Excellent article.
Thanks Leslie
-----Original Message-----
From: leslie [mailto:[log in to unmask]]
Sent: Monday, June 09, 2003 10:47 PM
To: [log in to unmask]
Subject: Re: [HP3000-L] Move Migration work to India ?
John Lee ([log in to unmask]) wrote:
: Well said, except that vastly different standards of living, tax laws,
: types of government, etc. all prevent a pure global economy and workforce.
:
:
Most of what's happening now was predicted by Sir James Goldsmith in 1994:
http://multinationalmonitor.org/hyper/issues/1994/10/mm1094_06.html
The Case Against GATT: An Interview With Sir James Goldsmith
"Interview
The Case Against GATT
An interview with James Goldsmith
Sir James Goldsmith's claim to fame in the 1980s was as a corporate
raider; he cemented his reputation as an extraordinarily shrewd
businessperson when he sold his stocks in the days before the 1987
stock market crash. He is now a Member of the European Parliament,
President of the Parliamentary group L'Europe des Nations and a member
of the Parliamentary Committee concerned with global trade, the
Committee on External Economic Relations. He is also the Chief
Executive Officer of the Goldsmith Foundation, Europe's largest
privately-funded charity specializing in supporting environmental
causes.
[snip]
MM: What is the economic theory on which GATT is based?
Goldsmith: A leading theoretician of free trade was David Ricardo,
the early-19th century British economist. He developed two
interrelated concepts: specialization and comparative advantage.
According to Ricardo, each nation should specialize in those
activities in which it can have a comparative advantage relative to
other countries. Thus, a nation should narrow its focus of activity,
abandoning certain industries and developing those in which it has a
comparative advantage. The results would be that international trade
would grow as nations export their surpluses and import those products
that they no longer manufacture, efficiency and productivity would
increase and prosperity would be enhanced. But these ideas are not
valid in today's world.
MM: Why not?
Goldsmith: During the past few years, four billion people have
suddenly entered the world economy. They include the populations of
nations such as China , India , Vietnam , Bangladesh , and the
countries that were part of the former Soviet empire, among others.
These populations are growing fast. Barring catastrophes, they are
forecast to reach over 6.5 billion in 35 years. They have very high
levels of unemployment and those who do find jobs offer their labor
for a tiny fraction of the pay earned by workers in the developed
world. For example, 47 Vietnamese or 47 Filipinos can be employed for
the cost of one Frenchman. Until recently, these four billion people
were separated from our economy by their political systems, usually
communist or socialist, and because of a lack of technology and of
capital. Today all of that has changed. Their political systems have
been transformed, technology can be transferred instantaneously
anywhere in the world [via] microchip, and capital is free to be
invested worldwide, wherever the anticipated yields are highest.
The principle of global free trade is that anything can be
manufactured anywhere in the world to be sold anywhere else. That
means that these new entrants into the world economy are in direct
competition with the work forces of the developed countries. They have
become part of the same global labor market. Our economies, therefore,
will be subjected to a completely new type of competition. For
example, take two enterprises, one in the developed world and one in
Vietnam. Both make the identical product destined to be sold in the
same market, say France or the USA; both can use identical technology;
both have access to the same pool of international capital. The only
difference between the two is that the Vietnamese enterprise can
employ 47 people for the cost of only one Frenchman. You do not have
to be a genius to understand who will be the winner in such a contest.
In France, as in most developed nations, an average manufacturing
company pays its employees, including social costs, an amount equal to
about 30 percent of volume. If such a company decides to maintain in
France only its head office and sales force, and to transfer its
production to a low-cost area, then it will save about 20 percent of
volume. Thus, a company with a volume of $500 million will increase
its pre-tax profits by $100 million per year. If, on the other hand,
it decides to maintain its production in France, the enterprise will
be unable to compete with low-cost imports and will perish. It must
surely be a mistake to adopt an economic policy which makes you rich
if you eliminate your national work force and transfer your production
abroad, and which bankrupts you if you continue to employ your own
people.
MM: Won't high tech jobs replace those that move offshore?
Goldsmith: High tech industries can, indeed, survive and prosper
under these circumstances. That is because they are highly automated
and therefore employ only a few people. So labor is a minor item in
the overall cost of the products that they make. But obviously the
fact that they employ very few people means that they are incapable of
employing very many. As soon as they need to employ many, they will be
forced to move offshore. For example, IBM is moving its disk drive
business from America and Western Europe to low labor cost countries.
Boeing has also announced that it will transfer to China production of
parts of certain of its planes to China.
