Friday, May 19, 2006

Race to the bottom

On Richard's blog they raise the issue of the race to the bottom - but both sides dont seem to fully understand the concept.

The race to the bottom relates not so much to the situation within a single country ofindividuals undercutting eachother and more to government related effects.

For example - the lack of mobility of labor where in you can't just pop over to Luxembourg to make money and then pop back to china to spend it. This means that in a free market it will tend to be a better strategy to favor capital over labour.
So there is always an incentive to tax just a little less or provide a little more subsidy to capital.

If the world was a single country the government might easily tax capital MORE with the idea that they did not want to provide a disincentive for labour.

Anyway in theory money will accumulate in the hands of the rich based on this and a number of other factors (it being easier to make money with money and economies of scale, and smart people - genetics and so forth). But I guess this might not concern some- which I guess centers around whether the system falls over when all the money comes into the hands of a very small set.

They use the example of a tomato picker

"If the government (and not high tomato demand) forces employers to offer "more," then even tomato picking will cease to be a career option for these people."

The people must be eating something if it isn’t tomatoes it must be something else - they can pick that.
If you raise the demand for fair trade tomatoes you lower the demand for non fair trade tomatoes but you also displace production of some other fruit picking and generally inflate the prices of fruit pickers as a whole except for the non free trade tomato pickers. In theory (in the long run) you could make the unskilled job of tomato picking a relatively high paid job. Maybe some people want to do that - If you converted low demand skills into higher demand skills you could reduce income equality.
One could argue that it is a worthwhile goal to make certain rare skills less highly valued (e.g. being a talk show host) and certain common skills more highly valued (such as growing food or being a nurse).

"being paid even a pittance is better than nothing"

One of the problems here is related to the point above - humans in general do not weight future events "correctly" they will in general forgo education or health care or otherwise morgage their future for present gains.

I also think strategically for a country (or many communities) it is a bad strategy to be very good at picking tomatoes. What happens is that you create systems and convert land and create tax structures and education systems that make you better and better inch by inch at picking tomatoes - eventually you are an awesome tomato picking country but your country by its nature is an inflexible farm.

Sucessful countries like Singapore recognised this and actually made and effort to BREAK from certain industries such as farming in order to be able to pursue manufacturing then It then Services and Biotech etc.


Anonymous Rudolph Carrera said...


Where can I find out more about the Singaporean economic model? It sounds very interesting. And thanks for your post on my site re: Montenegro.

3:57 PM  

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