Last week, I was listening to a person being interviewed who commented that pipefitters in India make only one tenth as much as he does.
He then asked "How are they supposed to live on that?"
This is one of the great conundrums of a flattened and globalized economy.
Salaries are not the same in different countries. Hourly wages vary from locale to locale.
As a consequence, it is much cheaper to have work done in some parts of the world than others. Much cheaper to have garments made in Southeast Asia or cellphones in China than Mississauga or Kelowna. Even with transportation costs involved, the labour component of a product dominates the final price.
Cheap labour results in cheap products. But is cheap labour a bad thing?
The argument is tied to what can a fair wage buy.
Can it acquire the goods and services necessary for a minimum standard of living? Can it put food on the table, clothe a family, and put a roof over their head?
Last week, while in Hanoi, celebrity chef Anthony Bourdain and President Barack Obama had a very nice bun cha meal for only $6 total. Is that a reasonable price for a local?
The restaurant they were in was crowded so presumably the answer is yes. But $6 is a very cheap meal by North American standards.
We can't translate our wage and price system to other parts of the world. An Asian pipefitter might be paid a fraction of what a Canadian pipefitter is paid but they are not buying food, clothing, and shelter in a Canadian market.
I am not arguing here for low-wage economies. A sweat shop is a sweat shop is a sweat shop regardless of the country in which it is located. Using wage differentials to ship production to the cheapest locale is a form of economic slavery. But everything needs to be put into context.
At the G7, Prime Minister Justin Trudeau pushed for cooperation in addressing the ongoing global economic recession.
Continuing and enhanced government investment is necessary, in his opinion, to stimulate economic growth.
Growth is the only way out of the economic doldrums.
Fortunately, most of the G7 leaders did not see things quite the same way. Or unfortunately, they did not see things quite the same way.
While everyone agrees that economic growth is essential, they disagree on how to get there.
The fundamental question which needs to be asked is "is growth essential?"
Is continual inflation the only way forward?
After all, inflation generates inflation.
Consider the cost of a loaf of bread. It is a combination of the price of wheat, flour, eggs, milk and any of the other ingredients used to make it.
The price also needs to account for the labour involved in growing the wheat, generating the flour, mixing the dough, baking the loaf and packaging the product.
The energy involved in running the tractors and flour mill and ovens along with transporting the final product are part of the mix.
The capital costs associated with purchasing equipment and building the store where the loaf is sold must be taken into account.
All of these different components - and I have left out many - are included in the price of a loaf of bread.
If the farmer who grows the wheat needs to pay more money for the tractor he uses, he will need to charge more for his wheat, which will increase the price of a loaf. However, the worker who manufacturers the tractor and eats sandwiches made from bread will need more money to cover the cost of the increase in the price of a loaf. This will increase the cost of the tractor and the farmer will need to increase his price to compensate.
Around and around it goes.
Any increases in the cost of producing a loaf of bread will result in increases in the cost to the consumer and the consumer will need to earn more.
To do so, they will increase the costs of their products which will feedback into the cost of a loaf of bread or other consumer goods.
The system is a feedback loop. In a controlled fashion, it is workable. But in a world where wage disparity exists is economic growth tenable? Can we have some people in the world paying five cents for a loaf of bread while others are paying $2.96? And how do we balance wages?
Even within Canada, the system is out of whack. Consider the average Canadian wage in 1930 was $1,970 and a loaf of bread was nine cents. A person could buy 21,889 loafs. Today those same loaves would cost $64,791 but our average salary is less than that.
Only by having two people working, can we make ends meet.
Is economic growth the answer?
