| Author | Message | ||
     Donald Titus |
It is the objective of business in a capitalist society to sell one’s product at a higher price than it costs them. If this is not done, then the business can no longer continue. It is not from the benevolence of the baker or butcher that we get our dinner. Arbitrage, the process of buying something in a market where the price is low and selling same in a market where the price is high, works to bring the different prices in the respective markets closer together. Demand for the low cost product (or labor) increases thereby increasing the price while demand decreases for the high cost products (or labor) from the high cost market thereby causing those prices to go down. "Economics, like water, seeks a common level." This equalization is caused in part by arbitrage as described above. Immigration is sort of a type of arbitrage. Workers with labor to sell choose to sell it in the market where they will be paid more. Theoretically the price of labor will increase in the low cost market, as a result of lower supply, and reduce in the high cost market, as a result of higher supply, thereby seeking the equilibrium if this process is unimpeded. Forcibly “transplanting" wages across international boundaries will not accomplish this. This will take away the financial incentive to produce in Honduras. Maquiladora companies “buy” Honduran and Pakistani labor because it is inexpensive and because they can maximize their profits. Removing this incentive will remove those industries from Pakistan and Honduras. Placing tariffs on merchandise from those countries is also not the answer. Tariffs on steel and Canadian lumber reduce the imports of these products because it reduces the financial incentive of “buying” in a low cost market and “selling” in a high cost market. A tariff on textiles and clothing would have the same effect: it would reduce the financial incentive to “buy” Honduran labor, i.e. it would reduce the demand for Honduran labor. The "insightful (sic) people" that are talking about equalization import tariffs, although not all the time, are primarily those that wish some form of protection. Florida citrus growers wish protection from Brazilian imports, and Carolina textile workers unions wish protection from low cost overseas labor. They waive the flag of poor working conditions and low pay, but their intent is to reduce competition from abroad in order to be able to sell their products and labor at a higher price. In other words, they’re looking for an unfair advantage in the market place. It would be difficult to find an economist, other than a hack, who supports the idea that a tariff will increase the wages and working conditions of a worker in the exporting country. Economists from Bauer to Sachs and from Friedman to Greenspan all agree that a nation’s standard of living is determined by its productivity level. Equalization import tariffs neither accomplish that for the importing country nor for the exporting country. They will, however, accomplish what they are designed to do: protect and increase profits for an inefficient industry within the importing country. Equalization import tariff, or any tariff, will certainly enable the Carolina manufacturer to more effectively compete (or outcompete) his San Pedro Sula counterpart, but this is certainly not leveling the playing field. And it certainly would not enable the Honduran factory workers to stay at home. As previously mentioned, raising the cost to maquiladoras in Honduras would reduce the incentive for firms to choose Honduras as a location thereby reducing the quantity demanded for labor in Honduras. | ||
| Lorenzo |
Donald Titus: All markets are not "created" equal. They become (relatively) equalized through legal redefinition, interactivity and technological sharing. It's a kind of osmosis function. The maquiladora phenomenon, wherever it exists in the Third World, has come into being by virtue of the transplanting of sophisticated production techniques into an underdeveloped (or undeveloped) socio-economic milieu. You are right in pointing out that the initial attraction for the foreign manufacturing interests is the lure of (presumed) low wage costs. However, as extensive experience shows, low wage costs are not an unmixed blessing. Modern production methods, whether in North Carolina or Mayanamar, requires a compatible level of awareness on the part of the workmen. They must be able to understand the work and accomplish it efficiently, properly and within the predetermined schedule. These qualifications can not be blithely assumed on the part of largely factory-illiterate, untrained workmen. Hence, they must be trained and conditioned to the factory atmosphere. This costs money - in terms of lost time, spoiled goods and employee turnover, to name but three categories. However, foreign production desn't exist in a vacuum. Considerable international pressure is being exerted to upgrade and "equalize" wages, hours and employee benefits