The onset of globalization makes trade and competition fiercer than ever. Products from all around the world are flooding domestic markets. This in turn has placed domestic products on the same shelf at the supermarket as international ones. With trade barriers rapidly falling, the domestic firms that produce these products find themselves more and more exposed to the international competition, who often face different, and some would say unfair or unjust, conditions of production. This is a good thing. Healthy competition breeds innovation and productivity weeding out the inept and inefficient. Consumers win with cheaper, better products. There has been an unfortunate loser in this conflict, the domestic laborer. International competition sometimes forces domestic firms to downsize their operations or shut down completely. Former employees with stable jobs for the past twenty or thirty years now find themselves cursing NAFTA and the WTO from their armchair as they watch Days of our Lives. Why must domestic firms cut their labor forces? Cannot the government intervene to prevent this from happening? After all does not the domestic government have a responsibility to protect its citizens' interests?
As learned in Econ 101, an economy is made up of many firms. These firms produce products or services that are demanded by the public for consumption. As the public is ever changing in composition and size, these demands are themselves ever changing. In a large economy, short-term changes in demand are often negligible as the average demands of the population steady sudden fluctuations. However, this is not to say that a consumer's basket of goods does not change. Introductions of new technology, duration of aesthetic and functional fads, and the general chaos that is the consumer; all these factors can and do augment, over time, the consumption demands of Joe and Jane Public. A market needs to be dynamic, competitive, and flexible to react to these changes.
If a market is to be dynamic and flexible, the firms that comprise it need to be dynamic and flexible. If a firm is to be dynamic and flexible, it needs to be able to alter its level of production and change the product itself. How is this applicable to the laborer? A firm needs to be able to hire or fire to change productivity as the market demands. A firm needs to be able to search out new skills and fresh ideas in laborers to replace the outdated and stagnant. Sometimes old dogs really can't learn. Keeping on a workforce that produces beyond that which is demanded will only serve to flood the market, lowering prices, eliminating profit and driving the firm out of the market. Older workers are usually not as well versed in new technologies while possessing knowledge of experience that many college graduates have only studied in theory. A firm, to remain profitable, will select those laborers which benefit production the most. How each firm analyzes the marginal benefit of each laborer is another question.
If a market is to be competitive, its dynamics cannot be stagnant. In the case of the United States, recognizing the transition of the economy from manufacturing to services would be a start. Much like the Industrial Revolution spurred the shift from agriculture to manufacturing, the accumulation of wealth and the availability of large disposable incomes make luxury and services the largest GDP generators. If a market is to recognize the current trend, the labor within the market needs to recognize the trend. But labor is comprised of people who are of the habit to be content when sedentary. Thus it falls on the firms to coax and aid laborers to recognize market trends. This can happen through migration of labor to a different field. In other words, when workers of a certain profession are unable to find work, they need to look elsewhere.
These evolutions and definitions are the qualities of a healthy economy that responds to the demands of its consumers. Labor needs to be mobile in order to successfully cooperate with the natural forces of the market, which in turn ensure the convergence of its intrinsic energies, that firms produce during competition, resulting in a happy consumer. Mobile labor means the acceptance of right and justification for firms to hire and fire at will. Government intervention in this field will thus inhibit innovation and efficiency. As a result of the policies of their governments of the big three economies of continental Europe consist of labor less mobile than the United States. Not surprisingly they also have a higher unemployment rate. When the market is allowed to operate, the general public benefits. If the government were to follow policies that encouraged the retention of employees that the market would reject, the domestic firm becomes stagnant and noncompetitive, requiring further government action of the same kind in the future.
Japan's current financial situation can be traced to such manipulation. The Japanese government gave and still gives over 5 trillion Yen in subsidized loans each year to businesses that would otherwise be bankrupt. In addition, the government has contracted and subsidized an extreme excess of construction projects over the past two decades. Such encouragement is welcome in times of recession, but unnecessary and detrimental to the economy during boom times as were the 80's. Some economists argue that these actions can be attributed to the Japanese fear of unemployment innate in their culture. Regardless of the reasoning behind the actions, the actions have still contributed to multitude of bad loans, and other ways of undermining market forces, that are largely responsible for the depression overseas. Government interference against market forces is destructive. This necessarily makes the American government subsidization of steel manufacturing and agriculture outdated to say the least.
Last year, the Bush administration lumped tariffs near 40% on imported steel from most countries to prop up the ailing domestic industry. Some would argue that this was done to win support from such steel states as Pennsylvania. Unions were good when workers rights are abused, but this is not the case here. Regardless of the politics involved, supporting inefficient industries or those that have lost their competitive advantage only delays the inevitable collapse of the firms involved and harms the consumer by way of higher prices. We can all reminisce of the good old days of turn of the century America when we watch football; there is no need to prop up a dead dog in the face of international competition.
The farm subsidies were given in exchange for fast track authority earlier this year. Fast track is good, but the subsidies are now almost double the level they were after the reduction in the Clinton era. How is this progress? Furthermore, 75% of the subsidies will go to the largest and richest 10% of the farmers. US farms need to focus on their relative advantage, such as organic production, compared with foreign producers, and this does certainly not include wheat and corn, which are the main beneficiaries of the subsidies. These government policies illustrate the frequent lack of support that world governments and leaders give to the promotion of freer labor markets.
