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Casual Friday: John Stewart and Global Labor Arbitrage

March 11, 2011

On February 22, 2011 The Daily Show did a nice segment on global labor arbitrage (the act of sourcing labor costs to the cheapest, least regulated, countries). Highlighting the truth about arguments that American workers need to “win-back” American corporations.

Vodpod videos no longer available.

Daily Show: American 3rd World Workforce Makeover , posted with vodpod

A brief analysis follows, after the jump.

Analysis

His basic premise is true, if the American economy wants to compete with countries like China on a cost basis than America’s relationship with its middle-class is going to end. Of course, rather than compete on cost, low-taxation, and deregulation; America should look to its advantages and historic values. Values like: high-productivity, high domestic consumption fueled by high-real wages, equitable taxation based on ability to pay and social goals, and regulation which provides both a safe investment and consumption environment.

One thing conservatives never acknowledge is that central to the notion of a free market is perfect information about the costs and benefits of a product. Regulators serve to provide that information, and correct for market inefficiencies, through agencies such as the EPA, FDA, and SEC. Without these organizations whose job it is to monitor products and help adjust prices (through taxation/fines ect…) to reflect true market-costs, businesses could put lead in products and consumers would be none-the-wiser.  Of course, a foolish few would like to argue that self-regulation works but these people conveniently ignore the fact that when of each of these agencies has had its oversight and regulatory power constrained, more (not less) acts of pollution, poisoning, and fraud occur.

America does have strong grounds on which it can compete internationally. Historically the values mentioned above were what led the country to its present greatness after the first great depression until around the 1970s. In that decade and in future ones, pressures for the neo-liberalization of global trade eroded these economic values of the U.S.

On a final note, John Stewart egregiously gives voice to the argument that the U.S. corporate tax rate is significantly higher than the world tax rate. Including commentary form a pundit citing the 35% versus 18% rates traditionally used to argue for less taxation. As I linked to here and here many corporations effectively pay close to nothing, so those numbers are basically a sham with the effective tax rate for large corporations as cited by the U.S. Government Accounting Office being 25% (page 3) (below many developed countries). So again, lets not compete with less developed nations over how poor we can make our country.

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