14-11-2003 22:58									#1
	A question regarding free trade... cheap labor inhibiting innovation? Browse Apolyton AD-FREE

I consider myself to be an innovation driven idealist who supports the fundamental ideals of capitalism: lower costs to consumers, technological achievement, and economic growth. Most of my political stances against some of the corporate abuses I see in this country (and the world) is due to the fact that the style capitalism that we have has many counteracting forces to the ideals that I believe in.

Today on C-Span, an economist testifying before a Senate Committee asked an interesting question and raised a topic that I have not heard about. The primary (and possibly only) reason manufacturing jobs are being exported to other countries is cheap labor. As a business decision, this would seem to be advantageous from a cost-effictiveness standpoint. Why pay Americans the standard factory wages that unions have fought for when they can pay people (and children) in other countries far less? Certainly capitalism's goal is to lower costs to consumers. But, if companies kept jobs in America, would it be possible that there would be some sort of technological innovation to increase productivity to the point where relocating manufacturing to other countries would not be the most attractive and profitable business decision? Surely pure capitalists must agree that capitalism fuels invention and innovation. Capitalism in America fueled the industrial revolution where productivity and efficiency grew to extraordinary levels as mass production and other systematic innovations decreased costs on such a massive scale that America not only won the greatest conflict the world has ever seen, but not only became the economic hyperpower it is today.

So... does shipping jobs to cheaper labor markets (that are often manipulated in Socialist fashions) inhibit technological and systematic innovation with regards to manufacturing? And in addition, doesn't the weakening of America's manufacturing sectors weaken America in the long run?

One last question to add to this discussion. American corporations now consider themselves global enterprises and relocate their "corporate addresses" to friendly tax havens, but yet enjoy the protection of the American military and the backing of the American people. Historically, there has been an enormous amount of pride and confidence in "MADE IN AMERICA". Has this rush to the bottom in terms of labor costs taken hurt the American psyche? Does this hurt American pride overall?

I want to see Americans creating wealth for themselves. I want to see Americans working. I want to be proud of the products I buy. And lastly, I don't want to contribute to the human rights abuses that take place in the countries that corporations move to in order to make a few more bucks.


Discuss

	14-11-2003 23:01									#2
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I've heard that the fall of china was due to having too much people.

	14-11-2003 23:01									#3
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hasn't american manufacturing production gone up like 50% over the last 10 years? I think i read that in the economist.

	14-11-2003 23:15									#4
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yavoon: the index of output per hour was 151.9 in 2002 compared to 1992 (which was the standard 100).

http://www.bls.gov/news.release/prod4.t01.htm

output in manufacturing... 135.9 in 2002 (again 1992 is 100)

http://www.bls.gov/news.release/prod4.t03.htm

Employment in manufacturing, down 90.4 in 2002 (1992 is 100)

http://www.bls.gov/news.release/prod4.t05.htm

Other stats: http://www.bls.gov/news.release/prod4.toc.htm

	14-11-2003 23:17									#5
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k so basically yav is right. YAY!

	14-11-2003 23:19									#6
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i wouldn't think so. less money to pay the slave, er, workers, and thus (theoretically, and logically, one would do this) more money to invest in R&D.

	14-11-2003 23:24									#7
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yav: you were right, but do you have anything to comment about in this discussion? you sort of made an irrelevant point...

Q-Cubed: Perhaps, but if they are already getting the cheapest possible labor, how much will they invest in R&D in terms of manufacturing innovation? How much harder can you make a $0.12 an hour worker work? I'm not disagreeing with the notion that increased profits leads to more research and dev for other areas, but I'm focusing solely on American manufacturing and the strength, productivity, and efficiency of American manufacturing.

The stats surely show that productivity domestically is up, but employment is down and we have a massive trade deficit.

	14-11-2003 23:28									#8
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quote: Originally posted by Sava yav: you were right, but do you have anything to comment about in this discussion? you sort of made an irrelevant point... Q-Cubed: Perhaps, but if they are already getting the cheapest possible labor, how much will they invest in R&D in terms of manufacturing innovation? How much harder can you make a $0.12 an hour worker work? I'm not disagreeing with the notion that increased profits leads to more research and dev for other areas, but I'm focusing solely on American manufacturing and the strength, productivity, and efficiency of American manufacturing. The stats surely show that productivity domestically is up, but employment is down and we have a massive trade deficit.

weren't u upset that we are not innovating our methods in manufacturing? well considering employment is going down and overall output is going up, I'd say there's some innovation goin on.

also while lots of manufacturing does get shipped overseas, not all. and increasingly less as the costs of manufacturing are less and less dominated by employee wages. for example, Dell builds its plants next to its customers. and they are ruthless pricewise.

