How will Globalization affect my standard of living?

Great Debates
81

Thankfully not.

Oooohh…a bunch of Wikipedia cites! You sure put me in MY place. I’m sure you are aware of the fact that there are various schools of economic philosophy out there and have just chosen to call me to the carpet for my ‘ignorance’ because I don’t choose to subscribe to the one you hold, ehe?

As for ‘inappropriately condescending and dismissive’ to your first remark out of the blue, lets recall what you said, shall we? “This may be one of the funniest things I’ve ever read. Deliciously ironic, too, considering that xtisme was questioning others’ knowledge of economics upthread. Wow.”

Yeah…this isn’t either ‘condescending’ OR ‘dismissive’…and completely out of the blue. Not you. :eek: Looks like you were attempting to set an ambush to me, since you didn’t even ask me to cite WHY I disagreed with JC about the non-rationality motivation in economics vs a ‘motivated self interest’ philosophy, you just did a quick drive by claiming I know nothing about economics from this one paragraph. Gotcha.

Sorry, its a non-Wikipedia cite…hope thats ok. I got this in a quick and dirty google search. Basically it makes the contrary case better than mine, but I don’t have time to do an extensive search at work. What I’m trying to show is that there are various THEORIES on motivation as it relates to economics…and I subscribe to one that boils down to a motivation with its core at the consummers self interest. THis doesn’t make me ignorant of economics, though I freely concede I am no expert…it simply means I disagree with JC’s assertion of non-rationality. Doesn’t make HIM wrong either. However, it does sort of make you…well, I’ll keep the rest of that thought to myself as this isn’t the pit.

-XT

82

What is this ‘social safety net’? Unemployment compensation? Mine’s run out – and it’s not as if I haven’t been actively looking for work! As nearly as I can figure it, the ‘social safety net’ works like this: You receive unemployment benefits until it runs out. Then you sell your house and live on whatever proceeds you realise from that. Then you can’t afford rent and you’re tossed onto the street. You find a shopping cart and get a sign that says ‘Will work for food.’

Is this the ‘compassionate conservativism’ we hear so much about? :confused:

Employment does not equal equivalent employment. Is it a good use of resources when a software designer becomes employed as a greeter at Wal-Mart?

It’s hand-waving to tell people who may not have the resources to get training to go get retrained. If you see a hungry person in the street do you say, ‘Well, eat something, then!’? Or put another way: ‘The peasants can’t afford bread!’ ‘Then let them eat cake!’ How is that different from taking away a person’s job – a person who does not have the resources to go back to school – and telling him or her to get retrained?

I’m not talking about ‘selling only to ourselves’. I’m talking about retaining jobs within the country. One way to do this would be to remove incentives to moving jobs overseas, and replacing them with incentives to keep the jobs here. Another way is to lower the cost of doing business in this country by instituting National Health Care. Another way is to have programmes in place that guarantee training for positions in other fields that are equivalent to the jobs that are lost.

You and others have said that unemployed people should get retrained, but you haven’t offered ways of doing it.

‘Compassionate Conservativism’, by Aunt Sally!

83

Here’s the biggest problem with your posts. You overstate the effects of “outsourcing” on job losses. Let me ask you: do you have an estimate of how many jobs are being lost in the US due to off-shoring? The best estimates I have seen based on reports from Forrester are between 300,000 to an aggressive estimate of 3 million over a decade, which accounts for a fraction (between 1-2%) of overall job losses. So, let me then ask you this:

  1. What should we do about job losses due to automation?
  2. What should we do about job losses due to a stagnant economy?
  3. What should we do about job losses due to a mis-managed company?

These account for most of the jobs lost. If you figure out a solution that helps everyone, then we can apply the same for outsourced jobs as well.

As far as I can tell, the only solution is to build your own safety net or learn multiple skills. Easier said than done but it is equally trivial to insist that a machine operator should be guaranteed a good quality of life with such a narrow skillset. In the end, our talent is a commodity.

