Can we stop pretending that sweatshops and overseas labor are bad?

[EGarrett]

I'm listening to the usual patter from Obama and the candidates about how they don't want to give tax breaks "to companies that ship jobs overseas."

Um, hello? I took one semester of basic Economics and it disagreed with this.

1. You should always beware of putting false limits on the free market, whenever you do so things become inefficient.

2. In this particular case, companies should be allowed to hire the cheapest voluntary labor that they can, because that allows them to make goods as efficiently as they can, and thus brings prices DOWN. This fake "benefit" to the American laborer is actually making him worse off when he has to buy overpriced goods with his money.

3. If we let every company set-up as many sweatshops in South Cambodia as they darn-well pleased...then lo and behold...very soon those sweatshops would have to COMPETE for labor...and they wouldn't be sweatshops for long.

Furthermore,

4. There's a certain sort-of disturbing selfishness to the idea that we must stop American companies from giving opportunities to other people in other countries.

5. Do you think that Obama and the people in power actually know this stuff and must appeal to the ignorant but popular "no shipping jobs away" belief? If so, then something is seriously wrong with the collective understanding, and it should be acknowledged and addressed, not pandered to. And if Obama and co. DON'T know this, that's even more disturbing.

Hopefully Shanek or another knowledgeable economist or Libertarian can take a look and help me out here.

[Tsukasa Buddha]

Um, I think most people would rather keep their job and pay a tad more for a car than lose their job and not be able to afford one. Any evidence that they are really helped if they lose their jobs?

The problem people have isn't that companies are hiring people overseas, it is that they are losing their jobs when it happens, and the companies treat the non-American employees rather poorly in quite a few cases.

And after the Minimum Wage debacle, I'm not trusting anything a person says when they claim "I have taken ECON 101."





(No, I am not playing Devil's Advocate, and I resent the accusation)

[Axiom_Blade]

Nike has a factory in the US, which produces $99.99 sports shoes. It pays its workers $7.15 an hour. Nike discovers that if it moves its shop to Cambodia, it can pay its workers only 9 cents an hour! So, it closes its US plant, and builds one in Cambodia, thus saving $7.06 per worker per hour. How much are the shoes now?

The shoes are still being sold for $99.99! The consumer isn't saving any money, only the big corporation! The reason for this is simple economics: nothing has changed in the market. The supply and demand of Nike shoes has remained the same, so the price hasn't changed. The only thing that's changed is that Nike's employees have been put out of work, and their executives have saved a bunch of money.

[Puppycow]

This article might shed some light: The 4 Boneheaded Biases of Stupid Voters (http://www.reason.com/news/show/122019.html).

Although I support Obama, free trade is one issue where I don't agree with his rhetoric.
You have to understand that right now he is trying to win a democratic primary in Ohio, a very blue-collar rust-belt type state where free trade is anathema to most democratic voters.

BTW, I once did a thread on how most "sweatshops" are actually good (http://forums.randi.org/showthread.php?t=96974). (Better than the alternative, that is.) As long as they're not exploiting children or keeping people imprisoned. If people are free to leave, then it means that those who work there see it as better than their alternatives.

[Puppycow]

Nike has a factory in the US, which produces $99.99 sports shoes. It pays its workers $7.15 an hour. Nike discovers that if it moves its shop to Cambodia, it can pay its workers only 9 cents an hour! So, it closes its US plant, and builds one in Cambodia, thus saving $7.06 per worker per hour. How much are the shoes now?

The shoes are still being sold for $99.99! The consumer isn't saving any money, only the big corporation! The reason for this is simple economics: nothing has changed in the market. The supply and demand of Nike shoes has remained the same, so the price hasn't changed. The only thing that's changed is that Nike's employees have been put out of work, and their executives have saved a bunch of money.

If what you wrote were actually how things happen in the real world, not a straw man, you might have a point.

Nobody has to buy Nike shoes, BTW.

[Axiom_Blade]

If what you wrote were actually how things happen in the real world, not a straw man, you might have a point.

Please explain how it is wrong.

Nobody has to buy Nike shoes, BTW.

So what?

[Tsukasa Buddha]

BTW, I once did a thread on how most "sweatshops" are actually good (http://forums.randi.org/showthread.php?t=96974). (Better than the alternative, that is.) As long as they're not exploiting children or keeping people imprisoned. If people are free to leave, then it means that those who work there see it as better than their alternatives.

How are people living in desperate conditions free to leave a sweatshop with atrocious labor rights violations when they need the paycheck to feed themselves and their starving children?





(End exploitation of the workers, socialist revolution FTW!!!)

[shep]

This is a topic that really interests me... I'm not sold on any one angle. It's the only point that I usually have to end up conceding to my friends, who are permanently aghast at my free-markety ways.

My own common sense suggests that as long as these factories (or corrupt governments) aren't capturing people and forcing them to work, they have got to be better for the people working there than the alternatives, or else... there would be no workers, right?

Here is a quote from The Undercover Economist by Tim Harford, p. 225 that seems to support my assumption:

"...Jonah Peretti and his sympathisers have rightly drawn attention to the fact that in developing countries workers endure terrible working conditions. Hours are long. Wages are pitiful. But sweatshps are the symptom, not the cause, of shocking global poverty. Workers go there voluntarily, which means - hard as it is to believe - that whatever their alternatives are, they are worse. They stay there, too; turnover rates of multinational-owned factories are low, because conditions and pay, while bad, are better than those in factories run by local firms. And even a local company is likely to pay better than trying to earn money without a job: running an illegal street stall, working as a prostitute or combing the reeking landfills in cities like Manila to find recyclable goods."

He goes on to talk about how eventually these factories will be competing with each other, which will force wages and conditions to slowly rise, government revenues rise which (hopefully) cause infrastructure and healthcare to get better, and eventually poverty is eradicated and the sweatshops move elsewhere. He cites South Korea as his main example.

It's a good book in general, I really enjoyed it, but I'm still not quite convinced by this chapter, or my own gut feeling.

It makes sense, but... I'm not sure whether there is something missing in the logic, or whether I'm still just being clouded by the emotional angle (which is plain silly/incorrect if these people truly have no better alternatives anyway), because I still can't confidantly argue for the existance for sweatshops.

I'm going over to read the other thread now, in case it's dealt extensively with this already.

Am I just being a wuss? Is there a factor that the economists are glossing over, like corrupt governments and militaries that are removing some of the "voluntary" elements of our examples? Has anyone here ever visited a sweatshop?

[shep]

Nike has a factory in the US, which produces $99.99 sports shoes. It pays its workers $7.15 an hour. Nike discovers that if it moves its shop to Cambodia, it can pay its workers only 9 cents an hour! So, it closes its US plant, and builds one in Cambodia, thus saving $7.06 per worker per hour. How much are the shoes now?

The shoes are still being sold for $99.99! The consumer isn't saving any money, only the big corporation! The reason for this is simple economics: nothing has changed in the market. The supply and demand of Nike shoes has remained the same, so the price hasn't changed. The only thing that's changed is that Nike's employees have been put out of work, and their executives have saved a bunch of money.

Well, while this may be true (I have no way of telling), I find it hard to spill any tears for consumers, and workers in nice rich industrialised nations surely aren't out of work forever. In New Zealand, it certainly isn't an angle any politician would pursue. Tough bikkies, we would say: go get another job.

I find it harder to argue for sweatshops when people use the low pay and conditions of the overseas sweatshop workers as their reasons against them. (see my previous post)

[shep]

How are people living in desperate conditions free to leave a sweatshop with atrocious labor rights violations when they need the paycheck to feed themselves and their starving children?

(End exploitation of the workers, socialist revolution FTW!!!)

Does this mean they and their families would starve to death if the sweatshop "grew a conscience" and moved its factories back to its home country?

What did people in that country do to feed their starving children before the factory got there?

[shep]

link removed as i'm not up to 15 posts yet -shep

BTW, I once did a thread on how most "sweatshops" are actually good[/URL]. (Better than the alternative, that is.) As long as they're not exploiting children or keeping people imprisoned. If people are free to leave, then it means that those who work there see it as better than their alternatives.

Looking at this thread, it appears you've read the same book I have: The Undercover Economist.

Excellent book, for sure, but it would be nice to have an argument that didn't rely soley on Tim Harford's words and ideas. Are there any other reputable sources we can go to for help here?

[gtc]

Um, I think most people would rather keep their job and pay a tad more for a car than lose their job and not be able to afford one. Any evidence that they are really helped if they lose their jobs?

It isn't just the factory workers who pay more for their car. Protectionism raises the costs of those industries which actually can compete on the international market; i.e. America's farmers have to pay more for the trucks that they need to get their produce to markets and the land that could be used for office parks is taken up by factories.

You might think these are minor issues but they add up when you consider that the effects flow on to all sectors of the economy and are compounded by protectionism in those markets.


Not to mention that your socialist revolutionary government might end up deciding that the third world nations deserve to have the factories to make up for centuries of Western exploitation.

[Wolfman]

How are people living in desperate conditions free to leave a sweatshop with atrocious labor rights violations when they need the paycheck to feed themselves and their starving children?





(End exploitation of the workers, socialist revolution FTW!!!)Again, from the Chinese perspective, having personal experience of many of these "sweat shops".

First, let me say that I agree completely that where work conditions are unsafe, where slave labor is used, or other such abusive conditions exist, then it should be condemned, and actions taken to stop them. That is an issue entirely separate from the issue of hiring cheaper labor in other countries.

The problem is that people on the anti-outsourcing bandwagon like to use exaggeration, hyperbole, and raw emotion to divert people from rational discussion of the actual issues.

The truth is that many of these "sweatshops" (as labeled by activists) do not fit into the descriptions above. Yes, the people work long hours...12 or 14 hours a day. But they work in safe conditions. They receive pay that is at least equal to (and frequently higher than) what they would receive in other jobs. And they have the opportunity to gain promotions, and higher positions in the company, opening up opportunities for more training, learning new skills, etc.

As this has already been discussed in another thread, I will simply cut-and-paste one of my responses there, to illustrate my point:
Story One -- Sacrificing People for Political Correctness

A number of years ago, I had a friend who was a businessman in China. His business was fairly successful, and he made a decent profit. However, he felt that since he had become wealthy off of the Chinese people, he had an obligation to share some of that wealth to benefit the Chinese people.

