Posted by: CS | July 25, 2013

GLOBALIZATION IS GOOD (For the Rich)

Over at Carpe Diem, the blog of business school Prof., Mark J. Perry, globalization is GOOD.

Not surprisingly. A business school professor without faith in globalization would be like a priest without faith in God: useless to the powers that be, financial or ecclesiastical as the case may be.

American business has a legal obligation to maximize shareholder value, which for many means shuttering American factories, contracting production to Asian sweatshops, and selling the product back home with computerized efficiency via suburban big-box stores employing minimal staff at minimal wages.

The profitability of replacing American workers with cheap foreign labor in manufacturing, and cheap foreign brains in software, design, and R and D was explained by David Ricardo thus, “Wages plus profits, together, are always the same.”

Which is to say, cheap offshore production and service = big profits.

Globalists, naturally, are reluctant to broadcast this particular piece of economic wisdom. But mere silence is not the way at Carpe Diem. There, not only is globalization not bad for the American worker, it’s positively beneficial as we discover in the post: Yes, the middle class has been disappearing, but they haven’t fallen into the lower class, they’ve risen into the upper class.

Think about that for a moment.

Is not the concept of the middle class “rising into the upper class” some kind of logical or categorical mistake?

What is the middle class if not the people in the middle? You know, those who come between the upper class and the lower class. I mean, we’re talking money here, aren’t we?  That’s how business school profs. define social class, isn’t it? So, then, there’ll always be some folks in the middle of the income distribution, won’t there? Which means that if some people in the middle rise in relative income, some other people are going to take their place in the middle. Which is to say that the middle class ain’t goin’ no place, neither up nor down.

But what has actually happened to the incomes of those in the middle?

Well according to the Center on Budget and Policy Priorities, during the 30 years to 2009, the mean income of the middle 60% of the US population rose 26%, which was less than that of the bottom 20% at 35%, and of the 80th to the 99th percentile at 50%, and of the top one percent at 133%. So the evidence is conclusive: the middle-class in American have been financially downward mobile for thirty years or more. That is true both in relative terms and in real, inflation-adjusted money.

And between January 2009 and June 20012, so the Wall Street Journal reports, median US household income adjusted for inflation fell by $4,019 — hardly evidence of the flight of the middle class into the socio-economic empyrean.

But Carpe Diem goes further. Wal-Mart, declares Mark Perry: deserves the 2013 Nobel Peace Prize for improving the lives of millions of low-income consumers globally.

Yeah well, as the greatest purveyor of the products of sweatshop labor, painting Wal-Mart as the savior of America’s working poor seems a stretch.

But if the argument is that Wal-Mart has enriched tens or hundreds of millions of Asian sweatshop employees, then, yeah, Mark Perry may have a case.

But Nowhere, naturally, do globalists like to acknowledge globalization’s dirty secret, which is that its profitability depends largely on global wage arbitrage, which is to say the export of the capital and technology accumulated in the West through the sweat of generations to the low-wage economies of the world, this being greatly to the detriment of the majority of working people in the West.

But, hey, maybe I’m just slow to see a joke.

So yeah, sure, if Barack O’Bomba of Tripoli, Kissinger of Cambodia, and that old terrorist Menachem Begin of the King David Hotel Massacre got the Nobel Piss Prize, why not the biggest bloodsucking American corporation of them all.

Let’s see, a one-million -dollar prize means about one thirtieth of a cent per share. Not much, it’s true. Still, when you’re as tightfisted as the owners of Wal-Mart, every one thirtieth of a cent surely counts.

SEE ALSO:

CanSpeccy: How globalization destroys Western prosperity

David Ricardo (1772-1823)

 CanSpeccy: Exporting the economy 

Ricardo was explicit …that international free trade is beneficial to all parties only if capital is immobile, since exporting capital, one of the factors of production, will inevitably lower the productivity and hence reduce the prosperity of the population.

Consistent with these ideas, enlightened national governments endeavored to restrict capital outflow, promote workforce education and training, and in the Western World, limit mass immigration from the developing World since that diluted the capital stock of the nation on a per capita basis, reduced the per capita availability of land and infrastructure, and lowered average workforce skills and education — aside from its potential for destroying the nation through population replacement and reproductive competition.

CanSpeccy: Why even balanced trade between the West and Rest threatens your job

CanSpeccy: Why China Booms While America Slumps

So why have the benefits of foreign trade that David Ricardo predicted [under the very different conditions of 200 years ago] not materialize?

First, because an important assumption underlying Ricardo’s theory of comparative advantage no longer applies.

Experience… shews, that the fancied or real insecurity of capital, when not under the immediate control of its owner, together with the natural disinclination which every man has to quit the country of his birth and connexions, and intrust himself with all his habits fixed, to a strange government and new laws, checks the emigration of capital. These feelings, which I should be sorry to see weakened, induce most men of property to be satisfied with a low rate of profits in their own country, rather than seek a more advantageous employment for their wealth in foreign nations.

Today, there is no need for the investor or capitalist to “quit the country of his birth and connexions” in order to exploit cheap foreign labor.

The executive jet, the Internet, the enormous size and hence political clout of the multi-national corporate and financial entities and the international acceptance of a single set of rules governing world trade make it a safe and simple matter to invest almost anywhere in the world.