84

Okey dokey, xt. Bottom line is that rationality and self-interest are one and the same, economically speaking. Your post drawing a distinction between the two was, therefore, vapid. Want to start a thread about the limits of economic rationality, be my guest…but don’t assume that Wikipedia is the breadth of my understanding of the topic, and don’t assume what position I’ll be taking.

Which one do I hold, hmm?

Keep in mind that right now I’m not taking issue with the substance of your belief or your disagreement with Jonathan Chance, only your peculiar differentiation of people “doing what is in their best interest” from people “being rational.” It’s as if you were to say, “Look, it’s not about heliocentrism, it’s about the sun being the center of the solar system!”

Get it?

85

It certainly comes down to efficiency, as you say. But the single biggest contributor to the efficiency of the average working person in the “first-world” West is the availability of capital - machines, computers and factories. The average Joe in Cleveland could build cars with the locally available capital and enjoy a high standard of living, whereas a guy in Guangdong could not, because you can’t build a car with your bare hands.

Globalization means that capital goes where labor is cheapest. Formerly, the Cold War and the dominance of heavy industry and natural resources (which can’t be easily moved) meant that the capital stayed where it was owned. For example, India was aligned with the Soviets, so nobody was going to be sending heavy machinery, which could make tanks and airplanes as well as cars, to India. Also, the big money today is in high technology, which involves capital that isn’t bolted to the factory floor.

So the biggest single contributor to the efficiency of Western workers, capital, is now free to roam the globe. And it ain’t coming back until wages in Cleveland are the same as they are in Guangdong.

Of course, you can avoid the negative consequences by simply becoming a capitalist yourself! Then you can reap the higher profits made possible by globalization. First, you need to create some capital…uhh, this could be a problem.

Globalization is not a case of comparative advantage. Globalization involves absolute advantage (in the form of cheap labor), which every economist knows means absolute gains, not mutual gains.

86

Not a study, but remember the old pro business motto of “what’s good for GM is good for America”?: GM, with other American car manufacturers in the 90’s were in favor of universal health care since they noticed that the health care costs added more than a thousand dollars to the price of their cars, putting them right out of the bat on a disadvantage with Japanese and European car makers, It is reasonable to consider that health care costs were an element in the latest fallout from GM.

87

Not quite. It wasn’t an alliance with the Soviets that kept capital out of India (capitalists are often amoral on that type of thing), but protectionists Indian policies. Few people are going to risk investing in a country where you have a high probbability of having your company nationalized. India in the 50s and 60s tried to insollate local companies (car manufcaturing is a good example) from competatitve imports. As a result, the few Indians who owned cars had crappy knock-offs of obsolete Detriot designs.

Why do you think nations enact laws against investing in countries that are considered enemies? Capital will flow where the return on investment is the greatest.

Again, it’s much more complex than that. Wages are an important factor, but infrastructure plays a big part, too, as does the stability of a government. There are plenty of places with labor cheaper than China, but most of those places have unstable governments and/or dodgy inffrastructure to boot.

88

Ah…I begin to see the light. So, your major malfunction here is because I seemed to be saying that ‘best interest’ wasn’t the same thing as ‘rational’. EVen though I was really responding to JC’s definition of ‘rational’ as being ‘capable of coping with the wider issues of economics and dislocation is a thoughtful, meaningful, and effective way’, to which I was responding essentially that folks will do whats in their best interest (and that THAT is what ‘we’ are counting on), without necessarily being ‘capable of coping with the wider issues of economic and dislocation’ in a ‘thoughtful, meaningful and effective way’. Hey, I’ll happily concede I was sloppy in my language and that ‘motivated self interest’ is ‘ratioinal’. Did this really warrent your attack pretty much out of the blue? I’m not seeing it but if it made you feel good, hey, have fun with it.

As to what you know or don’t know, your level of expertise on this subject, or your shoe size…well, I really won’t know. As you pointed out earlier you and I haven’t really crossed paths afaik, I don’t remember reading your myriad past posts on any given subject (doubtful you’ve read any of mine either), and based on the cites you put forth in THIS thread, which is what I had to go on, my only conclusion was that you like Wikipedia. Fine by me.

A contrary one looking for a fight? One that constitutes a chip on your shoulder for reasons known only to yourself? You tell me.