He was planning to open a new factory (one that manufactured various articles of children's clothing). However, instead of opening it in the normal industrial zones, he opened it in a tiny village in a relatively undeveloped region of China. He offered wages that were 50% lower than the wages he paid to workers in Beijing (and about 90% lower than the wages he would have paid to workers in the U.S.). Those wages were nevertheless around three times higher than the average income for people living in that area. He also built a school, and offered free education with highly qualified teachers and top quality resources to all families who worked in his factory. He provided a clean and safe work environment. He provided on-the-job training that enabled factory workers to improve their skills and knowledge, and move on to higher positions (and higher pay).

Despite paying lower salaries, overall he still made less money than he would have if he'd opened the factory in Beijing. The cost of supporting the school, combined with the significant shipping costs, and the costs for time delays due to the long distance for shipping, all meant that overall this was not a "good business decision"

He did it because he wanted to help the people in that village. And those people loved him for it.

Along came the Human Rights groups. They found out that he was running a factory that paid workers only 10% of what workers would make in the U.S. They took average cost-of-living estimates from Beijing, and used those to argue that the salaries in this village were grossly insufficient to support the families (despite the fact that the cost of living in that village was a tiny fraction of the cost of living in Beijing).

And they engaged in a massive public-awareness campaign back in the U.S., where they informed every company that bought their products that it was the result of "slave labor", and told them that their products would be boycotted unless they stopped buying children's clothing from him.

The result? If he increased the workers' salaries to the levels that these groups demanded, the factory would become entirely unprofitable. It was one thing to run a factory at lower profits; it was another thing entirely to be losing money. He shut down the factory.

The human rights people who organized this fiasco trumpeted their triumph, and gave themselves self-congratulatory slaps on the back; they likely even issued themselves awards for their selfless endeavors.

Not one of them ever visited the village in question. Not one of them inquired about, or cared about, the results of their actions on the people they claimed to be defending. The actual result was that people went back to doing work where they made far less money, where they got no training and had no opportunity for advancement, and where their children were sent to local schools that had sub-standard teachers in buildings that were quite literally falling down around them.

Hip-hip-hooray for Human Rights.

Story Two -- How To Not Throw The Baby Out With The Bathwater

On the other side, there was a case in Guangzhou (also known as Canton) where an American company had contracted with a Chinese company to manufacture products for them. Unknown to them, that Chinese company sub-contracted the work to a factory that was, by pretty much any definition, a sweat shop. The working conditions were atrocious...dirty, and dangerous. Wages were less than half the normal wages for other workers in the same city. Workers were often forced to work 14 hours or more, 7 days a week. And almost all the employees were illegal migrant workers, who were trapped into working there because if they complained, they'd simply be reported to the police and deported back to their home town.

Eventually, it became public knowledge about this situation, and the American company had to take action. One of my friends, who was the American company's representative in China, was sent to examine the situation. Now, I know this guy personally, and have known him for many years. He was absolutely unaware of the conditions in this factory, and was horrified when he found out what was happening.

He went to Guangzhou to check things out, and found a situation that was simply unacceptable. But he also saw over 200 workers who were desperate to keep their jobs, and who would be the only ones who would really suffer if the factory were closed down.

He went back to his bosses in the US, and made a novel proposal. Rather than closing down the factory -- which is what the human rights groups were demanding, and was the initial intention of the company -- he proposed a plan under which the factory would be improved to a standard equal with that of other similar factories in the area. He proposed that the American and Chinese sides would share costs for this. And he worked out an agreement with the local Chinese authorities that enabled the workers at the factory to be legally registered there.

Those who claim that all "sweat shops" should be allowed "because it is better than their other choices" are wrong. Companies should base salaries not on what is the lowest amount they can possibly get away with paying, but on what is a reasonable salary compared with the average income of others living in the same area. Working conditions should always be as clean and safe as possible. And working hours should be restricted within reasonable ranges. There are, in China, "sweat shops" that absolutely are abusive, and should be closed down.

But we also cannot judge factories in developing countries by the same standards that we use in our own countries. What sounds like a terrible situation to you may be an absolute godsend to someone in that country.

Too many human rights groups focus entirely on the "rights", while ignoring the "human" element entirely. Anonymous people in countries like China are sacrificed to a political agenda, where "success" is measured in terms of their impact on a company, rather than in terms of the impact on the people they claim to be protecting.

In conclusion -- if you're going to engage in a rational discussion, that looks honestly at both the harm and the benefits of such operations in third-world countries, feel free to get involved, and throw in your opinions.

But if you're just gonna' use broad generalizations that seek to use emotionally-laden terminology, in order to condemn something you obviously don't have a clue about, I'd suggest it might be better to heed the sage advice that, "It is better to be silent, and have people think you are a fool, than to speak up and confirm it."

[Puppycow]

Please explain how it is wrong.



So what?


Actually, it's companies like Nike, where brand (and hence image) is important that are more likely to improve working conditions for their workers. Some no-name shoe brand has little incentive because they don't have any brand image to protect.

I don't have time right now, but here's Nike's site on this:
http://nikeresponsibility.com/pdfs/color/3_Nike_CRR_Workers_C.pdf

[Puppycow]

Looking at this thread, it appears you've read the same book I have: The Undercover Economist.

Excellent book, for sure, but it would be nice to have an argument that didn't rely soley on Tim Harford's words and ideas. Are there any other reputable sources we can go to for help here?

There's this argument from Paul Krugman (http://web.mit.edu/krugman/www/smokey.html)
And this one from Nicholas Kristof and Sheryl WuDunn (http://www.nytimes.com/library/magazine/home/20000924mag-sweatshops.html)

In case you don't already know, Paul Krugman is a professor of economics at Princeton, and a liberal columnist for the New York Times. Not a right-winger or libertarian by any means.

Also, I recommend Wolfman. (See post #13 above.)

[gtc]

Nike has a factory in the US, which produces $99.99 sports shoes. It pays its workers $7.15 an hour. Nike discovers that if it moves its shop to Cambodia, it can pay its workers only 9 cents an hour! So, it closes its US plant, and builds one in Cambodia, thus saving $7.06 per worker per hour. How much are the shoes now?

The shoes are still being sold for $99.99! The consumer isn't saving any money, only the big corporation! The reason for this is simple economics: nothing has changed in the market. The supply and demand of Nike shoes has remained the same, so the price hasn't changed. The only thing that's changed is that Nike's employees have been put out of work, and their executives have saved a bunch of money.

That only works if there isn't any competition for Nike sport shoes. If Puma also moves off shore and lowers its price then it will gain market share and increase profits.

[Tsukasa Buddha]

Does this mean they and their families would starve to death if the sweatshop "grew a conscience" and moved its factories back to its home country?

What did people in that country do to feed their starving children before the factory got there?

... Um...

Stop messing up my hypothetical!

It isn't just the factory workers who pay more for their car. Protectionism raises the costs of those industries which actually can compete on the international market; i.e. America's farmers have to pay more for the trucks that they need to get their produce to markets and the land that could be used for office parks is taken up by factories.

You might think these are minor issues but they add up when you consider that the effects flow on to all sectors of the economy and are compounded by protectionism in those markets.


Not to mention that your socialist revolutionary government might end up deciding that the third world nations deserve to have the factories to make up for centuries of Western exploitation.

But what about the effect of people losing their jobs on the economy?

<snip excelle- I mean, really bad post>

Yeah, well... um... That saying is really mean :( .

[shep]

In case you don't already know, Paul Krugman is a professor of economics at Princeton, and a liberal columnist for the New York Times. Not a right-winger or libertarian by any means.

Also, I recommend Wolfman. (See post #13 above.)

Thanks, will read.

I'm finding Wolfman's posts very interesting, as I'm currently on week 3 of my month-long visit to Beijing, staying with some friends of mine. I've finished all my tourism now, and am now exploring the Beijing that the locals and ex-pats live in. (and am rapidly destroying all my preconceptions about what life here is really like!).

I agree with the other posters here that there are definately cases where a factory can be violating human rights, and that something should be done about them.

I too am of the opinion that people should not be tarring all overseas, multinational-owned factories with this brush.

If, however, it turns out that these abusive/slave-camp/unsafe sorts of factories are in the majority, then I think it gives the anti-globalisation movement's arguments some credibility.

I suppose it is hard getting any objective data, given how secretive the 'bad' employers are likely to be, and the fact that a group collecting data usually has a vested interest in their ideology coming out looking best.

Edit, so I don't spam this forum with too many of my own posts:
I think this helps sum up my own problem with coming to terms with the morality of the situation:


"Why does the image of an Indonesian sewing sneakers for 60 cents an hour evoke so much more feeling than the image of another Indonesian earning the equivalent of 30 cents an hour trying to feed his family on a tiny plot of land--or of a Filipino scavenging on a garbage heap?

The main answer, I think, is a sort of fastidiousness. Unlike the starving subsistence farmer, the women and children in the sneaker factory are working at slave wages for our benefit--and this makes us feel unclean."


Poverty just doesn't seem as evil when it's a poor farmer struggling on the land to make ends meet... In fact, it almost seems kinda romantic. But it seems very sinful when it's a poor farmer's daughter sewing some t-shirts for rich old me to wear!

[Wolfman]

I wanna' say a little more here.

These arguments often get into the whole "responsibility" issue...the argument that American companies have a "responsibility" to employ American workers, provide jobs for Americans, etc. They seek to use appeals to emotion and to nationalism. My problem with this is that it implicitly assumes some sort of "superior right" for Americans, compared to peoples of other nationalities.

"American workers have the right to be provided gainful employment"...but Chinese don't. Indians don't. If you're not American, too bad.

I disagree.

I don't believe that Americans, or Canadians, or any other nationality have any implicit "right" to be employed by a particular company, regardless of the nationality of that particular company.

In my opinion, every company has the right -- and in many cases, the obligation -- to find the most economically profitable method of producing their product, provided that method adheres to basic legal and moral standards. Nationality, in my opinion, does not fall under either legal or moral classifications.

So, if I have a Canadian company, and I find that I can set up manufacturing operations in China that will provide significant savings to me (and increase my profits); and if those operations provide fair wages (according to the local standards of employment), and a safe work environment; then absolutely the best choice for me is to do so.

It takes away jobs from Canadian workers? Yes, it does. But that's only half the story. It also provides jobs for workers in China. By what argument do Canadians have some sort of greater "right" than Chinese? In fact, considering the general affluence in Canada, an unemployed person in Canada will suffer significantly less than an unemployed person in China. So if you really want to get into moral arguments, I could very reasonably argue that outsourcing to China not only increases my profits, it also provides a greater overall social benefit.

Again, I'm not including true sweatshops, that have unsafe working conditions, abusive employers, slave labor, etc. I am talking about operations that provide a safe working environment, and wages that are fair within the context of the local economy...but that are still significantly cheaper for me than the same thing in Canada.

