Sarah Sheard's Thoughts and Theories

Monday, June 01, 2009

Rich people, exploitation, and the economy

A friend of mine asked if it is true that American car companies can't make cars profitably. I actually consulted with a US car company briefly, last year, though not about car prices in any way. However I believe I have a handle on the problem.

Consider: Minimum wage here in the US is $6 and senior laborerers get maybe $40 an hour, or more, but in third world countries you can get work done for cents per hour. U.S. car companies were selling tiny cars because they had to to get their gas mileage average down, but they had to price the small cars in such a manner that they thousands of dollars on each car, in order to compete with import makers. The only cars that US carmakers could make money on were the big ones (read: gas guzzlers), which earned the company like $10K per car.

There would have been a day when I would have thought that was obscene. However I know now that money is the “food” of an economy, and if you don’t feed an organism, it dies. No one is going to keep making cars if they don’t get paid, or keep selling them, or keep anything if there isn’t money to pay them, so a company has to make money somehow.

In my mind this is a symptom of a larger problem, which is unavoidably temporary. We here in the “civilized” world consume every year more than we could possibly make, whereas most people in poor countries probably consume 1/10 to 1/100 in a year Americans do. They are subsisting. So when someone gives them a job to make anything for almost no money, to them, it may be twice what they WERE living on, and they’re happy to now be able to, say, have an indoor toilet. Or hot water most of the day. Or maybe shoes for all their children.

Whereas we (and I’m no exception) want cars, and hardwood floors, and big screen TVs and jet vacations, and cruises, and stainless steel appliances, and handmade art etc. Forty years ago we Americans didn’t have all those things, since we didn’t have the global economy of today, and we could only buy at prices that Americans were willing to make things for. Forty years from now we won’t either, since the global economy will average out income somewhat by then. (When everyone is making about the same money, everyone can consume, on the average, only what people make, on the average.)

But now we HAVE a global economy, and it hasn’t yet averaged the economies from country to country. We still have poorly paid subsisters in third world countries making shoes for us. We haven’t yet realized, or perhaps are starting to realize, that the reason companies outsource everything is no one here can live what they believe is a reasonable life on $.50 an hour, so we demand $5 or more an hour by law. Thus any maker who can goes overseas (or perhaps a better way to say it is: those who go overseas become more competitive in the marketplace and outlast the makers who stay domestic). I heard a fast food chain has even outsourced order taking between that little scratchy speaker in the parking lot and the restaurant kitchen, putting the job in the hands of someone around the world!

So now instead of buying a $500 quilt from, say, the Amish in Pennsylvania, who still make them in the US by hand, we buy a $99 quilt from an importer, and have $400 left to buy, say, chairs, made in Thailand from disappearing forests. (We wouldn’t have been able to afford any chairs if they were made in an eco-friendly way inside the US.)

Historically everyone would like to have a job that pays them enough to obtain more than they could make themselves. In the past, the ruling class in every society I know about exploited someone and made them make things for them, from Indian castes to Egyptian and US slaves, to women prior to about the 1960s here and in the Islamic world still.

As we stop exploiting people and want them to have the same opportunities we have, we’ll have fewer fruits as a result. I think as we continue to send money overseas to cheap labor markets, they will get less cheap, and our neighbors here at home will be willing to work for salaries that don't enable them to buy as much, and prices will come a bit closer together. But until we recognize that not everyone can have everything, we will be surprised that the economy does what it does. We try to send everyone to college so that everyone can have a $100K a year job, but we don’t want to pay $100K to our maids or our children’s babysitters or our gardeners.

Enjoy it while you can if you have a job. It won’t be the same in 40 years. My opinion only.



  • I agree with your assessment that this is somehow all a piece of the "global leveling", but MAN that's depressing.

    By Blogger Virginia, at 7:48 AM  

  • saw your post today on Liz Ryan's list.

    as far as car companies go, i have a good friend who works for hyundai in alabama. his assessment is that the quality of cars built in the U.S. is all about the same and very high, regardless of whether it is ford, honda, or hyundai. but the new entries to the car market here have significantly younger work forces, and that means significantly lower costs for retirees (or for hyundai, NO retiree cost yet), health care, as well as seniority.

    those advantages will go down over time.

    By Anonymous Sam F., at 9:04 AM  

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