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Sweat Shops and Welfare
What is happening with former Welfare Recipients and will surely continue to happen can be compared to what initially occurs overseas, as poorer countries are transformed to first world countries.
Third world countries have one great advantage: cheap labor. You may read the press whining about 'sweatshop labor', but keep in mind Adam Smith's golden rule of economics: a transaction will only take place if both sides mutually benefit. So, it is obvious that these people working for these companies improved their conditions by working for them, or else they would choose not to work there. Now, as more and more companies move into the area to take advantage of this cheap labor a few things occur. First, the people they are employing have more money then before (if they didn't then why would they take the job?). Second, the new factories requires construction, electricity, and transportation of their exports. Third, foreigners, who are used to high standards of living, must be brought in to supervise the investment and they must be housed and paid. Fourth, the companies have to pay taxes.
All of this translates into more demand for local companies and more spending in the local economy. Also, the new tax revenues are invested into schools, roads and infrastructure. Perhaps some local people are promoted to positions of authority in the foreign investment and they learn new skills. Since the schools are better funded, due to the increasing tax revenues, more students graduate and more go to college. We might also think that kids won't have to start work as young and work as hard as they used to because their parents are making more money - either working for the foreign companies, or from the general cash influx into their normal occupations. But how can this be? 'Sweatshops' and foreign investment = more educated kids working less when they are younger? This is different then the hysteria we often hear.
At any rate, as the population becomes more educated and infrastructure continues to improve, some of the foreign investors might think, "hmmm.. we can do something with a little more skill over here too and pay the people here less then at home!". Then we have a situation similar to India, where jobs open up in software developing, technical assistance, and more advanced manufacturing operations. Eventually, the price of labor has risen so much that the low wage manufacturing centers have to leave the country - people won't work for a price that is profitable to the company. As the 'sweatshop' manufacturing center pulls out of the formerly third world country what does it leave behind? Despair and destitution, or a skilled educated workforce and a humming modern economy? This is how prosperity advances.
Our inner cities (and Indian reservations) didn't experience this prosperity because private sector wages couldn't match what the government was paying people not to work. On top of this the government never considered itself an employer of these millions people, so it paid no local taxes. But the worst part was that the government's ever expanding public housing units concentrated welfare recipients and, since the government never considered itself a homeowner, it paid little or no property tax on it's these units, further devastating local treasuries and contributing to the crumbling local schools and infrastructure. High minimum wages worked to price the lowest income earners out of the labor market, thus benefiting Unions by eliminating their low wage competition. Private companies obviously avoided these areas like the plague, but some more sinister industries saw clear advantages in these areas. They saw an idle, restless, uneducated populace which, in order not to loose their cash, food, housing and medical benefits, could only engage in economic activity that was unreported to the government. Prostitution, gambling, drugs, gangs and other criminal enterprises were given the equivalent of a tax break to set up shop in these areas. Natural human ambition and the entrepreneurial spirit was not be stopped - even by the Federal government. It was merely molded into a more insidious force.
With Welfare Reform, much of this began to change. The demand for work brought companies back to the inner cities. There were no longer any more 'tax breaks' and other incentives for shady criminal activity. While the jobs the private companies offered may initially be low paying, a gradual transformation will occur as people strive for better lives and more local money and taxes flow into the striken areas. Problems still exist and the reforms need to be continued. President Bush has proposed setting up 'economic zones' with tax breaks for companies in poorer areas. This will only work if people have a need to work - more government social programs must be reduced and/or eliminated.
China's Cities, a Turn From Factories / Labor
Pool Shifts As Urban Workers Seek Better Lives
9/25/04 Washington Post - Wages are rising in China and factories having to raise wages or they will loose workers. Capitalism and the free market are bring prosperity to China. Where are all the 'sweatshop' critics now?
China overtakes US as top IT supplier
PARIS -- China has overtaken the United States as the world's largest exporter of a broad category of electronic goods including computers, mobile phones and digital cameras, the OECD said Monday. The report by the Paris-based Organization for Economic Cooperation and Development marks a milestone in China's diversification from low-tech textile sweatshops into sophisticated electronics factories.
Also, as the original article was written over a year ago, my views have since evolved and I would probably write it slightly differently today. It seems to me I placed a little too much emphasis on 'tax money' and government funded schools and infrastructure. The more taxes a given government takes from a foreign company, the less likely that other foreign companies and investments will continue to come to the country. And, as demonstrated, money spend on education, coming from the government, is not the ideal way to educate a population. Better to take less taxes from the people so they can educate themselves as they, not the government elites, see fit.
for Nothing: Part III
3/2/06 Thomas Sowell
The Economist magazine reports that the official unemployment rate in South Africa is 26 percent but that the real unemployment rate there may be even higher. The South African economy is growing. Why then this extremely high unemployment rate? What is going on?
Minimum wages in South Africa have been set higher than the productivity of many workers, so employers have no incentive to hire those workers, even though such workers are perfectly capable of producing much-needed goods and services.
South African labor unions say that they are not going to let their workers become "the West's sweatshop." But the irony is that a South African firm which has been manufacturing aluminum wheels solely in South Africa for two decades has begun expanding its output by outsourcing the additional jobs to Poland.
Does that mean that Poland is becoming South Africa's sweatshop? Or does it mean that there are economic consequences to setting wage levels in disregard of productivity levels?
The South African government refuses to admit that an unrealistically high minimum wage rate has anything to do with the high unemployment rate.
Added to 'Sweat Shops and Welfare' and 'The Minimum Wage.'
How Sweat Shops Help the Poor
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