. is several times what it was then, yet a much smaller fraction of the population is employed in manufacturing. Why? Chiefly because manufacturing productivity has increased to such an extent that we can make a lot more manufactured goods a lot more cheaply using a lot fewer people. Yet this hasn’t translated into masses of people with nothing to do (unemployment is temporarily high now, because of the recession, but it has remained fairly low even as manufacturing employment has fallen significantly).
The idea that jobs are scarce is a common one. In general, however, the evidence seems to be that it is human labor that is scarce, and that there are plenty of jobs out there that don’t get done because people are too busy meeting more basic needs.
BA,
“Suppose that Darwin’s example is correct, and that workers in the developing world are half as productive as workers in the West…”
I do think his example is correct – it also refers to a situation unlike the one I am referring to.
“The developing world workers are less productive than their Western counterparts, but it still makes economic sense to to locate their under those conditions”
It only makes sense because of what you said, though – the productivity rapidly increases. Especially with unskilled labor. It is on par with productivity anywhere else in the world, otherwise they would be unable to compete.
“I would agree that the main difference is the cost of labor, but I would disagree that the difference in the cost of labor is due to differences in the cost of living. In fact, this idea is inconsistent with your view that inequality of wages between the West and the Rest isn’t simply a matter of cost of living.”
How is it inconsistent? No, it isn’t simply a matter – but it is partially. There’s no inconsistency. I’m saying two things capable of happening at the same time – low living costs, and political repression – are responsible for lower wages.
“Even if true, this wouldn’t show that workers in the developing world were as good at performing a given job as being in the West, anymore than the fact anyone can be taught to read means that everyone can read.”
Your logic here eludes me. My syllogism is not “everyone can work, therefore everyone does”, it’s “everyone can work, and we see that in the third world where people actually are working”.
It isn’t about job performance, at least not in the long-run. It is mostly about applied technology. By your own arguments the productivity goes up anyway – does it really take 10, 20 years for people to learn how to work in an assembly line? No. It goes up a lot faster than that. But the wage differences are still large.
Why? Lower cost of labor because of low living costs, and politics – no unions, no organizations, no benefits, and those who try to fight for them are oppressed. That’s why many corporations go there. They don’t want to deal with Western workers who are accustom to things such as workers rights, democratic rights, and human dignity. Those things are costs.
“technology and training weren’t that different in the Soviet Block than in Western countries, but that didn’t stop the latter from being a lot more productive”
Training no, technology, yes. When the USSR was roughly on par with US technology, productivity and growth weren’t that different at all. The USSR wouldn’t have been able to defeat Nazi Germany if it weren’t more productive.
As the post-war era dragged on, stagnation set in the USSR and it was actually very slow to adapt new technologies, due to bureaucratic sluggishness and mismanagement.
“since developing countries lack the level of technology and training that exists in the West,”
In many cases yes, which is why average levels of productivity comparisons are misleading. But here we are talking about manufacturing mostly, aren’t we? And we’re often talking about factories built with Western technology and Western capital.
“Unless both parties thought the situation was preferable to the alternatives, it wouldn’t happen.”
I never argued otherwise. The missing link is that the alternative for the worker could be destitution or death, while the employer has practically an unlimited pool of labor to draw from. Unequal bargaining power has to make for an unequal bargain, even if it is 100% voluntary.
“either of these facts makes any sense on the assumption that employers can just pay workers whatever they want,”
That isn’t my assumption. I agree that supply and demand set the price, but that isn’t the same as productivity. No law says that productivity increases have to be translated into wage increases.
“Chiefly because manufacturing productivity has increased to such an extent that we can make a lot more manufactured goods a lot more cheaply using a lot fewer people. Yet this hasn’t translated into masses of people with nothing to do”
Right – because we’ve got a massive service economy that is propped up by an inflated money supply, expanding credit, accumulated debt, and of course, the labor of the third world. Is this sustainable? Can we just keep printing money and lending and borrowing?
