Inside the numbers: Wages

Posted: Nov 17, 2005 12:05 AM

So now General Motors may join Delta Air Lines on the lengthening list of U.S. corporate institutions that are going bankrupt.

This is getting so common that it's hardly news anymore. But the announcement about GM hit me like a sledgehammer.

How many major providers of manufactured products and key services are going to have to disappear from our economic landscape before we come to recognize that our position as the financial engine of the world is being surrendered to countries like China?

The U.S. economy simply cannot take too many more of these blows.

In past columns, I've addressed the ails of the commercial airline industry. Now let's take a hard look at our economy's manufacturing sector.

It's become almost cliche to say that manufacturing in America is dying. And it's no great secret that the most significant cost disadvantage for U.S. manufacturers is labor. That applies to the auto industry and most others, including many small businesses that prop up our economy.

Last year, I watched an entrepreneur set about entering the fashion world with a popular pocketbook for women. Fashion magazines, retail stores and many customers were excited by her unique product.

But she quickly learned that to manufacture her product at a competitive price, she would have to have it made in China or Korea.

The prospect of long and expensive trips, communications and cultural misunderstandings, and the ins and outs of arcane government and business regulations in those countries all combined to complicate her plans exponentially.

This businesswoman's dream -- modest in comparison to the GM's of the world, but still promising -- is still underway. But when she first conceived of the project, she never anticipated the obstacles she was to face.

It's not easy trying to live the American Dream with workers from communist China.

Most public opinion surveys suggest that Americans are tired of seeing U.S. companies at a competitive disadvantage. But opinions vary widely on how to fix things.

As is often the case with major political and economic issues, most arguments fall into one of two polar-opposite camps. One favors tariffs on Asian imports. The other wants freer trade all over the world.

I'm considering a different approach.

Consider that American wages are dictated by contract, minimum wage standards or conditions in the labor market. The upshot is that U.S. workers are generally paid much higher wages than their counterparts in these emerging economic superpower nations.

The problem is that once the genie of high wages is out of the bottle, it's hard to put it back.

Consider Delta pilots. They have considered going on strike to protest that pay concessions on their part would lower their standard of living to an unacceptable degree. Meanwhile, such a strike could destroy their employer. (Delta is currently trying to restructure its debts and stay in business.)

How in the world does our economy deal with such stubborn wrong-headedness?

From the political left, we'll keep hearing that the federal minimum wage must continually rise with inflation, even though health care, inflation and foreign competition are creating sometimes unsustainable burdens on the businesses that create the jobs in the first place.

If holding wages in check isn't a sustainable strategy to compete with the world economically, what is?

How about this: Let's reinvigorate the movement to close foreign "sweat shops," but with this crucial difference from efforts to date: Instead of arguing the morality of these establishments, let's apply an economic "eye-for-an-eye" standard.

If a nation like China refuses to pay its workers more, the United States could tax China's exports to the U.S. on a scale based on the difference between what China pays its workers and what America pays its workers for making the same product.

Oh, no! That's protectionism, some will say. It's against the principles of global, free-market economics.

Somewhat, yes, but with a difference. This eye-for-an-eye approach would encourage competitive behavior from the Chinese or whomever. They would pay no set surcharge on their goods; only a tax indexed to their wage scale relative to the country that imports their products -- us. Legitimate Chinese businesses with a solid future would pay higher wages; sweat shops wouldn't, and they'd suffer accordingly.

This policy would only be a first step to ending the trade advantages that China and other emerging economic giants have over U.S. manufacturers.

But it would be a start. It would send the message that the opening of markets worldwide has to mean a parallel closing of worldwide business loopholes. Only on this level playing field can true globalism take permanent root.