In France, proponents of global free trade constantly say that the
exporting of such high tech products as very fast trains, airplanes
and satellites will create jobs on a large scale. Alas, this is not
true. The recent $2.1 billion contract selling very fast French trains
to South Korea has resulted in the maintenance for four years of only
800 jobs in France : 535 for the main supplier and 265 for the
subcontractors. Much of the work is carried out in Korea by Asian
companies using Asian labor. What is more, following the transfer of
technology to South Korea, in a few years time Asia will be able to
buy very fast trains directly from South Korea and bypass France. As
for planes and satellites, the numbers employed in this industry in
France have fallen consistently. Over the 5 years from 1987 to 1992,
they have fallen from 123,000 employees to 111,000 and are forecast to
fall to 102,000 in the short term.
MM: Won't the growth of the service sector compensate for the jobs
lost in manufacturing?
Goldsmith: I am afraid that even service industries will be subjected
to substantial transfers of employment to low-cost areas. Today
through satellites you can remain in constant contact with offices in
distant lands. That means that companies employing large back offices
can close them and shift employment to low-cost areas. SWISSAIR has
recently transferred a significant part of its accounts department to
India, for example.
MM: But certain services such as health and education, cannot be
transferred overseas, can they?
Goldsmith: A nation's economy is split into two broad segments, one
which produces wealth and the other which dispenses it. That in no way
means that the latter is inferior. It includes such vital activities
as health and education. But one cannot reduce that part of our
economy which produces wealth and expect to be able to maintain the
other part which dispenses it. You must earn what you spend.
[snip]
MM: How do you respond to GATT proponents' claims that free trade will
enable consumers to benefit from being able to buy cheaper imported
products manufactured with low-cost labor?
Goldsmith: Consumers are not just people who buy products, they are
also the same people who earn a living by working, and who pay taxes.
As consumers they may be able to buy certain products cheaper,
although when Nike moved its manufacturing from the United States to
Asia, shoe prices did not drop. Profit margins rose. But the real cost
of apparently cheaper goods will be that people will lose their jobs,
get paid less for their work and have to face higher taxes to cover
the social cost of increased unemployment. Consumers are also
citizens, many of whom live in towns. As unemployment rises and
poverty increases, the towns will grow even more unstable. So the
benefits of cheap imported products will be heavily outweighed by the
consequent social and economic costs.
[snip]
You must understand that global free trade will brutally shatter the
way in which value-added is shared between capital and labor.
Value-added is the increase of value obtained when you convert raw
materials into a manufactured product. In a mature society such as our
own, we have been able to develop a general agreement as to how it
should be shared between labor and capital. That agreement has been
reached through generations of political debate, elections, strikes,
lockouts and other conflicts. Overnight that agreement will be
destroyed by the arrival of huge populations willing to deeply
undercut the salaries earned by our workforces. The social division
that this will engender will be deeper than anything envisaged by Marx
in the nineteenth century.
MM: Who will be the winners and losers under a system of global free
trade?
Goldsmith: The losers will, of course, be those who become unemployed
as a result of production being moved offshore. They would also be
those who lose their jobs because their companies do not move offshore
and are not able to compete with cheap imported products. Finally,
they will be all those affected by the reduction in their earning
capacity following the shift in the sharing of value- added.
The winners will be those who can benefit from an almost
inexhaustible supply of very cheap labor. They will be the companies
who move their production offshore to low-cost areas; the companies
who will benefit from paying lower salaries at home; and those who
have capital to invest offshore, and who will receive larger dividends
as a result of the very low-cost labor. But they would be like the
winners of a poker game on the Titanic. The wounds inflicted on their
societies would be too deep to be acceptable without brutal
consequences.
[snip]
MM: What other recommendations do you have?
Goldsmith: I totally reject the concept of specialization. We need
the contrary, a diversified economy. Only such an economy will allow
our populations to participate productively in our society.
Specialization inevitably leads to chronic unemployment and to lower
wages. Growth in GNP has not solved the problem. Usually it creates
part-time, lower-paid jobs. That has been the trend in the developed
world during the past decades. In addition to the large corporations,
we need a society based on a multitude of small- and medium-size
businesses and craftsmen covering a wide range of activities, and we
need a decentralized economy. We must encourage local activity rather
than urban centralization. Everything must be done to return life and
vigor to the small towns and villages throughout our nations. It is
extraordinary to read economists commenting on the state of the
nation. They believe that the profitability of large corporations and
the level of the stock markets are the reliable guide in assessing the
health of the society and the economy. A healthy economy does not
exclude from active life a substantial proportion of its citizens.
In the great days of the U.S.A., Henry Ford stated that he wanted to
pay high wages to his employees so that they could become his
customers and buy his cars. Today we are proud of the fact that we pay
low wages. We have forgotten that the economy is a tool to serve the
needs of society and not the reverse. The ultimate purpose of the
economy is to create prosperity with stability."
--Jerry Leslie (my opinions are strictly my own)
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