Hey guys, I just wanted to let you know, too – I know we’re having a little disagreement, but I find these discussions fun and fascinating :)
Me too, but I don’t want it to impact my productivity too much, so I’m going to have to save all the responses I want to make at the moment for tonight.
It is on par with productivity anywhere else in the world, otherwise they would be unable to compete.
Suppose you and I are house painters. You can paint a house in 20 hours, whereas it takes me 40 hours to do a comparable job. My productivity is thus half of yours in terms of painting houses. Does that mean that I can’t compete with you in house painting? Not necessarily. While my productivity isn’t anywhere near yours, I can still compete if I am willing to charge much less for a painting job than you are.
The evidence bears me out on this point.
It isn’t about job performance, at least not in the long-run. It is mostly about applied technology. By your own arguments the productivity goes up anyway – does it really take 10, 20 years for people to learn how to work in an assembly line?
Of course not, but that’s hardly the only factor involved (I fear that you may have an overly simplistic view of what it takes to make a business successful, and that this is hampering your understanding here).
The USSR wouldn’t have been able to defeat Nazi Germany if it weren’t more productive.
By that logic, North Vietnam must have been a more productive society than the United States in the 1960s. Neither the Russian winter nor Stalin’s use of conscripts as cannon fodder implies that worker productivity in the Soviet Union was very high.
I agree that supply and demand set the price, but that isn’t the same as productivity. No law says that productivity increases have to be translated into wage increases.
The problem is that productivity increases do tend to translate into wage increases, at least under conditions of free competition. One cannot account for this on the assumption that employers have carte blanche to set wages, and that wages in excess of mere subsistence are due to some kind of generosity on the part of the employer. Economic theory, however, does have an explanation for this phenomenon (namely that if wages fall much below productivity other employers will have an incentive to bid the employees away by offering better wages).
because we’ve got a massive service economy that is propped up by an inflated money supply, expanding credit, accumulated debt, and of course, the labor of the third world. Is this sustainable? Can we just keep printing money and lending and borrowing?
This is pretty much a non seqitur. An inflated money supply, expanding credit and debt, etc. may be bad things, or they may be good things, but they don’t have much to do with the shift from manufacturing into employment.
I, too, am enjoying the conversation, though I wish I had Darwin’s self-control.
BA,
Geez, do you always insert arguments into people’s mouths?
“Neither the Russian winter nor Stalin’s use of conscripts as cannon fodder implies that worker productivity in the Soviet Union was very high.”
It’s just a commonplace of Soviet economic history that the massive industrialization effort allowed the production of tanks and other armaments that were greater in quantity and quality than the German’s. Do you really know nothing about this?
Now, as for this:
“While my productivity isn’t anywhere near yours, I can still compete if I am willing to charge much less for a painting job than you are.”
Not necessarily! You’re trying to abstract from real-life situations. In reality the time that it takes to produce something, or in this case, provide a service, is a major factor in competitiveness.
If Asian workers weren’t as productive as American workers, it wouldn’t make sense to hire them, lower wages or no, because someone hiring much more productive American workers would be able to sell a greater volume of products at a lower price and capture a greater share of the market in the long run.
The problem only exists because you insist that productivity is necessarily tied to wages. My argument is that Asian products are more competitive than Western products because the labor is cheaper for economic and political reasons. But if Asian productivity were determining Asian wages, then the extremely low level of Asian wages would suggest a correspondingly low level of productivity, so low that I can’t see how they could stay in business at all.
All there is, is as you say, a tendency. More accurately, a correlation. But are American workers actually “more productive”? Many economists don’t even agree on what productivity is. I looked at another article explaining that same study you cited and came across this:
“The productivity figure is found by dividing the country’s gross domestic product by the number of people employed.”