	14-11-2003 23:29									#9
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Innovation is largely driven by the need to cut costs. If labor costs are dirt cheap, it makes no monetary sense (or cents) to invest heavily in R&D to lower those costs. This is one of the fundimental contradictions inherent in capitalism, btw.

	14-11-2003 23:31									#10
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quote: Originally posted by chegitz guevara Innovation is largely driven by the need to cut costs. If labor costs are dirt cheap, it makes no monetary sense (or cents) to invest heavily in R&D to lower those costs. This is one of the fundimental contradictions inherent in capitalism, btw.

yet we are innovating. and our productivity is going up.

	14-11-2003 23:36									#11
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If you're referring solely to the manufacturing sector, having a higher profit margin would allow for more R&D in both America and foreign nations.

But it sounds like you're asking for radical innovation springing forth from a educated and economically liberated workforce. In which case the West still has the strongest economy/education, and capitalists have no need or desire to have innovation come from any source that isn't their own. Monopolies protect their own.

	14-11-2003 23:43									#12
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quote: Originally posted by yavoon yet we are innovating. and our productivity is going up.

And that innovation is occuring where? In the high-cost labor countries in the West and Japan, not in places like Mexico, China, Indonesia, etc.

	14-11-2003 23:52									#13
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Correct Che... yavoon you are making my point for me.

	15-11-2003 04:24									#14
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quote: Originally posted by Sava Correct Che... yavoon you are making my point for me.

what is ur point? that u want us to pay ppl in indonesia 5.75$ an hour?

I thot it was more a protectionist point. which is flawed. not a radically idealogical point which doesn't even blip the radar screen.

if u demanded 5.75$ an hour for indonesian labor they simply wouldn't build factories there. they'd just be a backwater w/o industry instead of a backwater w/ industry.

so I don't see what that will accomplish.

	15-11-2003 04:32									#15
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What industries are really moving? Could these industries do without innovations, i.e. reached sufficient levels of efficiency for the current population thus requiring a greater need from a greater number of the population in order to justify more innovations?

Manufacturing of low to mid tech machinery has pretty much reached that level IMO. High and bio tech have not.

So, by increasing the education of these areas by increased labor rates and the quality of life a greater work pool will be generate which, in turn, will lead to greater chances of innovation; two minds are better than one, 1000 fold.

What am I saying?

1. Perhaps the tech that is being shipped out has reached an adequate level of efficiency to meet demand.

2. The more buisnesses that migrate, the more jobs these countries will see, that will raise their standard of living, that will raise their education levels, which will lead to more skilled labor which can create inovations of their own... Increasing the pool of minds on a project, speeding up innovations as demand rises.

3. The US will still see inovations, just not in the same fields we are use to seeing them in... Tomorrow is the age of biotech, nanotech, and biocomputing (or the likes)...

	15-11-2003 05:01									#16
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Speaking for about a quarter billion Chinese people who are working those less-than-minimum wage-paying jobs, very little thought is given to patriotism, capitalism, or economic theory, since living at a subsistence/ poverty level doesn't usually promote that sort of mental exercise.

That's great for the American companies exporting work to other countries - no labour unions will be forming any time soon. These people are so grateful for any source of income that rampant unethical corporate practices go virutally unnoticed for years.

The consumer gets lower priced goods and the American corporate leaders demonstrate a great P&L. Just makes good business sense. All those Asians look alike anyway - why care about them as if they were human beings? Ah anonymity, the saviour of the corporate conscience.

	15-11-2003 05:22									#17
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Here's what happens

1. Companies move out of America to Thailand where the labor is cheaper
2. Said company employes people and gives them wages
3. More companies move to Thailand, employing more people/ existing companies expand and hire more workers
4. Unemployment in Thailand goes down, resulting in increase of wages. Higher wages means less workers and more innovation.
5. Companies move out of Thailand to go get cheaper labor.

	15-11-2003 05:52									#18
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Slavery always discourages innovation.

	15-11-2003 05:57									#19
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Explain the cotton gin, then .

	15-11-2003 06:06									#20
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quote: Originally posted by Imran Siddiqui Explain the cotton gin, then .

frees up more slave labor for whipping... damn crackers...

	15-11-2003 10:17									#21
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The good thing about trade is that it lets us have more goods and services from the same amount of inputs.
The good thing about innovation is that it lets us have more goods and services from the same amount of inputs.
I'm not particularly worried about trade choking off some innovation, because we can get the same benefits sooner and at less cost (no r&d required) through trade.

quote: Originally posted by st_swithin Speaking for about a quarter billion Chinese people who are working those less-than-minimum wage-paying jobs, very little thought is given to patriotism, capitalism, or economic theory, since living at a subsistence/ poverty level doesn't usually promote that sort of mental exercise.

