COMMUNITY ECONOMICS


Exporting and Importing of Employment and Unemployment

by Manfred Davidmann

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CONTENTS

Summary
Causes of Unemployment
Computers and Robots (Increasing Productivity, Impact of Technology)
Transferring Operations Abroad
Exporting Employment and Importing Unemployment
Importing Employment and Exporting Unemployment
Importing Goods and Services which Originate in a Low-wage Country, Into a High-wage Country
Social Costs of Unemployment
Unemployment, Wages and Profits
Principles
Community Support and Ownership Rights
Community Objectives
Notes <..> and References {..}

Relevant Current and Associated Works

Relevant Subject Index Pages and Site Overview



SUMMARY

This report discusses both exporting and importing of employment and unemployment, the underlying principles and the effect of trade between low-wage and high-wage countries.

It shows what is required to halt and reverse the trend towards increasing unemployment and falling living standards in high-wage countries.

The report not only shows what is required to make the system work, but also the controls required to prevent misuse of the system and to protect people.

There are sections about transferring operations abroad, about importing from low-wage countries, about social costs of unemployment, about community objectives and community support for enterprises, about ownership rights and about ensuring that the behaviour of enterprises is socially responsible.



CAUSES OF UNEMPLOYMENT

We are here looking at main causes of unemployment, namely

  1. Replacing people with labour-saving equipment such as computers and robots (increasing productivity, impact of technology).

  2. Transferring manufacturing and service work from a high-wage home country to low-wage countries.

  3. Importing goods and services which originate in low-wage countries, into a high-wage home country.



COMPUTERS AND ROBOTS (Increasing Productivity, Impact of Technology)


Computers

Application of computers in offices, and the computerising of production equipment, replaced and is replacing people. Productivity and profits increase but unemployment rises.


Robots

It is some time ago that a Japanese Trade Union suggested that 'robots should pay income tax'.

It would, of course, be the enterprise which would pay the tax. In other words, employers should pay the social costs of the unemployment created by a robot doing work done previously by people or doing work which could be done by people.



TRANSFERRING OPERATIONS ABROAD


Exporting Employment and Importing Unemployment

Take an enterprise owned by British owners, employing British capital, employing British employees in Britain. Wage rates are much lower in the Far East because of the low standard of living of those living there. So the British enterprise (owners, directors) transfers some or all of its production (or other) operations to a Far Eastern country. And this applies to calculators, computers, television sets, electrical and electronic equipment, toys, and much else.

Their British employees are made redundant, are dismissed, become unemployed. But employment increases in the Far Eastern country. And all this for the sake of greater profits to owners and directors of the British enterprise.

Employment increases abroad and decreases in Britain, so that employment has been exported. Unemployment decreases abroad but increases in Britain, so that unemployment has been imported. Employment has been exported, unemployment has been imported, and all this for the sake of private profit.

The large additional profits which result from transferring operations abroad then do not result from doing a better job, or from providing better, or more needed, or more effectively produced, goods or services. These additional profits result from importing unemployment into the UK, are the result of dismissing their British employees.

The social costs of unemployment, however, are in the end paid by the unemployed (who are part of the community) and to some extent by the community as a whole. So the enterprise has passed on to the community this part of its operating costs, is making a profit at the expense of the community.

The social costs of an operation have to be paid by the enterprise, the social costs of unemployment have to be paid by the enterprise which caused the unemployment. {1}

To the extent to which an enterprise fails to allow for the social costs of its operations, to that extent are its profits derived from passing its operating costs to the community, is it making profits at the expense of the community, is it exploiting the community and its members.


Importing Employment and Exporting Unemployment

As far as I know, Switzerland for many years successfully exported unemployment. Foreign workers may be employed in Switzerland only if no Swiss national is available for doing the work. And apparently foreign workers may stay in Switzerland only while having work.

So it seems that Switzerland is increasing employment in Switzerland by importing labour when required and only while required. They are exporting unemployment by insisting that foreign workers leave for their home countries when the employment terminates or when a Swiss national is available for doing it. They are importing employment, are exporting unemployment.

In such circumstances the social costs of unemployment are passed on to other communities. In effect the social costs of unemployment carried by these communities is reduced by an amount corresponding to the period of employment abroad.


IMPORTING GOODS AND SERVICES WHICH ORIGINATE IN A LOW-WAGE COUNTRY, INTO A HIGH-WAGE HOME-COUNTRY

It would seem that importing cheaper goods from low-wage countries results in cheaper goods being made available, in lower prices. But we need to consider that middlemen take excessive profits, that unemployment increases, that wages and living standards decrease. And these are the social costs arising from such importing operations.

