Utopia of a More Just Economic Order

An Essay about Problems of an Import / Export-Orientated Mode of Production

In our current global economic order we got accustomed with the production of a big part of our consumer goods abroad. Partly because labor costs are lower abroad and therefore production is cheaper there. Partly because of a lack of domestic production possibilities. Competition, and with it a certain pressure for a cost-saving production, forces companies to outsource production areas abroad or to produce abroad right away. This way people in countries with a high income level can acquire goods which they would not be able to afford at all or not as often as they would in domestic production. Supporters of such a mode of production are reasoning that some countries can produce some things better respectively cheaper while other countries can do other things better. By that it is suggested that in the end there is an exchange of goods and services by which everybody can only benefit. So as if the market forces would regulate themselves and as if everyone’s strengths and weaknesses would be optimally supplemented. Although this might be true to some degree for the economical relations of some western countries with production sites in far east, so is still overlooked that especially for a big part of the developing countries a balance is not even close achieved. Much more in many developing countries consumer goods are almost solely imported which leads to a permanent outflow of assets. This means that the money spent on consumption of consumer goods cannot be reinvested in the country. Such an economy is bleeding out. However the β€œcure” in such countries is almost exclusively sought in exports as well in order to draw the urgently needed foreign exchange into the country. But is it realistic and rational to strive for a (only in an ideal case existing) balance between export and import in a global context? Or is the error not rather in the system here? Hereinafter the individual problem areas of an import / export-orientated mode of production are to be examined more closely and an approach for a solution is to be submitted:

1. Labor Laws

One reason why labor costs are much higher in many western countries than in less developed countries and therefore domestic production is not efficient anymore is the expansion of multiple labor laws. As much as it was necessary to introduce certain standards regarding working hours, safety at workplace, dismissal protection, etc. especially at the beginning of the industrialization age so it seems today that things often have been overdone with the result that whole industrial branches are not producing anymore in the west due to high labor costs accompanied with loss of the corresponding jobs. However the respective labor laws are to be assessed, one thing is clear: The same laws do not apply abroad where cheaper production is possible. The level of worker protection is significantly lower. It is not necessary to speak of exploitation of workers abroad, since living conditions are quite different abroad with a completely different price structure. Low labor costs are thus not per se an exploitation of the labor force abroad. Especially as production often takes place in an economically rather hopeless environment and new jobs seem to promise economic recovery. Nevertheless, here is to be spoken of a certain social injustice, if the labor laws, which have been created over a period of many decades, can be simply bypassed by means of production abroad and subsequent import. It appears to be unfair if the domestic worker has to compete with the worker abroad, even though living conditions abroad are quite different with a completely different price structure. And of such a competition one must eventually speak if at the end an equivalent product is imported and consumed at home by the consumer. Now the legislature at home (in the country where a product is consumed eventually) has no influence on the legislation abroad (in the country of production). However, the legislature at home has influence on the conditions under which products are imported into the country. And here it seems fairer if imported products are manufactured under the same conditions with regard to worker protection. If the protection of the worker in certain areas appears to be of less importance the respective domestic standards should rather be lowered (and thus labor costs reduced), instead of total neglect of these standards through a production abroad. In exceptional cases, compensation for the difference of production costs would have to be made by protective tariffs. The disregard of domestic labor laws through production abroad is, in any case, socially unjust and, as far as the worker protection as such is concerned, ultimately counterproductive. This is the case both at home (where the worker loses his job) and abroad (where the worker has to work under poorer conditions).

2. Energy / Resource Consumption

It is becoming increasingly evident that not only fossil fuels, but also many mineral resources, which are required for the production of certain goods, are only limited available. Against this background, a mode of production, which is not exclusively geared towards a cost-saving approach, but rather a path that is as economical as possible in terms of energy and resource consumption, appears appropriate. If, however, the place or country of production and consumption are falling apart, additional transport routes are leading to unnecessary energy consumption, which could be avoided by means of priority domestic production.

3. Environmental Impact

With the above-mentioned additional energy consumption goes an additional environmental impact through longer transport routes due to a production abroad.

4. Mutual Dependencies

In a certain way a country makes itself dependent on economic or social factors in the country of the production site if consumer goods are imported, without that the domestic government is able to influence these factors through appropriate measures. The same applies to the economy abroad (country of the production site), which is dependent on the purchasing power of the country where the imported goods are consumed.