Which "less than minimum wage" dearie? The US minimum? And why would that be relevant to the Chinese "subsistence / poverty" level? You might want to check the World Bank statistics in THIS thread, indicating that Chinese per capita income has risen by a factor of four since 1960, even after accounting for inflation. Or you might want to visit some of the cities in eastern China (I have, twice). Many of these cities could pass for western. That does not sound like "subsistence / poverty" level wages to me.

Guangzhou, China

	15-11-2003 10:26									#22
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quote: Originally posted by Adam Smith I'm not particularly worried about trade choking off some innovation, because we can get the same benefits sooner and at less cost (no r&d required) through trade.

Are you sure you aren't referring to civII camels?

	15-11-2003 10:51									#23
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Gotta love those camels.

	15-11-2003 14:36									#24
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quote: Originally posted by Adam Smith Or you might want to visit some of the cities in eastern China (I have, twice). Many of these cities could pass for western. That does not sound like "subsistence / poverty" level wages to me.

You are right, some of those cities are very modern.

The only thing is, most manufacturing facilities aren't in those cities. They are further out in the countryside, in the "secondary line" cities and towns.

	15-11-2003 14:59									#25
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When the wealth is spread everyone wins.

So India is getting some good technology jobs; There are some things Indians will never be able to do for Americans. These Indians also become better consumers, so they buy more products, inevitably American products.

America has by far the most "Armchair jobs" where people's jobs are simply to make decisions. This is because, in the end, the wealth ends up in America.

Plus, I know American corporations pay little overseas many times, but, the pay is better than anyone else, and many times, they also feed and shelter the worker's families.

Worldwide wealth could only mean a more prosperous, peaceful global economy.

	15-11-2003 17:43									#26
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quote: When the wealth is spread everyone wins.

Damn, NeOmega, I didn't think you were a communist.

	15-11-2003 19:36									#27
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quote: Originally posted by chegitz guevara Innovation is largely driven by the need to cut costs. If labor costs are dirt cheap, it makes no monetary sense (or cents) to invest heavily in R&D to lower those costs. This is one of the fundimental contradictions inherent in capitalism, btw.

Improvement of existing techniques is partly driven by the need to cut costs, but innovation resulting in new techniques (such as cellular phone) are not. There is no contradiction in that, and it would be true under any economic system.

Regarding the future of low asian wages, they will progressively go up, and their competitiveness will deteriorate also because the transportation costs are bound to increase ceaselessly. The real danger result from the fact that the asian countries (mainly China) will not limit themselves to easy manufacturing but will follow the same learning curve than Japan, then Taiwan, then South Korea.

	15-11-2003 20:09									#28
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Sub-contracting is as old as industry, and out-sourcing is more recent but aims also at reducing the costs and commitments caused by direct employment. This was developed to the extreme in the theory of the company without factory, and it can be said that the delocalisation is not different in its causes and consequences than sub-contracting and out-sourcing.

Innovation is not always a perfect solution, particularly when it is based on marketing tricks. Let take the example of the sport shoes and apparel industry. Before the revolution conceived by Nike and al., the price for the consumer incorporated a value not different in magnitude from the value incorporated in the ordinary shoes and apparel. After the revolution, the price for the consumer increased five or ten fold by the incorporation of immaterial value (Image carried by trademarks build on sport stars). The end result, as far as employment is concerned, was the trade off of low qualified jobs against a much lower number of highly paid jobs in marketing, advertising, design, and a torrent of cash on sports teams and individuals. I would bet that the total payroll generated in the US has increased a lot. The question is : is not such an industry excessively volatile ?

	15-11-2003 23:34									#29
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UR:

I was thinking mainly about cities like Nanjing, Changzhou, and Wuxi.
(Don't have a scanner, and couldn't find any good pictures on the web)
These cities are all about 1-3 mil in population, about 100-200 miles from the coast, and lots of factories.
Is this what you meant by "secondary line cities"?

Davout:
The real question is why people keep paying stupid amounts of money for shoes. My lawn doesn't care if my shoes have a swoosh.

	16-11-2003 09:15									#30
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quote: Originally posted by Adam Smith I was thinking mainly about cities like Nanjing, Changzhou, and Wuxi. (Don't have a scanner, and couldn't find any good pictures on the web) These cities are all about 1-3 mil in population, about 100-200 miles from the coast, and lots of factories. Is this what you meant by "secondary line cities"?

Something like that. First you have the major cities such as Beijing, Shanghai, Chongqing, and Guangzhou. Then you have smaller cities and towns that lie around the outskirts of them.

These towns and cities have cheaper costs and much more laxed law enforcements. We keep hearing lots of workers get killed in fires because factories put locks on the escape doors and bars on windows. [And completely non-existent firefighting facilities, of course]

quote: Originally posted by Adam Smith The real question is why people keep paying stupid amounts of money for shoes. My lawn doesn't care if my shoes have a swoosh.

Ming knows.