Once the recession ends, anyone who thinks everything will
simply go back to how it was before is foolishly naive.
It will take a long time to rebuild the world economy – and
it will be a different economy from the one that existed before 2007.
For one thing, it will be in different places. Factories and
businesses that remained in Europe and America out of sheer inertia have now closed.
When they are reopened, or replaced, entrepreneurs will have the opportunity to
consider the question of location from first principles.
Ignore the media caricature of greedy globalists setting up
sweatshops in the “Third World” solely out of a desire to keep wages low.
Technology has an increasing competitive advantage over old-fashioned mass
production. Entrepreneurs understand that skilled labour is more important than
cheap labour. Skilled labour is also increasingly mobile. As a result, the wage
differential is not as pronounced as it was, and is set to decrease even more
rapidly if developing countries recover better than the developed.
Entrepreneurs stuck in the “cheap labour” mindset will soon
find themselves relics of the past.
The real reasons why it may be better to locate a new or
rebuilt business in the Third World are also the reasons why the Third World
will come back faster and stronger then the West: -
labour. Westerners used to comfort themselves with the line that “Their
labour may be cheaper but our labour is the more skilled”. That is no longer
true. Most Asian countries, and even some African countries, have primary and
secondary education superior to that in many Western countries: they put
British and American schools, in particular, to shame. While few Third World
universities have the money for research that is available to the big names in
the West, they have invested in good vocational courses. As a result, workforces
in developing countries are often better educated, and therefore more skilled.
2 The “on costs”. It is not just a
question of wages. In the West there are also additional costs of labour that
do not go directly to the employees: payroll taxes, compulsory health and
pension contributions, etc.
3 The “costs of compliance”. Few
entrepreneurs object to necessary environmental protection or safety regulations,
but regulation in the West goes far beyond what it is reasonable. The costs of
complying with regulations are now a substantial factor.
4 The hassle factor. In addition to the
direct financial costs, the inconvenience of complying with well-meant but
intrusive employment laws is a major distraction from making a business work.
No one goes into business to waste their time complying with rules that achieve
nothing other than acting as a tax on the business, or contesting vexatious
litigation from a less than useful ex-employee who feels sore about being fired.
It’s not just the cost that’s demotivating, but the sheer aggro too.
5 The deficit dilemma. Western governments
kept borrowing while Third World states were forced to be frugal. As a result,
the former will come out of the recession burdened with huge deficits which
will put them at a competitive disadvantage to the latter. In particular,
businesses based in the USA and the UK will be paying higher taxes for many
years to come to fund the panic measures of the last few months.
As with businesses, so with nations: the end of this
recession will see the rising and falling of many.