The race to the bottom in terms of economics is one for attaining the lowest cost, whilst retaining or increasing the highest margin of profit. Who is profiting from this race and at whose expense? Is it sustainable? What forces drive the race?
Ever since ‘globalization’ surfaced as a news meme in the late ’70s and early '80s it has become synonymous with retracting and migrating labor forces from developed countries towards underdeveloped countries. While developed economies made a transition to service and high-tech economies, millions of people were employed by low-tech labor elsewhere, raising living standards whilst increasing the rate of consumption. And waste.
Whether right or wrong, globalization is not the topic of discussion in this article. It is an aspect of the topic, for the race for the bottom involves globalization. In fact, one might argue it has triggered the race - or reversely - the race acted as a catalyst for globalization. They are parameters or aspects of this closed system called the world economy.
It is a closed system for thus far humanity has only made feeble attempts to step out of the bounds of mother Earth. It is a closed system for no matter how the world’s economy has increased in recent decades, this has been done at the expense of our natural resources, the environment and is influenced by a multitude of other parameters, variables, and constants that make up this system.
In simplified terms, the race to the bottom is a race for the lowest cost of manufacturing.
Lower manufacturing costs enable a reduction in the pricing of consumer goods and nearly every other market. Lower costs increase the competitive edge. They also imply higher production volumes for the same amount of capital investment. The race for the bottom directly affects the ‘gespenst’ of Price Elasticity (of Demand) (PED). In a truly free market world economy, PED would be in a continuous state of near equilibrium. Yet, tariffs, taxation, and local policies adversely affect PED’s free fall towards equilibrium.
What do the PED dynamics resemble? Let’s side-step to the realm of nature and physics.
The second law of thermodynamics states that the total entropy ('energy') can never decrease over time for an isolated system. Entropy is to be understood as either a measure for energetic equilibrium or as a measure of statistical probability.
While the scientific theory may remain elusive to most of us, we are however confronted with its real-life application on a daily basis. For example, a block of ice placed on a hot stove will surely melt, while the stove grows cooler. Such a process is called irreversible because no slight change will cause the melted water to turn back into ice while the stove grows hotter.
In contrast, a block of ice placed in an ice-water bath will either thaw a little more or freeze a little more, depending on whether a small amount of heat is added to or subtracted from the system. Such a process is reversible because only an infinitesimal amount of heat is needed to change its direction from progressive freezing to progressive thawing.
Closed, isolated system? Equilibrium? that sounds familiar…
Are we allowed to assert that basic economical principles also follow laws of nature and physics? That they are ‘natural’ expressions albeit written in a different language?
If we are allowed to further extrapolate along that line of reasoning, do economical earthquakes then equal natural disasters of similar magnitude? If so, are economical disasters equally coincidental and unfortunate as their equivalents in nature? In all likelihood, yes. With a few significant distinctions…
The world economy is a man-made construct, a for the most part closed system, whereas nature is just that: nature. Nature is a closed system too. Depending on the scale of the observations made one could however argue that it constantly interacts with the universe, and therefore is not closed. Our global economy is not. It is grounded in mother Earth unless we decide otherwise.
This brings us to the central theme of this article.
The race to the bottom may well be a phenomenon driven by unavoidable and inevitable ‘economical laws of nature, our decision to take profit from it, in the manner we do, is not; nor is the way in which we determine what this ‘profit’ constitutes of. Monetary profit? Environmental profit? Social profit? Profit in monetary terms is just that. Whatever remains once costs are deducted from the sales price.
If we agree that PED is influenced by extraneous factors like tariffs, taxation, and economical policies, then so is monetary profit part of the PED equation. These however are all arbitrary factors we makeup in our minds, decide over and deem reasonable. Arbitrary and artificial; unlike the cost of raw materials and labor to a lesser extent. Whilst nature is in constant free-fall towards equilibrium and the largest statistical probability, the global economy we are facing is evidently not.
When even economical laws reaffirm nature’s laws, our global economy effectively is doing exactly the opposite. Ergo, ‘unnatural’.
Our global economy is like this giant iceberg on a hot stove, irreversibly melting away. What happens when all the water has evaporated? Yes, right, the stove overheats. Eventually, all underdeveloped economies will be developed, all of the earth's resources will have been depleted. What remains is pollution. Mountains of pollution; and money of course. Lots of worthless loads of money a dog wouldn’t care to eat.
At present 99% of the world’s economy is ‘owned’ by 1% or less of the total population, as are the world’s natural resources and money supply.
Yes, but we rid the world of poverty, hunger, and disease, didn’t we? Oh, but wait, we didn’t… In a perfect world, who would care about who owned what and how superfluously rich the rich are, as long as we would have enough to eat, a roof above our heads. Yet, this isn’t the case; far from it…
Now let’s not begrudge the rich for their riches. Let’s zoom in on the factors that have enabled an accelerated expansion in wealth growth and wealth inequality over the past 40 years or so.
Many blame ‘globalization’. Yet, it is a symptom, not the cause.
The cause is a lack of equilibrium: inequality, selfishness, shortsightedness, and greed. A lack of equilibrium fuelled by a lack of vision and policy. On a global scale. Unlike disasters of natural cause, many if not all economical earthquakes and tsunamis are man-made. Caused by either lacking competence or inevitably purposefully constructed.
To name a few:
- FIAT monetization
- privatized central banking
- lacking governmental oversight
- investment bubbles on the internet, housing markets
- lack of separation between securities and investment banking
- failure to include the environment into cost attribution, other than via green taxation
- (over)dependency on a fossil fuel economy
- de-investment of health and educational systems
- reckless privatization
The ‘laissez-faire’ economic neo-liberal-isms that have been rolled out over our economies and societies in recent decades, including policies such as privatization, austerity, deregulation, ’free’ trade agreements, reductions in government spending, have largely been aimed at increasing the role of the private sector in the economy and society.
Now let’s assume for good measure that these policies were introduced with the benefit of all involved in mind. Let’s hold on to this thought for one brief moment. What has happened in reality is exactly the opposite. When theory and practice are in such striking contrast to each other, the theory gets scrapped, as a common scientific practice.
The social middle class has been wiped out in many countries by austerity policies, whilst an elite owner class was able to privatize its profits while socializing its losses.
Yes, the role of the private sector may well have increased in the economy and society, but the wealth wasn’t shared equally nor distributed responsibly. The trickle-down economics of the ’90s stopped at the top and never reached the bottom of society.
The current economical race to the bottom and its Neo-Liberal political enablers, have failed and are heading for global disaster for the simple reason that they increase the in-equilibrium. They are unnatural, against both economical and natural laws. They are unsustainable. They are political hogwash and doublespeak.
It is time for a change, a real change…