January 10, 2008

Harford highlights 2

Highlights/Lowlights Chapters 6-10 The Undercover Economist
For me, the highlight of these chapters was the part about sweatshops in Asia and South America. What got my attention here is that it is both a positive step up in the developing world and how people view globalization.
The accepted view of globalization is that there are poor people being repressed by big, evil multinational corporations. In addition to this the multinationals are simultaneously creating poverty in wealthy countries by no longer employing people there. They’re out to get us. What this view ignores is that the multinationals paying lower wages also charges the consumer in the developed world a lower price. The worker who lost their job in the developed world also has opportunities to gain new skills and move into a new field whereas the worker in the developing country most likely does not.
The view of globalization as a harm to the industrialized world is the most interesting part. If a company closes a factory it is because it is inefficient. The most likely reason is that it is costs more to produce than the value of the good in the marketplace. If the company were to raise the price, they would lose all of their business to more price competitive companies. However, if the company were to move its operation to place where it can pay lower wages and regain its price competitiveness it will. The really great thing about this is that nobody is forced to take the position.
When a multinational company makes the decision to move its manufacturing overseas it does so to a place that allows for freedom in economic choice. What I mean is a company is most likely to move its manufacture to a place where people choose to work there. There is no slave labor left in the world. The fact that people can choose to work for a company implies that they have options. Nobody will knowingly take an option that will make them worse off. If the working conditions in anyplace are too bad, nobody will work there without charging a premium wage. The people working in what the industrialized world considers sweatshops are working there because they perceive it to be their best alternative. While the working conditions are not such that any of us would work there, the conditions are adequate to the people who choose to take the jobs.
The other part of this is that when the multinational companies move into a new place they often create conditions and pay wages that are meant to attract the best workers available. This encourages other local companies to raise wages to compete for the best labor available in the market. The increased wages meant that there is now more money to spend on consumer goods, housing, and education. This will cause increases in wages for producing consumer goods and housing, bringing people out of rural areas and causing prices for agricultural products to rise to something more sustainable for the population of those rural areas. As consumers make more money they also begin to demand a higher quality of the goods that they are purchasing. This will raise the standards of working conditions as well as wages for the most qualified workers.
The increased wages also allow for money to be spent acquiring and education. This raises skill level in the workforce while it raises awareness and participation in the political process. All of these things will increase the standards of living in the country and cause it to grow economically. Together, all of these factors mean that the deplorable working conditions and wages a multinational force on the people of impoverished nations will actually raise the living and working conditions in that impoverished nation given time. Furthermore, the educational advancements will allow the people there to diversify and retrain or gain new skills should the sweatshops move on. Much like what has happened in the United States and the United Kingdom since the industrial revolution. Overall, globalization doesn’t have any long term losers. It can’t be that bad.

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