Before you buy your next pair of running shoes, consider the following: the Chinese worker who made your shoes (working for Nike, Adidas, etc.) makes on average $210.27 USD a month. A pair of Nike shoes in China costs $235.00. Their entire monthly wage is not enough to buy one pair of shoes.
The low wages of Chinese workers are made possible by globalization (a process whereby trade barriers between nations are removed n in favor of greater and greater economic integration). Globalization focuses on removing un-necessary production costs, i.e. the more a product costs to produce the less profit can be derived from it.
Therefore, corporations compete with one another to offer the best quality and cheapest goods to consumers; in order to be competitive Nike has to manufacture shoes in countries that have minimal labor or environmental standards; this is because you can produce goods (and maximize profits) for far more cheaply in countries that don’t have labor unions or protections or pensions for workers; it was for this express reason that North American corporations moved first to Mexico with the passing of the North American Free Trade Agreement (1994). Mexico, compared to either Canada or the United States, offered a cheap labor market and a government weakly protecting its environment. Within ten years of the passing of NAFTA, Mexican workers followed their Canadian and American counterparts and began unionizing; also, the Mexican government started to more heavily regulate (protect) its environment because the true cost of doing nothing was costing Mexico an extraordinary amount of money annually with mounting healthcare costs related to the polluting of its air and waters.
Since Mexico no longer provided a competitive labor market, corporations began looking overseas to the markets of China and India. Anxious to maximize profits and protect their share holders, corporations (and the high paying jobs they once provided to American and Canadian workers) abandoned North America. Thus, North America’s middle-class began contracting in 1994 and continues to shrink in the present day.
Globalization has had the positive impact of increasing overall global wealth and production/consumption; however, this wealth has not been equally shared (nor should it be in a capitalist system); yet, even under a capitalist system—premised upon the idea that greed is a form of virtue—a more equitable distribution of wealth than what we currently have in place would be not only more ethical, but from a technical standpoint, healthier for the proper functioning of free markets and capitalism itself, i.e. if no one other than corporate bosses (a small corporate elite controlling the vast majority of the globe’s wealth) have money, who then will “grease” the wheel and purchase the products which make capitalism function in the first place? Capitalism is premised upon mass consumption and last time I checked 10,000,000 well paid workers would consume more than 1,000 billionaires, e.g. houses, shirts, cars, student loans, vacations, etc. etc.
It’s interesting that the famed economist Adam Smith (1723-1790 AD) observed the public would benefit from the greed (or the profit motive) of individuals. Regrettably, the understanding of capitalism for many begins and ends here. What a lot of people don’t realize is that Smith would not likely support the current neo-liberal globalization regime (otherwise known as unfettered capitalism). Smith argued that not only greed, but also “reciprocal obligation,” formed as an important basis of the economic system where it actually mattered if one made decisions in sole pursuit of profit that hurt others because doing so compromised the public good.
Globalization has become a topic during the American presidential election. Donald Trump claims he’s going to bring back those lost manufacturing jobs to the United States. In reality he will not be able to do this despite promises to do so: firstly, Trump either does not understand how or why globalization works the way it does (which I find doubtful given the fact his businesses exploit cheap labor and low environmental standards like any other smart corporation); secondly, globalization has a certain inescapable gravity to it that even “The Donald’s” personality cannot overcome.
Consider the following hypothetical situation: We have two corporations which the same product.
1). Corporation A moves to China where it can hire non-unionized (cheaper) workers and work in an environment where the “real cost” of producing something is not factored into the manufacturing process. The economist E. F. Schumacher used the phrase “real cost” to refer to the entire cost of producing something on the environment, society, to future generations, etc.
2). Corporation B remains in the United States where it hires unionized (costly) workers and must work with state regulators who factor in and require corporations to clean up their messes and include the “real cost” into the price of their goods (making their goods comparatively speaking more expensive than corporation A’s goods).
Assuming consumers make “rational choices” (which is an assumption made by most economists when they construct their models), consumers prefer to buy the cheaper product (especially if the quality of the two competing products is essentially equal). In this hypothetical situation, corporation A produces their product for less and consumers will purchase their products over corporation B’s goods. Corporation B can either continue being out-competed (and face going out of business) or it can seek out a cheaper place to extract raw resources and produce. There’s a reason Adidas, Reebok, New Balance, etc. all followed Nike to China; if these other shoes companies didn’t move, they would have been out-competed and pushed out of the market. If Mr. Trump hopes to bring jobs back to the United States he will have to address this “competitive gravity” pushing corporations to cheap labor markets (which I don’t believe can be done).
Trump’s solution, it appears, is to tax goods imported to the United States from China; this would make goods produced in China more expensive and thereby makes goods produced in the USA more competitively priced; that being, goods produced in America are more expensive to produce because American workers demand higher wages and governments require corporations to pay for the cost of cleaning up or protecting the environment.
Tariff walls, according to Trump’s logic, will level the playing field; however, what Trump fails to articulate is consumers, even American consumers, want to pay the least amount possible for any particular good; and corporations forced to produce at greater expense in the United States will not be able to export their expensive goods to other countries…there’s no way getting around the fact that so long as China and India have minimal labor and environmental standards the world’s workers will continue to be vulnerable to the “profit motive.”
What I find infinitely interesting, corporations in the early 20th century used to exploit cheap immigrant labor that came to North America (which helped convince people of the need to form unions to protect both workers born here and those who moved here); however, under globalization corporations now literally move to countries to find those cheap laborers.