[gtc]

But what about the effect of people losing their jobs on the economy?

That can have a negative effect in the short term, but in the longer term those should be soaked up by the new employment in those sectors that benefit from reduced protectionism.

This depends on how much labour mobility your country has, the ability of workers to be re-trained and the ability of companies to expand and hire (i.e. good financial markets and low government red tape).

There will be some losers - those people who don't feel that their new job is better than their old job and those people who can't be retrained for new employment.

The problem is that the ones who lose out tend to be vocal and more obvious than the ones who win. The public finds it hard to follow the linkages back from the expansion of the finance sector in Alabama to the decline in the Detroit motor industry.

[skeptifem]

Nike has a factory in the US, which produces $99.99 sports shoes. It pays its workers $7.15 an hour. Nike discovers that if it moves its shop to Cambodia, it can pay its workers only 9 cents an hour! So, it closes its US plant, and builds one in Cambodia, thus saving $7.06 per worker per hour. How much are the shoes now?

The shoes are still being sold for $99.99! The consumer isn't saving any money, only the big corporation! The reason for this is simple economics: nothing has changed in the market. The supply and demand of Nike shoes has remained the same, so the price hasn't changed. The only thing that's changed is that Nike's employees have been put out of work, and their executives have saved a bunch of money.

that is EXACTLY what came to mind when I read the OP.


Actually, it's companies like Nike, where brand (and hence image) is important that are more likely to improve working conditions for their workers. Some no-name shoe brand has little incentive because they don't have any brand image to protect.

I don't have time right now, but here's Nike's site on this:
http://nikeresponsibility.com/pdfs/color/3_Nike_CRR_Workers_C.pdf (http://nikeresponsibility.com/pdfs/color/3_Nike_CRR_Workers_C.pdf)

you are missing the point... the OP asserted that overseas outsourcing drives prices down and so it is a good thing, and nike is a great example of how outsourcing doesnt drive prices down.

[Corsair 115]

In regards to the OP, "Can we stop pretending that sweatshops and overseas labor are bad?" the first thing that popped into my mind was this:

If such things are not bad overseas, then does that mean they aren't bad here either? So we ought to go back to having sweatshops here?

[Wolfman]

that is EXACTLY what came to mind when I read the OP.
...and have you read many of the responses to that?

Let me point out that the price of a product within a capitalist economy has little or nothing whatsoever to do with the cost of producing it (other than the obvious fact that if it costs more to produce than what you can sell it for, you'll go bankrupt).

Products are sold at the price that the market will support. Supply and demand, and all that stuff.

I would generally agree that any argument that "jobs are outsourced in order to reduce the price of products" is fallacious. Companies base their prices on what consumers will pay, not on how much it cost to make them. If they can decrease their costs, but still charge the same (or higher) prices, then of course they will do so.

But putting that aside -- yes, companies make greater profits by outsourcing jobs to other countries. And so what? Exactly what is the argument that they should not be allowed to see higher profits?

"Oh, you're welcome to higher profits, as long as it doesn't affect me; but if it affects me, then sorry."

This entire thing is, in my opinion, a straw man. I would never make the argument that "decreasing wages will result in lower prices" to begin with; so arguing that it is not true is rather pointless.

However, increasing profits does mean that companies have more money to put into research and development. Now, in a company like Nike, that may not make a huge difference to you; but in high tech companies, or pharmacological companies, increasing profits (and thereby increasing the money available to invest in further R&D) provides a very definite benefit.

I know that the OP raised the "lower prices" argument; personally, I'd dismiss that. This does not, however, mean that all the many other arguments and opinions offered here are irrelevant.

[rjh01]

If anyone wants to find out the outcome of outsourcing jobs overseas take a look at India.

The economy has posted an average growth rate of more than 7% in the decade since 1997, reducing poverty by about 10 percentage points. India achieved 8.5% GDP growth in 2006, and again in 2007, significantly expanding production of manufactures. India is capitalizing on its large numbers of well-educated people skilled in the English language to become a major exporter of software services and software workers.
Link (https://www.cia.gov/library/publications/the-world-factbook/geos/in.html)

Also see this Bahrain strikes blamed on new India wage law (http://www.arabianbusiness.com/511289-bahrain-strikes-blamed-on-india-minimum-wage-law)

[shep]

In regards to the OP, "Can we stop pretending that sweatshops and overseas labor are bad?" the first thing that popped into my mind was this:

If such things are not bad overseas, then does that mean they aren't bad here either? So we ought to go back to having sweatshops here?

That seems a little naiive... they are only called 'sweatshops' because the workers in those countries demand much lower wages than the workers in your country.

To put it another way, you are probably not paid much more than the minimum it takes to (a) keep you working productively for your employer, or (b) attract a replacement worker should you decide to leave your job.

I think. Maybe. I'm new at this. But my point is that the same system is at work, you just happen to live in a rich country. The people we're talking about when we talk about overseas labour generally live in poor countries.

To quote that economist again, foreign-owned sweatshops are a symptom, and not a cause, of poverty.

[Wolfman]

On the "lowering prices" front, let me add some more. I agree that if you are talking about direct cause and effect, that most of the time lowering the cost of producing an item will not result in decreasing its price.

However, there are many indirect influences. Consider the car industry.

When Japan and Korea started flooding the U.S. market with cheaper vehicles, American manufacturers were forced to respond. They could not compete economically if they continued to pay the same costs associated with doing business in the U.S.

Essentially, the Japanese and Koreans had lower costs to produce, so they could sell their products at a lower price, and still get equal or higher profits. If American manufacturers dropped their prices, but still had the same costs, their profits would significantly decrease (or disappear entirely), giving the foreign companies a huge advantage.

The result?

They moved many of their manufacturing bases to Asia, and decreased their costs. They were then able to decrease the prices of their vehicles in the U.S., and remain competitive.

So this is an example of where such a situation does result in decreased prices.

I would expect that N3J0 would be aware that a real argument cannot be made based on one isolated example; one must look at the broader picture, and all the different examples.

If one is interested in real discussion, that is :D

[Puppycow]

you are missing the point... the OP asserted that overseas outsourcing drives prices down and so it is a good thing, and nike is a great example of how outsourcing doesnt drive prices down.

Even on the narrow issue of price, Nike doesn't have a monopoly on sneakers, so it can't keep a profit margin above and beyond that of its competitors. Adidas, Rebok, Puma, etc. as well as no-name brands, all have substitutes. If you absolutely must have Air Jordans and nothing else will do, then you must pay through the nose, but most of that excess profit goes to Michael Jordan rather than to Nike.

BTW, the laid-off Americans in the example were making minimum wage. They will get unemployment insurance until they can find another job, which might just be better.

[Wolfman]

Even on the narrow issue of price, Nike doesn't have a monopoly on sneakers, so it can't keep a profit margin above and beyond that of its competitors. Adidas, Rebok, Puma, etc. as well as no-name brands, all have substitutes. If you absolutely must have Air Jordans and nothing else will do, then you must pay through the nose, but most of that excess profit goes to Michael Jordan rather than to Nike.

BTW, the laid-off Americans in the example were making minimum wage. They will get unemployment insurance until they can find another job, which might just be better.
I agree with N3J0 for the most part here -- Nike sets its prices according to market demand, not according to the cost for producing them. While Nike will decrease prices due to fluctuations in market demand (due to competition, perceived value, etc.), they will not decrease prices simply because they've reduced costs.

Arguing to the contrary is, in my opinion, an exercise in futility.

However, as I argued above, there are many other industries in which it can be demonstrated that reduced costs of production overseas have resulted in reduced prices for consumers. In short, one cannot make a blanket statement that "outsourcing is valid because it always results in lower prices"; but equally, one cannot make a blanket statement that "prices are never lowered as a result of lower costs."

[Puppycow]

I agree with N3J0 for the most part here -- Nike sets its prices according to market demand, not according to the cost for producing them. While Nike will decrease prices due to fluctuations in market demand (due to competition, perceived value, etc.), they will not decrease prices simply because they've reduced costs.

Arguing to the contrary is, in my opinion, an exercise in futility.

I don't dispute that, but I will argue that for the shoe industry taken as a whole, factoring in the effects of competition, it will lower prices for some shoes. Maybe not Air Jordans or other prestige brands, but for shoes whose whose selling point is value and utility rather than brand image. And over time, the agents of the big sports stars will sell their client's endorsement to the highest bidder. Reebok and Adidas will compete with Nike for that endorsement deal. If Jordan's endorsement is worth 100 million and Nike is only paying 80 million, then it makes sense for a competitor to offer 90 million to pry him away. If there's competition, big profit margins don't last forever, is all I'm saying.

[Darat]

Sweatshops are always bad. They are very dangerous places in which the workers are exploited by any means possible. That is what a sweatshop is.

However a factory employing people on low wages, with not great working conditions and so on is not a sweatshop, it's just a factory employing people on low pages with not very good working conditions.

Lets not confuse the two, it does nothing to help the people whose lives are in danger and being exploited by owners of sweatshops.

[Zep]

First-hand evidence from India is that the rising wage levels of some Indian workers (in IT particularly) has led to their companies becoming unprofitable options for outsourcers from elsewhere. In a few cases, business operations previously outsourced to India a few years ago on a cost-reduction basis are now costing so much more than initially that they are being taken back into the main company instead. This is no reflection on the work provided, just the cost of business to the company.

Also, some Indian service companies have become so expensive to operate (i.e. wage demands of their employees) that local businesses cannot afford to engage their services. So these service companies must effectively "export" their business (sell their services to overseas buyers) or fold.

[Francesca R]

I'm listening to the usual patter from Obama and the candidates about how they don't want to give tax breaks "to companies that ship jobs overseas." [ . . . ]

1. You should always beware of putting false limits on the free market, whenever you do so things become inefficient.I am not American so do not know the specifics of candidate manifestos and whatnot, but "not giving tax breaks to companies that ship jobs overseas" is reducing interference in a "free" market, isn't it?

So the rest of your post--whilst about an interesting subject--is a non sequitur.

[shep]

Sweatshops are always bad. They are very dangerous places in which the workers are exploited by any means possible. That is what a sweatshop is.

However a factory employing people on low wages, with not great working conditions and so on is not a sweatshop, it's just a factory employing people on low pages with not very good working conditions.

Lets not confuse the two, it does nothing to help the people whose lives are in danger and being exploited by owners of sweatshops.

Point taken. I think I'm guilty of using that term just out of convenience, and only differentiating the two by saying "good sweatshop" and "bad sweatshop". I can see how that can lead to confusion, and how it can even downplay the suffering that some people have to live with.

