Fashionistas in our time: an anti-review

    In B School, there's a classic tale of unbalanced industry influence in Vlasic Pickles v Wal-Mart only a decade ago, where Wal-Mart got Vlasic to offer a gallon of pickles at bargain basement prices, and then wouldn't let them stop til bankrupt - a variant of Sinbad's Old Man of the Sea.

    A similar case of riding it to the bottom is portrayed in Andrew Morgan's The True Cost, an expose on the effects of "Fast Fashion", when a Bangladeshi sweatshop manager notes the pressure to lower his cost per shirt from ridiculous to subridiculous, all to allow the US shop to sell a shirt for $3.

    One of the claims of international trade is that the low pay of workers will eventually rise to pull people out of poverty, that a rising tide lifts all boats. This is true in the case of China, which has seen wages rise hugely over the last 3 decades. But it's arguably a fantasy or missing context in the case of the Bengal shop where a female seamstress starts at $10 per month and even after years is forced to send her daughter to live with her mother, seeing her twice a year, in order to afford the cost of living, all the fees from child care to school to food. It's a fantasy in the Cambodian factory where workers asking for $160 a month are locked in a room and beaten. 

    There's renewed talk of the working class being abandoned in France as in the United States, but I'd argue the issue is more that few know what to do. Because the company selling that shirt for $3 isn't making a lot of money either - any study of commodity markets in open competition notes they compete out at zero profit - simply covering costs.

    The exception for China seems to be a quirk in the analysis - China has done better because of non-transparency, extortion, limiting access to its market, forcing foreigners to divest or share ownership shares in order to gain access to either China production or the market itself. The added iota is the amount of IP theft as whatever's produced "falls off the back of the truck" to be replicated over and over - the cut-throat competition then continues in Asian climes.

    Some years ago, the Asian Tigers fought off similar wage deflation, and to survive currency speculation, it was mostly the Malaysian government shutting down access that saved their economy - hardly the free market paraded around. But they survived. In the current standoff, there are fewer local solutions to combat the global trends without repercussions, a reversed trade wr, or simply the loss of right to play in the game. Unlike the Asian crash 20 years ago, if Malaysia tries not to play, there are plenty of other Asian Tigers to take over production. TPP was partially (and imperfectly) designed to counter the Chinese heavyweights, but the fact is, much of production is commodity by nature, and much of Asia has tooled up to handle it quite ably. And thus like any situation of oversupply, prices are going to give, as are real people's lives.

    To watch The True Cost is hopefully to realize this isn't a "close the borders"/"stop trade" simple solution, and hopefully it highlights the horrid ethics and unacceptable solution of  simplyabandoning the poor in Bangladesh, Cambodia, China, Vietnam, Mexico and elsewhere just to try to bring back those "good jobs" of yesterday. It was a century ago that New York had its own sweat shop fires that rivaled Dhaka's Rana Plaza collapse. China's improved standard of living is a good thing, even if we're not sure of the next step. New jobs and increased salaries are needed in Phnom Penh as much as Topeka and Gadsden and Youngstown, or Toulouse and Leeds and Cadiz.

    But we largely don't know how to do that. We know how to increase competition, but not how to guarantee a profit. We know how to bring disruptive technology on the market, but not how to guarantee it does good. We know how to race to the bottom, but not so much how to float - either still underwater or slowly to the surface. It's not so much the politicians have lost touch with the worker as it is that the problems are so complex and entrenched, they don't have anything real to promise.

    250,000 Indian farmers have committed suicide the last 2 decades, over the cost of buying seed or other rising expenses or the general difficulties of staying profitable on your own farm, not to mention the increased illness from farm contamination and pollution and the stepped up competition.

    But there's nothing that unique between our agricultural production and the steady conversion of the auto industry and Uber's frontal attack on taxis, and restaurant work, and a dozen other industries. We're just trying to survive. But what does that mean for our theory of productivity, what all our theories of GDP and priming the economy, and how much control we have over things.

