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Hyperwage Theory Part 01
In which the Street Strategist unveils the state’s secret strategy of poverty
Published: BusinessWorld May 2, 2002
Chapter 1: The Strategy of Poverty
(Hyperwage Theory Part 1)
Of the state policies of poor nations perhaps none is more paradoxical than the strategy of poverty. The irony is that unless someone such as the Street Strategist points it out, even the government itself is unaware it is actually pursuing such a strategy.
Since we had just celebrated Labor Day, I find it relevant to reveal the secret labor strategy of the government.
When the country welcomes foreign investors with the promise of low labor cost, unconsciously it is prostituting the great talents of our highly educated workforce at decadent low wages. In promising so, the state sells out the souls of the country’s labor workforce by perpetuating low wages. The state effectively says, come to us because it is our policy to keep the people poor by maintaining low wages.
That, my friend, is the strategy of poverty.
Don’t tell me we are luring foreign investors with our infrastructure because there aren’t any. Don’t tell me we are luring them with our efficient and corruption-free government because it isn’t. And don’t tell me we are luring them with our English-speaking workforce because it is almost irrelevant – the Asian headquarters of American and European companies prefer Hong Kong or Singapore.
If the government is not the unwitting agent of this strategy of poverty, then worse, it is the unwitting originator and perpetrator of this offense against labor. The operative word is “unwitting.”
The greatest problem with the unwitting perpetrator is that it thinks it is doing something good for the country. This is the tyranny of well-meaning intentions using wrong analysis.
Allow me to sketch my economic theory first. In future articles, I will belabor them in detail, including addressing the loopholes that you may find in this simplified sketch.
Under this strategy of poverty, the man in the street directly suffers the effects of keeping the people poor as a matter of state policy. And since this is a state-sponsored strategy there is no hope in sight for him during his generation, and the generation of his children.
Thus, he escapes from the regime and seeks better chances in countries with higher wages such as the Middle East, Hong Kong, Singapore, and the most treasured paradise called the United States. The rich ones left in the country are the politicians, wherever their wealth came from.
What happens when the best brains of the country seek refuge in a high paying country? The poor country becomes poorer because its economy is drained of the best talents; while the rich country becomes richer because it is overflowing with the best talents in the world.
Due to the dearth of productive talents, the poor nation heads for a downward spiral; on the other hand due to an oversupply of productive talents, the rich nation heads for an upward spiral. The gap between the rich and the poor nations widens.
How can the rich nation be certain that the emigrating talent improves the productivity of its economy? Simple test. If he does not produce more revenue than his salary, he will be fired.
While reserving details for future articles, allow me to sketch the high wage scenario.
The world’s best talents – mathematicians, physicists, bankers, doctors, and nurses gravitate towards the highest paying center of the labor universe. They are paid high, but they must produce higher than their income, which means the business must grow or else it is shut down. Since the best minds are competing in one market, they produce the best science, the best computers, the best medical equipment and the best weapons of mass destruction.
When wages are high, the corporate structure tends to be labor-efficient. Instead of three staffers, supermarket check-out stands will have to make do with one. The same labor-efficient principle applies to the government as well. Bureaucrats will find it hard to justify hiring 20 casual employees each receiving a monthly salary equivalent to five TV sets.
Because automation saves labor cost, it is second nature to these corporations. The companies acquire the latest, fastest equipment, and in cases of agriculture, adopt the best yielding techniques. Thus it may happen a rich nation with all its expensive labor can produce rice cheaper than a Third World country.
When the wages are high, basic commodities are high. But since income outstrips the cost of basic commodities, there is still some savings left. The typical worker is still above the poverty line. Food prices go up, but how much rice and vegetables can you really consume? There will be funds left over for savings, or future investment.
When basic commodities are high, the worker rethinks the size of his family. Thus, in Japan, Korea, Singapore or in Europe, the population growth is very low compared to that a poor country.
When wages are high, inflation is high. Inflation is a sign of growth, growth is good. Inflation therefore is a leading indicator of economic optimism. Inflation means higher prices. In which country is Nokia cheaper?
In the Philippines or in Singapore? How about TV sets, designer clothes, and hamburgers?
Do you really think that inflation in a poor country will skyrocket so high that cars, stereos, cellphones, will be more expensive than the price in the world market? There is a limit to inflation and in most instances, today, the country is already at these upper limits. The poor nation is currently paying First World prices using Third World salaries.
High wages create a larger middle class, with the ability to save and to create their own business using these savings.
Higher wages reduce the profits of the shareholders but this doesn’t mean they will go bankrupt. Thus higher wages reduce the gap between the middle class and the rich without corrupt government fingers dipping into the bowl.
High wages cause unemployment but which rich country has higher unemployment figures than poor countries?
When wages are high, the rich country’s citizens need not go to foreign lands. Instead they develop their own businesses, both service and manufacturing, and export their products to the world, profitably. At a later stage, they exploit the low labor cost in some poor country for even greater profit.
I am sure the economists are hot and raring to shoot down these sketchy ideas. Let’s hear them out now because in my future articles, I will be spending time on the implications of the above observations. At least, I could address your anxieties in the coming articles. As you have seen, I raised several issues, all of which cannot be covered in a single article. This article serves a mental guideline of the direction of my economic theory.
But before you do so, just try to answer in your mind: Why is it that millions of patriotic citizens leave the country each year to prostitute their talents to the highest bidding country? Why are these professionals and workers building other countries instead of their own?
And, before becoming rich, a country must have been poor. What did it do?
By the way, have you noticed that the rich countries are those with expensive labor, while the poor countries are those that have very cheap labor? Why?
Is high minimum wage the result of being a rich country? Or is being a rich country a result of high minimum wage?
These questions and their answers are central to the Street Strategist’s economic theory.
Increasing wages should be desired, not feared.
Increasing wages should be desired, not feared.
(Thads Bentulan, May 2, 2002)
..................................................................................................
To join the mailing list send an email to streetstrategist-subscribe@googlegroups.com
A PDF copy of the entire book on Hyperwage Theory is available currently for free.
Send an email to streetstrategist@gmail.com for the latest edition.
Want to order other books by Thads Bentulan?
The Misadventures of the Street Strategist Vol 1 to 13
..................................................................................................
