I don’t know if he had Europe specifically in mind, but this is the message from Singapore’s finance minister Lee Kuan Yew in this interview in the latest issue of Yale Global Online. As he puts it:”If you’re not driven by profit, and do what the communists used to, which means price equals cost plus, then your economy will collapse.” Is this message being heard here in the EU? If the comments my posts on Indian outsourcing are anything to go by, it isn’t. And if the results of the survey mentioned in my last post are well founded, the consequences of this neglect may not be long in making themselves felt. To give a measure of where we may be on this one, France currently has China at number 16 on its list of trading partners, behind Peru. Turning your back on global supply chains won’t save your job, it will only completely finish it off.
The globalization of manufacturing has led to a massive redistribution of work around the globe, in the process turning China into the world’s factory. Similar developments are underway in the service sector, with jobs migrating to India, China, and other parts of the developing world. The disappearance of white collar jobs from the US has now added a new voice in the protectionist cry. The first impact was felt late last month when President Bush signed a bill that forbids certain parts of the federal government from outsourcing work to foreign companies. Many Asians are alarmed by the latest signs of creeping protectionism in the US. But Singapore’s wise-man-in-residence, Senior Minister Lee Kuan Yew, shrugs it off as a passing phase. Measures like this, he says, will make American companies uncompetitive and will force them to change. Protectionism may slow down the economic integration of the world, but economic forces make integration unstoppable. …
Under pressure from white-collar workers’ unions, state legislatures are currently drafting a dozen pieces of legislation banning outsourcing. On January 23 President Bush signed into law a provision that forbids the federal government from sending jobs overseas.
Asked about the impact of such a policy, weeks before it became law, Lee said outsourcing of jobs was unstoppable. “Suppose the Americans forbid this – ‘You can’t outsource’ – but the Japanese, Germans, British, French outsource, so their goods and services are cheaper. If you deprive yourself of outsourcing and your competitors do not, you’re putting yourself out of business. I see this opposition as a roadblock to slow it down, but it is unable to stop the forces that drive the economy. Economic forces are let loose and are not stoppable unless all the developed countries agree they will not outsource. Why should they agree?”
Lee adds that if one state prohibits outsourcing, “business will migrate to the next state,” because of how economic forces work. “So long as you are driven by profit to sell your goods at the lowest possible cost and to sell the maximum number of goods or services, how can you stop it?” But this focus on profit is precisely what many anti-globalization protesters complain about: in their race to the bottom, companies show a lack of social conscience. Lee’s response is simple: “If you’re not driven by profit, and do what the communists used to, which means price equals cost plus, then your economy will collapse.”