How is this a reliable measure of productivity? The only way you can accurately measure something like this is to isolate the variable and control for other factors. This measure, by contrast, just lumps a whole country’s GDP against its whole workforce. Pardon me if I question the degree to which this accurately reflects real differences in productivity at the level of the firm.
Meanwhile, the other finding of the study confirms the point I made in a different way: that third world workers are under-utilized, not less productive. In my view there is a difference. On a firm by firm level, manufacturing workers in a third world country with the same plant, the same equipment, the same training, are going to perform not much worse than their Western counterparts.
Using the measure of GDP/employed workers, everyone gets averaged in with everyone else – countries that still have many seriously undeveloped parts of the economy have their averages brought down against those that have fully developed economies. But it is the developed parts of the economy that we are really talking about here, the parts of the economy where workers can begin to make political demands. These exist in all third world countries. So to compare country by country in a globalized economy is also going to be quite inadequate.
“One cannot account for this on the assumption that employers have carte blanche to set wages”
I never made the assumption. You made, it because you evidently think you’re dealing with someone who knows nothing about economics. I’m not an expert, but I know that wages are set by supply and demand, and not productivity. Employers do have power over wages, furthermore – not absolute power that transcends what is possible in the market, but relative power.
The whole premise of a wage being the final result of a negotiation between employer and employee rests upon the assumption that the employer does have some say, if not “carte blanch”.
Through unions, workers have a say. And through cooperatives, the whole stupid problem disappears, which is why I support a cooperative economy where workers themselves are responsible for their wages within the global economy (not communism, not centralized price fixing, just voluntary cooperation in a democratic firm).
“An inflated money supply, expanding credit and debt, etc. may be bad things, or they may be good things, but they don’t have much to do with the shift from manufacturing into employment.”
Don’t they? How can you come to that conclusion so quickly?
Regarding the USSR:
“The USSR managed to outstrip both Great Britain and Germany in production of war weapons due to rapid industrialization; industrial production growth was almost sevenfold during 1913 -1940. The Soviet Union became the largest industrial country in the world. USSR fell behind in production only to two countries: the United States and Germany. USSR became strong enough to defeat Germany during the World War II.”
This isn’t the best summary of the situation, but I’d have to dig through JSTOR or some other place for a better one. Suffice to say, I’m not making things up. Maybe the analysis made by other scholars is wrong, but it is a theory that’s out there and taken seriously.
http://www.articlesbase.com/economics-articles/rapid-industrialization-in-the-ussr-163315.html
On productivity and wages, here is something interesting as well:
“The impact of more rapid productivity growth on wages continues to be a topic of widespread economic research. Numerous news articles have discussed the apparent failure of wages to increase in line with productivity.”
That’s one point. Here’s another:
“Less appreciated, perhaps, is that the productivity acceleration has been accompanied by important changes in the way businesses compensate their employees. Of particular importance is the increased use of “variable pay,” that is, compensation tied either to the performance of individual employees or to the business’s overall performance, including end-of-year bonuses, “cash awards,” profit sharing, and stock options.”
http://research.stlouisfed.org/publications/net/20070301/cover.pdf
I’m all for “variable pay”, but I think it’s a stretch to assume that the typical third world employee has even been formally integrated into such a scheme.
The point though is that these schemes are voluntary in a way adherence to the supply and demand balance in the labor market is not. One has to pay attention to supply and demand – “variable pay” is something a firm can accept or reject. It’s a step closer to the cooperative ideal so I like it.
But we also have to keep in mind that technology continues to advance rapidly every year – yet real wages in the US and other countries stagnate or decline. When they do rise, I don’t believe at all that it is anywhere near proportionate to the increases in productivity made possible by new technology. Instead there is a war on wages from the top down by corporate bosses and governments eager to please them.