The consumer experiences a small lowering of prices from such imports, an apparent gain to the community. The picture changes when the larger costs to the community are included which the community (including consumers) has to pay.


Goods and services are bought cheaply in low-wage countries and sold in high-wage countries, at what seem to be large and excessive profit mark-ups.

Prices used to be based on 'cost plus reasonable mark-up', and unhindered competition was meant to ensure that the mark-up was reasonable. Prices are now based on what people can be persuaded to pay for what they can be persuaded to buy. The mark-up between producing in a low-wage country, and then selling in a high-wage country, can be enormous.

So imports are priced at what the market will bear, or just under. Sales of home-produced product reduce or its prices are lowered so as to compete with the imported product. The importer can easily afford to reduce his prices a little further, and so on until, in the end, the home-country's production facilities are knocked out. In the home-country we see prices reduced a little as long as low-wage countries compete with each other, increasing unemployment and reducing wages in the home-country.

This process looks like the free-market system in operation. However, what is actually happening is very different.

Underlying the free-market system {1} is that unhindered balancing of supply and demand, that is unhindered competition, ensures that goods and services are made available at reasonable prices, at reasonable profit margins. As supply and demand change so the profit margin changes and it is this profit change which produces balance.

The system functions in this way as long as wage rates and living standard are held at constant level, remain roughly at the same level.

In practice we see an enormous difference in wages between low-wage and high-wage countries which results in large profits. These profits are almost unaffected by supply and demand changes. Hence there is no effective competition for this product, the requirement for unhindered competition has not been satisfied and the system fails to meet the community's needs.


Profit tends to be the sole consideration, regardless of the consequences to the community, regardless of the cost to people. Instead of producing more effectively and competitively at home, owners and directors find it easier and more profitable to import from low-wage countries. Unemployment increases and increasing unemployment and social need is used to force down wages and living standards.

Owners and directors in this way profit from the unemployment and the lower standard of living their operations cause in the home-country. They will continue to profit from increasing unemployment and its consequences as long as they do not have to pay the social costs of their operations. In other words, as long as they are allowed to pass this part of their operating costs to the community.



SOCIAL COSTS OF UNEMPLOYMENT

The fundamental principles of the free-market system are discussed at some length in 'Community Economics: Principles' {1}. The real profit or gain any enterprise achieves is the gain the community obtains as a result of the enterprises' operations. Thus the social costs, that is the costs to the community of any operation, have to be taken into account when assessing the gain resulting from that operation {2}.

The social costs of unemployment to people as individuals, to their families, and to the community as a whole, are:

INDIVIDUALS
Poverty, lack of spending money
Frustration, despair
Young people without full-time work experience
Social disillusionment
Ill health
Reduced life span
Mental illness
Increasing suicide rate
Drug abuse, crime

FAMILIES
Increased family breakup
Homelessness
Domestic violence

COMMUNITY
Higher and rising crime rates
Brutalisation of lifestyle
Lost Income:
(1) Loss of income tax from those now unemployed.
(2) Loss of National Insurance contributions which would have been received from both employees and employers.
(3) Loss of Value Added Tax as the unemployed reduce their spending.
Increased Expenditure
(4) Increased cost of Unemployment Benefit (Among developed countries, the British rate of benefit appears to be one of the lowest).
(5) Increased cost of Social Security support payments.
(6) Increased costs for Health Service, Police and Prisons.

Note that persistent lack of care and consideration towards its members leads to a view of society as being hostile and unrewarding {3}. We now see this taking place and see its effects.

The social cost of unemployment to the community is the total cost to the community, is the sum of all the items listed here.



UNEMPLOYMENT, WAGES AND PROFITS

Unemployment has increased to an unacceptable level as a result of allowing owners and directors to replace people by equipment and to import unemployment, all for the sake of private profit.

What is being said on behalf of owners and directors is that increasing and high rates of unemployment are desirable (from the point of view of owners and directors). High levels of unemployment enable owners and directors to reduce opposition within their employees because of the harsh consequences of dismissal. And high levels of unemployment also enable owners and directors to force down wage rates and salaries, and to reduce conditions of employment, as people struggle and compete with each other to obtain employment.

The underlying political ideology would appear to be well outlined by statements like 'rising unemployment is needed to bring down wage settlements', countered by statements like 'using rising unemployment to frighten people into accepting low wage increases'.

So higher unemployment enables the employer to force wages down, to reduce labour costs, to increase profits.

It seems that under such conditions unemployment, and the causes of unemployment, are not being tackled effectively. Unacceptable high levels of unemployment and the suffering this brings are being explained away by side-tracking dead-end theorising.


