I was unsure wether or not to post this in general questions or great debates. It is after all a factual question, even though it is difficult.
In western countries we enjoy the cheap labour (sometimes child labour) that makes our clothes and electronics. How much of our standard of living is dependent on this fact?
What if the western world was cut off from the developing world, what would happen to our standard of living.
What if those countries had the same standard of living and the same wages as us?
Would the effect be less now than say 10 years ago, because of automation?
In a word yes. If you’re making above the median average, that by default makes you “rich”. America is one of the wealthiest nations in the world. So that makes us rich.
The market is guided by what the median average is. If everyone in America where to suddenly when ten million dollars, the price for a carton of milk would quickly rise to $100 a carton. Why? Because that’s what people can afford to pay.
I didn’t really mean rich in that sense. I realize we are ‘rich’ because the median is low. What I really mean is by how much our current absolute standard of living is dependent on poor countries beeing poor.
I’m not an economist obviously, and I’m sure one would know far more than me.
However as a nation develops economically it invests in labor saving devices and infrastructure which increase productivity of workers. So a nation where the average wage is $20/hr with a first world transportation, communications, energy, healthcare, education, etc. system is far more productive per employee than one where the wages are $0.75 an hour and the country is decrepit, because in the first nation they will have far more robotics and automation as well as ease of doing business.
Robotics and automation is what makes our standard of living higher, because each employee contributes more to the economy. If you take away all the industrial revolution era and beyond technology, we go back to subsistence living.
Also the entire world is moving in the direction of becoming richer. Low income nations become middle income nations, middle income nations become high income nations, high income nations become higher income.
Perhaps do a quick inventory of the consumables you have in your house:
[ul]
[li]Clothing[/li][li]Basic electronics[/li][li]Household items[/li][/ul]
and determine where they are made. Compile a list of countries, and then use a web search to find a standard of living list of those countries.
So basically, what you’re asking is: If the wealth were spread more evenly across the globe, how much of our standard of living would we have to give up?
If that’s the question you are asking, it’s a good question. And it’s something I’ve always been curious about myself.
Global GDP is 70 trillion, which works out to about $10,000 per capita GDP for everyone on earth. Closer to 13-16k in PPP (depending on which source you use).
However they couldn’t provide everyone with a western (especially US) standard of living, there aren’t enough natural resources for that.
I am constantly amazed how cheap things are in the USA. The wealthiest country in the world. Here in Mexico, we pay more (than the US) for electronics and cheap plastic things from China. I realize that the USA is awesome for negotiating (capitalism) and getting a great price for goods. And Mexico taxes goods from China, in order to help local manufacturing. Plus there is the problem of corruption.
But, at times, I think it just isn’t fair. America has great cash flow. And could afford to pay more for goods. Mexico not so good. Yet, we pay more the same goods.
No. Absolutely not. It is only true that certain mostly unimportant products would no longer be possible, if the rest of the world were closer to our level of societal standards of living.
The reason for this is fairly simple: modern technology and organizational methods, allow small numbers of people to produce enough items required, to provide for all the rest of us.
In a reasonably balanced society, everyone could have enough wealth to live well, and produce enough to see to everyone elses’ needs.
The reason why many people THINK that someone has to be poor, in order for someone to be rich, is because they close their minds to the fact of real wealth creation. They don’t understand even rudimentary capitalism, and can only conceive of closed, localized systems with limited resources.
They are supported politically, by other short-sighted people, who do know that keeping some people poor is unnecessary (but who refuse to admit it), because those people are focused on making a great deal of short term wealth for themselves, by maintaining an UNBALANCED economy, based on people fighting each other over wealth, instead of cooperating. Or, because they support other unrelated political goals, which they believe they will be able to push forward, if they pretend that working class people being very poor, is necessary to the American middle class being comfortable.
In short, the way the US and the other “first World” countries are living a life in excess of what they need, is based on their distorted view of entitlement, they believe that they are living just the right way and are happy that they can waste food and other necessities regardless of how other people in the World have to coop with life. Yes, the reason for being able to live like that is that the “first World” countries have the upper hand when it comes to dealing with “third World” countries and can more or less dictate what they are willing to pay them for their goods and services.
If the “first World” would decide (they never will!) to think conscientious and lower their living standard even a little bit and pay more for the imported goods and services, than the “third World” countries could rise their living standard quite a bit because a little in the US is a lot in the Philippines for example.
Peace
If you have resources, the ability to efficiently utilize and cultivate those resources, and the ability to defend them, then you will be wealthy regardless of the wealth of others.
Actually, there is a subtle difference, which is why I asked two questions.
The first one is if the western world were to suddenly cut off all trade with developing nations. Which means we would have to produce everything ourself.
The other is if the developing nations suddenly were at our level of wealth, which means there would be no more cheap labour. But there would still be a bigger market for trade than in the first question.
In the last question I don’t mean that our current wealth would be spread out to those countries, but that they would just suddenly be at our wealth level.
Also, in reply to some of the other questions. I’m Norwegian and I’m asking about all western countries. I’m not singling out the US in any way.
I realize there can be rich countries without poor countries. But to what degree are those countries RICHER because other countries are poor. How much of my absolute standard of living is because of the fact that they are poor.
Only in a relative sense. Ie. If everybody’s rich, then nobody’s rich.
There exist virtuous and vicious cycles in economies. The same can be said with respect to helping develop underdeveloped economies.
You can’t just throw cash at it, though, that’s not sustainable. Teach a man to fish, etc. Helping develop underdeveloped economies helps everyone all the way up the chain, in the aggregate.
I don’t disagree that innovation makes a country wealthier. But let’s say a developed country with 20 dollar wages are four times as efficient, then it is still better to buy products from the country with 0.75 dollar wages. In fact, that is what is happening. Had we made it ourselves, it would be more expensive.
At some point automation will catch up and this will no longer be the case, but for now it seems to be.
Wouldn’t my iphone and my clothes be a little bit more expensive if those countries weren’t so poor?
This one says it would cost 2k, but iphones are sold for about 3x what they cost to make. So I don’t know if I agree with their assessment that an iphone would cost 2k if made in the US, that assumes they still have a 300% markup over manufacturing cost like they do now.
That says an extra $50-100 for US made iphones. That is about an extra 7-15% added cost.
I assume it depends on what % of the cost of a product is due to low wage labor. I’m not sure what items would have the highest % of their cost due to low wage labor. Domestically, takeout food service would probably be that. I’m not sure what manufactured items overseas have the largest % of their cost due to low wage labor.
The US is rich because of the quality and industriousness of its people, the freedom allowed by its governance system, the attraction it has for talented foreigners wishing to live there. Also because of the riches of the land and the lack of close enemies.
External trade of course increases the wealth of Americans, but it is still very low compared to the rest of the world, at about 20% GNP. This means that (very roughly speaking), 4/5 of the value of products and services consumed in the US are indigenous.
However this trade IMMENSELY increased the wealth of countries like China, India, and years ago Japan. Without it the non-western world would have been much, much poorer.
The US and W. Europe were rich much before the trade with poor countries was significant. It is this very trade that lifted huge parts of the world from penury to relative well being. China, for instance had its GNP per capita increased by factor of 10 since the 80’s and is now a mid-range country. And this happened for a billion and a half people, who periodically had years of near-starving as recently as the 60’s.