Meanwhile wages are on the increase in the third world relative to where they were before simply because we’re dealing with new kinds of industry – it costs more to produce a factory worker in a modern plant than it does a field worker or a construction worker. More training is involved, more activity is involved. Where to draw the line between “skilled” and “unskilled” is hard, so I just try to accept a gradation of skill. Factory work is higher on the list than agriculture or even much of the service sector. So wages have to go up.
But do they keep pace with productivity? The answer, I believe, is no, they do not. It’s a spurious relationship, unless there is demonstrable “variable pay”, or better yet, worker ownership of factories.
Some end of work day thoughts:
On the USSR in WW2 — The USSR was indeed successful in producing tanks and guns and eventually even planes faster than Germany could by the second half of the war. Whether this was the result of greater _productivity_ probably has a lot ot do what what one means by the word. There was certainly greater _production_, but many of the Soviet factories were fairly primative compared to the German ones. However, Russia had far greater total resources (both natural, land and manpower) and as Germany increasingly relied on slave labor due to manpower shortages and dispersed to small shops rather than modern factories (due to air raids) German efficiency and QC went down. Russia also had the advantage of the US pouring huge numbers of trucks and other high quality manufactured goods into them, while Germany had no industrial allies with production capacity to spare.
On wages and productivity — Certainly, wages do not always rise in lock step to productivity. Supply and demand of workers also plays a major role, as well as other factors. However, productivity is certainly a major fact, and it’s part of why prevailing manufacturing wages have shot up so fast in many of the rapidly developing economies such as India, China and Taiwan. Initially, wages were very, very low. But they’ve risen pretty quickly as productivity has increased to near Western standards.
However, at the same time you have a large supply of unskilled labor which is eager to be let in on the action, so you have less incentive to automate something which can be done more cheaply by an unskilled worker. As BA pointed out, investment in timesaving technology only makes sense when the cost of implementing the technology is less than the cost of the workers who could do it manually instead. Otherwise you just hire more workers.
So in answer to you productivity question: If I own a factory in China and I haven’t bought all the labor saving technology of my US rivals, but my workers make much less US workers, I can employ more workers and still have more total output than the US factory.
Think of it this way: A US factory is building computers. 1000 workers are producing one computer per man hour: 8,000 computers per day. The workers make $30/hr, so my labor costs are $30 per computer.
A Chinese factory is building similar computers. They haven’t invested in as much technology — their processes are more manual — and so their productivity is lower. Instead of one man hour per computer, it takes them three man hours per computer. However, labor is only $3/hr, so they hire 9,000 workers and produce 24,000 computers per day at a labor cost of only $9 per computer.
So, does the computer maker in China simply get insanely rich?
My guess is probably not. In an effort to gain market share, he drives down the cost of computers so that his margins are no higher than the US company’s margins used to be. (Thus reducing the cost of computers in the market and making them more affordable.) Now his rival builds a more efficient factory and hires fewer, more skilled workers for somewhat higher hourly wages while cranking out even more computers for even less money. Which drives the cost of computers down more and makes the original Chinese factory modernize. Etc., etc.
At least, that certainly seems to be how it’s working in the factories that I know of in my industry.
Darwin,
I’ve yet to see the report that actually shows how wages necessarily increase with productivity.
Wages in China have risen, yes – due to supply and demand issues, such as labor shortages. An article in Business Week discusses the productivity of Chinese labor as actually “offsetting” rising wages due to shortages in key industries:
“This is a slow process, to be sure. Imports from the mainland have yet to fuel inflation in the U.S., while improved productivity in China has so far offset higher wages. But economists say those productivity gains are getting harder to find, and manufacturers who are seeing their margins hit, such as Yongjin, can hold out for only so long before they have to try to raise prices.”
Productivity gains are “harder to find” because at a certain level of technological development, the differences between human workers with respect to productivity aren’t that important. Which is the whole point – you get the same job done in China for less money, and, because they can’t form unions, go on strike, or make any other demands, profits will always be higher.