Whatever you say, champ.

-XT

89

This is my last post of this hijack.

Let’s take another look at the sentence of yours that caused me to chime in:

You’re saying it’s not A, it’s A. If that was sloppy phrasing on your part rather than a genuine misunderstanding of the issues involved, fine.

People don’t tend to act in their self-interest, anyway, unless one defines ‘self-interest’ as ‘the way in which people tend to act.’ Which is why economic rationality is largely a tautology, and why Jonathan Chance is exactly right. If the success of a policy depends on people acting in their self-interest, then that policy is hugely flawed.

You might also have concluded that I didn’t want to point people to the pay databases of Lexis or Westlaw for papers on bounded rationality. :slight_smile: The Wikipedia articles – especially the one with the panoply of links to cognitive biases – were useful shorthand. I also linked to a piece by Richard Thaler, although the file was .pdf.

90

There’s a difference between protectionism and nationalization of industries. Protectionism in a mixed economy may be defended on the grounds of preserving basic strategic industries (which may be essential to national defense), or providing a relatively benign form of welfare. Nationalizing industries is plain socialism. Either way you look at it, the collapse of worldwide socialism was one of the primary enablers of globalization, for better or worse.

Also, it was mentioned that political and social stability were factors that helped Western economies outrun the rest of the world. If the trends toward free movement of capital (and labor) continue, and there’s 30% unemployment, depressed wages, and no social safety net in the West, how long do you think it’ll be before there is serious unrest?

91

And the quality of the workforce. We did a case study in a management class about a firm (name changed) that moved production to a nation in Africa. (Sorry, I can’t remember the specifics well - like what African nation, Camaroon sticks in my head). The defect rate on their product skyrocketed. Their yield went down because sometimes the guy at station seven just didn’t show up for work and they had no one to backfill. By the time they were done, it was more expensive to pay people pennies a day in Africa than it was to manufacture in Alabama (so they relocated to Vietnam, work ethic and low wages!).

92

And squeeze triggers.

93

Correct, and I shouldn’t have mixed those policies together. I don’t know to what extent nationalization was an issue in India (as opposed to protectionist policies) but it certainly was a concern in other countries, like Mexico, at various times. Both policies are an impediment to the inflow of investment capital.

What indication do you have that we’re headed for 30% unemployment? If there was any, I might take your argment seriously. Unemployment rates have bumped around a bit in the last 20 years or so, but I don’t see any obvious trend that say it’s headed to anywhere near 30%.

94

Are we talking “unemployed” as in “not having a job”? Or “unemployed” as in “no longer receiving unemployment checks from the government”?

95

How about “unemployed” as in so fed up with the capitalist system that the person is ready for the revolution. :slight_smile: Also, don’t forget about the 2nd part of the equation “no social safety net.”

96

Correct. Western workers are highly leveraged. But it’s not just by the capital in the computers and assembly lines - it’s the capital that has been spent to build good roads, hospitals, schools, reliable power grids, cell phone networks, etc. ad nauseum.

No. Because labor is only one of the many costs of production. There’s shipping costs, marketing costs, support costs, construction of factories, cost of connecting to the electrical grid, etc. It’s no surprise that the jobs that have successfully been ‘outsourced’ tend to either have labor costs that are a large fraction of the overall cost of business (textiles) or which need relatively small infrastructures along with high labor costs (call centers).

Also, when considering the cost of labor, you can’t just look at how much per hour you have to pay someone. You also have to consider how much output you get for that hour’s worth of work. You have to consider how reliable the employee is, and how healthy he or she is. You have to consider communication barriers. You have to consider cultural barriers. There are numerous labor costs to factor in.

In fact, the reason why people in Bangladesh only make $400/yr or whatever it is is because that’s all they are worth at this time. If they were worth more, more companies would flood into the region and bid up salaries.

Again, much of the captal has already been spent. Much of it is tied up in an infrastructure that doesn’t move. If you set up a factory in Africa, are you going to get reliable power? Do the roads wash out whenever there is a rainstorm, closing your factory? If components in the factory break, is your assembly line shut down while you fly them in from the U.S.? Do you have to pay your managers more to relocate to Africa? How much does it cost to get your goods to market? What are the risks of political instability? What if the government nationalizes your factory?

