# Third World contributions to First World living standards **URL:** \ **Category:** Great Debates\ **Created:** [January 4, 2011, 1:34pm UTC](https://boards.straightdope.com/t/third-world-contributions-to-first-world-living-standards/566358 "2011-01-04T13:34:28Z")\ **Posts on this page:** 20\ **Page:** 2
**Author:** ![Le\_Jacquelope](https://avatars.discourse-cdn.com/v4/letter/l/e0b2c6/32.png) [@Le\_Jacquelope](https://boards.straightdope.com/u/Le_Jacquelope)\ **Post date:** [January 5, 2011, 3:51am UTC](https://boards.straightdope.com/t/third-world-contributions-to-first-world-living-standards/566358/21 "2011-01-05T03:51:36Z")
> [@RickJay](#): > > They would improve. > > A change in labour rates would be far offset by the fact that Americans would suddenly have billions more consumers ready to use American products. Not true. The cost to transport those goods overseas would then reduce its competitiveness against domestic-made products. With wages being equal … why would you add $xxx to ship it overseas instead of building it domestically? Or why would you open a call center outside the country when the wages are the same? > [@](#): > > The same would be true of everyone; the entire world would be much richer. Except that the demand on resources to produce these goods would skyrocket. Oh, I forgot, natural resource prices don’t affect economies. Like when oil went up in price in 2008, it had no effect on America’s economy. > [@](#): > > Competitive advantage isn’t comparative advantage. Someone would make affordable iPods. What the price would be you can’t say for sure, but if they’re, say, $600 in this amazing new world, nobody will care if their income triples - which is something it might if everyone else in the world was as rich as we are now. But if we put up tariffs on that stuff American incomes won’t go up but prices will go up? Really? That contradicts just about _everything_ concerning economics. The only way income doesn’t go up with the cost of living is stagflation; and that is not a common occurrence. And how will incomes triple if everyone else in the world was as “rich” as we are now? ---
**Author:** ![msmith537](https://avatars.discourse-cdn.com/v4/letter/m/d9b06d/32.png) [@msmith537](https://boards.straightdope.com/u/msmith537)\ **Post date:** [January 5, 2011, 4:30am UTC](https://boards.straightdope.com/t/third-world-contributions-to-first-world-living-standards/566358/22 "2011-01-05T04:30:21Z")
> [@Le\_Jacquelope](#): > > RickJay? Msmith? John Mace? Emacknight? Your take on that? 😃 My take is that you have demonstrated such a singleminded willful ignorance of the subject of outsourcing in other threads that it simply isn’t worth my time to rehash the same arguments over again. Maybe the others will indulge you. I will say this that a more important factor than labor costs would be the availability and costs of natural resources. I don’t know if the planet can support 6 billion people living by Western standards. I’ve heard quotes that we would need as many as six Earths to do so. ---
**Author:** ![Aspidistra](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/aspidistra/32/3894_2.png) [@Aspidistra](https://boards.straightdope.com/u/Aspidistra)\ **Post date:** [January 5, 2011, 11:15am UTC](https://boards.straightdope.com/t/third-world-contributions-to-first-world-living-standards/566358/23 "2011-01-05T11:15:23Z")
**Le Jaquelope** - Thanks for your support, I guess, but as it happens I don’t actually agree with any of the stuff you say about offshoring, I don’t actually think offshoring is a bad thing, and I’d rather not have this thread turn into the Jaquelope Show since you already have plenty of threads to put your point of view forward in. If you don’t mind? **John Mace** - It’s the other thread reversed. The other thread said “does first world prosperity contribute to third world poverty?”, this one is “does third world poverty contribute to (any of) first world prosperity?” So, to engage with the first topical relevant and sensible argument of the thread (that would be #9 if anyone’s counting) There are definitely elements of our economies that are directly dependant on low wages in the Third World. Masses and masses of cheap consumer goods, electronics, clothes, toys, some foodstuffs. If you are going to argue “it wouldn’t make a difference” then you have to argue not that the prices of these things wouldn’t change, but that other elements of the system would necessarily change enough that the net effect would be neutral/positive. So the timeline is something like this (explicit numbers pulled out of arse for indicitatory purposes only) 1. Unskilled wages in Africa/Cambodia/Bangladesh rise from 5c an hour to $5 an hour. 2. Now with the added cost of labour, a $5 t-shirt costs $20. So you can buy fewer T-shirts. Bummer! 