Saturday, December 06, 2008

Email (lack of) Wisdom

I got this email today, as I’m certain others of you did, also.

“John Smith started the day early, having set his alarm clock (made in Japan) for 6 a.m. While his coffeepot (made in China) was perking, he shaved with his electric razor (made in Hong Kong). He put on a dress shirt (made in Sri Lanka), designer jeans (made in Singapore) and tennis shoes (made in Korea). After cooking his breakfast in his new electric skillet (made in India), he sat down with his calculator (made in Mexico) to see how much he could spend today. After setting his watch (made in Taiwan) to the radio (made in India), he got in his car (made in Germany), filled it with gas (from Saudi Arabia) and continued his search for a good paying job. At the end of yet another discouraging and fruitless day checking his computer (made in Malaysia), Joe decided to relax for a while. He put on his sandals (made in Brazil), poured himself a glass of wine (from France), and turned on his TV (made in Indonesia), and then wondered why he can't find a good paying job In America.”

There are dozens of similar emails floating around that in one way or another point out some shortcoming of the United States, the purpose of which is to cast blame at one segment of our society or another. This one implies that American businesses have abandoned the American worker in favor of cheaper foreign labor.

These messages are aimed at eliciting an emotional response, and deliberately ignore legitimate reasons for why Joe’s scenario is true.

For example, Joe made a conscious decision to buy a German car, choosing one of them over an American auto. Why did Joe do that? Maybe it’s because other countries are better at some things than America; German automobiles are some of the best in the world.

Joe also bought French wine instead of one of the hundreds of fine American wines.

Fault the writer of the email for faulty logic.

Maybe the reason we don’t make many of these products here any more is that we can’t make them economically any longer. After all, one thing Americans want is the lowest prices they can find, and businesses, in order to remain competitive must keep costs low.

The labor rate of many emerging economies is vastly lower than in the U.S. In Sri Lanka, for example, an assembly line worker may be thrilled to make $1 an hour, where in the U.S. by law a worker doing the same job must be paid at least $6.55 and hour, and if that worker belongs to a union, the rate would be substantially higher. Union workers make on average 12 percent more than workers doing the same work who are not unionized.

People seem not to realize that if businesses pay higher wages the price of their product has to go up commensurately. They also focus on the idea that all jobs should pay a “livable” wage, whatever that is.

But the economics of business operations turns that argument on its head. A job has a value that has nothing to do with the price of food, shelter and clothing; wages are based upon the value of the work done. Sweeping floors does not pay as much as brain surgery. Filing papers does not pay as much as designing a new computer chip. A person who runs a shift of carpenters does not earn as much as the person who runs the home building company.

Each business has to determine what it can afford to pay for different types of work, what it can afford to pay for raw materials, what it can afford to provide in the way of benefits and other factors, and still be able to price its product or service competitively, and still have something left over for investors.

Workers have the option to not take or keep a job if they believe they are underpaid or just don’t make enough to live on.

Businesses will try to find the best people to perform the various work they need. If a business pays low wages in all or some jobs, eventually they won’t be able to hire enough people, or good enough people to get the work done and will either have to pay more, or go out of business.

But if the American consumer is going to enjoy low- or acceptably-priced goods and services, businesses must be allowed to find the least expensive competent labor they can, even if that means going outside the U.S.

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