And the thing you are missing is that as these problems are solved, *wages in those countries go up too!. South Korea used to be the sweatshop capital of the world. Now it’s a first-world economy. Notice that the workers now command first world wages?

So if enough capital flows into these other regions to make the workers as productive as Americans, then those workers will be paid equivalent salaries. That’s the way economics works in a world of free trade and free movement of capital.

Whoever wrote that has no idea what comparative advantage is, or what makes cheap labor ‘cheap’ (barring forced labor).

97

Damn, I became a hijack! Woot!

Right, I agree with Gadarene that beyond a certain level of thought human beings tend to NOT behave in rational ways. Women stay with men who beat them, kids run away from comfortable homes, people like to receive welfare when they could be making more money in the workforce, etc. None of these are ‘rational’ acts in that I would define them as not using their abilities for their own best interests. They may have reasons for their actions but it’s certainly not maximizing ones capabilities.

As for this:

That seems a little self-serving to your argument, Sam. People overseas make less not necessarily because they’re worth less, production-wise. They make less for many factors…cost-of-living, power in the job market (fewer available jobs with a larger workforce equals higher competition for jobs and therefore lower wages), no unionization (if I were the AFL-CIO I’d be trying to unionize the developing world lickety-split), and other factors. But certainly not because there’s some intrinsic ‘lesser worth’.

Real world example: Up thread I mentioned that I’m starting a business shortly. I’m locating it in a poorer section of the United States because I can pay the workers there half what an equivalent worker would demand in Washington DC. The abilities are the same (mid-level editorial), the product…well…produced is the same. The price I’m charging for it is the same. There’s no real difference in talent. But I can pay less because I have the strong hand in the ‘hiring’ equation here.

98

When I say they are ‘worth less’, I don’t mean they are necessarily worth less as individuals, I mean the market has decided they are worth less in part because the cost of employing them is too high for many reasons.

But many of them aren’t worth less, and their lower wages are due to government barriers to production, intimidation by thugs, destruction of the infrastructure through wars, and because anti-globalization forces prevent people from competing for their labor.

You think unionization creates wealth? If the intrinsic value of the workers in the third world doesn’t change but they manage to unionize and demand higher wages, they’ll just doom themselves to perpetual poverty.

That’s great. And if in fact there is no other reason why those workers should get half the wages, then more businesses will do that, the unemployment rate in the area will go down, and that will create wage pressure. That has happened in many areas of the country.

99

It doesn’t necessarilyl create wealth, but it distributes it differently. Unions are just as much a part of the free market as owners and management. They only distort the market when the gov’t gives them disproportionate power, just as capitlaists distort the market when poltiicians pass laws favorable to them.

In a free market, people are free to persue collective bargaining just as management is free to negatiate for the lowest wages they can get.

100

That’s not much of a rebuttal. Looking at comparative advantage will only tell you what you should specialize in to do the best you can under conditions of free trade. It does not mean that “the best you can” is going to be acceptable, or better than it would be under autarky or some other scheme.

Free trade can be good or bad for a country, depending on its absolute advantages. The antithesis of free trade would be if the U.S. Army had the ability and inclination to continually patrol the world, looting all the available capital and bringing it to the U.S. to be used for production (and support of an ever more powerful army). The U.S. would obviously prosper in an absolute sense under such a scheme, as long as it could be sustained. There would be no benefit to allowing free trade.

Poor, populous, but civilized nations like China and India have a huge absolute advantage over the developed West in their supplies of underutilized labor. It’s great to have a stable government, robust infrastructure, competent workforce, etc., but those things only help you to the extent that they attract capital. It all comes down to capital.

The U.S. economy has created about 893,000 payroll jobs since January 2001 according to the Department of Labor. In that time, the U.S. population has increased by well over 10 million - see various estimates by the Census Bureau. That’s less than one job for every ten new people. You can’t support ten people on less than one average job.