There would appear to be no valid reason why owners and directors of enterprises should be allowed to profit from creating unemployment for the sake of greater private profits.



PRINCIPLES

In 'COMMUNITY ECONOMICS: Principles' {1} we looked at the purpose of enterprises and profit-motivation.

We saw that the social costs, that is the costs to the community of any operation by an enterprise, have to be paid by the enterprise.

We saw that for the free-market economic system to work, it is essential that prices are allowed to float unhindered according to the unhindered natural balance between supply and demand, within limits set to protect the community.

This means {1} that there must be free unhindered competition.

It also means {1} that profit margins and prices need to be controlled effectively so as to protect the community from exploitation.


Underlying the free-market system {1} is that unhindered balancing of supply and demand, that is unhindered competition, ensures that goods and services are made available at reasonable prices, at reasonable profit margins. As supply and demand change so the profit margin changes and it is this profit change which produces balance.

The system functions in this way but only as long as wage rates and living standard are held at constant level, remain roughly at the same level.


Prices used to be based on 'cost plus reasonable mark-up', and unhindered competition was meant to ensure that the mark-up was reasonable. Prices are now based on what people can be persuaded to pay for what they can be persuaded to buy.

We see <1> an enormous difference in wages between low-wage and high-wage countries which results in large profits. Goods and services are bought cheaply in low-wage countries and sold in high-wage countries, at what seem to be large and excessive profit mark-ups. These profits are almost unaffected by supply and demand changes. Hence there is no effective competition for this product and the system fails to meet the community's needs.


Further reductions of living standards in high-wage countries are quite unacceptable. Indeed, this process has gone too far already and needs to be reversed.

And this means that profits between producer and consumer have to be limited, regulated and controlled. Enterprises must pay to the community the social costs of their operations. Tariffs are needed to protect home industries, employment and living standards.

No matter which way you look at it, it is better and it is in our interest that wages and living standards in low-wage countries increase to our levels, and not the other way about.



COMMUNITY SUPPORT AND OWNERSHIP RIGHTS

As citizens, people are not rewarded for behaving responsibly towards others and towards the community, are not rewarded for keeping the community's laws, and neither should enterprises. So enterprises {1} should not be rewarded for socially responsible behaviour.

And an enterprise should be punished {1}, just like an ordinary person, when the enterprise's behaviour is socially irresponsible.


There may be occasions when it is in the interests of the community to pay part of an enterprise's social costs, to subsidise the enterprise, to support it in some way.

No investor, that is 'owner', would give his money to some ailing enterprise without an appropriate return. Indeed, the greater the risk or need, the greater the return demanded.

Hence if the community gives direct or indirect support to an enterprise, industry or section of the economy, then a corresponding amount of the voting share capital needs to be transferred to community ownership.

This applies equally well to providing subsidies, grants, tax exemptions, capital allowances and other direct or indirect inducements to foreign enterprises for them to establish production or other operations in our home-country.


Transferring voting share capital to community ownership raises the important point about who exercises control. It is the community which should exercise control and not some distant government, management or union appointee.

The voting rights should be divided equally and given direct to each employee, with employees voting as individuals. They should also be entitled to and enabled to elect one or more directors from among themselves, whose role would be to represent the interests of the community and to report back to the employees and to the community any matter of interest to the employees or to the community.



COMMUNITY OBJECTIVES

(Compiled largely from other pages of this report)


  1. The social costs, that is the costs to the community of any operation by an enterprise, have to be paid by the enterprise. This is a basic and essential requirement. The social costs of unemployment have to be paid by the enterprise which caused the unemployment. {1}

    Note that persistent lack of care and consideration towards its members leads to a view of society as being hostile and unrewarding {3}. We now see this taking place and see its effects.

    The social cost of unemployment to the community is its total cost to the community, is the sum of all the items listed here. <2>


  2. For the free-market economic system to work, it is essential that prices are allowed to float unhindered according to the unhindered natural balance between supply and demand, within limits set to protect the community.

    Which means that there must be free unhindered competition. {1}

    And that profit margins and prices need to be controlled effectively so as to protect the community from exploitation. {1}

    In practice <1> we see an enormous difference in wages between low-wage and high-wage countries which results in large profits. These profits are almost unaffected by supply and demand changes. Hence there is no effective competition for this product.

    As a result the system fails to meet the community's needs, unemployment increases in the high-wage country and living standards drop.


  3. Further reductions of living standards in high-wage countries are quite unacceptable. Indeed, this process has gone too far already and needs to be reversed. And this means that profits between producer and consumer have to be limited, regulated and controlled.

