We Can't Afford Ourselves
My son-in-law disagrees, but I still think the cost of everything emerges from only two sources: labor and materials. And, if you think about it, in a world absent human society, materials would be free. Lumber? There are trees, take them. Food? There are berries, there are fish, gather them and eat. What is the cost of these? Your labor, wholly.
With the whole of society wrapped around us, though, others do these things for us. Farmers farm and harvest the results of their labor. Miners dig, truckers truck, refiners smelt, workers in rolling mills make the ingots into sheet steel, and, until recently, auto workers made the steel into cars. The car, the steel, the ingot, the ore ... each is free except for the effort put into turning them from an inaccessible object in an unusable form, into a useful object such as a car, which we desire to buy.
So, if things cost too much, what do we do, we capitalists?
One tool from our bag of tricks is to automate the processes of labor. There is a necessary injection of capital here, to set up the factories and build the robots to do the work of grinding out the products, work which was previsouly done more expensively by people, but in the long run, the robots are often a cheaper means to the same end. So the costs of production go down, and the costs of the objects produced can also go down.
(A word here about moving jobs to foreign countries in order to employ cheaper labor. This gives a temporary edge to whoever does it first, but as with automation, as soon as one's competitors do the same thing, the advantage is lost, and the need to economize on labor is again confronted. Thus, sweat-shop stichery moves to an even more impoverished locale ad infinitum. Except, just as robot help can only be made so efficient, there are not an infinitely large numer of poorer and poorer nations out there.)
We ARE capitalists, though, so we don't pass along ALL of the savings generated by our ingenuity to our customers. We keep some of the difference for ourselves. The cost to us goes down $100, we lower the cost to our customers maybe $80, and the stuff sells like hot cakes. And, lo and behold, we can sell the stuff for less, yet make more money by selling more, at a higher profit per item! Yay!
What has been done is to lower the cost of labor. But for the next business in line, it has instead simply lowered the cost of the thing, which, from their point of view, is not labor, but the raw material for their step of the process.
And so it has gone for generations in the developed world. At each step of the chain of effort from seed to table, from mine to highway, from author's mind to readers' minds, crafty and ingenious entrepreneurs have devised creative methods for lowering their costs of production while raising their profits. For every succeeding buyer, whether that buyer is another in the chain of producers, for whom the product is but another raw material, or that buyer is the untimate consumer, for whom the whole cumulative effort has resulted in some material goods, the pride of our society has been to reduce the effort, and thereby the cost, of the production of goods.
Great.
But what does this mean in the great scheme of things?
The total cost of each thing produced is made up of some percentage labor and some percentage material. If, at each and every step in the process, we successfully strive to reduce that percentage which is attributable to labor, then the percentage attributable to materials must perforce rise.
Imagine that geniuses in every industry figure out a way to lower the labor costs of production to zero. All fabrication, storage, shipping, stocking, etc. is done with such perfect efficiency that those processes cost nothing. Then, the cost of anything could be set equal to the cost of the materials as purchased from the previous step in the chain of production. Of, course, being capitalists, we would expect some profit to be added along the way, so there would be some added cost.
Hopefully small.
And if the previous step in the process were also perfectly efficient, and so-on back to the ore pit or the seed drill or the mind of the artist, what then? Well, then, the cost of the final product would be made up entirely of profit.
Leave it for a moment to ponder what one would do with profit in such a world, not to mention what would motivate everyone involved to work, because this is just an exercise, and of course impossible.* But the effort to minimize costs of production is an effort to head in this direction.
Is this a good thing?
Well, in the interim, while all these production efficiencies are being made, progress is uneven, and some industries along the way from resource to consumer have been quicker to economize on their means of production than others. It is to be assumed that their owners benefit more and sooner from this, but more to the point, for those who add value during the OTHER steps along the way, their labor now seems unduly high in cost compared to the reduced cost of materials in their step of the process. And the incentive grows for the capitalists who own their industry to minimize their own labor costs (even if, maybe especially if, it is their own labor!)
In other words, their supplier has just lowered the cost of widgets they use to manufacture gadgets. But their labor costs remain what they have always been. So the cost of their product out the door now consists of a much higher percentage of labor costs than materials costs. Any sane manager will be alarmed at this and seek to reduce labor costs.
To be sure, the cost of things everyone buys goes down. But much more to the point, the percentage burden of the work that is done which produces the funds used to buy those reduced-cost items has been increased by the very efforts of other industries to minimize their own labor costs, and thus raised the incentive for the reduction or elimination of labor costs for the later consumer/producer as well.
Over the last couple of generations (and maybe back as far as the beginning of the industrial revolution, although for a while that process created new things to consume, which simply increased the size of the pie and raised the demand for labor, but that phase seems to be over), this process has been going on apace in every imaginable industry, in every imaginable step in the process of production.
For those still at work, the cost of their work represents a target of inefficiency which must rationally be minimized.
So it is, that as we wallow in ridiculously inexpensive consumer goods from basic necessities like food to complex finished products like cars, we cannot afford the services of other human beings which generations past took for granted: beat cops, tailors, housekeepers, laundries. This pressure evinces itself in other areas not as the abscence of human services, but their extreme cost: health care, legal help, delivery service, child care, education.
What's the answer?
Well, I guess, there is no answer so long as we don't see this as a problem. Do we long for a time when one's wages relative to the cost of groceries or a car or a radio were very small, in exchange for the opportunity to be able to hire a nanny to care for our kids? Would we swap cheap electronic entertainment systems for a beat cop to patrol our neighborhoods?
Some would. Others, not.
I don't know how I feel about this.
(*... and fodder for another rant.)
posted by Mique @ 4:53 PM
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