Export Economies as Labor Exploitation

I cross post to Open Salon, but haven't gone the other way. I was asked the following over there:

>> can an economy survive with such minimal manufacturing in the portfolio?

And responded with what follows. I have had export economies as labor exploitation on the coming attractions list for far too long. This piece will do as an hor d'oeuvre.

Not in the manner of the middle class revolution, post World War II. I am a Keynesian, and the reason boils down to: the level of income inequality from previous types led to violence. The result of the Bushies (and Gingrich, and the rest) is to return to that level of inequality.

In the 1960's and 1970's, it was commonplace to read and hear from economists and their fellow travelers that the post-industrial service economy would be the land of milk and honey. The machines would do the work, and we would enjoy leisure.

The flaw in that vision is that it ignores the distribution problem of capitalism, which is that there is no distribution mechanism. The capitalist keeps it all. This is the root cause of the current recession/depression. The top 1% of US take 22% of income. It hasn't been higher since at least 1900 (data is flaky before then). There is no distribution mechanism. Capitalists refuse to acknowledge that there is a problem, since they seek to be the autocrats of the New Age. Bernie Madoff is just one symptom.

One factor is that services are cheaper, from a capital investment point of view, by far than manufacturing. This establishes a war between capitalists. Service capitalists establish a ~75% gross return on physical investment. Manufacturing capitalists then seek countries/economies which allow them to exploit labor to an extent which raises their gross return towards that level. The problem is that such economies are no longer self sufficient; labor earns so little that its production cannot be consumed. Thus, export is the solution.

But it isn't really. The export manufacturing economies must accept service importing economies' currency in payment for the goods. The export economies are held hostage to the import economies' currency. So, the Chinese must keep piling up US dollars. To pull the plug on the dollar leads to far worse than China faces now; if they should do so, the entire Chinese economy fails, since it is not self-sufficient.

Mainstream economists are being forced to face this fact by a handful of "radicals" (humble self included). The notion that free trade benefits all is being made mockery. The answer will be that stable economies are self-sufficient except for trade in raw materials.

I have a blog post for DrKeynes in mind which explains why export economies are fundamentally exploitative of labor (I generally copy them to here). For now, note that China has been playing the export game, and is facing the distribution problem as well. They have no domestic consumption to support industrial production since capital is free to pay starvation wages to labor. When the production was shipped out of the country, this was just fine. Without the export market, capital could no longer do its exploitation game. Chinese authorities have implicitly admited the problem by structuring their "stimulus" to channel funds to labor. One result (in a NYT story within the last week or so, I don't have a link, alas) is that flat screen TVs will cost more here, since they are made in China, and are now being consumed there. Good on them, say I.