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Politics : Foreign Affairs Discussion Group -- Ignore unavailable to you. Want to Upgrade?

To: Elroy who wrote (197184)	8/14/2006 3:30:40 AM
From: Bilow	Read Replies (1) \| Respond to of 281500

Hi Elroy; Re: "Oh, if that's your point, you're spot on. Basically, you mean petro states just create a local population accustomed to welfare. The local population doesn't value a hard day's work; rather, they value having someone else do a hard day's work and taking the profit." No, that's not my point at all. You're putting the issue into morality terms as if economics were a parable about ants and grasshoppers. The competitive effect between exports occurs no matter what kind of economic system the locals use and no matter what their morality. Capitalism, communism, socialism, etc., it doesn't matter. The effect is the same. Let's use an example of a place where this concept of "doesn't value a hard day's work" doesn't apply. For example, in California in 1849, wages were so high that the it would have been ridiculous to start up a manufacturing business that made, for example, buggy whips. Instead, the businesses that were started up were things that directly served the mining industry. The reason you couldn't start a buggy whip manufacturing company there was because the local wages were sky high. Consequently, the cost of the value added for manufacturing goods would also be sky high. In short, it was cheaper to import buggy whips from back East despite the shipping costs. The lower labor costs back East made the cost of making buggy whips cheaper. Instead, the businesses that were worth starting up were things like stores that provided supplies to miners and establishments that provided places for miners to spend their money (whore houses and bars). But those bars sold liquor that was distilled in places where the wages were much lower. The equivalent in the oil states today would be oil equipment suppliers and retail companies selling fancy automobiles etc. The reason the locals cannot possibly make cars (or chips or anything else) is because their wages (as computed in the exchange rates) are too high to be competitive. Chip companies choose places with low wages to build new factories. This sort of effect has been a constant throughout human history. Most of the time it goes unnoticed, but it is based on the fact that in order for trade to occur over the long time, the value of goods sent one way accross the border of a country must equal the value of goods sent the other way. A famous example was China of the 19th century. They had a lot of things that the rest of the world wanted, particularly tea. But there wasn't a lot of things that they wanted from the rest of the world. So for a long time there was trade in the form of Western silver for Chinese tea. Over time, this drove the value of silver in China down, and what amounts to the same thing, it drove the price of tea (for the Westerners) up. The imbalance in goods was solved by the British by forcing China to accept the importation of heroin (or something like that, I'm not a user and can't keep track of which drugs are which). Another example. The Southern part of the US was settled largely because it could produce huge amounts of agricultural goods, i.e. cotton and tobacco. These exports brought in a lot of cash (i.e. gold or silver). The large amounts of cash meant that the US was a very attractive place to sell things. The English responded by sending manufactured goods here. The large amounts of cash meant that these English manufactured goods were cheap. The result was that the development of US manufactured goods was suppressed. The US responded by raising tariffs on imports of manufactured goods in order to protect US industries. The South didn't like this because they had no industries to protect. And in fact, one could argue that for the majority of the population (i.e. the consumers) there was no advantage for high tariffs. But the manufacturers got the tariffs passed, and this was what protected US manufacturing. The problem for the oil states is similar, but because of the very high value of oil, it is far worse. The economic effect which prevents them from being able to start manufacturing businesses is not some sort of morality, but instead it is simple economics that has applied to this country as well. The effect could reappear in this country. Our agricultural and high tech exports are still competing with each other. In the present climate, the value of the US dollar is unnaturally high (it's been driven high for decades by dollar hoarding in the rest of the world). When this reverses, and I don't think it will be that long from now, you will see US industry suddenly gaining the ability to export again, and US consumers will start switching to home built brands. At the same time, we'll start complaining about foreigners buying up US assets. I realize that this is a long involved explanation and that is far more attractive to believe that one group is superior to another because of morality. But the fact is that it was hard to set up manufacturing in the United States at a time when this country was at its most vibrant and its most moral. -- Carl