3. But wait! Now with everyone in Africa/Cambodia/Bangladesh having 100x more wealth than before, some of those guys are going to be in a position to buy some fancy software from Silicon Valley. So the folks in Silicon Valley can afford to buy more T-shirts, even at $20, than they could before at $5. And it all evens out. How do you determine the relative values of steps 1 and 3? Why would step 3 _necessarily_ counterbalance (or more) step 1? To try to simplify it even more - a thought experiment. Fiona and Jodie live in a small isolated farming village. Their neighbors are all farmers, and make an ok living. Fiona makes pottery, and makes an excellent living selling it to all her neighbors. Jodie is completely unskilled, and cleans Fiona’s house for a pittance. One day Jodie decides bugger this, and learns how to knit. She starts to make a good living selling sweaters to her farming neighbors. She gives up housecleaning. My analysis of the situation at the end would be: - Jodie’s standard of living has gone up a lot (obviously) due to her obtaining a useful skill. - The total wealth of the village has gone up, because now everyone has access to nice sweaters as well as pottery - Fiona’s standard of living has gone down, because now she has to clean her own house. ---
**Author:** ![XT](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/xt/32/456_2.png) [@XT](https://boards.straightdope.com/u/XT)\ **Post date:** [January 5, 2011, 3:11pm UTC](https://boards.straightdope.com/t/third-world-contributions-to-first-world-living-standards/566358/24 "2011-01-05T15:11:27Z")
> [@](#): > > There are definitely elements of our economies that are directly dependant on low wages in the Third World. Masses and masses of cheap consumer goods, electronics, clothes, toys, some foodstuffs. If you are going to argue “it wouldn’t make a difference” then you have to argue not that the prices of these things wouldn’t change, but that other elements of the system would necessarily change enough that the net effect would be neutral/positive. You would have to posit that all low wage labor would suddenly be unavailable to really look at effects. If, say, China decided to stop exporting low quality high volume goods and services, for instance, then there would be a short term effect (the prices for those goods and services would go up since supply would be down), but countries like India would take up the slack as capital flowed to them to spin up to meet the new demand. > [@](#): > > So the timeline is something like this (explicit numbers pulled out of arse for indicitatory purposes only) > > 1. Unskilled wages in Africa/Cambodia/Bangladesh rise from 5c an hour to $5 an hour. > > 2. Now with the added cost of labour, a $5 t-shirt costs $20. So you can buy fewer T-shirts. Bummer! > > 3. But wait! Now with everyone in Africa/Cambodia/Bangladesh having 100x more wealth than before, some of those guys are going to be in a position to buy some fancy software from Silicon Valley. So the folks in Silicon Valley can afford to buy more T-shirts, even at $20, than they could before at $5. And it all evens out. The trouble with this is that I don’t think it really reflects even ball park reality. For instance, the rise in wages will be slow…it’s not going to go from $.05 to $5/hour overnight. That’s going to be a process of years. For a time, rising prices aren’t going to really be reflected in the price of the good, either, because there is always some slack in the system, and there is always room for increased efficiencies to counteract a rise in the cost of labor. Labor is, after all, only one of the costs of a good or service. Once the price of labor rises in, say, Bangladesh, then a few things might happen. One is that the perceived quality of the good might enable it to still be purchased even at a slightly higher cost. I doubt you’d go from $5 for a shirt to $20 overnight, but if the perception of quality is there then I could see $5 to $10 easy enough. Or, the shirt manufacturer might orient to a new market (a niche market, say, making concert tee shirts or some other higher value shirts or clothes). Or, the shirt manufacturer might move their low end tee shirt manufacturing plant to a new country where they can meet their target labor price, and switch the manufacturing in Bangladesh to some higher end manufacturing. Or, Bangladesh might lower taxes or give the company some other incentive to stay. Of course, it could be a combination of some or all of those things. And what might happen is that, as the workers in Bangladesh have more capital to spend, they might ALSO want some tee shirts. Even if the margin shrinks for the company on individual sales of tee shirts due to the rising cost of labor, if the company increases it’s volume of sales that could certainly make up for the shrinking margin. Sell 1 million tee shirts at $5/shirt with a profit of $2 or sell 100 million at 6 with a profit of .5 (just making those numbers up out of thin air to demonstrate the point…they aren’t realistic nor intended to be). The real world effect of all of this is that the 1st world country who buys those goods and services living standards