U.S. dependency on foreign labor

[Newbie]

Whenever someone questions the importing of cheap foreign labor to drive down American wages, the rebuttal often expressed is that prices would skyrocket and inflation would run out of control if American workers were doing the same job.

My question is this: If the results of the United States ceasing to use cheap foreign labor would be so catastrophic, what is going to happen when the third-world countries of the world catch up with us technologically and economically? We will not be able to import cheap labor anymore because foreign workers will be making just as muh money as American workers. Will absurdly cheap labor suddenly THEN become unnecessary and if so, why? How will the United States economy possibly survive? Actually, how will any country maintain a strong economy? If we can't do it, why would anyone else be able to?

Also, does one questioning whether we should be importing foreign labor on the grounds that it drives down wages in this country mean that that individual has a personal dislike of foreigners?

[Oldskulbus]

Interesting question

"My question is this: If the results of the United States ceasing to use cheap foreign labor would be so catastrophic, what is going to happen when the third-world countries of the world catch up with us technologically and economically? We will not be able to import cheap labor anymore because foreign workers will be making just as muh money as American workers. Will absurdly cheap labor suddenly THEN become unnecessary and if so, why? How will the United States economy possibly survive? Actually, how will any country maintain a strong economy? If we can't do it, why would anyone else be able to?"

You assume that third world countries are going to catch up to us economically and in technology and it probably won’t ever happen. The only country that you may be thinking of that is on its way too catching up to us is Mexico. Mexico has a lot of good things going for it right now and it is definitely on its way to being a super power. But Countries like Indonesia, China, Peru, Brazil, etc... Do not have the same advantages that Mexico has so it will be tough for them to come into power.
Back in the 50’s three very intelligent economists (Raul Prebish, Celso Furtado, and Victor Urguide) came together and tried to figure out a way to bail Central and South America out of its financial problems. Prebish’s main theory was that an economy of a country can not be based on creating the world’s deserts because when the world is in a recession then they stop buying deserts and the country that is based on deserts will suffer worst of all. What are deserts? Items like coffee and sugar stuff the world can do without if they need to. They came up with a plan called ISI (Imported Substitution Industrialization) and it consisted of asking other companies to come invest in Mexico (and Brazil also but I want to focus on Mexico) and have trained Mexican workers and managers. The government would control 60% of the business and the actual business would control 40% of it. This worked out really good for Mexico (and Brazil too) but eventually things began to break down and the ISI was abolished and the companies fully controlled their Mexican branches. See it ends up that Mexico is a great place to have a business. Things can be taken to the US really easily and built for cheap in Mexico. In fact, some economists actually think that the work force in Mexico is better than that in the US. There are few Unions and jobs are hard to come by so the average Mexican worker tries really hard to keep theirs. Brazil isn’t as close to the US so they are having some problems right now. And with NAFTA things are only looking better for Mexico but…
There is a term called Economic Equilibrium and what it means simply is that in the long term everything becomes equal and no one makes any money. So when Mexico eventually becomes a nation where the workers stand up for their rights and when their will be no benefit for things to be made in Mexico then companies will move their branches into other countries and go form there. Will every country ever be equal in income and finances to the US? I think you know that it is almost impossible. There has to be a loser in every deal and their will always be a place where manpower and life only cost you 1 cent a day.

[Marcus]

This worked out really good for Mexico (and Brazil too)

The I.S.I. model had far more problems than solutions. Because of the increase in the size of government, they ran into a lot of the problems socialist countries have had. High tariffs made goods and services more costly than they should be. High government debt from subsidizing inefficiently run government businesses sent inflation through the roof. Brazil had 4 digit inflation some years.

As far as Mexico having the best chance to get ahead, that is partially true, but there are countries that have as much of a chance at least. Chile already has a much better economic base than Mexico (partially because of being the first L.A. country to abandon the I.S.I. model). Brazil is much larger, and in the Rio, San Paulo areas, has the most delveloped economy (the rest of Brazil brings it below Chile for most developed country). Another thing to remember is that NAFTA isn't the only American Free Trade Pact. Brazil, Argentina, Uraguay, and Paraguay have MERCOSUR and the western countries have the Andean Pact. Also, many Asian countries have an advantage on Mexico because they are much more educated.

To answer the original question, most current third world countries will probably never be as powerful as the U.S. and Western Europe, but they can still advance by using their relative advantage in some sectors. Also, you have to remember that much of the menial labor in the world is now being done, at least partially, by machines. The same job requires many less man-hours when aided by machines. I also wouldn't say that the U.S. needing to do all of its low skill labor "catastrophic", but it certainly would increase prices, which is why globalization is a good thing.

[Marcus]

ttt

[Oldskulbus]

"The I.S.I. model had far more problems than solutions. Because of the increase in the size of government, they ran into a lot of the problems socialist countries have had. High tariffs made goods and services more costly than they should be. High government debt from subsidizing inefficiently run government businesses sent inflation through the roof. Brazil had 4 digit inflation some years. "
Well I agree with you that ISI deffinitly had its problems but these countries had no other way to go in order to get to the level they are now. It was like a deal with the devil and they knew that there was going to be problems and that they couldn't do ISI forever. But they had to find a way to bring industrialzation to their countries and I think that if they had to do ISI again then they would have.

"As far as Mexico having the best chance to get ahead, that is partially true, but there are countries that have as much of a chance at least. Chile already has a much better economic base than Mexico (partially because of being the first L.A. country to abandon the I.S.I. model). Brazil is much larger, and in the Rio, San Paulo areas, has the most delveloped economy (the rest of Brazil brings it below Chile for most developed country). Another thing to remember is that NAFTA isn't the only American Free Trade Pact. Brazil, Argentina, Uraguay, and Paraguay have MERCOSUR and the western countries have the Andean Pact. Also, many Asian countries have an advantage on Mexico because they are much more educated. "
Mexico has cheap labor and is right next to the US. This is an advantage that far out weighs anything that any other latin or Asian country has. You can stand on the border and see thousands of trucks carrying millons of Mexican made cars being shipped through the TEX/MEX road into US every day. Mexico is the largest exporter to the US.

"To answer the original question, most current third world countries will probably never be as powerful as the U.S. and Western Europe, but they can still advance by using their relative advantage in some sectors. Also, you have to remember that much of the menial labor in the world is now being done, at least partially, by machines. The same job requires many less man-hours when aided by machines. I also wouldn't say that the U.S. needing to do all of its low skill labor "catastrophic", but it certainly would increase prices, which is why globalization is a good thing."
I completely agree with you.

[Marcus]

I agree totally, Oldskulbus. May I ask how you know so much about Latin American economic policy?

[Oldskulbus]

Haha!!

Would you believe I go to a California State school? ;-)

[Marcus]

Yes, cause I go to a Texas state school. I am also a Latin American studies minor w/ a business major, so I've gone over this stuff a billion times, but it intrests me.

[Oldskulbus]

You sound like a pretty cool guy Marcus. I am a Finance major (wishing my school had an International Busniess major) and I took a class on Mexico for some upperdivision credits. I think the future is in globlization and Latin America is going to do pretty well if they can get some stable governments.