    In short, The True Cost may be about costs, but the real questions involve how different the fashion industry is from any other, and how much longer any of these have to last do to whichever pressure of survival.

    In 2003, the 14.9m workers in retail beat out the 14.5 million workers in factories. These are less dangerous jobs overall (unlike sweatshops), but there's a low wage penalty for working without fear and danger. There's a steady movement to automate and otherwise defray the costs of paying a decent wage, and instead shifting to lower-paid labor to compensate. Where something's scalable, it's not people - it's software as a service, Clouds, robots, anything that can add another 1x, 2x, 5x capacity for roughly the same cost as before - this is investor grail, and will obviously be the end result.

    So what happens to the rest? Quite simply, we don't know - it's not found from reading Keynes or Milton Friedman or even Marx - it's new territory, our next moonshot - except we largely don't know what we're shooting for. A livable wage? A chicken in every pot? When we did the Apollo program, we were talking about one tin can sent off to a lunar crater - not 7 billion people. But that's what we're faced with for any kind of economic overhaul - shooting for less misses half the point, and leaves the potential for a good bit of the planet to revolt in various unpalatable ways. Or simply starve and die out, another rather unseemly approach.

    The movie shows a "Fair Trade" effort, but it never quite shows them designing a business that supplies millions while employing say a hundred thousand. There's talks about H&M, but not a sit-down to get H&M pressured into delivering a living wage even for the pittance that means in Bangladesh. The one glimpse of a union showed that union going down to total defeat, while folks in the industry in New York were unconcerned - much ado over shirts and such.

    Except even the idea that charity for Haiti would help was debunked - just more unneeded, badly sized clothes piling up in lots, with perhaps 1/10 sold off to fabric grabs and second hands - not the clothing of the poor we imagine with our charitable efforts. And worse, it's destroyed Haiti's own fabric and design industry. I discovered this long ago - who's going to buy a nice t-shirt when the market's flooded with ugly crawdad and "Big Sleep" fare at 1/3 the price?

    LBJ didn't invent the ideas of The Great Society - he made sure interesting trends & innovations were funded through Congress. Similarly, few of our politicians have any creative gene for that next breakthrough technology or social order - we're fooling ourselves if we think that's where it comes from. Instead, it's new ideas vetted through obscure corners. We hope to make it out in one piece, with most parts intact, but we still haven't written that part of the script, and it's us - the crowdsourced science, news, jobs and innovation force that will make the difference, with some clusters of experts and non-experts along the way to carry the heavier load. Sounds pretty abstract and unconvincing, don't it? But that's where the internet's brought us. As I think they said in Princess Bride - "prepare for disappointment". Such is our New World Order - not the True Cost, but the uncertain benefit. It all looks like Fake Gold from here.


    Interesting read. I'm not sold on the idea that this is some brave new world where we have no points of reference. It doesn't strike me as a significantly different transition than the one from an economy dominated by agriculture to one focused on manufacturing. Back in the 30s there were agronomists around who understood that markets need a whole lot of in-depth knowledge on the part of economists to effect any useful tweaking and regulation. Nowadays we just seem to throw up our arms and point to free-market theory and complain that things aren't working out the way the book told us they should. I quite like Jared Bernstein's theory that the broad demand-side shortfall the US has been facing since the beginning of the 2000's can be almost fully accounted for by the Fed keeping us below full employment since Volcker.

    Correlation is not causation, but there is also a plausible causal story here too. 

    Add to that the vast corporate subsidies that get swallowed up by profits and exec bonuses, the short-termism that permeates corporate culture causing an investment deficit, trade policy that hurts workers (as you allude to), I don't put too much store in the story of technology hurting workers as some "law of economic nature". It's conscious policy that is causing the problem, at least there is a lot we can do policy-wise that has not been tried. Given the state of the democratic party in the US, they are unlikely ever to be tried there. 