aren’t materially effected (they may have to pay a couple bucks more for a tee shirt, but overall western standards of living are rising, when we aren’t in a big freaking recession). And the standards of living for the folks in Bangladesh are rising as well, since they have gone from being subsistence farmers or whatever to manufacturing workers. The government there is also enriched both from new tax revenue from all those workers as well as whatever taxes they are getting from the company to set up shop there. They are also probably getting incrementally better infrastructure in the bargain (you have to be able to ship all the raw materials in and ship the goods out, so you will need reliable roads…same goes for phones and data networks). > [@](#): > > Fiona and Jodie live in a small isolated farming village. Their neighbors are all farmers, and make an ok living. Fiona makes pottery, and makes an excellent living selling it to all her neighbors. Jodie is completely unskilled, and cleans Fiona’s house for a pittance. > > One day Jodie decides bugger this, and learns how to knit. She starts to make a good living selling sweaters to her farming neighbors. She gives up housecleaning. > [@](#): > > - Jodie’s standard of living has gone up a lot (obviously) due to her obtaining a useful skill. > - The total wealth of the village has gone up, because now everyone has access to nice sweaters as well as pottery > - Fiona’s standard of living has gone down, because now she has to clean her own house. But why would Fiona’s standards of living go down? She now has access to another customer for her pottery, has access to a new good she didn’t have before (sweaters), and if she still wants someone to clean her house I’m sure she can find someone willing to do that. For that matter, Jodie might also want someone to clean HER house now, since she is doing the knitting thing, so that might be a great opportunity for someone to build a maid service business right there. -XT ---
**Author:** ![Le\_Jacquelope](https://avatars.discourse-cdn.com/v4/letter/l/e0b2c6/32.png) [@Le\_Jacquelope](https://boards.straightdope.com/u/Le_Jacquelope)\ **Post date:** [January 5, 2011, 4:44pm UTC](https://boards.straightdope.com/t/third-world-contributions-to-first-world-living-standards/566358/25 "2011-01-05T16:44:08Z")
> [@msmith537](#): > > My take is that you have demonstrated such a singleminded willful ignorance of the subject of outsourcing in other threads that it simply isn’t worth my time to rehash the same arguments over again. Maybe the others will indulge you. No I haven’t. I’ve put up points that you simply cannot answer. The only thing you can do is spout regurgitated propaganda and you’ve been found unable to support it with any facts. The willful ignorance here lies with you, not me. > [@](#): > > I will say this that a more important factor than labor costs would be the availability and costs of natural resources. I don’t know if the planet can support 6 billion people living by Western standards. I’ve heard quotes that we would need as many as six Earths to do so. Which is exactly what I said - yet others here say that natural resource costs do not affect the economy of a modern nation. Now you’re following in my “willfuly ignorant” steps. 😃 ---
**Author:** ![Really\_Not\_All\_That\_Bright](https://avatars.discourse-cdn.com/v4/letter/r/e8c25b/32.png) [@Really\_Not\_All\_That\_Bright](https://boards.straightdope.com/u/Really_Not_All_That_Bright)\ **Post date:** [January 5, 2011, 4:49pm UTC](https://boards.straightdope.com/t/third-world-contributions-to-first-world-living-standards/566358/26 "2011-01-05T16:49:41Z")
> [@Le\_Jacquelope](#): > > The only way income doesn’t go up with the cost of living is stagflation; and that is not a common occurrence. And how will incomes triple if everyone else in the world was as “rich” as we are now? Or price controls, which is what tariffs effectively are. In any event, the invariable result of tariffs is a trade war, in which everyone else places tariffs on _our_ products. Everyone suffers. ---
**Author:** ![Le\_Jacquelope](https://avatars.discourse-cdn.com/v4/letter/l/e0b2c6/32.png) [@Le\_Jacquelope](https://boards.straightdope.com/u/Le_Jacquelope)\ **Post date:** [January 5, 2011, 4:49pm UTC](https://boards.straightdope.com/t/third-world-contributions-to-first-world-living-standards/566358/27 "2011-01-05T16:49:49Z")
> [@Aspidistra](#): > > **Le Jaquelope** - Thanks for your support, I guess, but as it happens I don’t actually agree with any of the stuff you say about offshoring, I don’t actually think offshoring is a bad thing, and I’d rather not have this thread turn into the Jaquelope Show since you already have plenty of threads to put your point of view forward in. If you don’t mind? It’s not wrong to explain the fact that offshoring, whether you support it or not, is a primary example of where the third world contributes to first world living standards… assuming you accept the arguments put forth to support offshoring. Every time you buy a $300 iPod you enjoy the contributions that the third world has made to the first world standard of living. ---
