Opening Pandora’s Globalization Box

In capitalism’s purest form, raw materials and semi finished products flow freely between different countries.  In their travels value adding work is performed until finally these materials reach the “finished product” state.  Capitalism at its best will have produced the lowest cost, highest quality product.  Hurray for the consumer.

Well, maybe hurray is too strong.

Consumers are also workers.  What if the consumer who wants a specific product has just had their job eliminated because their value adding work was now outsourced to another country?  Or, what if the consumer’s earning power had been reduced in order to avoid outsourcing and keep the job local?  Who’s now going to be able to buy this new low cost, high quality product?

Economist tell us to forget about this micro analysis and look at the macro (big) picture.  Someone may lose their job through outsourcing but find another job where his/her efforts would be well rewarded.  Country A would become expert (low cost) in Product X and Country B would become expert in Product Y.  Then the worker/consumer in Country A could afford to buy Product Y made in Country B.  Because Product Y was relatively so inexpensive, Country A’s worker/consumer would even have money left over.  In essence he would be better off.

This is “in theory”.

In the real world, other events take place.  Trade barriers can block free flow.  Local taxes can eliminate any advantage lower wage rates might offer.  “Teaching old dogs new tricks” applies to more than canines.  Union work rules and government subsidies can also tip the scales.

In short, the real world and real economy is very complex and does not mirror theory every step of the way.

So when we hear about the job creators, why wouldn’t we want to make things a little easier for these capitalists.  In return all we want are good jobs.

Sometimes reality is so stark that one can look at it, see it, and still not understand what one is seeing.  Capitalist job creators hate taxes.  These job creators also do not care about creating jobs unless those jobs create profits for the job creator.  Furniture, clothing, or building materials, for example, have significant content produced outside the US.  If job creators were to produce these items in the US with US labor, it would have to be at the effective wage rate (or lower) that was available overseas.  Otherwise profit margins would be lower.  Rewarding these job creators with tax breaks does not correct the margin problem and therefore will not result in more jobs.  (It would  result in more profits for the owners, however).

Of course, anyone with half a brain know this.  “Job creators” is just a euphemism for wealthy people who prefer to pay lower taxes.

Both political parties also know that saddling businesses with health care insurance cost has a far more burdensome impact.  Health care insurance costs put a globally unfair burden upon US employers.  On top of that, the US health care delivery system costs are out of control.  Employers have every right to worried and uncertain about the future.  Health care, instead of a wonderful benefit, is turning into an anchor around businesses’ necks.

Surprise, surprise.

When one looks overseas, one sees that health care insurance is not part of the Chinese, Japanese, German, French or any other modern industrial countries’ business owners’ mind set.  Healthcare is funded differently and no one is excluded from health care.

Businesses are rewarded for employing workers and casting workers aside for quick profit is discouraged.  These are our global competitors.

Human nature often bites the hand that feeds it.  Employees who feel their jobs are secure have demonstrated frequently that security breeds complacence.  Poor quality, low productivity, and ultimately higher costs result.

This post has now gone full circle.  Globalization is actually a useful fact of life.  When workers allow themselves to become uncompetitive, globalization steps in and allows those jobs (and their costs) to move to lower cost countries.  Haven’t we been here before?

Exactly.

Globalization in its purest form is a productivity driver.  In an imperfect world, a little unfettered globalization does improve productivity and restore cost/productivity balances.  Unlimited globalization is probably not a good idea since labor is not the same around the world in terms of existing pay, benefits, and safety conditions.  A little is ok, a lot is almost certainly not.

What this circular discussion does highlight, however, is that most job creators do not need tax breaks and will not hire more workers were they to receive tax breaks.  Far more likely to impact job creation would be removing the cost and uncertainty about future costs of health care insurance.

Will opening Pandora’s globalization box lead finally to US universal health care?

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