within the several internationalized manufacturing categories. The International Labor Organization is but one of the entities with global reach, that is bringing this about. Maquiladora wage rates, working conditions and related perquisites, whether in Honduras or elsewhere, reflect a consistent pattern of improvement over the past decade. Unionization is part, but by no means even the largest influence on this result. Prices, like water, do seek a common level. This urge to "equal pay for equal output" is relentless and irresistable. It may not assert itself as rapidly - or as universally - as all of us would like it to, but it never stops. As for tariffs and other economic "loading" that is regularly employed by higher-priced labor markets, to control access by lower-priced producers, it's a matter of defending the economic advantages they have gained for their citizens. The United States and Western European markets, for two examples, are not "high-priced" by accident. It's the result of tremendous investments, inventions, educational activities, and infrastsructure creation. None of these things are free. They must all be paid for by the people who expect to benefit from them. The "mature" markets of the world have not been created to accommodate the "emerging" markets of Honduras, Laos and China - except as those foreign competitors can be seen to enhance and benefit - rather than threaten the economic stability of the country being targeted for mercantile "invasion". Globalization is, and will continue to 'level this playing field', but it will necessarily be a gradual process. How could it be otherwise? This world is not equally educated, trained, housed or fed. How could we expect it to be equally supplied with factories and competent factory workers? This inequality is not the result of a sly conspiracy, as you seem to imply. It is simply proof that the equalization process still has a good way to go. But that it is well underway, and gaining speed, should be apparent to anyone who studies the numbers with an unbiased eye. ... Lorenzo | ||
| Donald Titus |
“As for tariffs…, it's a matter of defending the economic advantages they have gained for their citizens.” Here we agree in part. If they had economic advantages, then they wouldn’t need to be defended from competition. But I do agree that it is about defending as I stated before. Honduras definitely has an economic comparative advantage in some industries, and the U.S. recognizes this. “Considerable international pressure is being exerted to upgrade and ‘equalize’ wages, hours and employee benefits within the several internationalized manufacturing categories.” And none of this will raise the overall standard of living because it does not address the productivity of the labor force. Greg Mankiw, Jeff Sachs, Nancy Birdsall, Mark Weisbrot, Shahid Javed Burki, David Mills, Greenspan, Friedman, Peter Bauer, Paul Volker, David Dollar, and any development economist will agree that a nation’s standard of living is determined by its ability to produce goods and services, i.e. its productivity. | ||
| Anonymous |
DONALD TITUS said:"a nation’s standard of living is determined by its ability to produce goods and services, i.e. its productivity." My reply: duh | ||
| Lorenzo |
Donald Titus: The standard of living of a nation, like the standard of living of a family, is dependent upon the capability of that "unit" to meet its current-account requirements and also produce/earn an excess of goods/wealth for either productive investment or ancillary commerce. I'm not sure what you mean by "development" economist. I'm hearing that term for the first time. But I am sure of such terms as growth, subsistence, poverty, break-even and investment. They are all inextricably tied into my earlier definition, which is Econ-101 orthodoxy ... Lorenzo | ||
| Donald Titus |
Mr Belveal: You said, "The standard of living of a nation... is dependent upon the capability... to produce/earn an excess of goods/wealth for either productive investment or ancillary commerce." That's what I said. | ||
| Donald Titus |
By the way: You said, "I'm not sure what you mean by 'development' economist. I'm hearing that term for the first time." It's a well used term. Type in the phrase in Yahoo, choose the "exact phrase" option, and you'll get over 200,000 website links. I guess you've been out of the loop longer than I thought. | ||
| Lorenzo |
Donald Titus: I have some commercial clients who don't consider me out of the "loop" yet. As for the thrust of economics, it is centrally concerned with "supply and demand" in all of its ramifications. Perhaps these parameters can be usefully re-labeled as "production and consumption" - or even "creation and fungibility". ...Lorenzo | ||
| Anonymous |
Actually the thrust of economics is concerned chiefly with description and analysis of the production, distribution, and consumption of goods and services. Supply and demand is how one economic model allocates resources and goods and services. |