**Author:** ![Shodan](https://avatars.discourse-cdn.com/v4/letter/s/9f8e36/32.png) [@Shodan](https://boards.straightdope.com/u/Shodan)\ **Post date:** [January 5, 2011, 5:03pm UTC](https://boards.straightdope.com/t/third-world-contributions-to-first-world-living-standards/566358/28 "2011-01-05T17:03:23Z")
> [@Le\_Jacquelope](#): > > It’s not wrong to explain the fact that offshoring, whether you support it or not, is a primary example of where the third world contributes to first world living standards… assuming you accept the arguments put forth to support offshoring. As far as I can tell, your arguments (such as they are) boil down to 'outsourcing raises the standard of living in the US (thru cheap goods) and raises the standard of living in the Third World (by raising their salaries). Therefore we need to enact tariffs to prevent it. ’ Regards, Shodan ---
**Author:** ![Quartz](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/quartz/32/267_2.png) [@Quartz](https://boards.straightdope.com/u/Quartz)\ **Post date:** [January 5, 2011, 6:38pm UTC](https://boards.straightdope.com/t/third-world-contributions-to-first-world-living-standards/566358/29 "2011-01-05T18:38:22Z")
> [@Stoneburg](#): > > No it’s only yours I am interested in. Sorry, we don’t work that way around here. You’ve claimed that you have specific evidence that contradicts me. Put up or shut up. ---
**Author:** ![Le\_Jacquelope](https://avatars.discourse-cdn.com/v4/letter/l/e0b2c6/32.png) [@Le\_Jacquelope](https://boards.straightdope.com/u/Le_Jacquelope)\ **Post date:** [January 5, 2011, 6:58pm UTC](https://boards.straightdope.com/t/third-world-contributions-to-first-world-living-standards/566358/30 "2011-01-05T18:58:40Z")
> [@puddleglum](#): > > Natural resources are not what drive modern economies, human productivity is. > [@msmith537](#): > > I will say this that a more important factor than labor costs would be the availability and costs of natural resources. I don’t know if the planet can support 6 billion people living by Western standards. I’ve heard quotes that we would need as many as six Earths to do so. Hilarious. I love this… ---
**Author:** ![Really\_Not\_All\_That\_Bright](https://avatars.discourse-cdn.com/v4/letter/r/e8c25b/32.png) [@Really\_Not\_All\_That\_Bright](https://boards.straightdope.com/u/Really_Not_All_That_Bright)\ **Post date:** [January 5, 2011, 7:07pm UTC](https://boards.straightdope.com/t/third-world-contributions-to-first-world-living-standards/566358/31 "2011-01-05T19:07:07Z")
Two posters disagree? Shocking. ---
**Author:** ![Stoneburg](https://avatars.discourse-cdn.com/v4/letter/s/df705f/32.png) [@Stoneburg](https://boards.straightdope.com/u/Stoneburg)\ **Post date:** [January 5, 2011, 7:19pm UTC](https://boards.straightdope.com/t/third-world-contributions-to-first-world-living-standards/566358/32 "2011-01-05T19:19:52Z")
> [@Quartz](#): > > Sorry, we don’t work that way around here. You’ve claimed that you have specific evidence that contradicts me. Put up or shut up. Wait… what? You made a statement, I asked where you got your information from, indicating that it was news to me, and now I have to “put up or shut up”? Is it like “show me yours and I’ll show you mine”? Do we have to post cites simultaneously or is there a rule that decides who goes first? Let me then skip that by saying that I am not interested in converting you or changing your world view to better fit mine. I was only interested in how you have arrived at your conclusion. If you don’t feel like telling me, that’s up to you. ---
**Author:** ![Aspidistra](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/aspidistra/32/3894_2.png) [@Aspidistra](https://boards.straightdope.com/u/Aspidistra)\ **Post date:** [January 5, 2011, 10:25pm UTC](https://boards.straightdope.com/t/third-world-contributions-to-first-world-living-standards/566358/33 "2011-01-05T22:25:37Z")
> [@xtisme](#): > > You would have to posit that all low wage labor would suddenly be unavailable to really look at effects. If, say, China decided to stop exporting low quality high volume goods and services, for instance, then there would be a short term effect (the prices for those goods and services would go up since supply would be down), but countries like India would take up the slack as capital flowed to them to spin up to meet the new demand. > > The trouble with this is that I don’t think it really reflects even ball park reality. For instance, the rise in wages will be slow…it’s not going to go from $.05 to $5/hour overnight. That’s going to be a process of years. For a time, rising prices aren’t going to really be reflected in the price of the good, either, because there is always some slack in the system, and there is always room for increased efficiencies to counteract a rise in the cost of labor. Labor is, after all, only one of the costs