Because where firms sell does not determine where they produce, the home market becomes less important than their ability to exploit a global market. Because of this, the firms' interest can diverge from that of the nation. It becomes vital, then, for the nation to make its economic policies independent, to a significant degree, of corporate interests.
The link between wages and the scale of the market historically implied that high wages, by stimulating the home market, encourage capital accumulation.In modern economies, high wages attract sellers but not producers. High wages no longer encourage capital investment. This does not bode well for those nations (such as the United States) that benefited from rising living standards during that period when the home market played a
decisive role in economic development.
If labor productivity in relevant U.S. industries is not significantly higher than in Hong Kong, South Korea, or Mexico, for example, and wages there are significantly lower than in the United States, producers located in the United States will have difficulty competing. Figure 11.2 presents a sample of data of hourly compensation costs in different countries.8 The figure suggests that the U.S. competitive position vis-a-vis Mexico, Korea, and Hong Kong is not strong for industries in which labor costs play a significant role and transportation costs do not. It also suggests that labor costs will not explain our competitive failure vis-a-vis other competitors, such as Japan,where costs are close to ours, and Germany, where they are substantially greater.
Because where firms sell does not determine where they produce, the home market becomes less important than their ability to exploit a global market. Because of this, the firms' interest can diverge from that of the nation. It becomes vital, then, for the nation to make its economic policies independent, to a significant degree, of corporate interests.
The link between wages and the scale of the market historically implied that high wages, by stimulating the home market, encourage capital accumulation.In modern economies, high wages attract sellers but not producers. High wages no longer encourage capital investment. This does not bode well for those nations (such as the United States) that benefited from rising living standards during that period when the home market played a
decisive role in economic development.
If labor productivity in relevant U.S. industries is not significantly higher than in Hong Kong, South Korea, or Mexico, for example, and wages there are significantly lower than in the United States, producers located in the United States will have difficulty competing. Figure 11.2 presents a sample of data of hourly compensation costs in different countries.8 The figure suggests that the U.S. competitive position vis-a-vis Mexico, Korea, and Hong Kong is not strong for industries in which labor costs play a significant role and transportation costs do not. It also suggests that labor costs will not explain our competitive failure vis-a-vis other competitors, such as Japan,where costs are close to ours, and Germany, where they are substantially greater.
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