Is labour competition ultimately futile?

democrates

The EU and US quotas on Chinese textiles are protectionist measures. Without getting distracted by the irony, it raises a question about the future of global labour markets.

There is no doubt that competition seems to be a good thing, we've seen how it drives down prices, starkly illustrated when some state monopolies have been replaced by deregulated markets. Clearly competition can lower prices so is good for the consumer in that way.

Of course in order to consume we need money from jobs. Thanks to being competitive, Ireland has one of the highest employment rates in europe.
That seems to further strengthen the case for competition. But look a little closer at what is happening in the labour market.

With the rise of China and India, we've already seen many manufacturing jobs leave this country for cheap labour, and this trend is accelerating. So what, why bother competing to work for a dollar a day when we can make far more money doing other jobs.

The government have read the consultants reports and are busy stimulating the creation of a 'knowledge economy'. The idea is that we focus on higher paid 'brain' jobs rather than lower paid 'brawn' jobs, and who could fault that, what else are you going to do.

But are we kidding ourselves in believing that we can forever outcompete China and India in any sector of the labour market? Are we really some kind of master race that will always be more productive and worth a higher salary?

I don't see how any sector of a competitive labour market can remain indefinitely immune from such downward price pressure, in which case we'll ultimately be forced to at least match salaries in Bangalore and Shanghai, and globally we'll see a continuing race to the bottom for jobs.

Is that a plausible possibility, and if so what can we in Ireland or the free world as a whole do about it?

OfflerCrocGod

Very little. The current detainment of Chinese clothing is totally pointless because other countries are being used as sources for the materials; these countries are other developing world countries were the clothes factories are often owned by Chinese compaines anyway so it matters nothing that this quota system exists. Companies are always going to source their wares from the cheapest sources trying to stop it is futile, fighting it is also hopeless. We have simply got to realise our manufacturing cannot compete with the East-Asians, get over it.

democrates

OfflerCrocGod wrote:

We have simply got to realise our manufacturing cannot compete with the East-Asians, get over it.

Clearly you agree with me on that. What about the future for jobs beyond manufacturing though, given the other points in my post?

Meh

democrates wrote:

But are we kidding ourselves in believing that we can forever outcompete China and India in any sector of the labour market?

No, we're not. Even if the Chinese/Indians can do all economic activities better/cheaper than we can, it will still be beneficial for them to import from us.

http://en.wikipedia.org/wiki/Comparative_advantage

28064212

What makes you think the Chinese/Indian people will always be willing to work for less than we will? By the time they have a good enough education system to compete with first world high-skill jobs, they will be part of that first world. You won't always be able to outsource to people willing to work for a dollar a day.

democrates

Meh wrote:

No, we're not. Even if the Chinese/Indians can do all economic activities better/cheaper than we can, it will still be beneficial for them to import from us.
http://en.wikipedia.org/wiki/Comparative_advantage

Thanks Meh.
That introduces a mitigating factor, one example given :

In Portugal it is possible to produce both wine and cloth with less work than it takes in England. However, the relative costs of producing those two goods are different in the two countries. In England it is very hard to produce wine, and only moderately difficult to produce cloth. In Portugal both are easy to produce. Therefore, while it is cheaper to produce cloth in Portugal than England, it is cheaper still for Portugal to produce excess wine, and trade that for English cloth. And conversely England benefits from this trade because its cost for producing cloth has not changed but it can now get wine at closer to the cost of cloth.

So that's a good argument why we won't end up with all production in India and China and zero in the rest of the world, as it would reduce total production and trade, and there's dubious advantage in them producing everything if no-one else can afford to buy, but they don't have to as I'll explain. There are other factors too.

Transportation costs for example, given a rising energy price this will leave a requirement for perishable goods to be produced locally. But it will still be advantageous for economies to import cheap raw materials and export expensive leading edge finished goods such as drugs and electonics.

Physical distance also precludes them from providing haircuts, plumbing, surgery etc in other countries, so those jobs should be fairly safe too, absenting remotely controlled robots (already explored for surgery, but hardly economically viable for lower paid jobs).

Tourism provides another revenue source, be the attraction cultural, natural, or recreational.

So I accept that we're not looking at the absolute extreme scenario. Also, given the fact that the worlds resources are in fixed supply, and that we already consume and pollute at a rate beyond what the biosphere can sustainably supply or metabolise, market competition is agreeably bringing us toward a situation where the most efficient use of resources can be achieved.

