[Duende]

So, I was watching Ted Koppel's 'The People's Republic of Capitalism' on Discovery Channel tonight.

Overall, it was pretty interesting. They discussed how globalization works; you've heard the story before: American jobs go to China, Chinese products come to US, sold at Wal-Mart to unemployed Americans and migrant workers, etc... you know, 'the circle of life.'

Anyway, they interviewed this young Chinese girl and this young American girl. They're both in quality control at their respective factories in either country. The American girl gets paid $20 per hour, and the Chinese girl gets paid $20 per week. So, conservatively speaking, labor (in this instance) is 40 times cheaper in China!

I thought that as the price of oil goes higher, we'll begin to see manufacturing jobs returning to the United States, or breakdown in the profitability of the global manufacturing system.

But, the fact of the matter is that oil has only doubled in price over a short time, but has a long way to go to make up the difference that businesses are saving in labor overseas... again, we're talking about labor that is 40 times cheaper!!

However, I heard a radio show on Global Public Media yesterday that says that all the gains of globalization will be wiped out by $200 oil. Hagens radio show link

These two sets of information seem to be contradicting each other. My question is: will peak oil result in the reversal of globalization? Based on the extremely low cost of labor overseas, I would guess not.

[Duende]

I was just reading this other post by mattduke which discusses similar subject matter. It contains a link MrBill eludes to which has this to say:

In terms of shifts in trade and production patterns, products for which freight costs make up only a small proportion of final sale prices stand to be less affected if shipping becomes more expensive - additional freight charges would be dwarfed by everything else. However, where freight-to-value ratios are high, transportation expenses can be very significant.

I'm not exactly sure what that's saying - I guess that more bulky/heavier good will be made closer to home? That sounds realistic to me. I got a feeling that's gonna explain how globalization plays out in the coming years: not everything's coming back manufacturing-wise to the good ol' US of A.

[Precipice]

I wonder: if you take account of every stage at which oil is an input into the production and transportation processes of goods from o/s, does this lead to a direct $ increase in the final (imported) product price or a % increase (i.e. at every stage)?? If it is %, it may actually wipe out the gains from quasi-slave labour costs.......


On a more subjective note, I can see a silver lining in the possibility of these globalist arrangements ending if it means that
a) people in developed nations no longer lose their jobs to people in o/s developing countries who are forced to work for peanuts
b) people in developed countries are not encouraged to overconsume by the avaliability of cheap imported goods, thereby leading to increased ecological footprints as well as massive debt and declining Terms of Trade

[MrBill]

One recent example here is as follows. I was talking to my friend that owns the German baker. He used to import semi-prepared breads from Germany that only needed to be finished in a small oven on-site and then sold as fresh baked bread.

He imported everything from Germany in a temperature controlled container. But the supply chain was such that if anything happened to that container he lost the whole load to waste. Now with shipping costs higher that does not seem to make much sense.

So now he imports just the specialty flours that he needs in a container and the bread will be baked from scratch locally under contract in another bakery. That drastically reduces his shipping costs. I suppose the real isse will be quality control. Will his customers notice the change?

Another change you might find interesting is low-cost Chinese labor working in Romania that is now in the EU. Basically, many qualified Romanians left Romania to work elsewhere in the EU where wages were higher. So in order to plug the gap manufacturers imported Chinese workers. The Chinese workers love it. Some of the world's most polluted cities are in China. Romania by comparison is green, the air quality is better and living conditions on the whole higher. They earn more than they can earn in China. They live in subsidized company housing. Working conditions are better.

Those Romanian exports to the rest of the EU cut down on the EU's trade deficit from China, and from a shipping point of view those products are made much closer to market. However, I do not know whether those products are shipped by boat via the Black Sea or whether they move by truck or rail? I am not sure of the state of the rail links, and if by truck, then the total energy savings would be lower.

So this could be an example of the changing face of globalization. Still, a globalized world, but production decisions being made and changed all the time based on many factors including the price of labor and energy costs.

[Kingcoal]

China's labor costs are so low, they can pratically be left off of the ballence sheet. The primary cost in manufacturing is materials. Having almost free labor helps out a lot, however, with shipping costs going up, eventually, it will make more sense to make things locally, with local materials. That will have drastic consequences for all economies.

