The Barbarism of Corporate Globalism: Outsourcing

In the summer prior to the 2008 Financial Panic, the price of oil spiked to around $140. And I recall reading reports that some multi-national companies were considering closing up, hitherto profitable shops in China and reopening them in Mexico because of freight costs. And I am thinking from the shoes of a Chinese employee and government. An employee’s productivity really matters little in this age of ruthless and callous corporate calculations that disrupt people’s lives at will.

I am not opposed to free markets. Having lived in an Israeli kibbutz for six months, I experienced in a microcosm, the economic problem with socialism. However, there is a subtle distinction between free markets and capitalism. In the former, most individuals own their own means of production. In the latter, to increasing degree, few owned the means of production while employing others in wage labour. The capitalist aspect was in capitalizing (profiting) on the difference between price of product and labour cost.

There was economic justification for this arrangement. As Adam Smith observed in his microcosm experience of the pin factory, division of labour specialization would result in huge productivity gains. Through market mechanisms, this would eventually (and mysteriously) benefit all. There are several flaws and/or limits to the argument. But that will not be discussed here.

Globalization was initially justified on the basis of parallel economic development between the developed and developing world. Existing rich economies could forgo low-skilled, low-wage industries and jobs if they replaced them with higher-skilled, higher-wage jobs. And thus, the low and semi-skilled labourers in industrialized countries suffered detriment to employability and income; supposedly spurring these employees to learn greater skills. The problem with that arrangement is that having imposed the economic regime, which would deleteriously afflict the lower classes; businesses and governments failed to give serious and sufficient effort at retraining. The costs of constant job loss/retraining would fall upon the victims of these new globalization pacts.

And thus, corporations have been arbitraging between the various labour rates in the world; putting strain on the income levels of lower skilled workers in industrialized nations. The minimum wage in both Canada and United States has decline by after-inflation measures by about a third since 1975. In the U.S., that minimum wage is about at the level of Eisenhower’s first administration (early 1950s). And in considering the above Chinese situation; one of the reasons why the Chinese refuse to allow their currency to rise in accordance to their balance of payment surpluses, is because they have to concern themselves with a perennial fresh supply of countries with even lower wage rates.

However, the developing nations have not been playing according to script. And why should they! They have sought those higher skilled, higher income jobs for their own people. And one could see, with the technological advancements and sizable collapse of communication costs, that the arbitrage in wage rates between developed and developing nations would threaten the livelihoods and income levels of more and more skilled labourers in the developed nations.

  In the early 2000s, it became apparent the programming jobs would become threatened as India provided an improved skilled force and as technology itself simplified programming techniques. I had acquaintance with a person who contracted out parts of his Flash programming project to an American agency for $13/hour who themselves employed someone from Eastern Europe at even a fraction of that. Call centers for all kind of products were shipped to India and other nations where English was prevalently and sort-of spoken. Even lawyers are starting to feel the pinch as some of their tasks are computerized.

Semi-skilled jobs are filled by a considerable number of previously skilled journeymen (i.e. tool and dye); whose tasks were outsourced and made redundant within 10 years of having completed a 2-3 year college course. Risk/reward calculations and the high costs and of education are logically no longer justified in an environment like this. Indeed, especially seen amongst white males since 1975, higher education has only meant the ability to grope higher in an overall sinking ice flow of income levels. If one must re-educate at those proportions of loss of time and income and disruptions; especially since the increasingly impoverished state makes it difficult to obtain retraining at subsidized and reasonable rates over a certain age; one can expect an increasingly militant and hostile populace against the corporatist system.

So the recent Royal Bank of Canada flap about 46 IT workers being replaced through contractual arrangements with IGATE of India is only beginning to publicly manifest these ongoing developments. Having benefited at the expense of their poorer neighbours by this process; it is only now, when the middle class starts being threatened themselves, would the push against globalization and other corporate shenanigans begin in earnest.

Industrialized (Western) economies have escaped the full disclosure of their underlying systematic bankruptcy by debt incurring central banker devices and government deficits. Increased female participation rates in the workforce have allowed household incomes to appear to keep up with and/or surpass cost of living; although the intrinsic improvement may be far less than statistical measurements. (If one is paying for daycare (whether individually or through state taxation), which gets included in GDP numbers, for that which used to be provided ‘free of charge’ by parents (mothers), that is only a paper increase in GDP. Furthermore, in surveys in U.S., Canada and U.K., salaried people are working 5+ hours per week more than in the late 1970s.) This is not being reflected in their current salaries or given consideration by government statistics. 

These disguises are no longer feasible. And thus, it can be expected that current corporatist globalism will provoke an increasingly left-wing global progressivism. If corporations do not succumb to popular revolution, they will be depredated by an increasingly activist state, while the less-fortuned sit on their hands with glee. 

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