The task remains of capping such activity at sustainable levels, and the global markets alone cannot achieve that being the very drivers of excess. With little over 50% of the world population having democracy, and even that being largely sub-optimised at the national interest level so that some won't sign up to Kyoto etc, this largely leaves nature to attenuate excessive human activity (industrial mono-crop failures, new diseases, climate change causing 'natural' disasters etc etc).

Am I right in assuming that even with a cap on consumption and pollution, we can still have economic growth based on activity where the factors of production are mainly labour, capital, and enterprise, and that it is still theoretically possible to achieve global full employment?

That still leaves the question of who will end up with what jobs. At the moment the asian giants are growing strong through low wage manufacture, but through economic might in time they will be able to provide the best schools and universities in the world and the best research facilities. Thus they will gain an edge over other countries in higher-paid brain jobs. Could a bright spark in an Irish university compete with a naturally similar bright spark who has been nurtured by a better resourced asian education system?

The comparitive advantage theory introduced by Meh would seem to suggest that China and India will eventually move to specialise in the knowledge economy, and leave others to lower paid manufacture, reversing the current concentration of brain and brawn jobs, and thereby wealth distribution. Should we accept such a situation in perpetuity? My position is no.

In the meantime we have the quality of life issue with labour competition. The trend is to become ever more productive. Work smarter not harder is the mantra. It's good when this raises efficiency, doing more with less. But the drive to be competitive by being more productive than competitors is also creating more stress for workers with people working longer than their paid hours to complete their assigned tasks. This is already having multiple detrimental effects on individuals, and if it's bad now think of our children and grandchildren. The limit is what a person can take, and competition seems destined to drive people right to the edge. How clever are we to put ourselves through such hardship? Is this the best an enlightened civilisation can come up with?

masterK

Your Bangalore example is something many companies have tried, mainly in IT, but it hasn't always worked. When multinational companies move operations to places such as Bangalore in the search of cheaper pay rates they find they have many other barriers such as language, culture and the most importantly the quality of people in places in Bangalore is generally quite poor.

I know of a few IT companies that have moved to so called cheaper climates but have ended abandoning those plans. As already mentioned the really skilled people in these countries will move abroad leaving only the lesser skilled people behind.

Going back to Bangalore and the IT industry, having worked with many Indian people, their impression of Bangalore was that it was for people who couldn't make it in the west or very inexperienced people.

The fact is when you are talking about knowledge based industries high quality people will always expect to be paid accordingly whether they are Chinese, Indian or Irish.

democrates

Concur, I've heard accounts of failed offshoring experiments in India, and not just call centres where the accent barrier was a factor, but in development where there is not always the same energy and initiative as multinationals were accustomed to in mature competitive economies.

But is this always going to be the case? I'm looking 20, 30 years down the line, and the Indian "tell me what to do and I'll do it" order following approach I've heard about can just be a temporary overhang from their communist past. The upcoming generation will be acutely aware of the demands of multinationals and the rewards available, I'd expect them to push themselves a lot harder to chase the cash.

I also agree that the higher the skill, the higher the pay is expected, and often forthcoming, but this is ultimately determined by supply and demand, hence tradesmen in Ireland are far outearning many higher skilled white-collar workers. Eddie Hobbs showed on his last program that it was €65 for a call-out from a GP, and €75 for a plumber, not the total picture for those two jobs but it just shows.

The language factor can eventually be turned on it's head, we're used to english being the prime development language in software for example, but that could become Chinese, with localisation for english. Not something that can happen over night, but if the long term economic trend is China and India becoming the two economic giants of the world, and they specialise in higher-paid jobs, such things are likely to follow.

So in the long term, Professor Paddy can expect the sun moon and stars, but if the competitor for a job is Professor Deng who has done more leading edge research due to the better resources of the Chinese economic giant, where does that leave poor Paddy.

Then in 2040 say, even those in China and India who have the higher paid jobs will still have to push themselves as hard as they can because they are subject to competition from their peers.

What gets me as much as the idea that countries are divided into winners and losers through competition, is that competition means a never-ending struggle to make a living. Why on Gods blue marble are we doing this to ourselves? Would it not be smarter for us to work out a way that we can all make a decent living without destroying our work-life balance? I can see benefits from competition as I've outlined in earlier posts, but could it be that humanity could benefit from a little more co-operation?

democrates

Breaking news: http://www.rte.ie/news/2005/0908/northjobs.html

[font=Verdana, Arial, Helvetica, sans-serif]The British Prime Minister, Tony Blair, who is on a visit to India, has announced that a leading Indian IT firm is to create 600 call centre jobs in Northern Ireland.[/font]

So the high-skill high-pay jobs are in India and the call-centre jobs are in Ireland. One swallow doesn't make a summer, but my guess is this is an example of the long term trend.