of a good or service. Once the price of labor rises in, say, Bangladesh, then a few things might happen. One is that the perceived quality of the good might enable it to still be purchased even at a slightly higher cost. I doubt you’d go from $5 for a shirt to $20 overnight, but if the perception of quality is there then I could see $5 to $10 easy enough. Or, the shirt manufacturer might orient to a new market (a niche market, say, making concert tee shirts or some other higher value shirts or clothes). Or, the shirt manufacturer might move their low end tee shirt manufacturing plant to a new country where they can meet their target labor price, and switch the manufacturing in Bangladesh to some higher end manufacturing. Or, Bangladesh might lower taxes or give the company some other incentive to stay. > > Of course, it could be a combination of some or all of those things. And what might happen is that, as the workers in Bangladesh have more capital to spend, they might ALSO want some tee shirts. Even if the margin shrinks for the company on individual sales of tee shirts due to the rising cost of labor, if the company increases it’s volume of sales that could certainly make up for the shrinking margin. Sell 1 million tee shirts at $5/shirt with a profit of $2 or sell 100 million at 6 with a profit of .5 (just making those numbers up out of thin air to demonstrate the point…they aren’t realistic nor intended to be). > > The real world effect of all of this is that the 1st world country who buys those goods and services living standards aren’t materially effected (they may have to pay a couple bucks more for a tee shirt, but overall western standards of living are rising, when we aren’t in a big freaking recession). And the standards of living for the folks in Bangladesh are rising as well, since they have gone from being subsistence farmers or whatever to manufacturing workers. The government there is also enriched both from new tax revenue from all those workers as well as whatever taxes they are getting from the company to set up shop there. They are also probably getting incrementally better infrastructure in the bargain (you have to be able to ship all the raw materials in and ship the goods out, so you will need reliable roads…same goes for phones and data networks). > > But why would Fiona’s standards of living go down? She now has access to another customer for her pottery, has access to a new good she didn’t have before (sweaters), and if she still wants someone to clean her house I’m sure she can find someone willing to do that. For that matter, Jodie might also want someone to clean HER house now, since she is doing the knitting thing, so that might be a great opportunity for someone to build a maid service business right there. > > -XT I will admit there’s one highly unrealistic element of my thought experiment, which is that I’m positing one high-income person, a bunch of medium-income people, and only one low-income person. Which doesn’t tend to happen in real life where you get ether a flattish distribution or lots more poor people than rich people. Still, I’m pretty sure that in my example, I’m pretty sure that Fiona’s standard of living does go down. The increased wealth represented by the sweaters is spread out over the whole community, but the negative effect of the loss of cheap labour is only felt by one person. It’s perfectly possible for the total wealth to be increasing at the same time as there being losers, as well as winners, if you focus on particular individuals (or classes of individuals) Going back to the original “whole world” example - I’m definitely assuming that the total wealth of the whole system rises (a lot!) since anything which ends up with 3 billion third world residents demanding first-world wages has obviously raised their standard of living by orders of magnitude. Still, in order to argue that this benefits first world residents as well, I think it would be necessary for the first world to retain its relative advantage over the third world (that is, even though they have increased skills and are now creating lots of value and getting paid well for it, we can still create more value _than they can_) ---
**Author:** ![XT](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/xt/32/456_2.png) [@XT](https://boards.straightdope.com/u/XT)\ **Post date:** [January 5, 2011, 10:33pm UTC](https://boards.straightdope.com/t/third-world-contributions-to-first-world-living-standards/566358/34 "2011-01-05T22:33:47Z")
[QUOTE=Aspidistra] Still, I’m pretty sure that in my example, I’m pretty sure that Fiona’s standard of living does go down. The increased wealth represented by the sweaters is spread out over the whole community, but the negative effect of the loss of cheap labour is only felt by one person. It’s perfectly possible for the total wealth to be increasing at the same time as there being losers, as well as winners, if you focus on particular individuals (or classes of individuals) [/QUOTE] Like