    Enterprises must pay to the community the social costs of their operations. Tariffs and possibly surcharges and other means of restricting imports are needed to protect home industries, employment and living standards.


    No matter which way you look at it, it is better and it is in our interest that wages and living standards in low-wage countries increase to our levels, and not the other way about.

    We should find ways of encouraging and supporting measures which would increase the level of wages, the standard of living and the quality of life of the working population in low-wage countries.

    One way may be the setting up of production or service operations in low-wage countries, producing or providing services there.


  4. Home enterprises, industries and services need to be protected by controlling the large and excessive profits taken from imports from low-wage countries.

    This refers to profit from the point of origin to the final point of sale, including both.

    Profit and profit margins need to be strictly controlled, laying down rules for profit calculation and number of middlemen.

    A formidable task made possible by available computing technology once the basic guidelines have been determined.


  5. Socially irresponsible behaviour has to be unprofitable behaviour. Conditions need to be changed so that socially irresponsible behaviour results in severe losses.

    Enterprises, like ordinary people, should not be rewarded for socially responsible behaviour and, just like ordinary people, enterprises should be punished when their behaviour is socially irresponsible.

    Those who profit at the expense of the community need to face severe penalties and punishment.


  6. Tariffs need to allow for differences in labour costs and standard of living and also for foreign subsidies and other aid and support received by the foreign industry (producer) when it is attempting to knock out our home industry or take its market over.

    Tariffs are likely to result in foreign investment in the home-country, aimed at crossing the tariff barrier by producing in the home market. No subsidies, support or aid, such as tax exemptions, should be given. There has to be a clear legal requirement for that enterprises' product or service to have a home-country-produced content of goods, material and labour of, I would suggest, at least 80 or 85 per cent. And that home-produced content must include the high-tech content.


  7. There may be occasions when it is in the interests of the community to pay part of an enterprise's social costs, to subsidise the enterprise, to support it in some way.

    No investor, that is 'owner', would give his money to some ailing enterprise without an appropriate return. Indeed, the greater the risk or need, the greater the return demanded.

    So if the community gives direct or indirect support to an enterprise, industry or section of the economy, then a corresponding amount of the voting share capital needs to be transferred to community ownership.

    This applies equally well to providing subsidies, grants, tax exemptions, capital allowances and other direct or indirect inducements to foreign enterprises for them to establish production or other operations in our home-country.


  8. Transferring voting share capital to community ownership raises the important point about who exercises control. It is the community which should exercise control and not some distant civil servant or government appointee.

    The voting rights should be divided equally and given direct to each employee, with employees voting as individuals. They should also be entitled to, and enabled to, elect one or more directors from among themselves, whose role would be to represent the interests of the community and to report back to the employees and to the community any matter of interest to the employees or to the community.


  9. So much damage has been done by past behaviour, and so much support has been given to enterprises in the past that it seems more than reasonable for such measures as are put forward here to be implemented quickly but cautiously, and backdated.


  10. The kind of society to aim at under present conditions is one in which all can work four days a week earning enough to have a high standard of living and a high quality of life.

    This is both possible and achievable under present conditions.



NOTES AND REFERENCES


NOTES

<1> See section 'Importing Goods and Services which Originate in a Low-wage Country, Into a High-wage Country'

<2> See section 'Social Costs of Unemployment'


REFERENCES

{1} Community Economics: Principles
Manfred Davidmann
http://www.solhaam.org/
{2} Social Responsibility, Profits and Social Accountability
Manfred Davidmann
http://www.solhaam.org/
{3} MOTIVATION: Summary
Manfred Davidmann
http://www.solhaam.org/



Relevant Current and Associated Works

A list of other relevant current and associated reports by Manfred Davidmann:
     
     
Title   Description
     
Style of Management and Leadership     Major review and analysis of the style of management and its effect on management effectiveness, decision taking and standard of living. Measures of style of management and government. Overcoming problems of size. Management effectiveness can be increased by 20-30 percent.
     
Role of Managers Under Different Styles of Management     Short summary of the role of managers under authoritarian and participative styles of management. Also covers decision making and the basic characteristics of each style.
     
Directing and Managing Change     How to plan ahead, find best strategies, decide and implement, agree targets and objectives, monitor and control progress, evaluate performance, carry out appraisal and target-setting interviews. Describes proved, practical and effective techniques.
     
Motivation Summary   Reviews and summarises past work in Motivation. Provides a clear definition of 'motivation', of the factors which motivate and of what people are striving to achieve.
     
