Thursday, November 23, 2006

Best of Captain Capitalism - Lou Dobbs is a Moron

This more or less explains why you shouldn't bother with CNN.

FOREIGN LABOR

Overview

In the never ending effort to cut costs and maximize profits, companies are always looking for the cheapest source of labor. This often means looking outside borders as foreign labor typically offers a cheaper alternative to domestic labor. But no matter how logical, the practice of outsourcing jobs overseas is very unpopular. Sending jobs overseas not only cost jobs at home, but deprives us of future jobs that would have otherwise been located here. But the issue of foreign labor is more complicated than most suspect and warrants a deeper look in order to fully understand its effects and consequences for an economy.

Data



Analysis

While cheap foreign labor most certainly costs jobs at home, there are several overriding benefits to employing foreign labor. Foremost of which are cheaper goods and services.
Since labor is one of the largest expenses in the production of a good or service, by employing foreign labor we are able to produce those same goods and services at a cheaper price. This is a very unappreciated benefit to foreign labor since lower prices increase purchasing power universally. And by increasing purchasing power universally we not only increase the standards of living for a select few, but all people, especially the poor.

Another rarely contemplated benefit to foreign labor is that it frees up capital and labor resources to pursue more profitable ventures. By sending textile jobs to Bangladesh or Thailand, billions of dollars in resources are freed up here at home to pursue more profitable industries such as software programming, pharmaceutical development, electronics, and media. And perhaps even more important is that resources are freed up to pursue new, creative and innovative ideas and technologies that will advance and benefit society; the Internet, hydrogen powered cars, cures for diseases, etc.

It is in pursuing these more profitable and innovative industries that foreign labor provides us with another simple, yet overlooked benefit; the luxury of offloading dangerous, hard, and low paying jobs and replacing them with safer, easier, and higher paying ones. With each successive economic "revolution" old, hard, dirty and dangerous jobs are replaced by cleaner, easier, safer and more profitable ones. No longer does Jimmy Patriot have to till the fields with his mule for 80 hours a week just to get by in colonial America. Now Jimmy Javascript sits at a comfortable desk, barely breaking a sweat in an air-conditioned room programming C++ earning 18 times as much as his revolutionary ancestor, largely in part thanks to foreign labor.

But no matter how many reasons and benefits there are to employ foreign labor, any debate about foreign labor is actually quite irrelevant simply because there is no argument to be had. Foreign labor is a reality, it is an unavoidable fact of life. Labor transcends all borders and, like it or not, foreign competition is here to stay especially given advances in transportation and communications technologies which make it even more economical to employ foreign labor. This reality can either be accepted, faced up to, and welcomed as a benefit to society, or it can be feared, ignored and futilely fought against with government regulation that will only prove detrimental to society.

Capitalist Arguments

The true strength of an economy is not just its ability to produce more goods and services, but to produce them at a cheaper price. This is the single most important strength of an economy as it does more to pull people out of poverty than any government program ever could. It is by making goods and services cheaper that we make them affordable to the masses and thereby enhance the wealth and standards of living of all people. And to obstruct any attempts to make goods and services cheaper for the masses for one’s own selfish interests is the epitome of greed and arguably evil.

Such arrogance is demonstrated by unions and protectionist who insist on forcing the remaining 280 million Americans to pay higher prices and forsake a higher standard of living to subsidize a job that has either become obsolete or has priced itself out of competition.

Furthermore, employing foreign labor sends a wake up call to our own domestic labor force; that we are not the only people on this planet and that we are eternally in competition with foreign labor. Thus it behooves us to not only produce, but to produce more efficiently and to educate our labor force so that they not only work harder, but smarter.

Socialist Arguments

1. Cheaper labor doesn’t necessarily result in cheaper goods and services. There’s nothing to stop corporations from keeping the extra profit by employing foreign labor. Therefore instead of passing on those savings to the consumer, corporations just keep the profits for themselves, but we still lose out on the jobs.

2. While we may benefit from lower prices, we lose jobs. This loss of jobs not only costs us income, but additional income .

3. You won’t be ensured of the quality of work performed by foreign labor. Products may be faulty and even unsafe. By using US labor those products are subjected to the same laws and regulations

4. The new jobs (if any) that are created are lower paying jobs resulting in underemployment.

Counter Arguments

1. This argument would be true if all corporations in the US were monopolies. But the fact is corporations are in perpetual and intense competition with each other (despite conspiratorial theories that all corporations are under one sentient entity). And by sending jobs overseas they are not so much pursuing additional profits, as much as they are trying to remain competitive. It is the forces of competition, a vital and required component of capitalism, that ensures those costs savings are passed on to the consumer.