I said, I don’t see why it’s a given that it must go down. After all, now she has a new customer for her pots, and has access to a new resource in those sweaters. As for cleaning her house, unless you posit that Jodie was the last person in the area willing to do housework, then if there is a need and a market for such service, someone will be willing to do it…and now that person as well will become a potential customer (as well as a potential resource for other folks, such as the new sweater maker, to use in the future). It’s a simplistic example, obviously, and a village is a pretty closed environment, but in general, someone raising up does not necessarily have to have someone else correspondingly go down. There is no fixed amount of wealth out there, such that if I get more, you get less. Instead, wealth can expand (or contract) based on what everyone is doing and how they are interacting. If you make a new good or provide a new service, then that creates the potential for new wealth in our little system. Not only does that provide the potential for me to have a new customer that didn’t exist before, but it gives me access to that new potential good or service in return. -XT ---
**Author:** ![msmith537](https://avatars.discourse-cdn.com/v4/letter/m/d9b06d/32.png) [@msmith537](https://boards.straightdope.com/u/msmith537)\ **Post date:** [January 6, 2011, 12:15am UTC](https://boards.straightdope.com/t/third-world-contributions-to-first-world-living-standards/566358/35 "2011-01-06T00:15:12Z")
> [@Le\_Jacquelope](#): > > Hilarious. > I love this… We aren’t the same person, dumbass. Just because we both disagree with you doesn’t mean we can’t disagree with each other. And \*\*puddleglum \*\*is mistaken. An economy cannot produce if it does not have access to energy and raw materials. What do you think will happen to fuel prices if demand increases tenfold? > [@Le Jacquelope](#): > > No I haven’t. I’ve put up points that you simply cannot answer. The only thing you can do is spout regurgitated propaganda and you’ve been found unable to support it with any facts. The willful ignorance here lies with you, not me. Then I just don’t care. You have been provided with countless facts from countless publications. Read them on your own time or wallow in ignorance. ---
**Author:** ![Dr.Love](https://avatars.discourse-cdn.com/v4/letter/d/e8c25b/32.png) [@Dr.Love](https://boards.straightdope.com/u/Dr.Love)\ **Post date:** [January 6, 2011, 1:03am UTC](https://boards.straightdope.com/t/third-world-contributions-to-first-world-living-standards/566358/36 "2011-01-06T01:03:54Z")
> [@Aspidistra](#): > > There are definitely elements of our economies that are directly dependant on low wages in the Third World. Masses and masses of cheap consumer goods, electronics, clothes, toys, some foodstuffs. If you are going to argue “it wouldn’t make a difference” then you have to argue not that the prices of these things wouldn’t change, but that other elements of the system would necessarily change enough that the net effect would be neutral/positive. > > So the timeline is something like this (explicit numbers pulled out of arse for indicitatory purposes only) > > 1. Unskilled wages in Africa/Cambodia/Bangladesh rise from 5c an hour to $5 an hour. > > 2. Now with the added cost of labour, a $5 t-shirt costs $20. So you can buy fewer T-shirts. Bummer! > > 3. But wait! Now with everyone in Africa/Cambodia/Bangladesh having 100x more wealth than before, some of those guys are going to be in a position to buy some fancy software from Silicon Valley. So the folks in Silicon Valley can afford to buy more T-shirts, even at $20, than they could before at $5. And it all evens out. > > How do you determine the relative values of steps 1 and 3? Why would step 3 _necessarily_ counterbalance (or more) step 1? The thing you’re missing is that 1 does not necessarily lead to 2. IMO, this thread has been over since **puddleglum** made his first post, but let’s explore it a little bit. > [@puddleglum](#): > > If the wages in the 3rd world rise to the level of the first world then productivity will have gone up commensurately. … [A]s a whole it would be a boon for the first world economies. It would mean millions of more research scientists and product developers. In recent years there have been complaints that growth in worker pay has been diverging from the growth in worker productivity in the US–although workers are producing more, they pay has not increased quite enough to mirror this. A thread about the third world is not the place to argue this point, but [here](http://research.stlouisfed.org/publications/net/20070301/cover.pdf) (pdf) is a short document produced by the Federal Reserve Bank of St. Louis comparing the growth rate of productivity to the growth rate of average hourly compensation (wages, essentially) and total compensation (wages + benefits + overtime and bonuses). Note that productivity and total compensation have grown at similar rates, though productivity has grown slightly faster, suggesting that the relative cost of labor has been decreasing over time, despite increasing worker compensation! But this thread is about rising wages in the developing world. So let’s suppose that wages in some part of the third world, but companies don’t want to increase their costs, or increase the prices their customers pay. They have basically two options: [ol] [li]Move to a place where labor costs are cheaper.