For this reason, if no other, foreign trade need not, as Ricardo believed, necessarily benefit all parties to the transaction.

When capital is exported from a high-wage nation to a low-wage nation, the investment per capita and hence the productivity of labor in the former declines and the investment per capita and hence productivity of labor in the latter increases, with a consequent decrease in wages in the former and an increase in wages in the latter.

CanSpeccy: Third World Wages Coming to a Factory or Workshop Near You

CanSpeccy: How globalization is destroying the livlihood of Western youth

CanSpeccy: Barbgate: How Western elites opened the gates and what to do about it

CanSpeccy: Ending the Hegemony of Liberal Economic Ideas and Western Economic Stagnation

CanSpeccy: The Second Great Depression and The Cause That None Dare Name

CanSpeccy: USA Boom or Bust: The Next Decade

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Responses

  1. This comment has been removed by a blog administrator.

  2. As I have previously indicated, unless you apologize for falsely accusing me of deception, you comments here will be deleted.Your reading of Ricardo, incidentally, is wrong. Ricardo's analysis of international trade explicitly excluded the international movement of capital and labor, which is the essence of the globalized free trade today.Your contention that Ricardo offered a "fundamental" argument in favor of international free trade as it occurs today under the auspices of the WTO, NAFTA, etc. is simply wrong and suggests that you have never read Ricardo, or that if you have read Ricardo, you did not understand what you had read.

  3. For those who may be interested in seeing through the lie about David Ricardo and the Theory of Comparative Advantage, a lie broadly disseminated by the proponents of globalization, I have just appended links to other pieces in which I have discussed Ricardo's ideas about international trade.Ricardo was quite explicit that his discussion of comparative advantage assumed no international flow of capital. Had it been relevant when he wrote 200 years ago, Ricardo would undoubtedly have also made it clear that his theory was valid only in the assumption that proprietary technology and labor are internationally immobile.

  4. This comment has been removed by a blog administrator.

  5. This comment has been removed by a blog administrator.

  6. As I have previously indicated, unless you apologize for falsely accusing me of redating a blog post, and doing so for the purpose of deception, your comments here will continue to be deleted.

  7. See reasons for comment deletion above.

  8. Ron H, is a regular commenter at Carpe diem, and a globalization enthusiast, without, as he informed me, much knowledge of economics having read only Samuelson's outdated classical text (now he is claiming in a deleted comment to have read Ricardo, but if so, he has done so without much comprehension).In any case, this post understandably causes him some excitement. However, people who dishonestly accuse others of dishonesty, and generally obscure debate with non-sequiturs, ad hominems and rambling comments comprising often ill-informed, mis-informed (for example) or argumentative statements should understand that they comment here only at my discretion and would probably do well to save their breath.

  9. And here's an interesting thing about America's not so prosperous middle class: they rank 27th globally in wealth per person: poorer even than the middle class of near bankrupt Spain and Cyprus, and with less than one third the capital of Brits. (who for some odd reason are listed twice in the chart!), and barely one fifth the wealth of Australians.So much for the prosperity wrought in America by globalization.

  10. Consistent with the low median wealth of Americans is the low average earnings of the poorest half of American wage-earners, which was less than $12,500 in 2011. The low earnings of most Americans explains why 49% of American households receive, according to the Wall Street Journal, some form government "transfer benefits." It also explains why more than one hundred million Americans receive some form of food aid from the US Federal Government.

  11. Ron H, remains unapologetic for having falsely accusing me of redating a blog post, and doing so for the purpose of deception, but claims, in a post now residing in my spam folder, that he hasn't provided me with any information about his education, knowledge, or experience neither has he mentioned Samuelson or his text in any of my previous comments …"Which is true, but only so far as comments on this blog are concerned.In any case, I apologize for any statement implying that Ron H has read Paul Samuelson's famous text, Economics. For all I know, Ron H has read nothing whatever about economics.

  12. The title of Steve Sailer recent blog post: "Zuckerberg: My net worth only went up $3.8 billion today, so America needs cheaper programmers", nicely captures what we might call Ricardo's Rule of Globalization:Wages plus profits, together, are always the same.Or, the poorer American workers become, the greater the wealth of Mark Zuckerberg and the Walton family.

  13. Here, for those who may be interested, is how Ricardo's Rule of Globalization works in the case of Mark Zuckerberg. Every dollar that Facebook saves by hiring a foreign-born programmer instead of a more expensive American-born programmer goes directly to the bottom line. Since FaceBook is currently trading at a price/earnings ratio of 171.53, that means that for every dollar per year saved in programmers' salaries, Facebook's shareholder value is increased by $171.53. Cool, ain't it. But is that wealth creation? Or is it wealth extraction from American-born citizens to line the pockets of stock-holders, including Zuckerberg?Either way, it is a clear example of how lower wages, or in the case of American-born programmers, possible zero wages, on the one hand, translate, on the other hand, into very much greater wealth for the owners of capital.

  14. But whether the net result of cutting Facebook's wage bill is an increase or a decrease in the world's sum total of wealth, declining wages sure aren't helping American adults, four in five of whom, according to AP, "struggle with joblessness, near poverty or reliance on welfare for at least parts of their lives, a sign of deteriorating economic security and an elusive American dream."Still they have food stamps and Fox News, which keeps them from rioting, as did the free bread and circuses provided for the plebs of ancient Rome.


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