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Saving the Western Worker from Extinction

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What is urgently needed in the new age of a “globalized “ economy is an international minimum wage. If the western worker is to survive he must compete on an even basis salary-wise with workers in the LDCs. Currently only the International Seaman's union has established this minimum standard, and the rest of the workers in tradable goods should be provided equivalent wages. Currently the minimum wage for this union is around $5.50/hour which I propose be a suitable international standard.

This wage level would not be so excessive to seriously erode the current competitive wage advantage of workers of the LDCs, but would give western workers the possibility of obtaining employment in cases where they could demonstrate superior productivity capabilities.This will provide a win-win situation worldwide because the advantages obtained would far exceed the few disadvantages. Foreign governments, now having significant cost advantages for their workers but concerned with a loss of their share of world manufacturing, need not worry. Even a $5/hour wage would still provide their workers with a significant advantage over their foreign counterparts. Western workers would have to provide significant productivity capabilities to overcome this.
 
Trade imbalances for western countries would become more sustainable, as they urgently need to, and all governments involved would have less labor problems.It is true that the costs of tradable goods would increase everywhere in the world. But the only significant element of any society effected would be western country retirees having no significant shareholder interests in international companies. Retired shareholders having meaningful stock investments, direct or through pension funds, would experience a short temporary decrease in their share prices caused by labor wage increases. Share prices would recuperate shortly afterward caused by an even larger increase in profits due to increases in worldwide revenues.
 
No multinational with a well-know brand name need to be concerned about where the world will spend their increased incomes. Even the poorest of wage earners worldwide want the best they can buy. Their saying is “we can't afford cheap products”. The resulting revenue and profit increases would be, in addition, accompanied by a significant increase in the quality of all shareholdings because they would be based upon profits due to increased production revenues rather than being increasingly dependent on restructuring and layoffs detrimental to the societies involved.

The advantages to a minimum wage are phenomenal in contrast:
Foreign workers in tradable goods industries will have considerable more income. This will spread out over their economy in general causing a widely-based increase in the standard of living. Their governments will have a large increase in tax revenues allowing them to expand social programs for the less-fortunate in their societies(e.g., farmers). Overall, most communities worldwide will have a significant increase in purchasing power which can be spent by the citizens of the LDCs on the very tradable goods they are producing but previously unable to purchase.

Foreign governments will not need to go begging to the WTO or IMF(or do their bidding) because they will no longer need the loans these organizations reluctantly dole out. Instead they will be paying off their outstanding international bank loans allowing export earnings to be used to pay for import of the foreign-made goods they are so fond of, rather than simply providing for interest payments to foreign banks.
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Foreign investments and bank loans will be far more secure. There will be less chance of turmoil at WTO and IMF meetings, and less need for internal security and stability for foreign governments under all conditions.
American and foreign workers will be better able to fairly compete for the right to do the world's manufacturing and, with a worldwide increase in money supplies, increased consumption would lead to an overall increase in production and employment of workers worldwide. This would result in an increase of pride and self-respect for all production workers, foreign and western alike, previously underemployed or unemployed. Social cost (e.g., unemployment,welfare) would significantly decrease, providing more opportunity for further governmental support for other elements of their societies.

Multinational companies worldwide will experience an initial decrease in profits caused by increased labor costs. Subsequent increases in revenue from both foreign and western consumers would provide profit gains far exceeding these costs resulting in a real increase in shareholder values based on production, capital equipment improvements, as well as a concurrent improvements in technology.

And finally, the establishment of a minimum wage would end the most egregious and ever-increasing exploitation of workers worldwide. International manufacturers have continually moved production to the countries with the lowest wage levels to reduce costs, taking advantage of the most poverty-stricken members of the world. American companies moved production from Mexico to China because the Mexican workers' $3/hour wage was just too generous in comparison with the $1/hour prevalent in China. This practice has forced other countries to effectively lower their own wage levels to compete, resulting in an ever-increasing spiraling downward of wage levels already far below that what an average family presently needs to survive on. This is a despicable practice effecting workers worldwide and needs to be stopped.

This proposal is based upon my desire to effect two goals, one to roughly equalize worldwide wages so that western workers would have an opportunity to once again find meaningful employment, the other to end the exploitation of foreign workers caused by the practice of multinational companies and their partner's practice of paying subhuman wages. Enough is enough!
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So I have done a simple “trial balance” of the consequence of an implementation of a minimum wage rate of $5/hour. Results are based primarily on a change in the distribution of profits and wages earned for products manufactured for export in the LDCs. So my proposal involves basically in the consequences of a change in the profit margins for products manufactured in these countries. It is too complicated to envision what product price increases would effect. In light of current wage levels, they would be unnecessary and simply represent a continuing arrogance and cynicism on the part of these manufacturers.
 
So I conclude that if you pay these foreign workers just $5/hour, increasing labor rates fivefold, the following would result:

Profit margins of foreign-made products in the LDCs would decrease from 60 to “just” 40 percent.

The number and price of exports to the U.S. from southeast Asia, for example, would remain around $1 trillion.

Profits for multinational and their local partners would decrease by $200 billion, and foreign workers would have received this as increased income. Since well-run foreign governments normally require 50 percent participation, by (local) government or private partners, the "loss" of profit to the multinational firms would be approximately $100 billion. Because of U.S. laws, created to promote this "end run" around hiring U.S. workers, these multinationals have been not only exempt from U.S. taxes, they have not been required to repatriate these funds. If some have been inadvertently repatriated, they have been most-probably just investment in U.S. stock market speculation and have contributed almost nothing to U.S. production and employment.

Of this income now available to foreign workers, $40 billion would be collected by foreign governments as taxes, to be used to increase the services and benefits to other citizens.

Out of the remaining $160 billion available to consumers, foreign workers would be buying western-made products of perhaps $50 billion, leaving over $110 billion dollars in consumer dollars to be spent locally. An increase in money supply in consumer's hands and spent locally usually results in six times as much local spending(i.e., the “multiplier effect”), each purchase allowing further purchases from other people in the community. This would increase the GDPs in these countries by upwards of $600 billion, resulting in perhaps a 50 percent increase in living standards for many of these people.
The $50 billion going into the purchase of foreign-made (western made) products could potentially result in respectable employment of upwards of 2 million more western workers.

Western workers would be competing for worldwide production against foreign workers making $5/hour instead of the current wage rates of 65 cents(India) to one dollar(China) with which they have no chance to compete. The playing field would be leveled to the point that productivity would again be the determining factor in choosing who deserved to be employed.

This proposal deals solely with America's trade with the LDCs. When combined with similar benefits obtainable for the workers of LDCs through trade with other western countries, the potential benefits are tremendous.
I am well aware that many countries will resist this proposal in anticipation of gaining a trade advantage over those who would be willing to comply. The answer to this is quite simple, one that has been commonly used as a basis of duties in the past. Importing countries complying with the rules would be required to impose import duties for products manufactured in the non-complying countries equal to what the labor costs should have been.
 
This would be a significant windfall to the complying countries because it would provide their governments with an increased income available to provide better living standards to their own citizens. The non-complying ones would simply be giving up income which would otherwise be paid to their own citizens and experiencing a loss of government tax revenue.

 

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Richard Backus is a journalist specializing in economics and politics.He has degrees in physics and engineering, and considerable experience in computer systems development. He is single, a good bridge player, and an enthusiastic tennis player.

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