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From what I have heard and seen, the reason is that there isn't any other place where labour is that cheap. In combination with very cheap transport costs (whic
by belorn 7y ago
From what I have heard and seen, the reason is that there isn't any other place where labour is that cheap. In combination with very cheap transport costs (which may be quite subsidized in order to encourage trade), what you get is a single location where almost all production occur.
A extreme example I have heard of (could of course be false) is that some fish from the north parts of Norway get sent to be processed and packaged in china in order to be imported back at the same place where it was once fished.
If we want more redundancy by encouraging more spread out production there would need to be something to balance the desire to just move production where labour is cheapest.
- quanticle 7y agoThe cheap labor argument is one that was valid in the '90s and 2000s, but hasn't been valid for quite some time. At this point, especially with regards to electronics, it's just not possible to assemble some goods outside of China. The supply chain expertise is there. The skilled workers are there. All the tacit knowledge about the issues one encounters with mass production is there. To bring all that knowledge back would take decades, and is beyond the ability of any single firm acting alone. It's a classic collective action problem. Diversification offers a diffuse benefit to everyone, but the costs are borne by the individual firms that put in the effort to train workers, document tacit knowledge, refactor supply chains, etc. As a result, without a central coordinating authority, firms will not diversify, because to do so would be to move away from the Nash equilibrium that incentivizes them to use the cheapest/fastest/most specialized supplier at the cost of diversification.