[shep]

I am not American so do not know the specifics of candidate manifestos and whatnot, but "not giving tax breaks to companies that ship jobs overseas" is reducing interference in a "free" market, isn't it?

So the rest of your post--whilst about an interesting subject--is a non sequitur.

Hmm, this is true. (perhaps some would argue that taxing any companies in the first place is interference, but making an uneven playing field through tax breaks for some and not for others is surely even more interference)

I personally think the OP got a few things wrong, or at least focused on things that weren't important, eg. the "outsourcing reduces retail price" argument, but oh well... that's no reason not to discuss the prevailing opinion that companies switching to cheaper overseas labour is 'bad' or 'immoral'.

[Francesca R]

Looking at this thread, it appears you've read the same book I have: The Undercover Economist.

Excellent book, for sure, but it would be nice to have an argument that didn't rely soley on Tim Harford's words and ideas. Are there any other reputable sources we can go to for help here?Books I have read that are more thorough in the arguments Tim Harford brings up are Why Globalisation Works (http://www.amazon.co.uk/Globalization-Works-Yale-Nota-Bene/dp/0300107773/ref=sr_1_1?ie=UTF8&s=books&qid=1203938977&sr=1-1) and The Truth About Markets (http://www.amazon.co.uk/Truth-About-Markets-Countries-Others/dp/0140296727/ref=sr_1_3?ie=UTF8&s=books&qid=1203939079&sr=1-3). Both excellent

Poverty just doesn't seem as evil when it's a poor farmer struggling on the land to make ends meet... In fact, it almost seems kinda romantic. But it seems very sinful when it's a poor farmer's daughter sewing some t-shirts for rich old me to wear!I agree with you that this reaction is the cause of much opposition to the type of outsourcing being discussed here. The implication is that if "I" am going to be involved in improving a third-world worker's livelihood, it is unethical (contrary to the golden rule of reciprocity) for me to play any part that would not raise their livelihood to a level that I would regard as decent.

[SezMe]

I'm listening to the usual patter from Obama and the candidates about how they don't want to give tax breaks "to companies that ship jobs overseas."

Um, hello? I took one semester of basic Economics and it disagreed with this.

1. You should always beware of putting false limits on the free market, whenever you do so things become inefficient.

It's too bad your basic econ did not teach you that a "free" market is a myth. Given that, the remainder of your OP has little merit.

[CFLarsen]

Hopefully Shanek or another knowledgeable economist or Libertarian can take a look and help me out here.

Are you sure that's a good idea? (http://forums.randi.org/showthread.php?postid=2346885#post2346885)

[Francesca R]

There is a curious mixture amongst the anti-outsourcing interest group--between those that argue it is bad for citizens of the home country (they lose their jobs or have to take income cuts to keep them) and those that argue that it is bad for citizens of the destination country (they get exploited in ways that could not be applied at "home").

For some reason it reminds me of the joke that Australians migrating to New Zealand is bad for both countries--because it lowers the average IQ in both countries [disclosure]I'm a kiwi by birth[/]. The opposite migration is obviously beneficial for both countries. ;)

Presumably, the best thing for outsourcing is therefore for companies in poor countries to shut down (stop exploiting their workers) and relocate production to rich countries and thereby bid up rich country wages. Would that make the opponents happier?

[Soapy Sam]

Possibly what we need to stop pretending is that anything which is not an unmixed good must be an unmitigated evil.

Not only was Rome not built in a day, it was built largely by slaves, many of whom died in the process.

[EGarrett]

I am not American so do not know the specifics of candidate manifestos and whatnot, but "not giving tax breaks to companies that ship jobs overseas" is reducing interference in a "free" market, isn't it?

So the rest of your post--whilst about an interesting subject--is a non sequitur.The title of the post is requesting that we stop pretending they're bad in general. That line from Obama is simply what spurred the thought. He's not implying that we deregulate the companies, he's implying that we should punish companies for shipping jobs away.

On the "lowering prices" front, let me add some more. I agree that if you are talking about direct cause and effect, that most of the time lowering the cost of producing an item will not result in decreasing its price.

However, there are many indirect influences. Consider the car industry.

When Japan and Korea started flooding the U.S. market with cheaper vehicles, American manufacturers were forced to respond. They could not compete economically if they continued to pay the same costs associated with doing business in the U.S.

Essentially, the Japanese and Koreans had lower costs to produce, so they could sell their products at a lower price, and still get equal or higher profits. If American manufacturers dropped their prices, but still had the same costs, their profits would significantly decrease (or disappear entirely), giving the foreign companies a huge advantage.

The result?

They moved many of their manufacturing bases to Asia, and decreased their costs. They were then able to decrease the prices of their vehicles in the U.S., and remain competitive.

So this is an example of where such a situation does result in decreased prices.

I would expect that N3J0 would be aware that a real argument cannot be made based on one isolated example; one must look at the broader picture, and all the different examples.

If one is interested in real discussion, that is :DYes. In a market with competition, reduced production costs allow reduced prices, and companies that can reduce price eventually do in order to compete with each other. Of course, as I stated in the original post, people who are more knowledgeable in economics can discuss the issue better...which they are doing.

that is EXACTLY what came to mind when I read the OP.

you are missing the point... the OP asserted that overseas outsourcing drives prices down and so it is a good thing, and nike is a great example of how outsourcing doesnt drive prices down.I think the idea that Nike charges the same no matter what the cost of production ignores the effect of competition.

[ponderingturtle]

It isn't just the factory workers who pay more for their car. Protectionism raises the costs of those industries which actually can compete on the international market; i.e. America's farmers have to pay more for the trucks that they need to get their produce to markets and the land that could be used for office parks is taken up by factories.

BUt the farmers get enough subsidies anyway to keep the prices of grain and the like artificialy low.

[Susan Gerbic]

Very interesting discussion here people. When I read the OP subject line I thought "yeah about time we discuss this" but after listening to your well thought out arguments I have to admit that I'm seeing the other side of the coin.

I have always had problems with workers here in America whining about losing their jobs to foreign competition. As if they were guaranteed that job just because they were born here. I have heard them on the news yelling that another factory should be built in town just like the one that left, and on and on about how now their children would not be able to follow in the same job their dad and granddad did. Now their women folk will have to work outside the home, and maybe have to sell the toys they use on the weekends....

In my view a worker should not assume that they can remain stagnant. Having an entirely different skill set should be the norm, why should a company that is closing down have to re-school its workers? I know that from a public relations view that company wants to ease the sting when closing a plant, but isn't it the workers responsibility to plan for the possibility that the widgets they are making may become obsolete or too expensive to produce? High wages and high health insurance costs may be the goal for the worker, but they also should be thinking of the big picture along the way. The health of the company.

As a woman in my late 30's I attended a college made up of the typical 20 year olds that had the solution to saving the world. One main idea was to always shop for your clothes at the thrift store (while that may be a great idea) their reasoning was to stop making clothes oversees. I don't think they understood that jobs oversees were what these workers wanted, if asked to a factory worker in China, "we would like to close your plant so you won't be oppressed by the profit hungry American company, good idea?" I don't think the Chinese worker would be all that happy.

Maybe I'm ranting a bit, sorry, but I just don't understand why people don't get that it is a far more complex system of fixing the world than to stop buying things. Workers should always prepare for the future, keep your education current and squirrel away some extra money, and oh yeah, don't abuse the credit cards.

Susan

[Francesca R]

the OP asserted that overseas outsourcing drives prices down and so it is a good thing, and nike is a great example of how outsourcing doesnt drive prices down.
I think the idea that Nike charges the same no matter what the cost of production ignores the effect of competition.Nike inc. will charge as much as it can to maximise its profits, regardless of the costs of production. That's what it should do. It has no charitable agenda to pass on cost savings for the altruistic sake of it. A shareholder in Nike would have a decent case for legal action if Nike was cutting prices with no expectation that such action would be best for business.

[Francesca R]

isn't it the workers responsibility to plan for the possibility that the widgets they are making may become obsolete or too expensive to produce? High wages and high health insurance costs may be the goal for the worker, but they also should be thinking of the big picture along the way. The health of the company.I don't think that that is the workers' responsibility no. I mean, it would be ludicrous to expect one worker to unilaterally volunteer for a pay cut to keep a company afloat. And there is no real incentive whereby workers can organise themselves collectively to do this.

Individually, it is in a person's interest (and it is their resposnsibility) to keep themselves employable of course--by their existing employer and by the pool of others.

[Cuddles]

There's been a lot of focus on economics, but another important point is consumer satisfaction. Ignoring all the ethical and moral issues, the quality of the product is important. For many things, this isn't an issue at all. If I buy a pair of shoes it will go through the same quality control before it is sold here and so I will never know the difference between it being made in China or a mile down the road.

However, service jobs often have a big difference in quality. Take call centres, for example. A few years ago in the UK, any helpline for your telephone, internet, gas, electricity and many other things would be based in India. While this was often not a problem, a lot of the time you would have to talk to someone without understanding a word they were saying, nor they you. Aside from the obvious difficulty getting anything done, there are much more serious implications when you're trying to transfer money with neither party being entirely sure what's going on. There has been a massive backlash against this kind of outsourcing and now most companies have moved their call centres back to the UK.

Very few people really cared about the conditions for the workers, unemployment in the UK or any other economic or ethical issues. All they cared about was that the service sucked. This applies more so to service providers than manufacturers, but it is important to remember that companies don't actually just do whatever could get them more profits. What they do is whatever the consumer will let them do, and prices and ethics are not the only factors.

[Francesca R]

[ . . . ] it is important to remember that companies don't actually just do whatever could get them more profits. What they do is whatever the consumer will let them do, and prices and ethics are not the only factors.If the consumer "will not let them do" something (IE the action will be bad for sales) then the compliance of the company with consumers' wishes is for the sake of profits.

[Darth Rotor]

Hopefully Shanek or another knowledgeable economist or Libertarian can take a look and help me out here.
Great punchline! I thought for a moment your OP was serious.

DR

[Susan Gerbic]

I don't think that that is the workers' responsibility no. I mean, it would be ludicrous to expect one worker to unilaterally volunteer for a pay cut to keep a company afloat. And there is no real incentive whereby workers can organise themselves collectively to do this.

I was thinking more on the lines of keeping costs low, cutting overtime and being more productive. My company is employee owned, so I am not happy if I see waste, or abuse of company assets. I think when we see the bigger picture we will all work to control the bottom line.

