Freeman

ARTICLE

A Race to the Bottom

Who Benefits from High Prices and Low Supplies?

JULY 01, 2001 by BARRY LOBERFELD

Filed Under : Division of Labor, Protectionism, Labor Unions

Barry Loberfeld is a freelance writer.

In a letter dated December 2000 and addressed, “Dear Friend of US/LEAP,” Stephen Coats, executive director of the U.S./Labor Education in the Americas Project, spoke of various purported “victories and losses in the struggle for worker justice in the global economy.” Among the “losses” was what he called the “race to the bottom” in the banana industry:

Wages, benefits, and even the existence of the Central American banana unions, generally considered the region’s strongest private sector unions, are threatened by a “race to the bottom,” as companies continue to increase imports from low-wage, non-union Ecuador. US/LEAP, which is working with banana unions to develop a strategic response to the industry crisis, expects this issue to be a top priority in 2001.

We can see at once what kind of portrait is being painted for us with this “race” and its evocation of dog-eat-dog competition. Here are the faceless multinational corporations, concerned only with profit, abandoning their workers in poor (but unionized) Third World countries in order to exploit the cheaper (non-union) labor in another, even poorer Third World country. The corporations, which increase their profits by pocketing the money saved on lower wages, are the undeserving “winners,” while both the newly unemployed and the newly “exploited” workers are the unjustly harmed “losers” of this free-market power struggle. Isn’t this a connect-the-dots case of the rich getting richer from the poor getting poorer? Could anyone seriously claim that such a situation in fact benefits everyone?

Actually, yes. Let’s consider an economy—global, national, local, or even household—as if it were one company. Wouldn’t it make sense to assign a particular task to the person who could perform it most efficiently: that is, who could get the job done at a lower cost to the company than anyone else? It is just this function that employers perform for the economy when they search for the “cheapest” labor, the lower cost of which allows for lower, more competitive prices and expanded production, both of which benefit consumers, a group that happens to include the workers themselves . . . and everyone else. As Frédéric Bastiat observed, goods that are high in supply and low in price constitute the very definition of prosperity.

But are the “low-wage, non-union” Ecuadorian laborers better off working now for some foreign corporation? Apparently they think so, or else they would have stayed with what they were doing previously. (Would you leave your job for one with less pay and worse conditions?) And the union workers in the other Central American countries, who are losing their jobs to the Ecuadorians—exactly what do they gain from all this? The answer: employment in those fields where they can better contribute to what will thus be a more productive economy. When the blacksmith “lost his job” to the automobile, he didn’t go without work for the rest of his life. Instead of working in a smithy, he now worked in Mr. Ford’s factory—and lived in a world where cars replaced horses. Unemployment is not eternal. No one benefits from the idleness of others.

Strikers versus “Scabs”

Although the issue of the “race to the bottom” is discussed here in the context of foreign trade, the basics apply equally to the domestic conflict between strikers and “scabs.” Again, people generally gain when production shifts from less-efficient to more-efficient workers. In contrast, who benefits from the high prices and low supplies that result when government restricts the mobility of capital? But perhaps the real question is why activists, polemicists, and politicians continue to see strife and misfortune where the economist sees harmony and opportunity. The reason can be gleaned from the example at hand. Mr. Coats’s understanding of the situation begins with one thought—banana union workers are losing their jobs now—and ends with it. He doesn’t make the mental leap from “banana union workers” to the rest of society and from now to the long run. But the economist does; he knows that the focus must be, not on what happens to one part of one industry today, but on what happens to all parts of the economy tomorrow. That’s why the activists, among others, will demand—on behalf of the union workers—government restrictions on the importation of bananas from Ecuador, while the economist will denounce those restrictions as harmful to everyone.

It’s incredible. We would all laugh our heads off at some character who’d suggest that Uncle Sam should’ve crushed the emergent automobile industry in order to preserve the jobs of blacksmiths and horse breeders, and yet our federal and state governments are swamped with bills conceived to “protect” one sector of the populace from the productive activities of every other sector. Call it dog-eat-dog legislation, except that ultimately there’s just one dog—us—and the only prey he’s consuming is himself.

ASSOCIATED ISSUE

July 2001

comments powered by Disqus

EMAIL UPDATES

* indicates required

CURRENT ISSUE

December 2014

Unfortunately, educating people about phenomena that are counterintuitive, not-so-easy to remember, and suggest our individual lack of human control (for starters) can seem like an uphill battle in the war of ideas. So we sally forth into a kind of wilderness, an economic fairyland. We are myth busters in a world where people crave myths more than reality. Why do they so readily embrace untruth? Primarily because the immediate costs of doing so are so low and the psychic benefits are so high.
Download Free PDF

PAST ISSUES

SUBSCRIBE

RENEW YOUR SUBSCRIPTION

Essential Works from FEE

Economics in One Lesson (full text)

By HENRY HAZLITT

The full text of Hazlitt's famed primer on economic principles: read this first!


By FREDERIC BASTIAT

Frederic Bastiat's timeless defense of liberty for all. Once read and understood, nothing ever looks the same.


By F. A. HAYEK

There can be little doubt that man owes some of his greatest suc­cesses in the past to the fact that he has not been able to control so­cial life.


By JEFFREY A. TUCKER

Leonard Read took the lessons of entrepreneurship with him when he started his ideological venture.


By LEONARD E. READ

No one knows how to make a pencil: Leonard Read's classic (Audio, HTML, and PDF)