Monday, March 15, 2010

Repeating myself (2)

Another subject I keep on banging on about - apparently to no avail - is globalised economics.

I still keep coming across articles and comments from people who seem to have an intimate grasp of the detail of micro and macro economics, but appear to have forgotten entirely the first rule of markets - that a market, if free, will find its own level.

For the last fifteen to twenty years we've taken advantage of this by allowing globalisation to progress. It means we get cheap clothes, cheap food and cheap consumer goods - but the market does not just apply to goods.

It applies just as equally to wages.

In a globalised market it is fantasy to assume that we can continue to pay ourselves the comparatively high salaries which we enjoy regardless of what job you are in. The emerging nations do not just have an endless supply of cheap labour to knock out t shirts at 10p a time, they are increasingly producing large numbers high quality graduates with rock solid degrees in engineering, science and technology.

What is more, they are increasingly able to offer these graduates positions where their knowledge will be put to use and will increase - and those graduates are happy to do that work for far less than someone doing the same job will demand in Britain.

And there are still people pushing the fallacy that we, in Britain, can just turn our attention to doing things that they can not do in these emerging nations. Like what? As a right wing conservative I'm often accused of racial stereotyping, but at least I don't go around suggesting that the Chinese and Indians are too thick to do really complicated jobs. Not only are they more than capable of doing anything that we can do in this country, they are far better placed to fund the research needed to come up with innovative new ideas and technologies.

Over the last fifty years or so we have seen our industrial segments slowly disappear as cheap foreign industries take over. Now we've reached the point where there is nothing left that we do that can not be done cheaper and just as well by the emerging nations. From agriculture to aerospace and textiles to technology - they can do it all. What little remains of our industrial base is largely foreign owned - and those that aren't are dependent on imports to make anything anyway whether it is the raw materials, the tools or the energy they use.

Granted, there are some things which you just can not outsource to other nations - like cleaning toilets, digging up roads or serving in shops - but as wages drop then so will demand for those sort of jobs. Why bother paying someone to clean your toilet when you can do it yourself for nothing? Why bother fixing the roads when nobody can afford the vehicles that use them? And what good is a shop if nobody has any money to buy anything?

The wealth of a nation comes from what it can produce and sell. If all that you are selling is stuff that comes from outside of the country then that means that is where all your wealth is going.

A country that makes nothing is worth nothing.

Globalisation is nothing new. It has been tried twice before and on both occasions it resulted in a credit bubble, market distortions and, eventually, a depression. This time, however, the globalisation is on a far larger scale, the credit bubble is enormous and the market distortions even greater.

The measures brought in are nothing more than sticking plasters on a gaping wound. They might last long enough to hide the scale of the damage for a short time, but they are not a solution - and nor is more world wide regulation by some unelected bunch of technocrats.

There is only one solution - a national government that puts the interests of its people, its businesses, its manufacturing and its producers before anything else. That means protectionism and rebuilding our manufacturing industry. You can keep putting off the inevitable all you like - but all that will do is ensure that the depression will be longer and deeper than it needs to be.


Antisthenes said...

You are stating the obvious which for anyone with half a brain can see. However it appears that the majority of the great British public have less than half a brain. Ask a typical Joe/Jane Bloggs in the street this; now that we no longer create wealth because all productive jobs have gone overseas. How are we going employ people in the future? J/J B will respond "well in public services of course" Then ask how will they be paid as the money comes out of taxes and the answer will be "well they pay taxes, don't they?" Try it, I have and that is truly a typical answer.

I must take you up on one point at the beginning of your blog you state that globalisation has meant cheaper goods then later you regard protectionism as part of the cure. That I believe would do more harm than good the answer of course is to improve our competitiveness if we don't do it voluntarily then it will be thrust upon us by market forces. Our standard of living will decline to such an extent that we will become the cheap labour market of the world.

Stan said...

The competitive thing is another myth, Antisthenes. The emerging nations have an almost limitless supply of highly educated, skilled, semi-skilled and unskilled labour compared to us. Even if you have a fully automated production facility with no wages to pay you still have considerably higher costs in getting your product to market in the UK compared to emerging nations (energy, transport, storage, etc.).

Anonymous said...

Greater productivity in countries like China will make those countries richer, not the present developed countries poorer.

Stan said...

Yes it will make those countries richer, anon - but it has already made developed nations poorer so your argument is already outdated.

Wealth is the value of assets minus liabilities - debts. In those terms, our country is as poor as a church mouse. No, that's not fair - church mice aren't up to their necks in debt.