While this might not help keep a company in town in some cases, but it might help keep it here longer. Most companies do not outsource, I am in the service industry, they can never leave. Some elements might be outsourced but not my job. But on the other hand, one of our competitors closed half its locations last year with no notice to the employees, and the rest are failing. Another competitor is also doing badly, could these businesses have been saved if the employees had been more diligent? Surely sales were the problem, and that is mostly employee driven. When they closed the locations is it fair for them to ask for re-training?

Susan

[gtc]

BUt the farmers get enough subsidies anyway to keep the prices of grain and the like artificialy low.

You could switch my argument to consider any industry that you consider to be free of protectionism. But either way, adding protection to one industry to offset the effects of protection to another industry will just lead to further difficulties.

There are the direct cost of the subsidies (i.e. the cost to the taxpayer) and other forms of protection. Then there are the costs of raising the money to pay subsidies or design the legislation as there is no such thing as a 100% efficient government program.

Then there are the costs to other sectors of the economy who suffer by paying higher costs or recieving lower quality inputs and who lose as their customers have less money to buy their goods and services after they have paid higher taxes or paid more for their cars (or whatever). These are often called first round effects.

Then there is another round of effects as the sectors who have lost out impact on all other sectors (and this goes round and around). Second, third, forth etc round effects.

Adding in more protectionism to offset the effects of the first lot of protectionism will just create new direct costs, new first round effects and new second round effects.

[Axiom_Blade]

Nike inc. will charge as much as it can to maximise its profits, regardless of the costs of production. That's what it should do. It has no charitable agenda to pass on cost savings for the altruistic sake of it. A shareholder in Nike would have a decent case for legal action if Nike was cutting prices with no expectation that such action would be best for business.

Yes, exactly. That was my point.
I wasn't implying that Nike should be "charitable" and cut costs, I was saying shipping production overseas does not automatically give you lower prices.

[EGarrett]

Great punchline! I thought for a moment your OP was serious.

DRShanek has his own point of view, he sticks to it, and he supports it well. Most people here seem to not like him but, to my judgement, they almost never can actually challenge his points...outside of things that are just blatant misunderstanding of how economics works. In the threads I've seen, he argues far more logically and with less attitude and insult then he receives. Thus, he gets my respect.

[CFLarsen]

Shanek has his own point of view, he sticks to it, and he supports it well. Most people here seem to not like him but, to my judgement, they almost never can actually challenge his points...outside of things that are just blatant misunderstanding of how economics works. In the threads I've seen, he argues far more logically and with less attitude and insult then he receives. Thus, he gets my respect.

You have got to be kidding.

[Francesca R]

Shanek has his own point of view, he sticks to it, and he supports it well. Most people here seem to not like him but, to my judgement, they almost never can actually challenge his points...outside of things that are just blatant misunderstanding of how economics works. In the threads I've seen, he argues far more logically and with less attitude and insult then he receives. Thus, he gets my respect.I'd hardly encountered shanek when he "took a hiatus" (http://forums.randi.org/showthread.php?t=80821&highlight=hiatus) but apparently it had something to do with posts from me being a proverbial straw . . .

ETA: My response (http://forums.randi.org/showpost.php?p=2566162&postcount=73) to that.

[/OT]

[Francesca R]

I was thinking more on the lines of keeping costs low, cutting overtime and being more productive. My company is employee owned, so I am not happy if I see waste, or abuse of company assets. I think when we see the bigger picture we will all work to control the bottom line.If the employees own the business then they have different incentives, though it depends on the relative size of their capital stake to the present value of their income. In many cases where employees of large firms are partly compensated with shares (which is what happens in my business), the equity stake is rather small, and the incentive to maximise cash income dominates. Another factor at work is how significant the fractional ownership of the firm is with each employee. I own a miniscule fraction of the market value of the firm I work for, so my ability to boost EPS by my cost-consciousness is negligible compared to my potential ability to boost my income in the form of pay.

[Francesca R]

Yes, exactly. That was my point.
I wasn't implying that Nike should be "charitable" and cut costs, I was saying shipping production overseas does not automatically give you lower prices.Agreed. But there is a mechanism whereby it should lower prices (as outlined by others in the thread) which is competition. If firms who offshore production can all save costs then unless they are in some collective cartel (the like of which market regulators are often keen to stamp on) then sooner or later one of them has the ability and the incentive to pass on the cost saving by undercutting the selling prices of rivals in order to take market share away from them.

[egslim]

These arguments often get into the whole "responsibility" issue...the argument that American companies have a "responsibility" to employ American workers, provide jobs for Americans, etc. They seek to use appeals to emotion and to nationalism. My problem with this is that it implicitly assumes some sort of "superior right" for Americans, compared to peoples of other nationalities.
Obama isn't running for CEO, he is running for President. And a national government's responsibility is per definition towards its own people, who both form the electorate and pay the taxes. So yes, Americans have a superior right to economic government protection from the American government compared to other nationalities.

[Wolfman]

Obama isn't running for CEO, he is running for President. And a national government's responsibility is per definition towards its own people, who both form the electorate and pay the taxes. So yes, Americans have a superior right to economic government protection from the American government compared to other nationalities.I'm not quite sure how Obama got into this, since as you mention he is NOT a CEO, and we are discussing corporate issues.

Perhaps you missed that.

However, I'll respond to your comment. Yes, the gov't has a responsibility to its people. I do not dispute that. I do not, however, understand what you seem to think that means that a government such as the U.S. gov't should do.

Are you suggesting that the government should enforce policies that (further) erode a corporation's freedom to choose who they hire, or what is best for their business? That sounds more like a Communist system than a capitalist system to me.

Furthermore, if the gov't forces policies on businesses that cause economic disadvantages for those businesses, there will be two main results:

1) Non-American companies will out-compete American companies, because they can produce the same products at lower cost.

2) American companies will leave the U.S., and set up their operations in other countries. You won't just have some of the jobs outsourced...you'll have the entire company exported to a country that actually allows them to do business in a profitable manner.

So, thank you for raising an entirely irrelevant point, and doing so in a manner that presents no real argument or solution; perhaps you'll do a little better at explaining yourself in a subsequent response?

[egslim]

I'm not quite sure how Obama got into this, since as you mention he is NOT a CEO, and we are discussing corporate issues.
The tread started with: "I'm listening to the usual patter from Obama and the candidates about how they don't want to give tax breaks "to companies that ship jobs overseas." That's a political issue, I guess you missed it.

However, I'll respond to your comment. Yes, the gov't has a responsibility to its people. I do not dispute that. I do not, however, understand what you seem to think that means that a government such as the U.S. gov't should do.
The free market has both winners and losers, the idea is that the winnings outnumber the losses. But they may not be distributed geographically equal. If in a nation the losses outweigh the winnings then limiting the free market to reduce this negative balance is in that nation's interest.

Theoretically shipping jobs overseas should lead to more productive replacement jobs. If they appear, great. If they don't then it is in the nation's interest for the government to step in.

[fuelair]

I'm listening to the usual patter from Obama and the candidates about how they don't want to give tax breaks "to companies that ship jobs overseas."

Um, hello? I took one semester of basic Economics and it disagreed with this.

1. You should always beware of putting false limits on the free market, whenever you do so things become inefficient.

2. In this particular case, companies should be allowed to hire the cheapest voluntary labor that they can, because that allows them to make goods as efficiently as they can, and thus brings prices DOWN. This fake "benefit" to the American laborer is actually making him worse off when he has to buy overpriced goods with his money.

3. If we let every company set-up as many sweatshops in South Cambodia as they darn-well pleased...then lo and behold...very soon those sweatshops would have to COMPETE for labor...and they wouldn't be sweatshops for long.

Furthermore,

4. There's a certain sort-of disturbing selfishness to the idea that we must stop American companies from giving opportunities to other people in other countries.

5. Do you think that Obama and the people in power actually know this stuff and must appeal to the ignorant but popular "no shipping jobs away" belief? If so, then something is seriously wrong with the collective understanding, and it should be acknowledged and addressed, not pandered to. And if Obama and co. DON'T know this, that's even more disturbing.

Hopefully Shanek or another knowledgeable economist or Libertarian can take a look and help me out here.
Ah, the faith of those with one basic course in a wildly complex subject, unalloyed with external considerations!!!

[gumboot]

Lots of countries all over the world out source their filmmaking needs to New Zealand. Our working conditions are often dangerous, we work long hours (12 - 18hrs a day, 6 days a week), and pay is often abysmal.

I wouldn't have it any other way.

:D

[Wolfman]

The tread started with: "I'm listening to the usual patter from Obama and the candidates about how they don't want to give tax breaks "to companies that ship jobs overseas." That's a political issue, I guess you missed it.You quoted me directly. And my comments have been exclusively about corporations, particularly the quote that you chose to go off on this Obama thing about.

I guess you missed that.
The free market has both winners and losers, the idea is that the winnings outnumber the losses. But they may not be distributed geographically equal. If in a nation the losses outweigh the winnings then limiting the free market to reduce this negative balance is in that nation's interest.

Theoretically shipping jobs overseas should lead to more productive replacement jobs. If they appear, great. If they don't then it is in the nation's interest for the government to step in.And again, you come in with completely meaningless statements that "the government should do something"...yet fail entirely to state what it is that you think the government should do.

I gotta' admit, its a pretty effective debate technique...if you stick to claims that are so incredibly vague that they mean nothing, its pretty hard for people to disagree. Pretty much the same as if a person is sick, you stand there and say, "Well, we should do something!" Yeah, pretty self-evident...but doesn't solve a thing. A person is lost..."Well, you should do something!" Sage advice that I'm sure would help them out of their predicament.

If you haven't figured it out yet, it bugs me to no end when people seem to want to disagree with me, yet for all their spluttering about, for all the time it takes to read what they write, it turns out that they haven't said a darn thing.

So, again...please...stop with the "government should do something" nonsense, and clarify for me, and for others here, what exactly it is that you think the government should do?

[Francesca R]

The free market has both winners and losers, the idea is that the winnings outnumber the losses. But they may not be distributed geographically equal. If in a nation the losses outweigh the winnings then limiting the free market to reduce this negative balance is in that nation's interest.

Theoretically shipping jobs overseas should lead to more productive replacement jobs. If they appear, great. If they don't then it is in the nation's interest for the government to step in.This skirts with mercantilism but does not go all the way there. In effect, you concede that laissez-faire world trade is a positive sum game, but argue that national governments should stand ready to jump in with protectionist measures if their country is not getting enough of the positive surplus. This is a rational prescription in an environment that already starts from a situation of trade assymetry. The problem with it is that in trying to level the playing field it also reduces the available positive gains from trade as well. Resolving this in a pareto-optimal manner leads to one of the few reasonable arguments for a form of "world government" (which the WTO does not meet) that I have seen.

