A question regarding free trade... cheap labor inhibiting innovation?

[Sava]

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

[Az]

I've heard that the fall of china was due to having too much people.

[yavoon]

hasn't american manufacturing production gone up like 50% over the last 10 years? I think i read that in the economist.

[Sava]

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

[yavoon]

k so basically yav is right. YAY!

[Q Classic]

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.

[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.

[yavoon]

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.

[chequita 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.

[yavoon]

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.

[Theben]

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.

[chequita guevara]

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.

[Sava]

Correct Che... yavoon you are making my point for me.

[yavoon]

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.

[Japher]

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)...