Genom of Capitalism Explanation of state debt origins & profit creation sources

17. Ways of productivity subsidizing instead of outsourcing

As the economic system is not providing enough buying power to realize all planned sales, companies have the strong tendency to lower wage costs in order to achieve profits. They are doing it as they are not aware that wages of one are sales of another. They are not able to see the full circle. Practical impact to society is however, twofold:

a)      Companies are gradually lowering the wages to the level where domestic employees are no longer willing to do the work. If they accepted such low wage, they would become beggars in their own country as they would not be able to allow common expenditures for goods and services they were accustomed to and which are widely consumed by average wage workers.

Therefore such country, in order to substitute the missing labor (which in the meantime emigrated or is unemployed) is accepting immigrants from much poorer countries who are not fully aware of the fact that if they accept such, at the first glance, tempting offer they are binding themselves to the life of relative poverty and permanent status of second class citizens. As they are coming from much worse conditions, they are happy for the ability to work in civilized country for such “fantastic wage” and the first generation is usually happy.  We can call this process an internal outsourcing.

But after certain amount of time they are beginning to realize that they are indeed only second class citizens (in economic sense) for whom the majority of common consumer pleasures are not available for they cannot afford it. The hatred starts building up, stemming from exclusion and discrimination.

The second generation is already firmly persuaded that their fate is not fair and they are blaming the society which made them modern slaves, working for wage but at the level which allows just their bare survival. These weak integrated groups of citizens often do not speak the language of the majority, they have no emotional bonds to their country, its culture and laws. Their situation is not getting better, as for their origin they are always getting only the dirtiest jobs, which would local people not accept at all. Well, this is the reason why the country accepted them (and their parents) at the first place (disregarding the political statements about cultural diversity, equality and nondiscrimination). 

Their numbers are growing and their exclusion remains. In the country something like fifth fleet is being built which is quite often participating in crime, vandalism and is slowly getting larger and larger through demographic growth.

This is not a manifestation of racism, only a description of processes which are happening during the need of companies to achieve profit and who are desperately trying to get the cheapest workforce. These stories are always the same, whether it was the Roman Empire, that had problems financing its army and so it began including more and more foreign element into it until it finally engulfed them or USA with their story of importing black slaves or some states of Europe like Germany, France who are using cheap workforce of Turks or North Africans. 

The principle is still the same: there is the need to gain as cheap workforce as would otherwise not be able to exist in a society based on normal prices and wages.

At the same time, there is a strong pressure to wages across the whole country which is causing, at the long term, fall in living standards of all the society.

b)      As existence of such second class citizens in the state brings about certain negatives, there is the second form of outsourcing, classical outside outsourcing. As slaves at our own backyard are not politically correct so why not have them somewhere else, where they are not so visible.

And so thousands of “inferior” jobs are being shifted to China, India, Bangladesh and other countries of the third world where hundreds of thousands new-age (new-wage?!)  slaves are forced to work in sweatshops till they die or commit suicide as it is happening in Foxconn.  

We are living in 21^st century, our political leaders are proudly boasting their Christian heritage and faith.

It may sound unbelievable but this all is too a direct consequence of wrongly calibrated financial system, which is driving people to this terrible situation because the need of profit and from it stemming inadequate buying power. This inadequate buying power is causing the employers to cut wages and eventually outsource, as their planned profits are never achieved and are only shrinking. They consider it a reason of high wages and are pursuing respective strategies. But they are grossly mistaken, these strategies will make their profits even lower long term as the true reason is the existence of the very profit itself, which is causing the demand to be permanently lower then supply.

So if certain production is labor intensive, it is likely to become the target of outsourcing. Since Antic time there was a habit to replace the paid work of free citizens with cheap slave labor, costing only food. In the movie series Rome, Lucius Vorenus asks why there should be any change: “Because the Roman people are suffering, because the slaves have taken all the work, because the Nobles have taken all the land and the streets are full of homeless and starving” replies young Octavian.
So nothing new under the sun.

Let´s have a look at it from economical side: is it possible to solve labour intensive production by different means then through outsourcing while maintaining the standard prices ?

If it would be possible, the pressure to outsourcing would cease to exist, companies and politicians would not go by the way of making themselves trouble associated with it as it would be possible to achieve the same profits with using only domestic  labor sources.

The solution is of course subsidizing of such production. It is generally known which production is labor intensive (textile, electronics…) and so we can determine certain ratio applicable to each industry. The question is where to take the money for subsidies.

The classical way, where state is financing its needs from taxes is not suitable, as companies not participating in subsidies would have objections that their money are used for another companies. Also, further rising of taxes would mean these deducted money would be missing in economy elsewhere. 
Financing through debt is not long term sustainable and particularly in this case of permanent repeating need. The resulting debt would soon reach astronomical size and crush the whole economy. As these common, available solutions are not long term sustainable there comes the outsourcing as the only solution.

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