[/li][li]Make their workers more productive. This can be done in a couple ways:[/li][LIST=a] [li]Increasing the training of their workforce, either by hiring better trained workers, or by training current workers.[/li][li]Providing their workers with more tools to enhance their work, for example, by increasing the amount of automation in a manufacturing line. The ratio of capital to labor is called “capital intensity” by economists. When capital intensity is increasing, economists call it “capital deepening.”[/li][li]Increase the quality of capital for their workers, even if capital intensity is not increased. This can result from technological change making manufacturing equipment that works faster, for example.[/li][/ol] [/LIST] If all countries come up to the wage level of the US, the appeal of option 1 will be decreased (but not eliminated), but there is still plenty of option 2. Let’s take a look at the effect of capital deepening in China. First, [this pdf](http://www.soas.ac.uk/cdpr/publications/dv/file45192.pdf) discusses the change in strategy from 1 to 2 in China’s economy: > [@](#): > > During an earlier period, namely, 1978-1992, China was able to sustain a rapid rate of economic growth that was accompanied by a similarly brisk increase in employment. However, such employment generation was attained through wage stagnation—i.e., maintaining a cheap supply of labour in order to boost the export of manufactures. > > Since roughly the mid-1990s, in contrast, a significant increase in real wages has accompanied rapid economic growth—but at the cost of a slowdown in employment creation. See the figure for the growth of real GDP per capita and urban wage rates. After about 1998, in fact, wages have increased faster than GDP. > > … > > Real wages have increased, principally because of rising labour productivity but also because of a resurgence of union membership, increased enforcement of minimum wages and the strengthening of government protection of labour rights. In addition, the Government has re-emphasized redistributive measures, expanded social welfare coverage and endeavoured to reconstruct a publicly funded health-care system. > > These factors have contributed, directly or indirectly, to enhancing the compensation of labour, and thus to promoting a more ‘harmonious society’. **China is experimenting with a new model of development, both capital deepening and compensation enhancing. … Capital deepening that implies broad-based increases in labour productivity, and therefore in real wages, represents the most promising basis for China’s development, enabling it to close the gap between its low income levels and developed-country levels.** [My emphasis] The article notes the decreasing number of Chinese willing to work for the very low wages that sustained its economic growth through the early 1990s. This point is echoed by a [2007 article in the New York Times](http://www.nytimes.com/2007/08/29/business/worldbusiness/29labor.html?_r=1) and a [month-old article in Business Week](http://www.businessweek.com/globalbiz/content/dec2010/gb2010121_834644.htm). These articles also investigate the balance between rising wages and rising productivity. Business week notes that, in the past 20 years, wages “have risen by an average of 13 percent a year in U.S. dollar terms and 19 percent annually in the past five years.” Discussing productivity, the Times writes: > [@](#): > > The hardest variable to judge in China’s changing labor market is the pace of productivity growth. Since there are few reliable statistics, the best way to assess productivity is to look at individual factories like the Dahon operation here, which produces bicycles that collapse for easy storage. > > David T. Hon, chief executive of the privately held Dahon Group, said that while he had been raising wages 10 to 15 percent a year, the average labor cost for each bicycle had actually edged downward. This is possible, he said, because sales are growing 30 percent a year and increasingly large-scale production has brought savings. The cost of engineering a new bicycle design, or handling the accounting and other back-office operations, is spread over more and more bicycles as production rises. And Business Week: > [@](#): > > Over the past 20 years, productivity increases have broadly matched wage increases, negating their impact. The pay rises came from a very low base, so while average wages grew 19 percent a year from 2005 to 2010, this amounted to only $260 a month per employee, a sum that could be offset by more efficient production or switching to cheaper sources of parts and materials. Both articles express concern that rising wages in China will begin to outstrip the pace of productivity improvements. What does all this mean for a global increase in wages? It seems to me that the principle effect will be a dramatic increase in the capital intensity of previously low wage labor. What this will do to the price of clothing and cheap electronics is difficult to say. However, it seems that it will produce a dramatic increase in the wealth of even the first world. ---
