America Has a Cheap Labor Problem

At first glance, it may not seem as though near-slave labor is still a relevant factor to American economic success. From the days of peasants and serfdom to the immigrant slaves who built the Transcontinental railroad, much of our past success as a civilization and country has been contingent upon the availability of cheap and easily replaceable labor. Many of the greatest (infrastructural) feats of humanity have been achieved at the expense of countless human lives—the Great Wall of China, pyramids in Egypt, and modern-day projects such as the Qatar 2022 stadium and Bejing Olympics complexes. This extends to the basis of most modern technology, mining for rare earth minerals and extracting raw materials, practices which typically take place in "developing" countries with little worker protections (or child labor protections).

Basic business sense tells us that low labor costs mean lower operating costs, thus greater profit that may be used for capital investment, expansion, and further innovation. So, as long as civilization has had individuals in a position of power over others, they have taken advantage of other humans to achieve great feats. 

Note: 

This has taken place in many cultures over the years, as domination of the "other" has been a cyclical pattern globally, however, it would be dishonest to not acknowledge that white civilization has taken the extent of domination and exploitation as a basis for growth to an entire new level. When considering the countries that hold most of the wealth (mostly white) and how they got it (colonizing and tearing apart those lands, "leaving" later but imprisoning them with economic means instead), it is evident that the pattern of using cheap (exploitative) labor is the fundamental basis of Western affluence. 

America’s history with cheap labor

The first and largest source of free labor in America was slavery, a practice that lasted until 1865. Immigrants and child laborers provided additional cheap labor, but weren’t used as widely until slavery was abolished—after all, why pay when you could get labor for free?

American manufacturing was at its peak in the years around and following World War 2. This was the time of the American dream; the time when a family could be supported by the wages from a factory worker’s job. This was applicable to white families, as black Americans were still not given the full rights of citizens, and kept in poverty as a necessary part of the cycle of profitability. Beginning in the seventies and eighties, American companies began to export labor and production to other countries. This exodus was heightened in the 2000s—data from the U.S. Department of Commerce showed that “U.S. multinational corporations, the big brand-name companies that employ a fifth of all American workers… cut their work forces in the U.S. by 2.9 million during the 2000s while increasing employment overseas by 2.4 million.” Experts remain unsure exactly why this happened—after all, America has an established production infrastructure and large workforce. My theory about what happened revolves around rising costs of doing business and acquiring energy, plus a little bit of hive-mind. 

After US oil production per capita peaked in 1979, manufacturers no longer enjoyed the benefits of dirt-cheap energy. Oil crises during the seventies heightened this fear, and the US had increasingly built a climate of regulation and taxation very unfavorable to businesses. Additionally, as the minimum wage rose, labor laws became more established, and women and minorities legally set as equal, labor costs steadily increased. In order to compensate for the profit losses begat by higher energy and labor costs, companies began to outsource their production to third-world countries. There, child labor, near-indentured servitude, and generally much lower wage and land costs allowed companies to continue making profits despite rising energy costs. This outsourcing isn’t all bad, either. Popular criticisms of outsourcing include that:

1)   It steals / eliminates “jobs back home”: This is true, however, many companies are able to maintain the same number of employees or even increase because of the lower costs they incur. If production had remained in America, the companies would have had to fire employees, cut costs, and potentially even go out of business. American automobile manufacturing is a great example of how companies that did not embrace the outsourcing trend are in decline or have already failed.

More so, this is an argument that only privileged and to some degree, entitled people can make. Citizens of Third World countries do not feel entitled to having a job, it is simply understood that there may not be enough jobs for everyone and life is most definitely not fair. America is very susceptible to the “it’s not fair” ideology, and demanding jobs remain here (or, alternatively, that we not allow immigration because “they’ll steal our jobs”) is a naïve and ignorant view point. One cannot hope to have both great economic success and extremely high wages without other miraculous factors like cheap energy, land, capital, and low taxes. It is, of course, highly unfortunate if jobs do leave America, but it’s just basic economics—not a personal vendetta.