And again we have to be very careful when talking about “countries” in an economic discussion. The same article notes:
“Many companies are compensating for the shortages by penetrating deeper into China’s vast heartland, where wages can be half what they are on the coast.”
There’s nothing here about productivity. Look whose doing the shifting: General Motors (GM ), Honda (HMC ), Motorola, and Intel (INTC). You’re going to tell me that productivity among these interior workers is only half of that of the coastal workers, and that’s the reason they’re getting paid less?
The reason is that a) interior workers have fewer options, b) it costs less to maintain them, and again c) they are more easy to oppress and control in the rural setting, if for no other reason than that they are more desperate and have less experience with the nature of the work.
As for productivity, it may go down, but by half? Can a firm lose half its productivity over night and continue to function at the same level, even with lower wages? That’s a claim I’d need to see empirical data to support.
Which brings me to the last problem: are we really talking about a “Chinese firm” versus an “American firm”? Sometimes yes, sometimes no. Do we call a firm owned by Western investors in China a “Chinese firm”? A plant built up on Western technology?
The crux is, I don’t think the difference between American wages and Chinese wages reflects a proportionate difference in productivity or anything even close. That’s why I bring up the historical example. Americans 50 years ago still earned more, adjusting for inflation, than Chinese workers who are 100 times more productive due to technology alone make today.
Productivity has no logical connection to wages. It only matters if the corporation has established something like variable pay, but who says it has to do that? It isn’t necessary to compete. Wages in America have barely increased in 30 years, even if as we discussed before “median income” has gone up. But we have been living on debt as if our wages have been going up. That’s another problem, but the point is it fuels the illusion that greater productivity translates into greater wages for all, ipso facto.
Prosperity, no matter how much some people want to deny it, has as much to do with politics and policy as it does the workings of the economy. There is no pure, apolitical economy that keeps rising and rising towards a determined end. There are agents and forces that struggle against one another for their share of the wealth. That is why we could have a 35% unionized work force, 90% corporate tax rates, and still have the most powerful economy the world had ever seen throughout the first half of the post-war era, before the early 70s when it started to go to crap. So maybe those figures aren’t sustainable, but then, what we have now isn’t either.
The best solution is to have more people in control of their own economic fate. If workers become owners, then no one can complain about the mistreatment of workers, the workers themselves have a greater incentive to become more productive and meet the needs of the consumer, and everyone wins. The world isn’t like “Atlas Shrugged” where the simpletons can’t even tie their shoes without a capitalist to tell them how to do it.
I’ve yet to see the report that actually shows how wages necessarily increase with productivity.
You might try looking at the first sentence of the very article you linked to.
third world workers are under-utilized, not less productive. In my view there is a difference.
The only way I can see this distinction making sense is if you are using ‘productivity’ to refer to something like potential productivity, rather than actual productivity (actually, a lot of your statements make more sense if that’s how you were using the term). However, I don’t want to make any assumptions about what you think or attribute views to you falsely, so I’ll just ask, is that what you meant?
Clearly there need not be any relationship between someone’s potential productivity and their actual wages. I was reading just yesterday about the Jamestown colonists. The colony was originally organized along a collectivized model: each person pitched in, and received an equal share of the produce. The result of this was that you had the strange situation where everyone was starving but if you went to the town square you’d find able bodied men goofing off during the day instead of working. Once the colonists decided to adopt a private property model, however production soared (the same thing happened in China when farming was decollectivized).
Well, on the question of wages being flat I’m afraid I just fundamentally disagree that US workers, as a whole, are no better off than they were in the 50s or 60s. There are different metrics we could look at, but overall I just find it very hard to believe we’re not better off. (Though I’ll agree that certain groups — such as white males with only a high school education living in the upper midwest or north east — may be no better off once you adjust for inflation.)
On a semi related note, something struck me this morning in re productivity. I’d been thinking of this in a very micro sense, which comes naturally to me since I’m used to thinking about business dynamics within the corporation I work for, and I know that the Asian factories we deal with are indeed less productive (as in man hours to produce a unit of product) than our US factories.