**Author:** ![tomndebb](https://avatars.discourse-cdn.com/v4/letter/t/b9e5f3/32.png) [@tomndebb](https://boards.straightdope.com/u/tomndebb)\ **Post date:** [January 6, 2011, 3:10pm UTC](https://boards.straightdope.com/t/third-world-contributions-to-first-world-living-standards/566358/37 "2011-01-06T15:10:00Z")
> [@msmith537](#): > > . . . dumbass. You know better. Knock it off. [/Moderating] ---
**Author:** ![Lust4Life](https://avatars.discourse-cdn.com/v4/letter/l/ecc23a/32.png) [@Lust4Life](https://boards.straightdope.com/u/Lust4Life)\ **Post date:** [January 6, 2011, 6:33pm UTC](https://boards.straightdope.com/t/third-world-contributions-to-first-world-living-standards/566358/38 "2011-01-06T18:33:59Z")
> [@Stoneburg](#): > > Wait… what? You made a statement, I asked where you got your information from, indicating that it was news to me, and now I have to “put up or shut up”? Is it like “show me yours and I’ll show you mine”? Do we have to post cites simultaneously or is there a rule that decides who goes first? > > . So what you’re saying is that you have absaloutly nothing whatsoever to back up the opinion that you posited as fact, and have tried to distract people from this by using the rather worn out tactic of shouting out “Who farted ?”… When all of along we knew it was you. The Dope works on facts and logic, not on "Well everyone knows such and such etc.etc. " My disclaimers , I am most certainly not a Mod or similar.just an ordinary Doper. ---
**Author:** ![Le\_Jacquelope](https://avatars.discourse-cdn.com/v4/letter/l/e0b2c6/32.png) [@Le\_Jacquelope](https://boards.straightdope.com/u/Le_Jacquelope)\ **Post date:** [January 6, 2011, 8:33pm UTC](https://boards.straightdope.com/t/third-world-contributions-to-first-world-living-standards/566358/39 "2011-01-06T20:33:46Z")
> [@msmith537](#): > > We aren’t the same person, dumbass. Just because we both disagree with you doesn’t mean we can’t disagree with each other. > > And \*\*puddleglum \*\*is mistaken. An economy cannot produce if it does not have access to energy and raw materials. What do you think will happen to fuel prices if demand increases tenfold? Exactly. Which is just one reason of many why if economies around the world equalize, things will get really, really expensive. Even you with your “knowledge” of economics should be able to chance a guess as to how this’ll affect standards of living. And it’s not just oil that’ll go up - demand on all sorts of natural resources will cause their prices to go up. Shortages will happen. Meanwhile, through free trade, we’re siphoning natural resources from poor countries to rich countries and at the rate we’re going they may not have enough left to make themselves rich… > [@](#): > > Then I just don’t care. You have been provided with countless facts from countless publications. Read them on your own time or wallow in ignorance. And you, too, have been presented with countless facts from credible sources that contradict you. Feel free not to care; but don’t get mad when your pro-offshoring enclave -er, um, forum, has to put up with someone else willing to grind you down over your glaring inaccuracies and faulty logic. Judging by how many people see right through the bullshit that is pro-offshoring logic, it should not be long. ---
**Author:** ![XT](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/xt/32/456_2.png) [@XT](https://boards.straightdope.com/u/XT)\ **Post date:** [January 6, 2011, 8:50pm UTC](https://boards.straightdope.com/t/third-world-contributions-to-first-world-living-standards/566358/40 "2011-01-06T20:50:44Z")
[QUOTE=Le Jacquelope] Judging by how many people see right through the bullshit that is pro-offshoring logic, it should not be long. [/QUOTE] This reminds me a lot of AGW skeptics claiming that any day now the tide will turn because so many people (most of which aren’t experts in the field and are pretty much clueless on the subject) ‘know’ that AGW is a bunch of bullshit and isn’t really happening. Of course, you’ve gone on record in previous threads that you don’t believe the ‘so called’ experts on things like free trade or economics…you base your BS on the supposed ground swell of populist anti-outsourcing/anti-free trade/pro-tariff folks, yearning to impoverish themselves and pay more for less. -XT [Previous page](https://boards.straightdope.com/t/third-world-contributions-to-first-world-living-standards/566358.md?page=1)