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> It's at least possible that one can only arbitrage the price of labor in developing markets for so long until they develop and drive up the local price of lab

> It's at least possible that one can only arbitrage the price of labor in developing markets for so long until they develop and drive up the local price of labor, and until they are all developed. This is a fairly optimistic point of view, IMO. What I think is much more likely to happen is the following cycle: 1. Manufacturing comes to a new place due to low wages (relative to the cost of labor in the previous place), lax environmental regulations, low tax rate for corporate profits, and very low worker safety regulations. 2. This goes well for 20-40 years, but as things typically do, environmental regulations are put into place by the local government, the tax rate rises to pay for the externalities of the low wages, and workers organize, agitate, and win higher wages, more safety regulations, and worker protections. All of this raises the cost of labor. 3. Manufacturers move to a new location because it is much cheaper. This causes people in the old location to lose their jobs, become impoverished, and craters their economy to the point where the government, implored by all of these laid off and angry workers, need to do something to help the situation. This results in a lowering of wages, rolling back of environmental regulations, lowering the corporate tax rate, and repeal of the safety regulations and worker protections. 4. Twenty years later the manufacturers come back to the country because people have become so desperate for jobs that moving back to the country is relatively cheaper compared to the country that manufacturing just moved to. Just view the policy decisions with respect to manufacturing that the leaders of the United States and Mexico have proposed to "bring back" these blue collar jobs. It all follows this playbook.

neutronicus 6y ago
If things are better than before after step 4 you still have damped oscillation. I think the distillation of your hypothesis is this: labor (and environmental externality) markets change slowly enough relative to the amortization schedule of a factory that perpetual arbitrage between them is possible. To the extent that this is true, one cause is that governments (with the notable exception of China) handicap themselves by honoring agreements, which they absolutely do not have to do absent a bigger, badder government to make them. A savvy, Machiavellian US government policy would: 1. Promise corporations the world 2. When factories are built, expensive machinery shipped in, and personnel trained, renege and hike taxes, but not so much as to force a write-off 3. When foreign governments make it difficult for US corporations to operate factories abroad and they ask for diplomatic support, shrug and tell them play stupid games, win stupid prizes 4. Do not apply the above policy for US corporations doing natural resource extraction abroad. (i.e. act more like China)

neutronicus 6y ago

If things are better than before after step 4 you still have damped oscillation. I think the distillation of your hypothesis is this: labor (and environmental externality) markets change slowly enough relative to the amortization schedule of a factory that perpetual arbitrage between them is possible. To the extent that this is true, one cause is that governments (with the notable exception of China) handicap themselves by honoring agreements, which they absolutely do not have to do absent a bigger, badder government to make them. A savvy, Machiavellian US government policy would: 1. Promise corporations the world 2. When factories are built, expensive machinery shipped in, and personnel trained, renege and hike taxes, but not so much as to force a write-off 3. When foreign governments make it difficult for US corporations to operate factories abroad and they ask for diplomatic support, shrug and tell them play stupid games, win stupid prizes 4. Do not apply the above policy for US corporations doing natural resource extraction abroad. (i.e. act more like China)