One aspect of such economic dependencies is the public debt abroad caused by trade surpluses of the exporting foreign county. For example, the USA is now indebted to China for $ 2.1 trillion. This sum is due to the fact that China has bought government bonds from the USA with its profits from the trade surpluses that have been going on for years. The enormous amount of the US public debt to China is, in the end, not only a means of exerting pressure on certain trade conditions, but can also be the trigger for military disputes in certain circumstances. Considering that the USA was and still could be in a position to produce the now imported goods itself in its own country, they now pay a high price in form of their public debt for their ability to produce abroad lower-priced over the years.

5. Approach for a Solution

The foregoing is intended to illustrate problems caused by the production of consumer goods abroad which can be avoided or reduced by domestic production. Of course, it has to be mentioned that not every country can produce every product itself at home. In part there is a lack of necessary mineral resources, in part a lack of technical know-how, etc., to produce in their own country. A certain import / export of mineral resources and (partial) goods will therefore not be avoidable. Because of that it is not the goal to completely prevent the import of goods. Nevertheless, there are possibilities to counteract the mentioned problems by compensating the difference of production costs between production abroad and domestic production by means of tariffs on the imported goods. This way, absolutely necessary goods / mineral resources, which do not exist at home or which cannot be produced there, can still be imported. But the stimulus to produce goods abroad, only to make them cheaper to sell, would be removed. Now even today tariffs are levied / paid. However, no more in a way that the difference between the production costs abroad and at home and thus between the different living conditions is really balanced. In addition, countries that have not the opportunity yet to produce goods at home should be encouraged / promoted to acquire the technical know-how, etc., in order to produce the necessary consumer goods at home by themselves and not simply to go the easier way of importing consumer goods or to start the production of consumer goods only with the aim of exporting them. Ultimately, it is a question of the objective: Is the production of all necessary consumer goods at home striven for or is only a leveled import / export balance striven for. The latter has a greater social injustice.

The thought that in the case of production abroad, more people at home can buy the lower-priced consumer goods than in domestic production, applies only to a limited extent. Many consumers who have lost their job due to production abroad no longer have the financial means to afford certain consumer goods. The lower-cost production abroad means that a smaller group of people can afford more products. Against that, consumer goods would be more expensive in domestic production, but more people would also have jobs and therefore financial means to acquire these goods. Overall considered, a more expensive domestic production does not necessarily result in a reduction of consumption, rather would a larger number of people less often acquire goods, which ultimately corresponds to the idea of social justice in society more.

Another aspect is that in case of transport costs, any consequential environmental damages would have to be taken into account in the cost calculation and could be added as a "transport tax" in the transport industry.

a. Mercantilism, Protectionism

Mercantilism was the prevailing economic model in Europe between the 16th and 18th century. Through state regulation, the domestic economy and exports were promoted, while import was restricted.

Protectionism describes government measures to protect the domestic market. As such measure, among other things, counts the levying of tariffs on imported goods. However, another measure of protectionism is the subsidization of export.

But the aim of mercantilism and protectionism is ultimately the welfare of a particular state, not the representation of an ideal economic system.

b. Classical Economics, Neoclassical Economics

The theory of classical economics places the self-regulating forces of a free market economy in the foreground, with the individual acting for its own benefit at the same time serving the benefit of all others.

The now prevailing neoclassical economic theory is based on the distribution mechanisms of supply and demand, and assumes the model of perfect markets.

Both the classical and the neoclassical economics align economic benchmarks to efficiency. There is little room for questions of social justice in production (which has been raised here in terms of production abroad compared to domestic production).

6. Conclusion

The thoughts given here are entitled "Utopia", since a change in the current import / export-oriented mode of production cannot be successfully carried out by a company alone or by a country alone. A change to a prioritized domestic production would lead to a price increase in production and thus to a price increase of the consumer goods. Thus a company or a country, that conducts this way alone, would no longer be competitive. Therefore, a change would ultimately have to take place worldwide by amending the law of the majority of the countries. Such a joint implementation is not really realistic and will not fail at last due to a character of the human being, that stands today already behind the pressure to produce more and more cost-effective: greed.