Friday, March 25, 2011

A World Without Borders

I read an interesting interview in Fortune titled Where in the World is Cheap Labor?, which was an interview with Auret van Heerden, the CEO of the Fair Labor Association, an anti-slave labor group. Basically, it confirms everything Doctor Biobrain has been saying about the exploitation of cheap labor.  And as I've always said, the more Big Business relies upon these places, the sooner they'll develop a middle class and improved labor conditions.

Exploiters don't create inequality.  They exploit the inequality that already exists.  And by doing so, they slowly begin to depend upon a more productive and sophisticated labor force.  As it turns out, smart workers are better workers.  And of course, the more people you employ, the more managers, middlemen, and accountants you'll need to keep track of it all.  And you have to pay those people real wages.

And so Big Business will continue to flow into these places, up to the point that the expense of being there is in balance with the productivity they'll get from the workers.  And once the workers become too expensive, then Big Business will move to the next Second World Country and start anew.

It's like they're reverse-locusts.  They swarm in to suck the countries dry, but end up leaving them more prosperous than they arrived.

Note: This is only in reference to the exploitation of cheap labor, not the exploitation of natural resources; which goes by a completely different set of rules.

Second Note: The processes I'm talking about occur over decades, not years.   But in the grand scheme of things, a few decades is nothing.  Important change never happens overnight.

Economic Tide

And as the Fortune article asks, what happens when globetrotting Big Business finally finishes their sweep of the globe, and each major area has already seen wages rise to an economic balance; and then what?  What can they do when there is no relative inequality between the various nations?

What else?  Raise wages for everyone.  And where's the money going to come from?  Consumers, and hopefully, profits.  But it was all inevitable, eventually.  As much as it pains them to realize it, we're worth more to them as workers than slaves, and there really is no such thing as a free lunch. 

At this point, I'm just going to quote the first two Q&A's, as van Heerden does a better job than me at explaining it.  Enjoy!

Is China still an option for global manufacturers seeking lower costs of production?

It's an incredibly fast-moving situation. Labor markets which we previously thought were inexhaustible, like China and India, have actually tightened up quite dramatically. Employers can't get workers. Wages have gone up. Add to that the energy cost increases, and the factories, the contract manufacturers, are now suddenly squeezed. So they're turning around to their buyers -- to the retailers or the brands -- and they're saying, "Hey, my prices need to go up." And the brands are saying, "Whoa! We don't think we can pass those prices on to the consumer." There's something of a train smash looming.

Won't they just look for cheaper alternatives elsewhere?

They're wondering if they could push more stuff to Bangladesh or Vietnam or Indonesia and so on, but the options are limited. The last country added to the supply chain was Cambodia in 2000, and there are only one or two places left. People are looking at Africa again to see if there isn't something that they've overlooked there. Finding another cheap platform, another cheap country, was the default until now, but frankly that's no longer an option. There's nowhere else to go.
It's always a mistake to extrapolate the future from how things are exactly right now.  In the grand scheme of things, there's no such thing as a free lunch.

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