Sunday, February 25, 2007

Manufacturing and the circle of life

I wish I had the time, intelligence and concentration to put together a succinct and thourough demolition of the common arguement about keeping Aussie jobs in Australia and not shipping them overseas.
So from the outset I know one thing you have to establish is a world view. ie. stop thinking about just Australia is if the wider world does not exist.
Okay Major arguement #1 in favor of preventing jobs from going overseas - unemployment:

The gist of it is that if you ship jobs overseas in manufacturing people lose there jobs and this is devestating to communities and families as people don't want to be on welfare.
Okay the immediate solution to losing your job is get another job - aha but you are not educated enough to easily transfer your work efforts. Hence hencely arguement number one has the following issues - if you remove low skill jobs you exacerbate structural unemployment (unemployment caused by people having the wrong skills to fill the available roles as in a factory floor worker can't go from that to filling the in demand job vacancy of actuary).
Structural unemployment is really the biggest issue any government faces in their labor pool that is willing participants that lack the skills and abilities to actually sate the demand for labor.
So subsidising manufacturing (production subsidy) is really a form of welfare anyway because we are taking resources from productive sectors of the economy (via tax) and then redistributing it to sectors of the economy that normally couldn't compete price wise in the world market (through the subsidy) its welfare, we are injecting a handout to industries so they don't starve to death. Or you can get fiercely protectionist.
The arguement however falls down because the transition of jobs isn't an issue of employed people losing their jobs to the cosmos but infact employed people losing their jobs to unemployed people.
To simplify the arguement imagine two surgeons - you and some other person. You are a fairly good doctor in every thousand patients you operate on only 2 die the rest come through safely. The other surgeon is better though, in every thousand operations he conducts .418 patients die.
I don't even know if this is a KPI but in a market where there is only so much demand and either of you can easily fill that demand one could assume as good as you are people will prefer the other surgeon. You may have to get another job or move to another location, or specialise in another field.
You couldn't really argue whether that was fair or not because if all else being equal one is better than the other one will assume all the business goes in their direction.
So suppose instead there is one job, screwing screw 24b into hole 24b, and you can do this 27 times an hour at the cost of $18 an hour. Now the time it took to accumulate the expertise of being a surgeon is roughly 10 years at a cost $128,000. The time it takes to become an expert in screwing screw 24b into hole 24b was 12 seconds at a cost of $0.58 (your wages plus your foremans for given time plus opportunity costs of lost productivity on the line and then figure was exagerated to add impact)
So now say that it doesn't really matter who screws screw 24b into hole 24b, almost anyone can pick up the skill for fifty eight cents. Now taking a microscoping viewpoint and saying that every other step of the production line was complicated and not as easy to replace, one could easily if their weren't laws against it lose said job to someone willing to work for $16 an hour, who in turn could easily lose their job to someone willing to work for $14 an hour and so on and so on.
Unions were in fact formed in the days where there were so many people that Employers could bid down wages to 50c and fire you for exhaling through your nose.
I agree, but what isn't usually considered in this arguement is that you have a community that aren't fat cats sitting in ivory towers but people who have spent the best part of 300 years walking behind an ox, standing in mud, losing 75% of their infants and subsisting off less than $1 a day.
These are the people that have banded together negotiated a pay rise
to $1 an hour and are just as capable of placing screw 24b in hole 24b.
This is where the jobs are going, to people who will benefit much much more than you are. Furthermore $18 an hour isn't just money from heaven, money is a portable store of wealth, there are economicc definitions of money, but basically my point revolves around highlighting that money isn't just money, currency has a value determined by what it can buy, Wages like all other expenses/investments represent actual things of value, ie resources. So if you pay someone $18 to do the same thing as someone who will do it for $2 you are in fact wasting a lot of resources.
This arguement is an arguement to preserve for someone the priveledge of wasting resources.
In this crash course of Economics, economics as I understand it from year 11 is based around the premis of 'Relative to our wants, resources are limited' most economic studies are concerned with efficiency, ie employing those resources to best fulfill the wants of people.
Put simply if manufacturing jobs is whats in question who wants it more? someone with nothing who is willing to accept lower wages for the priveledge of work.
Jobs that are low skilled and if you permit me the license - "undesirable" are the ones likely to be shipped overseas to places where people find such jobs "desirable" for one and one reason only - they are much worse off than "we" are here.
If you take the world view we know that our planet is roughly the shape of a basketball and that every bit that sticks up above the blue bits has people crawling all over it, so we know that resources are most definitely finite.
So needlessly throwing away $16 or possibly $17 is irresponsible knowing that resources will eventually run out. The net effect of the "unemployment" arguement means that A) more people worldwide will most likely be employed. B) if these shitty jobs are all these people have you must acknowledge that they are only under threat because somebody else out there has less. C) the world at large is getting short shifted by wasting resources here there and everywhere.