The Will to Work: What People Struggle to Achieve   Major review, analysis and report about motivation and motivating. Covers remuneration and job satisfaction as well as the factors which motivate. Develops a clear definition of 'motivation'. Lists what people are striving and struggling to achieve, and progress made, in corporations, communities, countries.
     
Work and Pay   Major review and analysis of work and pay in relation to employer, employee and community. Provides the underlying knowledge and understanding for scientific determination and prediction of rates of pay, remuneration and differentials, of National Remuneration Scales and of the National Remuneration Pattern of pay and differentials.
     
Work and Pay: Summary   Concise summary review of whole subject of work and pay, in clear language. Covers pay, incomes and differentials and the interests and requirements of owners and employers, of the individual and his family, and of the community.
     
Transfer Pricing and Taxation   One of the most controversial operations of multinationals, transfer pricing, is clearly described and defined. An easily-followed illustration shows how transfer pricing can be used by multinationals to maximise their profits by tax avoidance and by obtaining tax rebates. Also discussed is the effect of transfer pricing on the tax burden carried by other tax payers.
     
Inflation, Balance of Payments and Currency Exchange Rates     Reviews the relationships, how inflation affects currency exchange rates and trade, the effect of changing interest rates on share prices and pensions. Discusses multinational operations such as transfer pricing, inflation's burdens and worldwide inequality.
     
Organising   Comprehensive review. Outstanding is the section on functional relationships. Shows how to improve co-ordination, teamwork and co-operation. Discusses the role and responsibilities of managers in different circumstances.
     
Social Responsibility, Profits and Social Accountability   Incidents, disasters and catastrophes are here put together as individual case studies and reviewed as a whole. We are facing a sequence of events which are increasing in frequency, severity and extent. There are sections about what can be done about this, on community aims and community leadership, on the world-wide struggle for social accountability.
     
Social Responsibility and Accountability: Summary   Outlines basic causes of socially irresponsible behaviour and ways of solving the problem. Statement of aims. Public demonstrations and protests as essential survival mechanisms. Whistle-blowing. Worldwide struggle to achieve social accountability.
     
Co-operatives and Co-operation: Causes of Failure, Guidelines for Success   Based on eight studies of co-operatives and mutual societies, the report's conclusions and recommendations cover fundamental and practical problems of co-ops and mutual societies, of members, of direction, of management and control. There are extensive sections on Style of Management, decision-taking, management motivation and performance, on General Management principles and their application in practice.
     
Using Words to Communicate Effectively   Shows how to communicate more effectively, covering aspects of thinking, writing, speaking and listening as well as formal and informal communications. Consists of guidelines found useful by university students and practising middle and senior managers.
     
Community and Public Ownership   This report objectively evaluates community ownership and reviews the reasons both for nationalising and for privatising. Performance, control and accountability of community-owned enterprises and industries are discussed. Points made are illustrated by a number of striking case-studies.
     
Ownership and Limited Liability   Discusses different types of enterprises and the extent to which owners are responsible for repaying the debts of their enterprise. Also discussed are disadvantages, difficulties and abuses associated with the system of Limited Liability, and their implications for customers, suppliers and employees.
     
Ownership and Deciding Policy: Companies, Shareholders, Directors and Community   A short statement which describes the system by which a company's majority shareholders decide policy and control the company.
     
Creating, Patenting and Marketing of New Forms of Life     Evaluates problems in genetic manipulation, and consequences of private ownership of new life-forms by multinationals. Lists conclusions and recommendations about man-made forms of life, their ownership and patenting, about improving the trend of events.
     
The Right to Strike   Discusses and defines the right to strike, the extent to which people can strike and what this implies. Also discussed are aspects of current problems such as part-time work and home working, Works Councils, uses and misuses of linking pay to a cost-of-living index, participation in decision-taking, upward redistribution of income and wealth.
     
Corrupted Economics and Misleading Experts   Shows how 'Economics' is used to misinform and mislead the general public. Clearly states underlying considerations of specific important economic relationships and comments on misleading political interpretations and on role of independent experts.
     
Reorganising the National Health Service:
An Evaluation of the Griffiths Report
  1984 report which has become a classic study of the application and effect of General Management principles and of ignoring them.

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Relevant Subject Index Pages and Site Overview


The Site Overview page has links to all individual Subject Index Pages which between them list the works by Manfred Davidmann which are available on the Internet, with short descriptions and links for downloading.

To see the Site Overview page, click Overview

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Copyright    ©    1996    Manfred Davidmann
All rights reserved worldwide.

History
30/01/96 Completed
22/02/96 To Website
02/06/02 Added 'Relevant Current and Associated Works'