Economic policy: Competition in manufacturing, First World vs Third World

[bigfield]

The problem for manufacturers in Australia:

• Australia's industrial awards require manufacturers to pay their Australian employees high wages compared to the Third World, and even some other First World countries such as the USA
• Manufacturers in Australia have to sell their product at a higher price than their overseas competitors in order to cover their comparatively higher wage bill.
• Some manufacturers only remain in business due to goodwill and better customer service
• Many manufacturers have closed down as they are unable to sell their product at a profitable price.

Some manufacturers and political groups, propose that pay and benefits for industrial awards in Australia be reduced in order to reduce manufacturers costs. Some of the benefits that I have heard them argue:

• Manufacturers would be able to stay in business, and potentially expand/or open new businesses.
• Manufacturers would be able to employ more people.
• Increased company tax revenue per business.

Some of the economic costs that I can identify:

• Lowering wages for employees means that those same employees have less money to spend as consumers.
• Lowering wages for employees lowers the socioeconomic status of a large number of people, which lowers the educational outcomes for their children, which in turn leads to future skilled worker shortages, higher crimes rates etc.
• Reduced income tax revenue per employed person.

Not sure if the would be a net increase or decrease of revenue from personal income tax, or from company/personal tax combined.


If a government seeks to sustain or grow the size of it's local manufacturing sector, while at the same time maintaining the quality of life of it's working class and middle class, AND sustain or improve the country's GDP and other economic indicators, then what kind of sustainable policies can it implement to achieve this?


Does the existence of cheaper overseas labour mean that government must reduce wages and benefits on existing industrial awards in order for local manufacturers to sell their product at a profit?


If I recall correctly, Germany addressed this problem by subsidising wages in manufacturing with public money, effectively reducing the manufacturer's wage bill and putting them on a more level playing field with overseas competitors. Is such a solution transferrable/expandable to other indutries and economies, and is it sustainable?

 

[bilby]

One possible solution would be to impose an import tariff on manufactured goods that is based on the difference between Australian and foreign wages; the tariff would automatically fall to zero if wages increased in the overseas manufacturing facility to match those paid to Australian workers.

This would, of course, mean much higher consumer prices for manufactured goods in Australia. The question is, are we prepared, as consumers, to pay the costs inherent in lifting workers out of poverty?

Our domestic wage structures and laws prohibit the payment of slave wages to Australians; but unless we also prohibit the payment of such wages to non-Australians, all that happens is that those jobs move off-shore.

If and when the workers in China and South East Asia who are currently doing the manufacturing get organised and demand better pay and conditions, likely manufacturing will simply move to Africa. Only when every worker in the world is able to demand a decent wage will the rot stop.

Of course, what a Tanzanian considers a 'decent' wage is very different from what an Australian would consider 'decent'. Basically, we can't expect to stop losing manufacturing jobs over here, until the folks over there enjoy our standard of living.

 

[bigfield]

One possible solution would be to impose an import tariff on manufactured goods that is based on the difference between Australian and foreign wages; the tariff would automatically fall to zero if wages increased in the overseas manufacturing facility to match those paid to Australian workers.

This would, of course, mean much higher consumer prices for manufactured goods in Australia. The question is, are we prepared, as consumers, to pay the costs inherent in lifting workers out of poverty?

Raising the price of goods drives down the demand for those same goods; many people simply wouldn't be willing to pay extra for the sake of raising wages in other countries. While Australian manufacturers might see an increase in domestic sales, Australian resellers and importers would probably lose a great deal of sales, and the net effect effect could well be a drop in GDP. In which case, the manufacturers just aren't worth protecting.

Our domestic wage structures and laws prohibit the payment of slave wages to Australians; but unless we also prohibit the payment of such wages to non-Australians, all that happens is that those jobs move off-shore.

If and when the workers in China and South East Asia who are currently doing the manufacturing get organised and demand better pay and conditions, likely manufacturing will simply move to Africa. Only when every worker in the world is able to demand a decent wage will the rot stop.

Of course, what a Tanzanian considers a 'decent' wage is very different from what an Australian would consider 'decent'. Basically, we can't expect to stop losing manufacturing jobs over here, until the folks over there enjoy our standard of living.

Makes sense. And I expect Australian would need to prop up it's manufacturing industry for a very long time before that happens, which could be very costly.

 

[Perspicuo]

Domestic wages should not be shielded from outside manufacturing, for several reasons.

• If the world is going to be "one country", without wars and inequality, the third world must be allowed to get into the game. The first world has always been unfair with them, which created the "third world" to begin with.
• Domestic production could be protected with tariffs not equal to the price difference, that way domestic producers will be forced to provide more competitive conditions. In the US, if foreign production is shielded off, you're screwed if you want to buy a foreign product (say, a Samsung phone), instead you'll have to buy a product you see unfit to your needs.

Protection is not a bad idea, as long as it doesn't go to extremes; the same can be said of free trade. Semi-free is best.

 

[Loren Pechtel]

1) You would crash your economy for no gain.

2) If you insist the foreign workers be paid what Australian workers are paid they would instead get $0. You would be doing harm, not help.

 

[bigfield]

Domestic wages should not be shielded from outside manufacturing, for several reasons.

• If the world is going to be "one country", without wars and inequality, the third world must be allowed to get into the game. The first world has always been unfair with them, which created the "third world" to begin with.
• Domestic production could be protected with tariffs not equal to the price difference, that way domestic producers will be forced to provide more competitive conditions. In the US, if foreign production is shielded off, you're screwed if you want to buy a foreign product (say, a Samsung phone), instead you'll have to buy a product you see unfit to your needs.

Even partial tariffs would be destructive, both for foreign manufacturers, domestic companies who import and resell those goods, and the government who taxes those revenues. The benefit imparted on the domestic manufacturers probably couldn't justify it.

 

[Perspicuo]

Even partial tariffs would be destructive, both for foreign manufacturers, domestic companies who import and resell those goods, and the government who taxes those revenues. The benefit imparted on the domestic manufacturers probably couldn't justify it.

It's not all-or-nothing. From zero up, there comes a point when tariffs start becoming deleterious. Think about it as a sort of tipping point. The trick is to know where.