MELBOURNE AUSTRALIA 17 January 2007 – Up to 350 workers for Hobart, Tasmania-based Blundstone will lose their jobs as the company relocates production to Thailand, where labour costs are cheaper. Blundstone CEO Steve Gunn simply said, “This is the world.” But what world is he talking about?
We don’t own any Blundstone boots. But the story itself is a familiar scene as globalisation spreads, and it always puts a real human story in the context of very large, seemingly inhuman forces. Customers, we are told, are loyal to price, not brand. The evidence seems to bear this out. But what it means is that local businesses with local traditions and local employees are gradually forced to close shop, or at least set up somewhere else, as labour costs rise.
What’s unseen in today’s news stories are the new jobs in Thailand and the new wages they will create for Thai workers and Thai families. The only problem with this, from an Australian perspective, is that Thailand is in Thailand, not in Tasmania. Why should Australians care about rising standards of living in Thailand?
The same questions are repeated anywhere globalisation has seen a local firm move its manufacturing “off shore” to take advantage of cheaper wages. It’s not that local workers are any less skilled, work any less harder, are any less loyal or dependable. It’s simply that it costs more to employee them. That cost threatens to make the entire business uncompetitive, we are told, and so it is, er, cut.
The upside, if you are not one of the laid off employees, is that cheaper wages in Asia mean cheaper prices in America and Australia for consumer goods. This is great for retailers like David Jones, its employees, its customers, and its shareholders. But it doesn’t do much for the textile workers who were laid off domestically, except, perhaps, make it easier to find a nice new tie for the next job interview.
So does Thailand good fortune come at the expense of Australian workers? Would Blundstone go out of business altogether if it didn’t move off shore? Should the government go out of its way to protect certain types of businesses from foreign competition? The Bush administration slapped tariffs on foreign steel several years back, preserving American steel jobs in key states which swung the president’s way in the election. Nothing was said about how higher steel prices in steel-consuming industries cost more money and more jobs than were saved in the steel industry. Does it make sense to save one industry at the expense of jobs in other industries?
Consumers might very well be happy to pay higher prices for Blundstone boots made in Australia. We’ll never know. But the extra money they spend on the more expensive boots is money not spent on a something else that somebody else makes. Higher prices for Blundstone boots mean lower profits for someone else, at least in theory.
The theoretical transaction isn’t calculated because it never takes place. It is “unseen” according to the economist Henry Hazlitt. This helps explain why breaking windows is not good for the economy. It is good for window makers, stimulating spending on new windows by destroying perfectly good windows. But the money spent on the new window is money that would have been spent on something else and gone for some other productive purpose.
None of this does any good for the folks at Blundstone who are out of a job this morning, of course. Globalisation is relentless in this respect. It bulldozes particular sentiments in the name of general prosperity. We’re just surprised it hasn’t happened more in Australia… yet. But it might.
After all, what can be produced better and less expensively in Australia (or America) than in China, Thailand, or Vietnam? Industrial economies retain their competitive advantage in building complicated, high value-added products like jet engines. But the list of things which can be made here better than elsewhere is growing short, excluding meat pies and VB.
About the only things sure to remain on that list are the things which can only be found here in abundance, namely natural resources. “But isn’t that kind of a dangerous plan for economic growth,” Joel Bowman asked us yesterday. Joel is the Aussie-born, mostly-U.S.-based managing editor of the daily e-letter the Rude Awakening.
“What happens once Australia sells all of its resources to China and India? What then? What kind of jobs will be left for my nieces and nephews?”
“Well,” we replied, “the economy is pretty diversified now. But you know, it is a small country. I’d say the biggest risk is that Australia can’t increase its resource exports enough to meet Asian demand. So the Asians will come on-shore to do it themselves, buying, capitalizing, and operating their own mines for their populations back home…you know for things like coal, iron ore, zinc and the like. Who knows…maybe someday Western Australia will become a great southern colony of the Chinese Empire. And the cost of West Australia will develop into a retirement colony for rich Asian capitalists looking for a little fresh air and good surf.”
We were half joking. But only half. Australia has resources. Yet it doesn’t appear to have enough skilled labour to expand capacity so it can export more of those resources in volume to its new customers, whose demand, especially in India, is especially resource intensive and this phase.. That means either resource exports will be capped as capacity is reached, or the country may have to invite in foreign labour to develop domestic resources.
Inviting in armies of foreign workers with different tongues and different gods might be a tough political move. But it’s not like it didn’t happen before. The Chinese worked awfully hard in the goldfields of Victoria. Urban legend has it that the expression “Fair dinkum” is derived from a Chinese expression of “true gold” or “good gold,” a phrase the Chinese were asked while digging Australian gold for Australians. This time around the Chinese will simply be digging Australian iron ore…for themselves.
The alternative is to leave capacity about where it is now and ride the high prices that come with increasing demand and constrained capacity. But that’s not really a good plan either. The high prices are already encouraging China and South Korea to either develop their own mineral resources (China mostly) or find new sources.
But for now, it’s easier to buy Australian coal and iron ore because Australia has it, and the cost is relatively cheap. You just don’t want to get to the point where your mineral industry becomes like your boot-making industry. If it ever gets to that point, then Australians will find themselves driving cabs, washing dishes, and serving dinner to their rich Chinese masters.