One of my favorite blogs, Cafe Hayek, had an intriguing post earlier this week titled Competing With High-Wage Workers. Don Boudreaux’s premise is that the knowledge and creativity of domestic high-wage workers can be as significant a competitive pressure on less-evolved companies as foreign low-wage workers. This is very similar to what we rant about weekly, especially when companies decide to shed tens of thousands of years of experience and knowledge to save a few bucks an hour by outsourcing overseas. Don’s post is in response to an email he received from "anonymous" that tried to defend trade protectionist tactics.
He begins with the classic fallacy of the trade protectionists:
In “anonymous’s” mind, the apparent, relevant difference between today’s world and that of the past is the increasing practicality of workers in low-wage countries to compete with workers in high-wage countries. What scares “anonymous,” P.C. Roberts, Lou Dobbs, and others – including, I think, The Nation’s Eric Alterman – is this huge source of inexpensive, high-quality output.
Yes, and just deal with it. Like it or not globalization has happened, there are cheaper workers making high quality products. Walls and tariffs and barriers will simply isolate us and keep us from participating in the global economy. So is the answer to send your production to those lower wage countries? Only if you believe the myths created by traditional accounting, where labor is simply a cost and going overseas creates a savings. Try not to think about the longer supply chains creating more cash sunk into inventory at risk for obsolescence, or the longer cycle times to reach your customers, or the loss of experience and knowledge.
But here’s the interesting kicker: even if you stand still behind trade walls you will also have to compete with domestic manufacturers who have figured out that the value of their high wage workers is not simply measured in terms of parts assembled per hour, but also in terms of creativity, knowledge, and ingenuity that drive productivity improvements.
But I’ll bet that “anonymous,” P.C. Roberts, and most other trade skeptics aren’t afraid of intelligence here at home. I’ll bet that they aren’t afraid of American ingenuity, entrepreneurial determination and creativity, and advances in both pure and applied science that increase our ability to transform, ever more efficiently, raw materials into consumable output.
A company that stands still, or cries for protection from foreign manufacturers who use cheaper labor, should be afraid. Because their competition may be their neighbor, not a company from Shanghai.
Trade skeptics write as if the only competition domestic producers face is competition from lower-wage workers in foreign lands. But workers in the U.S. (and elsewhere) compete also with each technological advance that makes automation of certain tasks less expensive than using labor to perform these tasks. As humans’ intelligence about technology increases – as, undoubtedly, it has been steadily increasing for centuries – American workers face increasing competition from lower-cost competitors right here at home.
Automation is certainly part of it, but human intelligence also drives productivity by improving fundamental processes. This is why companies like Danaher, Texas Nameplate, Stanley Furniture, Joseph Abboud, Allen-Edmonds… and yes, Toyota, compete very well from U.S. factories.
Look at the same phenomenon from a different angle: American workers are forced to compete with high-wage workers right here at home – workers who specialize in R&D; engineers who figure out how to produce more output from any given amount of inputs; top-flight managers who succeed at squeezing from given bundles of inputs within firms more output.
That’s what lean manufacturing is all about. Well at least as long as there’s an existing order for that output!
Should we fear our increasing ability to transform a given amount of inputs into larger and larger volumes of output? Would American workers be better off if they faced no competition from such technological advances – if government erected internal tariff walls to protect existing producers from the competition that comes from the minds and efforts of such high-wage workers?
Of course not, which is why we should also not fear free trade. One way or another you have to improve and learn to compete to survive. Complaining doesn’t do it, harnessing the knowledge of your workers to become lean can.