[egslim]

In effect, you concede that laissez-faire world trade is a positive sum game,
Actually I concede that laissez-faire world trade may be a positive sum game, because free trade theory makes a few simplified assumptions like perfect information that are in reality wrong.

Resolving this in a pareto-optimal manner leads to one of the few reasonable arguments for a form of "world government" (which the WTO does not meet) that I have seen.
I agree with your analysis. I'm personally not in favour of a world government though, because I consider political competition between governments important too. That stimulates political innovation and offers some punishment against bad laws.

[Darth Rotor]

Shanek has his own point of view, he sticks to it, and he supports it well. Most people here seem to not like him but, to my judgement, they almost never can actually challenge his points...outside of things that are just blatant misunderstanding of how economics works. In the threads I've seen, he argues far more logically and with less attitude and insult then he receives. Thus, he gets my respect.
OK, he sticks to his guns. I agree.

He never earned my respect, for intellect, nor for reason. He made too many gross errors in attempting to explain to me stuff about the national guard and the Constitution he pretends that he knows, and that I actually have some knowledge of. Not being a PhD in econ, I am still wary of anyone who posits the free market as having inherent virtue. It is what it is, warts and all.

As a human being, I like ShaneK just fine.

DR

[egslim]

And again, you come in with completely meaningless statements that "the government should do something"...yet fail entirely to state what it is that you think the government should do.
Very well, I'll give a hypothetical example. Business moves relatively high paying jobs overseas, former employees end up either beggars or burger flippers. Income losses to American employees exceed profit gains to American owners. Government ends up with lower tax income.
Now instead the government gives a tax break to businesses in this particular industry if they keep their jobs in the States. Employees keep their good jobs, net profit and tax income end up at the same level as they would have been if the jobs were moved overseas.

Another alternative is to introduce import tariffs for goods manufactured in countries with poorer safety regulations for workers. That reduces the financial incentive to move jobs overseas.

I gotta' admit, its a pretty effective debate technique...if you stick to claims that are so incredibly vague that they mean nothing, its pretty hard for people to disagree.
That's a funny comment, since you seem to be doing a pretty good job of disagreeing with me, so far.

Pretty much the same as if a person is sick, you stand there and say, "Well, we should do something!" Yeah, pretty self-evident...but doesn't solve a thing. A person is lost..."Well, you should do something!" Sage advice that I'm sure would help them out of their predicament.
These are obvious strawmen. I've watched people close to me die from illness or old age, while fully realising and accepting there was nothing I, or any of us could do to change the outcome. But when considering economic issues the government does have a huge bag of tricks to manipulate the outcome.

If you haven't figured it out yet, it bugs me to no end when people seem to want to disagree with me, yet for all their spluttering about, for all the time it takes to read what they write, it turns out that they haven't said a darn thing.
If your comment was solely about corporation's responsibility, while you correctly identified mine as about governmental responsibility, then where did we actually disagree?

In addition, there are plenty of libertatians who disagree with me because they believe the economy is per definition none of the government's business, regardless of the outcome.

[Foolmewunz]

Shoes? Ya wanna talk shoes?!!?

If any don't recall, this is what I do.... I handle the supply chain in my team for over 65 Fortune 500 clients. Many in retail, and a couple of "majors" in footwear and sporting goods. NOT NIKE, I HASTEN TO ADD.

This is one of those threads where "everybody's right"!

First: Lower prices.

If you don't think that outsourcing to cheaper labor markets gets you lower prices then I ask you to go check out the blue light special on aisle C in 1990! Notice that the 3-pack of boxer shorts is within about 0.30 USD of the price in 2007? How about the flanelette pajamas? Same price or even lower, right?

Where do those goods come from? China, India, Indonesia, Cambodia, Viet Nam, Pakistan, Bangladesh and Sri Lanka. So while the outsourcing doesn't reduce the price, it allows the price to remain stable because they follow the cheapest labor to highest quality/reliability ratio around the region. (e.g. India can cut the prices on the flannel nighties, but if they turn out 40% defective and the stores get too many rejections/returns, they'd rather buy in China where the quality is higher).

I can't name the model, but one of the highest priced soccer shoes in history was being made in Indonesia. The manufacturer never even considered making it in Italy, Germany, or England. It cost about USD 20.00 to manufacture and it sold during the last World Cup year for 10 fold that cost.

Second: Selling Price
Let's use Nike again since I'm not handling any of their business. If they could make the Air Jordans, back in the day, for $55.00 in the USA and sell them for $85.00, they were relatively content. But as US labor and costs went up and that margin softened and then disappeared entirely, they'd naturally look to their overseas plants where quality was improving in leaps and bounds, and assuming the plants could actually produce that high a level of product, and that they could produce them now for $20, then they'd be foolish to produce at a loss, because they could only sell at the level the market had reached on its own... $85.00.

Branded merchandise finds its price level based on what people will pay. If it's a hot item, sometimes the company can take maximized profits.

But, it's the unbranded (e.g. those flannel nighties) where the retailers are taking a cost-plus calculation to set their retail prices. It's a complicated formula, but they consider every penny from the factory door up to the moment it's wheeled out in Mrs. Taylor's shopping cart in Duluth. So, for those items, the availability of cheap labor is a major factor, and it's only the out-sourcing that's let Mr. and Mrs. America keep their shopping bill so low for the past twelve years.

How many of you would be willing to pay 60% more for some of those staples of clothing, like t-shirts, kids' pajamas, boxers, socks, etc....

Nike, Converse, Adidas, etc... all sell just as many "styles" as they do "signatures". Not everyone wants a pair of "Ronaldo" or "Beckham" or "Jordan" or "Laetner" (just kidding about that last one)..... kids just need soccer shoes and sweat socks and while little Johnny and little Nancy might like the idea of wearing a two hundred buck pair of shoes, it's not mandatory, and you can get them a decent pair for under $35 - just about what I was paying for proper athletic shoes for my daughter back in the 80s! And the prices stay reasonable because of the outsourcing.

3. The Nike Factory in China?
Stop thinking of these companies as manufacturers. They're not out-sourcing by opening factories. That would be cost-prohibitive in most areas. They out-source by taking their designs and patents to overseas producers and having the factories compared for quality and price (e.g. open capitalist bidding) and then assigning the year's (or more - or less) contract to the company who performs best in the bid.
There are still plenty of plants opening up over here with foreign ownership, but it's a lot smaller than you'd think, and it's mostly hard goods, electronics, appliances, etc... The investigations into footwear are always referring to the Converse plant in Cambodia, or the Adidas plant in Indonesia, etc.... These are locally owned factories who produce for these brands - they are not actual owned factories.
What they are doing, and this includes almost every brand you can name in clothing, footwear, toys, games, computers, etc.... Is marketing their brands. The actual factory that's producing a certain model of computer*, or accessory, or shoe, or shirt... may shift from country to country and year by year.
*Heck, I can show you a factory that was making IMACs, Dell, HP, Canon, and Toshiba desktops, all at the same time. At one point there's a very fanmous CM(contract manufacturer) who was making nearly every brand of laptop that was available.

4. Quality, Social Responsibility, Green Initiatives, etc....
You'd be surprised that "those bas****s, Walmart" is also a common expression amongst their suppliers. Walmart squeezes the lowest possible prices out of their vendors, and THEN sends in the compliance teams. They inform them they have X weeks to be up to standards in many areas, knowing full well that the factory in Bangladesh or India could only have given them the low price based on the traditional exploitative production practices. And Walmart won't bend on prices. If you try to re-price an item for Walmart, they don't argue. They "de-list", e.g. they take the product off the internal catalogue so their store managers won't be able to order it or sell it!
While that sounds like smarmy business tactics, they're just leveraging their power, and the upside is that almost every company I deal with has a team of auditors going around to all their factories checking for:
Product Quality
Social Compliance (labor, working conditions, etc...)
CTPAT and Security
"Green" Practices (this is new and just getting rolling for the most part)

The market is forcing these changes on the factories, but at the request of several human rights groups, they've all learned to tread lightly.

5. Worst example ever of good intentions going bad
There is a very well-known story here and you can find it with a little bit of googling, but I don't want to repeat the names (although I was not directly involved in the issues at the time). There was a factory in Guangdong Province producing the McDonalds give-away toys and favors. They got smacked around by some investigative unit (independent NGO), and the publicity upset Mickey D so much that they cancelled all orders with the factory due to their labor violations (an assortment of things from under-age, no over-time, holding back documents/salary, etc.... they were bastages, make no mistake about it).
Yeah! That'll show 'em!! Get the greedy bums!!!
Well, no. The problem is that the owners had been making a fortune for several years, so rather than try to recover this massive hit, they just locked the gates and put 40,000 people out of work!

One should never be asked to tolerate these kinds of labor abuses. But there are ways of dealing with them. Ultimately, you'd rather have the Walmart approach, and squeeze them into compliance within given timeframes and bring your financial clout to bear to actually improve conditions.... not to put 40,000 heads of families out on the street.

And, although the Wolf and I will both confirm that they have a long way to go, is what's happening throughout the region. The attention and protests in Europe and North America have had their effect. No one wants to see picketers in front of their HQ with signs saying "Great Big Amalgamated Uses Slave Labor", believe me.

6. Question for Mr. Obama
Without the rhetoric and hyperbole could you please specifically identify which jobs you are going to protect and how you're going to do it?

NAFTA is so 90s! Most of those jobs that departed the USA for the maquilladoras have now departed Mexico for Asia. I hear nothing concrete about what bills or acts he is proposing to support in order to stem the tide.


7. The Corporation as Patriot
I've also yet to see just what defines an "American" company. Is there some sort of corporate pledge of allegiance you sign? Is my company and its 4000 employees in the USA now responsible for making sure those employees always have work? Or are we exempt because we're based in Switzerland. Is Hond Motors less responsible for the workers in Mariesville than Ford is for the workers in Dearborn?

Is the basis "founded by a good ol' boy"? Because the company started there? Where it has its headquarters? And what happens when the good ol' boys sell out? Does that mean the responsibility for the workers ends? Passes to the new owners? Other? This is all a very tangled situation, and IMHO is not solved without going into some form of totalitarian governance of business. Under the "do good for your workers" doctrine, IBM could've never sold out to Lenovo. Is it government's job to limit a corporations options to selling only to company's that meet the pledge of allegiance standards?









Okay, enough anecdotal evidence.... back to bashing Libertarians.... Yaaaaay!