However, as I think about it, there’s a sense in which macro, regional productivity (as in GDP divided by hours worked) being low would result in lower wages. Let me see if I can lay this out and others can sanity check me:
Say I’m a Chinese worker at a computer factory, and my factory is great and high tech and churns out computers with the same man-hour-to-unit ratio as a comparable US factory.
However, when I go to buy a clothes, I’m getting clothes which are put together on twenty year old sewing machines by women crammed into a dark, airless warehouse. And when I buy food it’s rice and vegetables which are planted and harvested by hand and brought into the larger villages on handcarts, before being packed onto trucks and shipped to Shanghai.
Now the people producing my clothes and food are terribly paid compared to me, but they do get enough to subsistence. However, doesn’t it effectively make me poorer that they’re producing the goods that I buy very inefficiently? Isn’t one of the things that makes us so wealthy in the US that the agricultural and manufactured goods we buy are either produced very, very efficiently or produced inefficiently by someone with a lifestyle nowhere near our own?
It’s a form of (undesired) economic solidarity, if you will. The Chinese factory worker is made poorer by the fact that other Chinese workers are not producing the goods he buys very efficiently, and so his wages aren’t able to buy as much.
BA,
The article I linked to said it “reflected” – meaning, it looks that way, but then, as it goes on to say, it isn’t necessarily true. It’s another way of saying there is a correlation.
If anything the long term trend shows the opposite. Look at a graph of American real wages over the last 30 years. Then look at a reliable measure of productivity. Just look at technological advances in production methods. Wages have not kept up.
The article mentions variable pay. In firms that do this, and in cooperatives, and for government workers whose pay gets a COLA ever year, the argument is true. For peasants in the Chinese interior, it isn’t.
“is that what you meant?”
What I meant is what I said: Dividing a country’s GDP by its workforce to calculate the productivity of its workers is – I can’t think of a nice word to describe it so I won’t use any at all. To then compare other countries based on this figure is, even worse.
There is no necessary connection between wages and productivity. No economic law says that one has to go up when the other goes up. Long term historical trends throw that theory out the window.
If and when it happens the relationship is spurious – caused by some third factor, unless the individual firm has established a policy that links wages to pay, which it is under no obligation to do, least of all with exploitable third world labor.
I’ll state it again – factory for factory, firm for firm, it doesn’t take that long at all for any worker to match any other worker in productivity. It does not account for the massive gap between the wages of workers in different countries. The gap is explained by a) it costs less to maintain those workers, b) those workers have fewer options so they take what they can get, c) political repression that prevents them from organizing and fighting for higher wages, benefits, etc.
And all I’ve argued all along is that our government, any good government, should support the just demands of workers instead of the unjust demands of employers per Catholic social teaching. It isn’t right to have a society that is so dependent on systematic injustice without even trying to rectify it. No we can’t “force” countries to recognize the rights of workers but we can force our businesses to, and we can support labor and human rights movements in the same way we used to support dictators and radical Muslims against the USSR.
Darwin,
“Well, on the question of wages being flat I’m afraid I just fundamentally disagree that US workers, as a whole, are no better off than they were in the 50s or 60s. There are different metrics we could look at, but overall I just find it very hard to believe we’re not better off.”
I don’t think that is exactly what I argued though, is it?
The point I was making was that US workers in the 50s or 60s were better off than Asian workers today, in spite of the latters’ many-fold enhanced productivity. This is because productivity is almost entirely a function of technology. Men don’t really change. Technology grows by leaps and bounds. But the way it is distributed today means that the same technology, or even a crudely-functioning equivalent, can be operated at much lower wages in certain areas because those workers meet the a,b,c criteria I set out for BA above.
