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Foxconn's going to 'exploit' Indian labour? SCORE! Bye, poverty

Now the Indians will get rich too

Worstall on Wednesday El Reg serves us up the news that Foxconn is looking to India to set up production lines, presumably for the assembly of Apple's products. This is excellent news as it means that now Indian workers will get exploited and become rich, as those Chinese have in recent decades.

And yes, it is indeed exploitation and yes they will indeed get rich(er).

What's not been made entirely clear is whether this is the precursor to moving the whole lot across the border, or is more an attempt to assemble iStuff inside India's tariff barriers or not.

India does try to promote internal assembly by allowing components in tariff-free but charges for assembled pieces – and then rather screwing this up by playing silly buggers with the factories when they are there, as with Nokia's former assembly plant in the country.

But either way this is good news for the average Indian worker. As Deirdre McCloskey has been known to point out, the only thing worse than being exploited by a capitalist is not to be exploited by a capitalist.

We can check this, too. Before the great explosion of Chinese assembly plants (and no, I'm not saying this was the only factor) manufacturing wages in China were around the $1,000-a-year mark in 2000. Today they're around the $6,500.

Sure, while money does go further in China we wouldn't think that's a great whack of cash – but it's a hell of a lot better than the former stash for a year's labour.

We can even turn to our old friend Karl Marx to explain this: when there's surplus labour around then wages don't budge. If you need more labour you just pick up some of that reserve army of the unemployed, or tempt a few more peasants off the paddies.

But once you're at something like full employment then the capitalists have to compete with each other for the labour they want to exploit: meaning that they raise wages and the workers become progressively less exploited.

This really isn't some ideological free-market reading or some nonsense: this really is Marx's own description. It's why he warned so ferociously about monopoly capitalism – as I've mentioned before, what we would now call monopsony, non-competitive hiring of labour, or capitalism.

So, as foreign companies piled in in search of cheap labour, even the labour supply of a place as large as China got soaked up and thus wages rose. And now, obviously, there's a move to go off in search of the next bolus of cheap labour.

Textiles to Vietnam, Indonesia and Bangladesh, here we've got electronics assembly to India. And yes, undoubtedly, the labour in those places will be exploited; they'll earn peanuts to produce stuff of high value. The more people who follow in that search for the lucre of profits, the faster local wages will rise.

That labour in China won't be left high and dry, though, just as our own labour hasn't been left high and dry by the move to China in the first place. Average wages are determined by the average productivity in an economy. The UK is still as productive as it was before electronics assembly left our shores, so wages haven't fallen. China is still as productive so wages won't fall there either.

In fact, that progressive move around the globe in search of those last pockets of cheap labour is the thing that is actually, finally, going to end that absolute poverty that we all decry.

This is a little more difficult to check, the future being somewhat unpredictable. But it is at least predicted. The SRES is the set of economic models we use to think about climate change. And if we look at A1, the one that basically says we carry on as capitalist globalisers, then around the end of this century – or maybe a decade or two before then – that absolute poverty finally disappears, on the basis that all of those pockets of cheap labour have, finally, been exploited.

Quite seriously, the prediction is for an average per capita global GDP of $80k a year or so, as opposed to today's $10k (yes, of course, after inflation) and with less global inequality than we have today. The same models tell us that if that's all powered with coal then we're screwed, but if it's powered by renewables and or nuclear then it's just great.

And what would happen if this scramble for cheap labour, this globalisation of production, did not happen? Our climate change people can tell us that too, in the B2 family of scenarios. More like $25k a year in 2100 as an average, greater inequality than we have now and the emissions pathway isn't any better either – it's worse than the renewables one above, in fact.

As McCloskey points out, there is value in being exploited. ®

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