Advertisement

Blog

The Costs & Perils of an Underpaid Labor Force

MADISON, Wis. — Last week, without much fanfare, Great Britain marked the 206th anniversary of its abolition of the slave trade — a milestone that must be regarded with a touch of irony.

For the next four decades after that historic turning point, Britain's industrial machine and the wealth of its upper classes flourished on the backs of slaves still in bondage in the American South, where thousands of them had been transported on British ships.

When I noted this anniversary last week, my thoughts carried me circuitously to an interview I'd done some 25 yeas ago with Phil Knight, founder of the Nike shoe empire.

The dawn of Knight
Knight is rightfully deemed a hero of American enterprise. He started his company literally on a shoestring, and despite his revolutionary re-design of the ordinary sneaker, faced obliteration daily by the two giants of his industry, Puma and Adidas.

It was Knight's inspiration and Nike's salvation when he found, in Japan, a manufacturing partner — Onitsuka Tiger — who could make his shoes cheaper than they could be made back home by American workers.

In those days, the idea of designing a product domestically while “offshoring” the manufacture was not unheard of, but it hadn't reached today's epidemic scale. As we know, Knight eventually moved production from Japan, and kept moving it, in a constant quest for Asia's cheapest labor force, while simultaneously pouring hundreds of millions of dollars into another innovation: colossal shoe contracts for the already overpaid megastars of pro sports.

Knight set an example for American corporations to offshore production and reduce labor costs to a tiny fraction of what they would be if their products were made in the US. Among the results of this sea change: US manufacturing has hemorrhaged millions of jobs, wages for skilled workers in America have stagnated for three decades despite exponential leaps in productivity, and executive compensation has hit heights that verge on plutocracy.

Low-Cost Labor, Circa 1862

Outsourcing of American production to ultra-low wage havens is not the crime against humanity that was the African slave trade. But a prosperity built on grossly underpriced work is a comparable distortion of the balance necessary to the health of capitalism.

Outsourcing of American production to ultra-low wage havens is not the crime against humanity that was the African slave trade. But a prosperity built on grossly underpriced work is a comparable distortion of the balance necessary to the health of capitalism.

The peculiar institution
Which brings me back around to the slave trade. Let's remember that when Great Britain stopped buying and selling African families, they had two reasons. One was moral. The other was practical. One of the insights of the emergent science of economics, springing up in Britain, was that every stage of the enterprise process has a fairly logical and predictable cost. When an element within that process — from conception, through design, research and production, to sales and distribution, etc. — is distorted, industries and entire economies can slip perilously out of balance. A persistent imbalance exaggerates the distortion, leading eventually to a crash.

For the first half of the 18th century, the Deep South in the US clung — with immense success — to a single-product economy, based on cotton. Despite a relatively small workforce and serious capital limitations, Southern cotton-growers were able to scale up incredibly fast to produce cotton in volumes that would have been impossible save for one factor: slavery.

Labor, capital
In a little noted back-page op-ed in the Easter Sunday New York Times, historian Walter Johnson put the case bluntly, “Without slavery, the survey maps of the General Land Office would have remained a sort of science-fiction plan for a society that could never happen.” He added, “It is not simply that the labor of enslaved people underwrote 19th-century capitalism. Enslaved people were the capital.”

Britain had washed its hands of slavery, but its industrialists grew rich and fat as they imported 85 percent of the American South's cotton, building textile factories not much different from the bleak Asian sweatshops where Nike manufactures its $300 sneakers.

The crash that eventually emerged from this warped economic model was the Civil War, whose impact depressed Great Britain, impoverished the American South for generations to come and, incidentally, killed 750,000 people. Certainly, the vast outsourcing of American production to ultra-low wage havens in East and South Asia — once undertaken so adventurously by upstarts like Phil Knight — is not the crime against humanity that was the African slave trade. However, in economic terms, a prosperity built on grossly underpriced work is a comparable distortion of the balance necessary to the health of capitalism.

Labor is expensive. It's expensive for a reason. A true living wage (as we learned in post-World War II America and as we are learning once more in the burgeoning cities of China) is the predominant source of wealth and growth for a genuine middle class. Without a vibrant, educated, free-spending middle class, capitalism slouches inexorably toward the next big crash — the sort of crash that divides nations, launches depressions, and threatens democratic institutions.

Related posts:

5 comments on “The Costs & Perils of an Underpaid Labor Force

  1. SP
    April 4, 2013

    Its difficult or not appropriate to compare outsourcing with buying and selling of African slaves. Both are two different things. When you outsource a work the labor say in Asian countries still get higher or comparatively good wages as per the base country they work in. These wages are definitely much less when compared to Western countries, so there is absolutely nothing wrong. Its win win for one who is outsourcing and one who is getting the work.

    While one can do this with a process oriented work like shoe making or anyother maintenance job. But for R&D and manufacturing a second thought can be given, what happens if your design gets copied, what if not delivered in time per the quality.

  2. Daniel
    April 5, 2013

    “Labor is expensive. It's expensive for a reason. A true living wage (as we learned in post-World War II America and as we are learning once more in the burgeoning cities of China) is the predominant source of wealth and growth for a genuine middle class. “

    David, I think labour costs are fixed on money value and living standards within the country. So there is no justification in converting it with another currency or comparison with other countries.

  3. Daniel
    April 5, 2013

    “When you outsource a work the labor say in Asian countries still get higher or comparatively good wages as per the base country they work in. These wages are definitely much less when compared to Western countries, so there is absolutely nothing wrong. Its win win for one who is outsourcing and one who is getting the work.”

    SP, when MNCs are outsourcing to Asian countries, they are counting /converting the base currency in to Dollars. So obliviously they have some advantages. Salary in each country is fixed based up on the living standards and nature of work. Salary in India/China may not be same for Arab countries.

  4. SP
    April 8, 2013

    @Jacob, ya the salaries in India/China is not the same as in Arab countries. Also the nature of job  not the same. No employer keeps employee's passport in India compared in Arab countries. Also the democracy is another thing. You are free to say and do anything in India.

    Another thing, in Arab countries you dont pay any tax but in India you pay huge tax on your salaries. So ofcourse for the same job you get good money in Arab.

  5. Daniel
    April 9, 2013

    “Another thing, in Arab countries you dont pay any tax but in India you pay huge tax on your salaries. So ofcourse for the same job you get good money in Arab.”

    SP, yes in some of the countries income from salaries are exempted from taxes. But they may put some other restricts like certain portion of that money has to be spend in that country itself. I mean we cannot take the entire cash out of the country.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.