Before oil, that's how it was done. Transportation costs were high, so it made sense to manufacture close to where the raw materials were. That was part of the drive for the American Revolution - Britain didn't want their collonies doing anything other than providing raw materials for it's factories. Americans wanted to make their own finished goods.

Today's supply chains are enormous. Raw materials are mined and shipped thousands of miles to low cost regions, assembled into goods and then shipped several more thousands of miles to their final destination. One other main point in the before oil world; because energy costs were so high, only the rich could afford to be consumers. Everyone else lived on scraps. That's just the way it is in a low energy economy. It isn't the utopia people think it is.

[MrBill]

Yes, indeed KC! Falling living standards and real manual labor, for little renumeration, may remind some people of the good ol' days of being a wage slave and living on credit (like a King that is). All our hard fought freedoms will soon be swept away. Not by the powers that be, but by our own ignorance. Heck, the way things are now, the average voter would probably reject the Magna Carta!

[cube]

...
Anyway, they interviewed this young Chinese girl and this young American girl. They're both in quality control at their respective factories in either country. The American girl gets paid $20 per hour, and the Chinese girl gets paid $20 per week. So, conservatively speaking, labor (in this instance) is 40 times cheaper in China!
...

That may sound pretty bad until the alternative is viewed.
If it weren't for globalization, that Chinese girl would be making 1/3rd as much sweating it out on a farm doing hard manual labor work. Another variable to add is PPP purchasing power parity.
The Chinese girl may make 1/40th as much but the cost of living is cheaper. What's the relative wealth? I don't know.

I guess this may be an unpopular opinion to hold considering the constant bombardment from mainstream media, but I think China is overrated. I do NOT see China as some mighty dragon.

[MrBill]

If only 10-percent of the Chinese get wealthier that is a new nation with 130 million affluent consumers. Bigger than Canada for sure. Italy too. Add in India and maybe that number becomes 200 million.

[Duende]

Last night's program was pretty good too. It was called 'Mao-ism to Me-ism'.

It talked about how the Chinese have abandoned the communal ways of the past for the new, shiny, boundless optimism of hyper-individualistic consumerism.

Problem is, no one told the Chinese that infinite economic growth is impossible in a materially-finite world. And the harder you fight it, the more it sucks for everybody.

Shame on Koppel & Co. for not bringing up the fact that the realization of the American Dream for the vast majority of Chinese will never come to pass; the earth only has so much to give.

[MrBill]

On the other hand if the Chindians are so smart they should be able to figure it out on there own. I don't know about you, but I have known that oil and many natural resources have been finite since I was in elementary school back in the 60s. It is not exactly like any of this is new? When was Silent Spring written? Back in 1962? By the time I got to high school in the 70s we were on a steady diet of environmental films in social studies class. The message was not positive. The only reason so many are now waking up to these inconvenient truths now is that they were so deep in denial earlier. But ignorance of the law is not a defense and Nature has her own form of rough justice.

[vetusfirma]

But will the Chinese go home at the end of the day? The Turks didn't leave Germany, the Algerians didn't leave France, the Indians didn't leave Briton, and the Mexicans won't leave the US.

Or is this the way they will take over the world?

[MrBill]

But will the Chinese go home at the end of the day? The Turks didn't leave Germany, the Algerians didn't leave France, the Indians didn't leave Briton, and the Mexicans won't leave the US.

Or is this the way they will take over the world?

Well, there are two separate, but related issues.

One, each country enforces its own immigration laws. If you have holes in your border and lack the political courage to send ALL illegal immigrants home immediately then it is your not their fault that they stay on illegally and eventually become naturalized.

So guest workers should be given temporary living and work permits, and then be automatically required to leave if they expire. Many countries pursue such policies, and if enforced they work.

Secondly, if you have a local birth rate below replacement then by definition 'they' will take over the world through sheer numbers alone. Once a core population, say mainly white, Christians of European descent, become a dangerously low minority in their home country then within a democracy where the majority hold political power that minority becomes vulnerable to the whims of the majority.

It is simple demographics. The only solution is assimilation and making sure that newcomers share the same core values as the host population.