The client is a difficult king



In the past few weeks, more than a thousand people died in Bangladesh. Not because of a flood, but because of a factory collapse and a factory fire.

As with the floods and the rescue of displaced people, in the end the buck stops with the consumer/donor in rich countries.

The consumer wants bargain prices for the goods on sale and, especially during an economic crisis, producers try to meet these demands by cutting some costs. Often this leads to competitive bidding for the lowest price by suppliers or factories in low-wage countries.

For the big picture this is not a bad thing; it creates jobs and some wealth in countries where there is a lack of employment and economic development. It also destroys higher-paid jobs in developed countries but the “added value” for the world in total can be positive.

Yet there are two big issues here.

One is the fact that when a company makes its variable cost calculations to select a production site, not all costs are entered in the spreadsheets. Tangible financial costs go into the formula but not non-financial costs such as pollution (due to the transport over large distances) and social side-effects (unemployment in rich countries, accelerated migration moves in low-wage countries). There is also the hidden cost of below-standard working conditions – the working hours, safety standards and relative freedom of employees in a country like France ar far removed from the reality in big factories in China or Bangladesh. Not to mention health, schooling, drinking water.

The other issue is that it is not necessarily a good thing if the entire world seeks the lowest common denominator; while wages in China or Bangladesh are slowly on the rise they will never reach those of the United States or Germany but US and German producers may put downward pressure on the wages in their countries.

Add lower wages to the current mix of monetary expansion and competive devaluations of main currencies and we end up with a world that is deflating like a big balloon and we will have less of everything. Lower income equals less spending power and thus less demand for goods and services etcetera.

Some optimists say that the population growth will boost overall demand. But how many Chinese workers can offset the loss of spending power of one consume, in the United States? The average household income there is $50,000 against 42,500 Yuan ($460), so you need at least 100 Chinese for one American worker. There are 42 times as many Chinese as Americans.

In the end it is in the interest of the consumer/employee in industrial countries to make sure people in low-wage countries get a proper salary and enjoy good working conditions.

That may mean that you need to read the labels, make checks on the internet and pay a bit more for some products than the cheapest alternative on offer. That is not stealing from your own purse; it is protecting a certain perception of living standards.




Marcel Michelson
M2Media.fr
10-5-2013


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