[hamelekim]

Of course they are bad. It harms the people in the first world who were making a decent living. Destroying one persons life to improve anothers, in the process making you millions/billions is immoral. The idea of increasing shareholders profit infinitely is immoral. There should be a base level for percentage profit and after that the money goes to the government to help society.

[gtc]

Fantastic post Foolmewunz.

I teach some students who work in Supply Chain Management in China and it always amazes me how complex some of these enterprises are and how eager to learn most of the students are.

[Wolfman]

Of course they are bad. It harms the people in the first world who were making a decent living. Destroying one persons life to improve anothers, in the process making you millions/billions is immoral. The idea of increasing shareholders profit infinitely is immoral. There should be a base level for percentage profit and after that the money goes to the government to help society.I, too, wish that I lived in the world of make-believe where such ideas would actually work.

[Foolmewunz]

Of course they are bad. It harms the people in the first world who were making a decent living. Destroying one persons life to improve anothers, in the process making you millions/billions is immoral. The idea of increasing shareholders profit infinitely is immoral. There should be a base level for percentage profit and after that the money goes to the government to help society.

Wow! Hey Wolfman, wanna link arms and sway back and forth to Peter Paul and Mary doing "If I Had a Hammer"?

Yeah, this will work, I'm sure!


ETA: I changed this post 'cuz I hadn't seen that Wolfman had covered my reaction pretty succinctly.

[Francesca R]

Fantastic post Foolmewunz.Yes.

Of course they are bad. It harms the people in the first world who were making a decent living. Destroying one persons life to improve anothers, in the process making you millions/billions is immoral.

Right. Giving someone employment is good. Taking it away is evil . :rolleyes:

[Francesca R]

Actually I concede that laissez-faire world trade may be a positive sum game, because free trade theory makes a few simplified assumptions like perfect information that are in reality wrong.I guess it's hypothetically possible that the losses from fraudulent or unfair or inadequately-informed transactions wipes out the gains from all the rest. I doubt it severely :)

I agree with your analysis. I'm personally not in favour of a world government though, because I consider political competition between governments important too. That stimulates political innovation and offers some punishment against bad laws.It's hard to be in favour of supranational bodies. However one woman's "political competition" and "innovation" is another man's "beggar-thy-neighbour protectionism" and "corruption/cheating". It manifestly does not result in level playing fields. It is a bit like allowing capitalism in a village to go right ahead but without law enforcement (protected rights, legally-binding contracts). Transactions wind down to only consist of the type that don't need those things, such as spontaneous barter.

[Luzz]

The shoes are still being sold for $99.99! The consumer isn't saving any money, only the big corporation! The reason for this is simple economics: nothing has changed in the market. The supply and demand of Nike shoes has remained the same, so the price hasn't changed. The only thing that's changed is that Nike's employees have been put out of work, and their executives have saved a bunch of money.

You are wrong, the price HAS to go down for two reasons:

1. Many workers are put out of work therefore less people can afford to buy Nike shoes, if the supply remains the same but the demand decreases, eventually the price falls down.

2. A rational producer who has lower production costs, will increase its supply in order to increase his profits (assuming that the prices stays the same) he would make millions. However, eventually the excess of supply will bring prices down.

In both scenarios -everything else constant- the reduction in production costs will benefit the consumer. The US people want their cake and eat it. So they love cheaper prices but they know it also means less creation of jobs and therefore GDP.

[shep]

Nice post Foolmewunz, I just have a question re: overseas factories:

The investigations into footwear are always referring to the Converse plant in Cambodia, or the Adidas plant in Indonesia, etc.... These are locally owned factories who produce for these brands - they are not actual owned factories.


Does this mean that if we found examples of locally-owned factories in Indonesia that were actually abusive, using slave/underage labour, etc., and convinced Nike to stop using them, that this factory would just go and make shoes for Adidas instead?

If so, that sorta destroys the arguments I've been using... it means that Nike stopping their operations in Indonesia would not necessarily result in the loss of all the jobs, because the factory will just find a new client to produce goods for.

Of course, it still renders the anti-overseas-factory movement's actions useless, because they haven't actually put a stop to the abuse in the factories either, but for some reason that isn't very heartwarming.

It seems to suggest there's no easy way to deal with the bad employers in the country in question, because there will probably always be another brandname waiting in line to get the cheap labour.

I know you did sorta address this with compliance teams as per Walmart, but wouldn't the really bad eggs just wait around for a less fussy buyer to come along?

Your thoughts?

[Foolmewunz]

Nice post Foolmewunz, I just have a question re: overseas factories:



Does this mean that if we found examples of locally-owned factories in Indonesia that were actually abusive, using slave/underage labour, etc., and convinced Nike to stop using them, that this factory would just go and make shoes for Adidas instead?

If so, that sorta destroys the arguments I've been using... it means that Nike stopping their operations in Indonesia would not necessarily result in the loss of all the jobs, because the factory will just find a new client to produce goods for.

Well, yes and no. They might not be producing for someone at as high a level, because Adidas would take those violations as seriously as Nike does. But they could find various others who might not care.


Of course, it still renders the anti-overseas-factory movement's actions useless, because they haven't actually put a stop to the abuse in the factories either, but for some reason that isn't very heartwarming.

It seems to suggest there's no easy way to deal with the bad employers in the country in question, because there will probably always be another brandname waiting in line to get the cheap labour.

Don't lose faith. If you're one of the people who makes your concerns known, continue to voice them. The pressure from the major retailers can perform wonders. Selling two thousand pairs of shoes to Wally's Fake Shoe Company is not the same as selling 400,000 pairs to Nike. And don't forget that Walmart, Penny, Target, et al are buying those same Nikes and they'll put the pressure on, too.


I know you did sorta address this with compliance teams as per Walmart, but wouldn't the really bad eggs just wait around for a less fussy buyer to come along?

Your thoughts?


There will be fewer and fewer of said "bad eggs" if the people who care keep voicing their concerns. I deal with appproximately 75 Fortune 500 clients. Fifteen years ago, not a one of them had serious Compliance SWAT Teams. They gave it lip service, only. Now, I don't think that more than a small handful have yet to implement these practices. Some of them have their own internal teams, but most have gone to outside companies to avoid any conflicts from their own buyers/merchants. One example - a large retailer in the USA.... they have Company A who perform quality audits (product and technical and parts), the have another company doing their Social Compliance and Green Initiatives Compliance, and yet a third who are contracted to do CTPAT (Customs and Trade Partnership Against Terrorism) Security audits.

Some of the buyers (my clients) pay for these surveys themselves (if they have four or five key providers, only) and some inform the sellers that if they intend to be on the approved list for Great Big Retail Inc, then they're going to have to go through the process in all three areas, and THEY will be charged for the privilege!

[Wolfman]

I'd like to add to foolmewunz's comments, at least in regards to China.

Until fairly recently, the reaction of companies that discovered a situation like this was to back out entirely...just sever all relations with the offending supplier/factory. This addressed the issue of the source of that company's products, but did little or nothing to help or improve the situation of the employees who were being exploited/abused. Either the factory would be shut down, and they'd have no jobs at all, or the factory would just find another client, and continue with business as usual.

More recently, within China, foreign companies that discover this situation are instead demanding that the Chinese side clean up their act. They use a combination of financial and legal pressure to make the Chinese supplier/factory improve to acceptable standards. The Chinese government has been fairly supportive in this regard (although there are still cases where local gov't officials have a stake in the sweatshop operations, so can prove rather problematic). I gave an example of one such case in an earlier post.

Although I'm not directly involved with this particular aspect of industry in China, I have lots of friends who are. Most of the foreign companies tend to share information with each other quite freely and openly in regards to which Chinese companies can be trusted, and which cannot. If a particular Chinese company is found to be using sweatshops to make their products, and the foreign company that contracted them finds out, the foreign company will make other companies aware of this, also.

I know lots of CEOs and GMs here in China. Contrary to popular depictions of them by some people as soulless animals dedicated only to profit, most of them are quite keenly aware of and concerned about such issues. Pragmatically speaking, their concerns are a combination of real humanitarian concern, and the concern of the economic impact of being branded as a company that uses slave labor or sweatshops. Various organizations to which these CEOs and GMs belong work actively to increase awareness of the problem in China, and to fight against it. I know of one GM here who is personally responsible for shutting down more than a dozen illegal sweatshop operations in China...most of which had nothing to do with his company. He does it because he feels it is the right thing to do.

Now, in countries where gov't cooperation is not as strong as in China, the situation certainly can become even more complicated. But the message that I hope myself, foolmewunz, and others with practical experience of the situation will understand is that it is far from a cut-and-dry, us-vs-them situation. Those who just charge in with reactionary cries, demanding change before they understand the situation, generally only succeed in causing more damage.

As with anything, education and knowledge are the first step towards change, on both sides. On the Chinese side, to improve standards of quality, management, human rights, etc.; on the foreign side, to improve understanding of the complex interplay of factors involved, and how to bring about change that most benefits the people who are suffering the most -- those who are still stuck working in sweatshops and other such deplorable conditions.

[tkingdoll]

Interesting thread. Thanks especially to Foolmewunz and Wolfman for the insight.

The only thing that bothers me is that (in the UK for example), it is not possible for UK workers to compete on price, because of the minimum wage (just over £5 per hour) and the ever-rising cost of living. You simply couldn't live on the average wage of a Chinese factory worker so there's no way you can ever win back the manufacturing contract. You aren't given the opportunity to compete because the law of the UK says people should have a higher standard of the living than the law of China.

[Wolfman]

Interesting thread. Thanks especially to Foolmewunz and Wolfman for the insight.

The only thing that bothers me is that (in the UK for example), it is not possible for UK workers to compete on price, because of the minimum wage (just over £5 per hour) and the ever-rising cost of living. You simply couldn't live on the average wage of a Chinese factory worker so there's no way you can ever win back the manufacturing contract. You aren't given the opportunity to compete because the law of the UK says people should have a higher standard of the living than the law of China.
Oh, absolutely. It is a fact that moving jobs to China means losing jobs in the UK (or US, or Canada, etc.)

However, you have to consider the larger picture. Take the example of the American automobile industry that I used previously, when it first faced significant threats from cheaper Japanese and Korean imports.

Had the Americans not shifted some of their operations overseas, thereby reducing costs, they would have gone out of business entirely. There was no way at all that they would be able to compete with the lower cost Japanese and Korean operations. So yes...moving their operations to other countries did result in the loss of many American jobs. But nowhere near as many jobs as would have been lost if those companies had gone bankrupt due to inability to compete.