Some point out that these subsidizations are keeping thousands of people employed who would otherwise not be. It is unfortunate that their employment conflicts with what is good for the overall economy. Instead of subsidizing inefficient industries, the federal government can expand and improve the welfare state. Unemployment benefits are certainly valid in this light, but they need to be constructed to encourage brief subscriptions. Governments of large populations need to be wary of extensive welfare systems. Europe's big three continental economies, who have significantly larger welfare states than the more market oriented ones of the US and Britain, have consistently higher unemployment rates, at times 30-40% higher, than their English speaking counterparts.
A government can also provide training funds through welfare to those laid off during recognized shifts demand trends. The government could, for example, direct the subsidization money destined for the steel and farming industries to documented unfortunates, from the healthy downsizing, in the form tuition at technical schools (ITT Tech). In this way the recently unemployed gain skills that are more relevant to their society and they can reenter the labor market more marketable. Already exist such programs such as the Pension Benefit Guarunty Corporation, which assumes financial responsibility for the pensions of former employees of companies that went under. A government in this manner can encourage flexibility and change within a labor market, benefiting competition, without leaving its constituents out to dry. Certainly it is better for the newly unemployed to retain their old job. But this is both inefficient and irresponsible.
Liberalisation of labor migration should not be limited to a domestic level. Globalization, whether we like it or not, is rapidly becoming an integral part of the world economy. It is no longer odd to see fresh vegetables from South America at your corner grocery store, or more Toyotas than Fords on Smalltown's Main St, or Chinese fabricated plastic goods in Mauritania, as it was thirty years ago. The incorporation of developing economies' products into western markets, and vice versa, can be the subject of the utmost sensitivity between governments. International labor movements have been relevant to politics since before Moses asked for an early termination of his labor unions contract. Oh wait that was slavery. But it's beside the point, which is that often times the place with the work has no workers, thus requiring the importation of labor, who can be compensated better as compared to their former place or country of employment. Either that or their new employer has a really big army.
International labor migration presents the same benefits of domestic mobility. The main benefit is the absolute increase in global capital production. Anytime a worker can naturally be paid more for his/her travails, anytime an unemployed becomes employed, whenever a person learns a new production skill, all this adds to capital production and circulation. A laborer that is restricted beneath his/her potential productiveness in his/her native country can migrate and increase his/her income generation and productivity. Service oriented economies of the developed world need unskilled labor of the undeveloped world to fill positions that are unwanted by the educated and proud domestic population. Skilled laborers from abroad bring different ideas which aid innovation. They are also more likely to start their own businesses. Increased competition for positions benefits the product.
Again though, does not the domestic government have a responsibility to its citizens to protect their jobs? Education within the domestic society is an advantage that any immigrant would long for. The ability to speak fluently the language of pertinence is a skill that firms identify universally as a positive attribute. Thus the government already gives its citizens an inherent advantage over immigrants and need not give any more. Although many people legitimately subscribe to the philosophy of elitism (including certain intelligent and good looking guys in the Trarza) and while there are many places for its useful and beneficial application, a competitive market is not one of them. Further restriction of natural market forces defeats the purpose of having a market. It is argued here that governments have a larger responsibility to uphold and support the natural market forces that benefit all society, rather than restrict and block them, thus creating unnatural forces, to save a few. Therefore policies directed at limiting international migration for the reasons of domestic labor protection are counterproductive and inefficient in an economic sense.
However, limitation can be desirable, even a necessity, when looking at the social picture. Welfare states are ill equipped to handle large influxes of participants. Additionally cultural integration, or combination, takes time, and thus should be regulated to avoid upsetting social malcontents. The government can abet this integration by distributing funds to affected areas of immigration for intensive English language programs. More taxes could be generated by legalizing the millions of illegal immigrants, who currently do not pay income taxes yet take advantage of the fruits of their implementation. Nor do they receive benefits from employers, and thus drive down wages unnaturally for other laborers. Ideally workers would be able to migrate freely to where the work was, essentially becoming completely synergetic with the global market.
Broadening the scope of labor migration to an international level brings along with it many problems from language to citizenship to education to terrorism. However problems of implementation should not discourage action. NAFTA recently explored this conjunction of dilemmas, as has the EU. US-Mexico relations are largely based on these problems and solutions. Speak with any resident of California or Texas, and you would find a relevant perspective on international migration. Many solutions have been tried and many more are proposed. Germany has proposed waiting periods of seven years, regarding domestic welfare, for eastern migrants anticipating their country's accession to the EU. Australia has a foreign born workforce of almost 25%. A Cape Verdian volunteer told me that near 80% of the capital production there is generated by remittances from domestic labor abroad. In a survey of international labor migration, the November 4th issue of The Economist explored these problems better than could done be here, those interested should read it.
The recognition of the relevance and necessity of the encouragement of the globalization and liberalization of labor markets through government policies is not always apparent in today's society. Subsidization of industries may win political votes with labor groups and large antiquated corporations, but it is not medicine for an economy, quite the contrary, it is merely makeup over the cancer. The labor within these industries need to be encouraged to change fields not stay in their no longer competitive one. This means people need to be fired or laid off. It is a sad but necessary action that sustains a healthy and competitive market. All the people in an economy cannot be happy all the time, a good head of state will serve his/her country by leading them, in contrast to being thrust forward by the energy behind, and sometimes this necessitates making people unhappy for the benefit of the economy. When the economy is happy, the participating population benefits.