2. There most certainly is a cost to employing foreign labor and that is a foregone job at home. Fortunately, despite this massive exodus of jobs offshore, more jobs are created than destroyed as evidenced by US job turnover. This shows that (excluding times of recession where it’s obvious more jobs would be destroyed than created) even with all the jobs being sent overseas, as well as those domestic jobs that through the natural course of economics are eliminated anyway, the US economy creates more jobs than were lost. And while there are no figures that exist as to just how many jobs are sent overseas, a very detailed breakdown and analysis of job loss figures (performed by Jacob Kirkegaard of the International Institute of Economics) shows that of the total amount of jobs lost, the vast majority are due to natural economic forces and not outsourcing.

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Furthermore, the jobs sent overseas are predominantly more mundane, boring, labor intensive and less desirable than the jobs that replace them. However, there is a drawback to the new jobs in that they usually demand a higher level of skill or training. This is why it’s vital to educate and train your labor force so that they are able to perform these intellectually and skill-demanding jobs.

3. Commonly used by labor unions to protect their jobs, they are largely the victims of their own success. By driving labor costs so high in certain industries, unions have effectively priced themselves out of competition and either driven their former employers into bankruptcy or offshore.

4. The "underemployment argument" is a typical argument any time there is a recovery in unemployment or jobs growth. While being forced to admit the unemployment rate has gone down or jobs have been added to the economy, the left will still critique that progress by claiming the jobs are poor and low paying. The only problem with this argument is that there is no way to prove it simply because the US does not measure underemployment. In other words, whoever uses this argument doesn’t know what they’re talking about. A very simple solution to the argument is to ask "what’s the underemployment rate?" Most will say they don’t know and then revert to anecdotal evidence, but there may be some foolish enough to guess the underemployment rate even though it doesn’t exist.

13 comments:

Captain Capitalism said...

Hey hey hey, I'm all for including Canada, but you're going to have to take that up with the Foreign Labor Service division of the BLS. To quote Donald Sutherland from the movie Kelley's Heroes,

"Hey, I only ride them, I don't know what makes them work."

Cpt. C.

JTapp said...

If they didn't work for that .43/hr at the plant, they'd be sold into prostitution, as is the case in much of Bangladesh. By shutting down those factories, you take empowerment away from many of those people who depend on those wages. Low wages are better than no wages at all.

Hooray for comparative advantage!

David_Z said...

looks like someone found a way around the word verification...

David_Z said...
This comment has been removed by a blog administrator.
David_Z said...

but funny you tackled the labor issue. I've responded to a laughably ignorant piece in "Worker's World Online" relating labor costs at Ford...


read it here

John Newman said...

Interesting analysis, and seemingly accurate, as far as it goes. The problem I see is in your last counter argument. You are correct in stating that "under employment" is not measured. But that doesn't mean that it doesn't exist. Here's a personal example for you:

Three years ago I lost my manufacturing job due to so-called "free trade." I can actually trace a timeline from the time NAFTA was signed, to the time our clients moved their operations to Mexico and the Philippines.

I found another job (I'd rather work than be on welfare), and have gone back to school to be "retrained." In the meantime, I have lost nearly a third of my income. My savings and retirement funds were wiped out during the period I was unemployed, my debt to income ratio has skyrocketed, and there is no clear end in site. Before you start going on about all the things I can do without, let me tell you that I live a very modest lifestyle. In fact it's gotten even more "modest" over the last three years. It's what has allowed me to keep my very modest house in spite of my income loss. Many of my friends who have been effected by this haven't been so lucky.

It's hard for people like me who are personally affected by outsourcing and "free trade", to look at it as anything other than bad for U.S. workers. It may be good for company owners. It may result in lower cost goods. But import goods are not those required for life. How much food, housing, and medical care can be imported? I maybe able to better afford useless electronic toys, but keeping my family fed, in good health, and with a roof over their heads has become much, much harder.

JTapp said...

John Newman:

There's quite a bit of discussion on how gov't can help ease the pains of the changes in income distribution as a result of free trade. To "soften the blow," if you will.

I'd still argue that free trade benefits our nation as a whole, but understand that some people get jerked during structural changes.
I see people experience your pain in all of my travels.