Now, think about this from the other direction. Think about large Western companies that end up being hugely successful in other countries (McDonald's or Coca Cola being prime examples). When these companies penetrate new markets, they often cause local operations to lose business. More money flows to Western countries, while local operations are unable to compete because they lack the financial resources, the experience, and the reputation.

What is the Western response to that? "Hey, that's capitalism, baby! If you can't compete with us, that's you're problem, not ours!"

It is rather ironic -- but understandable -- that when "capitalism" and "competition" happen to favor us, we defend it staunchly, and use it as proof of our superiority (an argument particularly common from Americans); yet when those very same forces of capitalism and competition happen to hurt us, suddenly it is unfair, and should be stopped.

When you look at unemployment in western countries, what is actually happening (in my opinion) is not so much a net loss of jobs, as an evolution from one type of job to another. There are many fields today that have very high demand...many of them fields that didn't even exist (or were relatively small) 10 or 20 years ago. The problem is not a lack of jobs. The problem is that, in this process of transition, there are people who lost one type of job, but who are unqualified/unprepared for the new job market that is emerging.

While I sympathize very much with those who have lost jobs as a result (this includes some of my own family members and friends), I still tend to take the bigger view. That this is a sometimes painful and difficult change, but it is one that is nevertheless necessary.

Trying to prevent this, by preventing companies from exporting particular jobs overseas, will result in economic damage that will cripple that country's economy, and result in slower growth and development within this new system. They won't have the money or resources to compete, to develop new technology and remain competitive with other countries.

[quixotecoyote]

Interesting thread. Thanks especially to Foolmewunz and Wolfman for the insight.

The only thing that bothers me is that (in the UK for example), it is not possible for UK workers to compete on price, because of the minimum wage (just over £5 per hour) and the ever-rising cost of living. You simply couldn't live on the average wage of a Chinese factory worker so there's no way you can ever win back the manufacturing contract. You aren't given the opportunity to compete because the law of the UK says people should have a higher standard of the living than the law of China.

Laws or no laws, a UK citizen is not going to be able to live on less than £50 a month, so claiming the minimum wage is preventing price competition is absurd unless you can make an argument that any Brit would work for £0.30 per hour.

[Cuddles]

You are wrong, the price HAS to go down for two reasons:

Not only does it not have to, it very clearly doesn't. Nike has largely moved to foreign labour and the prices are still the same, probably even higher due to inflation.

1. Many workers are put out of work therefore less people can afford to buy Nike shoes, if the supply remains the same but the demand decreases, eventually the price falls down.

This assumes that manual labourers in Nike factories are a significant market for $100 shoes. I rather doubt this is the case. Firstly, they are unlikely to be able to afford $100 shoes. Secondly, there just aren't that many of them. Sure, thousands of jobs sounds like a lot, but in a population of over 300 million, it really isn't that much.

2. A rational producer who has lower production costs, will increase its supply in order to increase his profits (assuming that the prices stays the same) he would make millions. However, eventually the excess of supply will bring prices down.

This is in serious conflict with your first point. You can't argue that demand will decrease at the same time as saying that a rational supplier would increase supply. That just doesn't make sense. Even ignoring your first point, this point isn't valid. Supply depends entirely on demand. If there isn't increased demand, no-one is going to increase supply. Certainly not if they're rational. They could try to take more of the market share from other producers, but since the other producers are also reducing they're production costs in the same way, that would just result in lower profits for everyone, but no change in the amount of shoes sold.

[Luzz]

Cuddles,

I provided two possible reasons two explain why the price will eventually go down. In the first case, everything constant (price and supply) if production costs are lower and price stays the same, then the demand decreases.
In the second case, everything constant (price and demand) if production costs are lower, then the supply increases. This is microeconomic theory, a rational producer always maximises its benefit function, in other words, he will try to exploit any gains from lower costs in order to increase its profits. Other things constant, he increases its supply.
Technically speaking the supply depends on prices of production costs plus a margin of profit S= f(p, profit) and they have an inverse relationship, if one goes down, the other goes up and vice versa.

[Wolfman]

Cuddles,

I provided two possible reasons two explain why the price will eventually go down. In the first case, everything constant (price and supply) if production costs are lower and price stays the same, then the demand decreases.
Sorry, I'm having difficulty understanding your argument here. You are saying that the only factor that changes is that production costs are lower (but that prices stay the same)...yet demand will decrease? Why? How? People will suddenly say, "Oh, I don't want that any more"?

Demand is based on two basic items -- how badly people want something, and how much it costs for them to buy it. If they want it badly enough, they will pay a lot of money for it.

The cost of producing it does not enter into this equation. If it cost me $25 to make a shoe, or $75 to make a shoe, the demand for that shoe will remain the same, and the maximum price that I can charge for that shoe will remain the same.

The only way in which demand would be affected by lower production costs would be if, because of lower production costs, I produce more of a particular product, thereby flooding the market, and decreasing the perceived value of that product. But any reasonably competent company will avoid devaluing their own product in that manner.
In the second case, everything constant (price and demand) if production costs are lower, then the supply increases. This is microeconomic theory, a rational producer always maximises its benefit function, in other words, he will try to exploit any gains from lower costs in order to increase its profits. Other things constant, he increases its supply.
Technically speaking the supply depends on prices of production costs plus a margin of profit S= f(p, profit) and they have an inverse relationship, if one goes down, the other goes up and vice versa.
You seem to be relying on rather tenuous theory that has little or no application in the real world.

We are specifically discussing luxury products here. Whether it be expensive shoes like Nike, or name brand purses, or expensive sports cars, the principles are all the same.

Louis Vuitton could easily make far more handbags than they do; but they don't. Why? Because they specifically do not want to flood the market, they want to keep their product as an exclusive product that has limited availability, and therefore higher perceived value.

Now, if they move their production facilities to China, and cut the cost of manufacturing their products in half, are they either A) going to decrease the price of their product or B) produce more of that product?

No.

Because they maximize their profits by maintaining the exclusivity of their product (limited supply), while increasing the profit margins on all the products they sell.

It is very easy and simple to demonstrate this in real-world terms. We know for a fact that companies like Nike, Louis Vuitton, and many others have transferred much of their manufacturing to countries like China. If your theory is correct, that would mean that the prices of Nike and Louis Vuitton products would be lower now than they were before they shifted overseas. Yet that is, very obviously, not the case.

You are talking vague theory, based on very questionable arguments. I am talking about real-world, demonstrable facts.

[Francesca R]

The only way in which demand would be affected by lower production costs would be if, because of lower production costs, I produce more of a particular product, thereby flooding the market, and decreasing the perceived value of that product. But any reasonably competent company will avoid devaluing their own product in that manner.Producing more inventory wouldn't affect demand either if the price is fixed. For all we know there may be a Louis Vuitton surplus "purse mountain" in some warehouse, but unless LVMH start cutting the retail price because they need to shift it, demand and price stay the same.

[Cuddles]

Wolfman has already answered this, probably far better than I can, but I will as well anyway. Bascially, all you've done is restate exactly the same thing without addressing my points and without actually trying to justify any of it.

Cuddles,

I provided two possible reasons two explain why the price will eventually go down. In the first case, everything constant (price and supply) if production costs are lower and price stays the same, then the demand decreases.

No. Why would the demand decrease? People still want the goods and are still willing to pay the same amount for it. Why would this change? More to the point, how would people even know the production costs and whether they have changed? Do you know how much your shoes cost to make? Do you know how much they cost to make ten years ago? Do you know how much they will cost to make in the future? What about your car? Your computer? Your jewelry? I doubt it. But without that knowledge, your point makes no sense. Unless you know how much everything costs to produce and base your want for things on that cost, demand will not depend on production costs.

In the second case, everything constant (price and demand) if production costs are lower, then the supply increases. This is microeconomic theory, a rational producer always maximises its benefit function, in other words, he will try to exploit any gains from lower costs in order to increase its profits. Other things constant, he increases its supply.
Technically speaking the supply depends on prices of production costs plus a margin of profit S= f(p, profit) and they have an inverse relationship, if one goes down, the other goes up and vice versa.

Again, no. Why would anyone want to increase the supply if the demand doesn't change? People aren't going to magically buy more just because it's there. If everyone needs one pair of shoes each year, and that is already being supplied, suddenly deciding to make twice as many shoes isn't going to make you sell any more, it's just going to leave a lot of shoes unsold.

And again, as I pointed out in my last post, your two points are in direct contradiction to each other. In the first case you say demand will decrease, while in the second you say that supply will increase. Since supply will only increase if the demand is there, these can't both be true at the same time.

[tkingdoll]

Laws or no laws, a UK citizen is not going to be able to live on less than £50 a month, so claiming the minimum wage is preventing price competition is absurd unless you can make an argument that any Brit would work for £0.30 per hour.

No, that's my point. We have minimum wage precisely because no-one can live on less than £50 a month. I wasn't claiming the minimum wage was preventing price competition, I am claiming we have minimum wage because our government doesn't want its citizens to live in poverty, and because the cost of living is so high, that's the hourly rate they deem acceptable to meet it. However, if we didn't have unemployment benefit then plenty of people would work for 30p an hour rather than starve, cost of living or no. If the UK government suddenly decided that it didn't particularly feel obliged to try and have every citizen live to a certain minimum standard, then we would absolutely have people working for 30p an hour. We did once upon a time.

Oh, for the record, I used to work for 15p an hour.

[CFLarsen]

No, that's my point. We have minimum wage precisely because no-one can live on less than £50 a month.

You can live for £50 a month in the UK??

Well, all you need is love (and a little tea)...

;)

[Rob Lister]

Sorry, I'm having difficulty understanding your argument here. You are saying that the only factor that changes is that production costs are lower (but that prices stay the same)...yet demand will decrease? Why? How? People will suddenly say, "Oh, I don't want that any more"?

.

I think (but I'm not sure) that his point was that if you ship the jobs overseas then you create a situation where your local customers have less $ to spend. Therefore, prices go down.

That said, I'd like to say this about Nike: they are of a class of products such that if they lower their price in an attempt to increase sales then they will soon find themselves on the sidelines: The market will shift to Air Jordon...or whatever other shoes costs the most.

[EGarrett]

Ah, the faith of those with one basic course in a wildly complex subject, unalloyed with external considerations!!!1. Faith is belief in the absence of evidence. If something is logically supported, it isn't faith.

2. I didn't make anything but basic points.

3. I asked for more knowledgable posters to join in.

Why do you feel the need to go out of your way to make an unsupported attack on another poster? If you disagree, then give reasons, don't insult...especially when the basis for your insult is incorrect.