One of the basic tenets of capitalism is that free market competition leads to lower commodity prices and thus improves the standard of living. But just how true is this and how far does it extend? The spread of globalization has without a doubt lifted untold millions from commodity pauperism to the cult of “commodity fetishism” but at what cost to the older industrial nations?

The transfer of manufacturing jobs to the new vanguard of the industrial world has left a gaping void in the heart of the West, a void that service jobs have failed to fill completely. And what are the consequences of this transfer of industrial ability? Aside from the vacant factories, empty lots, and rotting homes?

The West had become accustomed to the high standards of living that manufacturing had afforded them, it did not understand how to cope with the sudden exodus of capital. Or rather, did it understand but refuse to accept its inevitable fate? Instead of accepting the simple solution the old vanguard did the opposite of what common sense says to do when income declines; the West chose to maintain their hitherto sustainable life-style by accumulating more debt.

The solution perhaps seemed so simple, so innocuous, and so insulting that maybe it would never have been followed unless society began to shake under the burden of its denial. While it may be true that capitalism is not a zero-sum game it doesn't necessarily mean that everyone will rise at the same time. In a world of limited resources some will inevitably fall as others rise; the West had to fall as the East rose. Unfortunately, that fall has been slowed by increased credit usage and will cause the landing to be even harder and more debilitating.

It's only natural that capital will flow to areas of highest profit and that a society which has enjoyed the good life for too long will deny the edge it has already walked over. However, that is no excuse for a people to eventually see their situation for what it is and attempt to either fix the situation or themselves. In the case of globalization it would be counter-productive to fix the situation – the flow of trade between nations – so the only option left would be to fix the perceptions of how life should be lived. In order words, to lower the standard of living that had been the envy of the world for so long.

The 19th century economist David Ricardo hit the nail on the head when he postulated that wages were the bane of profits instead of its cause. The (initially) lower standards of living in the East made it more profitable to transfer capital to that part of the world which would in turn increase the rate of profit, so logic dictates that the standard of living must decline in the West for the pendulum to swing back. This proposition may seem alien to the gluttonous West, why should they scale back on the comforts they feel they deserve? Necessity furnishes the answer to their pathetic incredulity.

They must change their lifestyles, and by extension society, or else face socio-economic ruin. As Karl Marx noted economics is the foundation upon which society is built upon, so by ignoring the economic portents the old world risks jumping head first into the gaping maw of social destabilization. Aside from the social benefits of economic prudence, the lower standard of living would require a lower wage rate. The lower wages needed for living would in turn allow for profits to rise and become more competitive which would facilitate the transfer of capital back to the West. Thus the cycle repeats itself: low wages allow for cheaper products which allow for increased standard of living until a new area allows for even greater profits. The pendulum swings back and forth as everyone partakes in the pie – though not always as once – and enlarges it.

 


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