I think your kids will be better off in the long-run (if they work hard in school), but that's not a very compassionate word towards you. For that, I'm sorry.

David_Z said...

John Newman:

I will not mention any of the things you can "do without," that's a judgement call for you, and only for you to make. But I've got a couple counterpunches:

"... But import goods are not those required for life."

I'm not sure I understand this statement. As far as I can tell, it seems that you do not value very highly the useless trinkets that we import from other countries - if this is true - that these goods are not essential, why would you support any economic program that forces those goods to be made domestically, diverting scarce labor and capital resources from producing the other, more needful things in life?

"It may be good for company owners. It may result in lower cost goods."

And you're missing the point entirely - it benefits everyone, net, despite the personal hardships that always accompany an economy in flux, and since there is no such thing as a static economy, I think we can agree that there will always be workers whose jobs are rendered obsolte by technology or competition. What ever became of the typerwriter repairman? I bet he didn't like the advent of word processors very much...

The fact that we're able to import cars, and televisions, and iPods, and computer parts, and whatever else it is we import plays an EXTREMELY significant role in your ability to make due during times of crisis, like the loss of a job. If you think you're having a hard time affording things now, imagine how much harder it would be if everything you wanted to buy cost 2 or 3 or 10 times as much as they do today. Doubtless you, and me, and many others, would be in line at a soup kitchen or begging for alms on the streetcorner.

"It's hard for people like me who are personally affected by outsourcing and "free trade", to look at it as anything other than bad for U.S. workers."

And while I empathize with you (I myself am underemployed) I regret that you're only examining one side of the issue. U.S. workers, who you claim are negatively affected by trade, make up an overwhelming majority of U.S. consumers. Namely, 100% of U.S. consumers. To ignore the unseen is to lend credence to the argument that EVERY consumer in the nation should pay more for houses, cars, toys, shovels, hammers, etc., merely because 2 or 3 towns in Pennsylvania are dependent on the US steel industry. And this argument suggests that the US steel industry (or any industry deemed worthy of protection) is somehow more noble than any other profession, is an industry on which our nation is entirely dependent, and a host of other absolute untruths.

More importantly, however, is the implicit argument that a handful of people in Pittsburgh (or Detroit, MI if you prefer an automotive example) can effectively make and impose choices for 280 million other americans.

Frank said...

doinkicarus: "And this argument suggests that the US steel industry (or any industry deemed worthy of protection) is somehow more noble than any other profession"

I'm a software engineer - AFAIK there are no trade barriers for software in Australia (and pretty much anywhere in the world - the internet would ensure this) - kind of unfair for me, wouldn't you think?

Any wonder I.T. has progressed the way it has and is such a dominating part of life these days.

BTW thanks for the education again Cap'n, excellent article :)

Captain Capitalism said...

HOLY CRIPES!!!!

I leave for one day to teach a class and allow myself the benefits of taking out a Russian girl dancing and a tome has been written!

I'll repsond shortly for some of the stuff, won't have time to read through it all.

Neumann,

Yes, underemployment does exist and certainly increases when industries are wiped out/outsourced. The problem is that it isn't measured and one of the tenets I operate by is that I don't argue thing that I don't know. That being said I certainly do wish they'd measure it.

However, as Doink mentioned, i do agree with government programs to ease the pain of transition. The best way to achieve this is education and why, despite being a libertarian, I'm for the government providing vouchers for retraining programs/education. I mean, the auto workers union membership alone is going to have to find a new career in the next decade.

Sadly, beyond that, that is the hard fact of economics and life, it is not easy all the time. But if you take the time to educate yourself, get the skills etc., you will adapt and be much more successful than say the adamant auto worker that insist they make $60,000 to turn bolts.

Captain Capitalism said...
This comment has been removed by a blog administrator.
Anonymous said...

Something that seems to go un-noticed is that, companies who benefit from cheap foreign labor are under no obligation to pass the savings on to the consumer. They often pass a superficial savings to consumers, give CEO's huge wages and benefits and have only the top wage earners of their corporation truly benefit.
So the working class recieve virtually no benefit from this windfall.

Captain Capitalism said...

You are correct to a certain extent.

Now, the question is, what are you going to do about it?

The answer is nothing. It's a fact of life.

Beyond that, where you are incorrect is two fold;

1. REal wages have been going up in the past year, year and a half as labor markets have tightened.

2. Cheaper goods increase the "working classes" purchasing power. So even though, nominally their wages may not be skyrocketing, their purchasing power is.