Global Capital

Remember the 1980s? Ronald Reagan was President, there were only three channels on TV, the Soviet Union was the “Evil Empire” and banking was heavily regulated. Back in those days, there were three “worlds” – the first was capitalist, the second was communist, and the third was just poor. Then the Cold War ended, and the three worlds got consolidated into one world with two sections: developed and developing. The difference is capitalism – developing countries are not fully industrialized commercial societies, but the assumption is that they will be eventually, because commercial society is the best. The United States and Western Europe are good examples of capitalist societies, which (in theory) use their scarce resources efficiently through the market mechanism, aided by government enforcement of private property laws.

It is not well understood in this country that capitalism is global. People think of the US economy as separate from other economies, and imagine that it merely interacts with other countries through trade arrangements. A good example of this is the perception that manufacturing jobs have disappeared in this country because of bad trade deals with countries like Mexico and China. Lower paid jobs have indeed left the US, but that has everything to do with American workers demanding higher wages than their foreign counterparts. Firms have an incentive to keep the costs of production as low as possible – I mean, the US could get rid of the minimum wage, and companies might hire more US workers, but those workers would have to work very hard for wages that would almost certainly be very low. It’s much easier, from a public relations standpoint, to give those jobs to people in foreign countries, because Americans have an easier time thinking that poverty in those countries is due to the lower level of value provided by foreign workers.

The idea of justice in political economy is central. We are always thinking about what is fair, always arguing over it. For conservative white Southerners in the US, the idea that black workers deserve wage equality is repugnant because it directly contradicts their sense of self. For many liberals in the US, the idea that wages are not equalized across racial, ethnic, sexual and gender categories is just as repugnant. Political debates are frequently centered on these sources of cognitive dissonance.

The standard of living in the US – the material conditions of our existence – is almost absurdly high compared to the rest of the world. We should not be shocked that people in other countries are desperate to come here and willing to put up with all manner of abuse from Americans just for the chance to raise their children here. There is a trend these days, however, is to think of the US as a business and not a territory or a population. Personally I find this idea deeply disturbing, but it has a certain appeal for many people.

If we were really interested in deincentiveizing immigration to the US, we would write trade agreements mandating a rise in wages in other countries. This, however, would defeat the purpose of much of trade for us. Walmart has low prices because Chinese labor is cheap. Mexican workers want come here because labor in Mexico pays roughly a quarter of what it does in the US (as calculated from OECD stats on average annual wages in the US and Mexico, 2000-2014). What Americans want is higher relative wages, not just higher wages, so that they can maintain their relatively high standard of living.

Think of it this way: those popular inexpensive all inclusive vacation packages in central America would cease to exist without the existing structure of labor-wage rates. And that would make a lot of Americans really unhappy. We like it that goods and services are so cheap in other countries, because it means average Americans can live high on the hog outside of the US. And we like the idea that we’re so much more productive than other people.

 

 

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