Regarding your point, I think a worker (granted, yes, mostly white male workers but it could have been extended to all) in those times was better off over the course of a lifetime – job security was higher, the purchasing power of the dollar was higher, and people weren’t drowning in debt. But he didn’t have flat-screen TVs, Maxim magazine, and Sedous, so was life not worth living? It’s not a dig at you – but its how some people think.
Regarding your argument about productivity, how much less productive are the Chinese workers, and are they using the same equipment? Or is it a situation similar to what you described before: waiting to implement labor saving technology, which would of course result in less productivity?
I can see wages going up as the result of implementing new technology only in that the remaining workers who have not been cut will necessarily become more skilled. It still wouldn’t come remotely close to explaining the wage gap between countries.
As for the rest, I can’t disagree.
The article I linked to said it “reflected” – meaning, it looks that way, but then, as it goes on to say, it isn’t necessarily true.
The article says that “over long periods of time, increases in ‘real’ wages – that is, wages adjusted for changes in consumer prices – reflect increases in labor productivity.” It then goes on to note that in the U.S. over the past couple of years increases in wages and compensation have lagged increases in productivity, and suggests some possible reasons why this might be. A couple things to note about this:
1. The fact that wage increases haven’t matched productivity increases in the U.S. in the last couple of years isn’t inconsistent with the idea that over the long term increases in real wages reflect increases in labor productivity.
2. The fact that wage increases haven’t matched productivity increases in the U.S. in the last couple of years tells us nothing about how labor productivity relates to wages in other countries. I mention this because you seem to be arguing that, since the article mentions variable pay as a reason for the discrepancy, and since variable pay probably isn’t a major factor in China, therefore wages don’t reflect productivity in China (note: I’m not saying that you are making this argument, only that you seem to be making it). But as I hope you can see, that’s a false inference, since the article is talking only about wages and productivity in the U.S. and not in other countries.
Look at a graph of American real wages over the last 30 years. Then look at a reliable measure of productivity. Just look at technological advances in production methods. Wages have not kept up.
This is a subject I’ve been meaning to write on for a while. For now, I’ll just point out that if you look at the article you linked to, there is a chart comparing real compensation to real productivity. That chart shows that from 1995 to 2004, real compensation increases matched increases in productivity almost perfectly, and since 2004 they have only lagged a little bit (if you look at this post, there is a chart comparing real compensation to productivity from 1987 to 2007 that shows the same).
BA,
The article mentions the “anemic pace” of real wage growth from the mid 70s to the 90s – is that a short period, or a long one? Were there no gains in productivity at all during that entire span? I don’t think so. The article doesn’t account for it or explain it.
So repeatedly putting in bold type ‘the last couple of years’ ignores a decade and half of ‘anemic’ growth. In a broader historical picture we’ve had a few years of better-than-anemic real wage increases as a brief interruption of the overall, long-term downward spiral.
The article explains the apparent correlation between rising wages and productivity by the wider use of variable pay. And I’ve already agreed – when variable pay is introduced, it means that wages are tied to productivity.
I don’t argue with that. But if we’re looking at cheap, exploitable third world labor, I don’t think we’re looking at variable pay. There is no pressure or obligation to link wages to productivity, especially for unskilled workers. The article makes a distinction between those as well.
I don’t believe it is, as you say, a ‘false inference’ because manufacturing in China is taking place with roughly the same modern production techniques as manufacturing anywhere else. Maybe US factories are more efficient, maybe they are more productive, but not such degrees that they could be the primary reason for the wage gap between the two countries.
The article mentions the “anemic pace” of real wage growth from the mid 70s to the 90s
Actually the phrase “anemic pace” is used to describe labor productivity growth, not real wage growth.
The article explains the apparent correlation between rising wages and productivity by the wider use of variable pay.
Well, no. The article explains the apparent (slight) lack of correlation between rising wages and productivity by the wider use of variable pay.
You’re right, of course – poor reading and phrasing on my part.
But the main idea is still the same, with regard to the comparison of countries.