Major arguement #2 - If the jobs go overseas we'll end up dependant on them and they will rule the world.

Assuming "they" = China which is the one having explosive growth. This statement is incorrect on a number of grounds, coming back to again that market mechanism, the jobs are not being transferred because of evil its because they are cheaper. So one could assume before through trade we become slaves to Chinese overlords or whoever else, we could assume that we would sooner accept lower wages than unfair treatment.
So the worst case is entirely avoidable under the same pretext that the jobs are under threat in the first place.
Secondly I find this arguement wrong because it is counterintuitive to trade anyway. The idea of buying and selling goods is to better our lifestyle options, why do we need to earn $18 an hour if all the consumer goods we needed were produced at a fraction of the cost? If this was in any way a significantly damaging shift in the job market it would be offset by the fact that living expenses go down.
My old economics lecturer (fat guy) used to introduce things so he could dismiss them and here's one I would introduce now - wages are not the issue, wages generally reflect living expenses, thus if wages had to decrease you would assume retailers rather than price themselves out of business would lower their prices unless the supply dwindled out of proportion with demand. In other words the economy might shrink a little but living standards may not have to.
The real point is that making the arguement that we will become slaves through market forces is ridiculous because it is the same as suggesting there is something inherantly different between people from Ballarat and people from Bendigo* if gold mining operations where to move between the town.
Infact the reason this didn't all happen a long time ago is because of Mao's economic mismanagement.
Anyone is perfectly entitled to want to work and negotiate wages that will compensate them for their time. To argue any differently is racist and furthermore, if what we are really afraid of is despotic abuse of economic power then we should stop employing such tactics ourselves.

Arguement #3 - it's all some people have.

Easily dismissed, the only reason all they have is under threat is because somebody else has less.
The real issue is when you land a job that is easy, menial and boring. Tragically nobody tried to invest any development training in you and you never learnt any transferrable skills, all you know is how to screw screws - the word for an indistinguishable good is called a commodity, and that is precicely what you have become. Working within strict specifications all your life you stifled your own belief in your ability to be anything more.
Your employer let you down, they never invested any of the proceeds generated by your activity into making you any better or more useful, but you too just sat there too lazy to move.
Thus we enter the two way responsibility of the employer employee relationship. If your employer does not offer you training or even opportunity for development you are obliged to quit and seek new employment.
Similarly employers need to bring people up with their company, and invest in their work force to not leave a bunch of redundant commodities as someone elses problem, or everyone elses problem, accepting subsidies from the government without at the same time moving out of the business is immoral and escalates our commitment to wasteful practices.
A good company will endeavor to make menial jobs redundant and at the same time allow their employees autonomy and creativity to move up the chain and achieve their best.
The few that cannot cope will not be permitted the delusion that their fate will be waiting with a warm seat for their children, and understand the importance of educating their children or allow them to sink in the ever changing market.
Discouraging your child from pursuing their highest potential is nothing less than child abuse.

*The 3 second rule in Ballarat is the 12 second rule in Bendigo, possible explaining the smell.

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