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Number
83: January 12, 2005
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This week in Katydid:
Winning
Global Market Battles
Big pronouncement: All markets are exploitive.
That is the whole point of "buy low, sell high." When
hurricanes hit the southeast this summer, the price of building
materials went up. When the tsunami hit Southeast Asia last month, the
price of fresh water went up. One could argue that the latter is
exploitive, while the former is merely "good business", but
they're more alike than not.
As we try to obey the Law
of Supply and Demand, we see that it is not so easy to be ethical.
Even one semester of college economics should have taught us that
perfect competition and perfect knowledge of market clearing prices were
not only idealistic, but also to be avoided.
Market economics, as practiced, is a game. The point is to know the
market clearing price before your competitor and especially your buyer
become aware of it. Then you can continue to stay on the high side of
the curve until they get wise. Market equilibrium is the point where you
leave the game.
Therefore, we should not be surprised when people, companies, or
governments try to cheat to gain an advantage; we should be vigilant. As
the Cold War taught us, the battlegrounds are economic as much as they
are geographic. The winning advantage for the U.S. was to get the Soviet
Union to over-extend their budget to stay competitive, and then to drain
their resources by funding a series of proxy wars against them.
If there is a global economic strategy to win advantage for the
United States, I cannot discern it. The strategy appears to be to
transition manufacturing to less expensive labor pools. The United
States lost a net of 1.5 million jobs to China between 1999 and
2003.
This trend seems to be more to China's advantage than to the U.S.,
which begs a few questions: If the public and private leaders have the
best interests of the U.S. in mind, is this part of a new national
strategy on the part of the U.S.? Will there now emerge a new industry
where the U.S. will have an advantage?
China is exploiting an advantage they have over the U.S. : a labor
pool without the ability to collectively bargain for higher wages. It is
also a hungry labor pool that will benefit greatly. In fact, it is being
exploited in much the same way that labor was exploited in the U.S.
during the preceding century.
With the U.S. trade deficit with China reaching $124 billion dollars
in 2003, the role of the U.S. regarding manufacturing seems to be the
sale of raw materials. Asia uses these raw materials to manufacture
goods less expensively than the U.S. can, which are then sold back to
consumers in the U.S. This is like selling the rock on your land in
order to buy cement to build your house; all that's left to build on is
sand.
Wal-Mart is currently taking advantage of this situation to the
benefit of its investors. They exploit the cheap labor market and give
low prices to consumers and high returns to investors. However, it is
not a sustainable enterprise. Eventually, the consumers will have traded
enough of their prosperity for low prices that they will not be able to
afford the products Wal-Mart sells.
Just before the vein of gold runs out, the investors will abandon the
mine. Consumers will be left to fill the void and board up the doors.
Some will stay behind to find new ways to filter ore from the tailings,
but those are low-margin enterprises with short life cycles. The only
way labor can prevent this bust, is if they find
jobs in new industries where U.S. workers have an advantage.
Whether you see our current economic strategy as a long-term plan to
transition the United States to a position of sustainable advantage, or
whether you see it as a short-term plan to generate windfall profits for
corporate interests by selling off industry and resources, the goal for
labor should be the same. In the U.S., labor
has lost their advantage and cannot collectively bargain and win.
They must engage business to find
new opportunities where both labor and business can win together.
Labor should also realize that when they buy goods they should
evaluate price in a global context. If they are exploiting low-wage
workers in other countries, they are trading their own jobs away, which
is fine if you're smart enough to get out of the market first, but the
rest are left holding the bag.
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Kind regards,
Kevin Troy Darling
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