Thursday, September 23, 2010

When the Tide Comes In

“Workers at a Honda plant in China recently went on strike over wages and work conditions. The Chinese have had enough of slaving in factories for $30 per week while Americans sit home on their couches, collect $400 per week in unemployment benefits, and consume the goods that the Chinese make. Chinese manufacturers are now being forced to increase the wages they pay to workers and these costs will be passed on to American importers of Chinese goods like Wal-Mart.” This according to the National Inflation Association will lead to all sorts of economic problems for the USA in the form of higher cost of living and inflationary prices.

I prefer to take longer look at events such as a growing third-world economy and China’s policy regarding international monetary markets and the value of their currency.

The Chinese are finally experimenting with the value of their currency, the Yuan, by allowing limited float like every other currency in the world. Floating currencies change in value relative to other currencies such as the US Dollar, and they reflect a country’s economic strength and can help balance trade. It works like this. Under the communist regime, the Chinese economy was weak just a few decades ago. The Communist Party determined to embrace capitalistic investment in their country and their lower wages and lack of regulations made them more competitive than US and European manufacturers. So, Chinese manufacturing grew and their economy gained strength which would under normal international monetary policies lead to a stronger Yuan. But, the Chinese authorities until recently would not allow their currency value to float in the world currency market. If the value of the Yuan is allowed to gain strength against the US Dollar, Chinese goods become effectively more expensive for US consumers. The stronger Yuan also makes US goods and services more affordable for Chinese consumers. The net effect of a stronger Yuan would be less Chinese imports into the US and more US exports into China, and for the USA, a smaller trade deficit.

For organizations like the National Inflation Association, increased prosperity in China is seen as a negative for the US economy. I have a substantially different view of these turns of events.

As a life-long conservationist, I have been saying for decades that environmental laws and regulations in the USA are driving businesses offshore. To be sure, cheap labor in Asia and other locations has been a huge competitive disadvantage for a number of industries in the United States. But, many people have failed to take into account the high costs of cleaning up our waterways, reducing air pollution, and preventing hazardous waste from entering our ecosystems. Do not get me wrong; I am a strong supporter of cleaning up and protecting our nation’s air, water, and soil is important, and within limits, it is worth paying more for goods and services to live in the cleanest environment the world has to offer. But, the unintended consequence of our stronger environmental legal and regulatory framework has been to substantially increase the cost of generating power, manufacturing goods, providing services, and growing food for the world. Some of those higher expenses have been mitigated by improved technology and more efficient production methods. But, it is an incontrovertible fact that cleaning up our environment has caused a lot of industry to move to countries that do not value their environment as highly as we do.

Indeed, the globalization of the economy and the associated increases in pollution in third-world countries is because some countries would gladly sacrifice their environment for jobs and prosperity for their people. In response, the environmental activist industry has gone international as well. The problem with the environmentalist’s message is that they believe those third-world countries should shun industry and thus prosperity in favor of maintaining their pristine environments. What the environmental community fails to recognize is that prosperity is the environment’s best friend.

If you think about it, the only reason the USA has the cleanest air, water, and soil in the world is because Americans could afford, and therefore agreed, to pay more for goods and services in order to clean up our land. To put it another way, look at the polling data on American concerns about the environment when the economy takes a downturn. When we are in a recession, Americans show much greater concern about job creation and much less interest in new environmental restrictions. This was recently demonstrated when the Cap and Trade Bill effectively died in the Senate because people saw the bill as a job killer. At this point in time in most American’s minds, jobs are more important than the environment. It is not insignificant that, even in the face of the largest oil spill in history in waters of the United States, Americans chose jobs over a bill designed to reduce our reliance on oil and other carbon products.

For decades now, I have told people who were concerned about the increased pollution associated with the industrialization of the third-world to relax. “Once those people have a taste of prosperity, they will become interested in cleaning up their land, water, and air,” I would say.

There was a time when Chinese workers beat a path to the $30 a week manufacturing job. But, now they have a television and a computer with internet access. They see the world news and they begin to compare their situation with others around the world. “If Americans can get $400 a week for doing nothing, why can’t I get a higher wage for making the goods those Americans are buying,” they reason. And, now that they have a job and some level of economic security, organizing into unions and contemplating going on strike is much more palatable than it was ten years ago. And so prosperity will spread across the third-world and with prosperity and increased economic security there will be a greater desire to breath in cleaner air, to have safe drinking water, to not have toxic chemicals oozing from the soil, or fish dying in the rivers. I believe we will see a grassroots environmental movement spring up in these third-world countries, just like it did in the USA back in the sixties and seventies. But, it won’t be because some extreme environmental group made them feel guilty for having a little prosperity; it will come from within because of increased wealth and economic security.

And the really good news to come out of all of this is that, in time, higher wages and more environmental awareness resulting from increased prosperity will result in more jobs coming back to the United States and more lucrative markets for US products overseas. The old adage about how an improved economy is good for everyone will be enhanced to read, “When the tide comes in, all the ships—big and small—float a little higher in cleaner water and under clearer skies.”

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