2)   Supporting outsourcing is supporting sweatshops, child labor, and inhuman conditions: To some degree, again, this is true. Paul Krugman has a great point about this:

“Why does the image of an Indonesian sewing sneakers for 60 cents an hour evoke so much more feeling than the image of another Indonesian earning the equivalent of 30 cents an hour trying to feed his family on a tiny plot of land--or of a Filipino scavenging on a garbage heap? The main answer, I think, is a sort of fastidiousness. Unlike the starving subsistence farmer, the women and children in the sneaker factory are working at slave wages for our benefit--and this makes us feel unclean. And so there are self-righteous demands for international labor standards: We should not, the opponents of globalization insist, be willing to buy those sneakers and shirts unless the people who make them receive decent wages and work under decent conditions.” - Krugman

As the beneficiaries of outsourced labor, it is easy to feel guilt—I know I certainly feel a pang when I think of the affluence I enjoy compared to those who make it possible for me. The main question some fail to ponder in their protest of third-world labor, however, is if the workers would be better off if they didn’t work in these factories. The answer is a resounding no.

In order to encourage workers to work in the factories, companies had to offer higher wages than other jobs. The rise of production in China, Thailand, Vietnam, Indonesia, and more has generally lifted the standard of living and begun to build the foundations of industry in these countries. Were we to demand companies pay employees the equivalent of what they would make in the US, we would face a number of negative responses. First of all, the price of goods would dramatically increase. Many goods made in other countries tend to be cheaper, and so this burden would disproportionately fall on less-wealthy Americans. Second, the paying of fair wages to production employees would only help that small segment of the Third World population, creating a “privileged labor aristocracy”, as Krugman puts it. Worst of all, it is likely companies would simply cease production in these countries and move to poorer nations (low wages) or back to the US.

“The advantages of established First World industries are still formidable. The only reason developing countries have been able to compete with those industries is their ability to offer employers cheap labor. Deny them that ability, and you might well deny them the prospect of continuing industrial growth, even reverse the growth that has been achieved. And since export-oriented growth, for all its injustice, has been a huge boon for the workers in those nations, anything that curtails that growth is very much against their interests.” - Krugman, In Praise of Cheap Labor

Given all these challenges posed by the need for cheap labor, what will happen to global affluence and production when there are no longer places to outsource to, to take advantage of?

Though it may not occur in the short-term, eventually Asian nations currently labeled as Third World will develop infrastructure and increase their affluence. As earlier posited, the more affluence increases, the more citizens demand equality and humane treatment—an awful reality, but a reality nonetheless. When the time comes that the governments of these nations rule child labor illegal or create decent minimum wages, what happens to production? The quasi-egalitarian access to almost any good that First World citizens enjoy will cease to exist unless some alternative to the rising costs of production comes into play. Industrialism seems like a formidable and unquestionable fact of life, but its foundations are surprisingly weak—without ample energy and cheap labor, economic success is nigh impossible.

As minimum standards of living continue to rise globally, consumers will demand more and more material goods. Even the poor in America are accustomed to a relatively luxurious standard of living—having heat, air conditioning, electricity, internet, and television distinguishes one as among the luckiest in the world, but the bare minimum in America. Imagine the implications as this level of consumption becomes a global standard—enormous amounts of greenhouse gas emissions, large-scale demand for more material goods, and so on. Who, then, will furnish these goods and do the dirty work of production? It seems right now that there is not room for both general affluence and equality—we are consigned to choose between the two. That said, it is also likely that technology will improve dramatically, to the point where production can be entirely mechanized.

Automation is the most likely answer to the question of what happens when cheap and slave labor is no longer an option. I cannot pretend to have a definitive answer to this immense question; no one can predict the future. I do, however, know that we face a general tradeoff between equity and efficiency. In the US, equity was chosen, and resultantly efficiency was reduced and outsourced. In order for First World countries to continue enjoying their standard of living, less fortunate individuals must produce cheap goods. Right now we are simply constrained by the fact that someone must produce goods for us. Until we can harness technology to eliminate this unfortunate facet of capitalism, the tradeoff remains.   

The gist: 

Basically, America is in trouble if the cost of Third World labor increases. Right now, achieving affluence and success is contingent upon the sub-human treatment of others—after all, it always has been. Our only hope to remedy this is the development of technology that automates production (only at the time when the third-world countries have developed economies that can support themselves without the export reliance) and eliminates this unfortunate truth.

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