    More optimistically for me is the fact that I don't think the Fed will be able to continue to squeeze interest rates in order to maintain so much slack in the labor market, and a lot of the pressure on wages has come from the global labor market soaking up a billion Chinese workers within a 15 year period. India and others are coming on slower, and can be assimilated without causing the same kind of shock. 

    In short, my sunny view is that technology is all good, as long as we allow the benefits to be more broadly shared.  When we see a market heading towards cartel-like behavior or monopolies or monopsonies, it should be regulated accordingly instead of just having government sit around acting helpless. As long as we don't artificially dampen demand by funnelling all the gains from productivity improvements to the top 0.1%, people will spend money and demand and create work for others, no matter how smart computers and robots get. 

    Another thought. We just had Antonio Di Pietro visiting here in honor of the 25 years of Mani Pulite - the big, but ultimately failed, cleaning up of the corrupt Tangentopoli system of government contracts involving cartels of contractors and kick-backs for granting contracts. The system remains, but has been "mechanized" - Ingegnerizzato - with kick backs funneled through professionalized above-board accounting tools and shell companies and "consulting services". He spent 10 minutes putting side by side the costs of comparable government contracts in Italy and less corrupt northern European countries - say, a per-km cost of a new high-way in Milan and one in Zurich - and he showed how the costs in Italy tend to be more than the double that of the northern counterparts. All that is money taken from the tax-payer and split between political and corporate elites and involves huge sums. 

    The question can in my view transferred:  how corrupt the US political economy is, with an even more souped-up version of Tangentopoli, where it goes far beyond government contracts to playing with regulations, packing Fed boards and Federal courts, inlfuencing trade agreements. How much more do banking services cost in the US, including implicit subsidies - compared to what they should cost? We know finance has tripled as a percentage of GDP, without much clear improvement in productivity (admittedly hard to measure). Is all that growth just the bloat of corruption? what about health care? We know health care costs are double what they are in comparable developed countries, doctors making twice as much, equipment costing twice as much, drugs multiples of what they cost in Canada, not to mention insurance. And what about multinationals effectively getting away with a massive invoice scam to avoid paying taxes? We can go on. There is a long list of things we can actually do something about without worrying about a hypothetical BIG PROBLEM. 

    We have as yet no reason to believe that the BIG PROBLEM even exists. 

    It feels like the same debate we are having about climate change. The right says we can't do anything about it because it isn't man-made. It is far beyond our power so let's just chin up and accept the crappy situation. Or the more sophisticated variant - the Bret Stephens line - we just don't understand the phenomenon yet, we must be careful to study it for 30 more years until we are literally drowning in melted ice caps. Likewise here in this economic policy debate, we see the right pulling the same crap. Gosh, wages have been getting crushed since 1980, and we just can't figure out why. Sure, we've crushed unions, cut welfare programs, deliberately built a trade deficit hurting workers, massively subsidize banking and health care. And the list goes on. But Noooo, that has nothing to do with it. It's some irresistible force of some invisible hand that is at work, which we don't understand and can't do anything about.  It's just as laughable as the Climate change "debate". More study needed. More chin scratching. 

    Misdirection is all it is. 


    /end of rant. 

    Thanks for the extended comments.

    I certainly don't think we have no options, and there are certainly previous analogies to where we are even if there might be 1 or 2 novel twists.

    I do think the definitions or use-in-practice of productivity and demand will be evolving, and I don't know that workers across the board will find the leverage for a while to push for the fading living wage - i.e. unions fight with threats and pentup demand, not with empty goodwill & lack of critical need  - except in Germany - though this could easily be a temporary situation, and as you or Jared note, possibly blamable on other specific factors, not our new Gilded Age.

    The thing is in Europe we have at least a winning government-is-good faction that means we can largely push for policies that make sense and help people, whereas the standoff in the US that's lasted for a few decades now is based on a pretty overbearing effort to rip out the structural beams and see how much money they can make as it all falls down. So there's no real analysis of natural state to be had to analyze - it's all "rigged" and we have to design solutions around that rigging. Like robosigning - that certainly didn't have to happen and shouldn't have been allowed to escalate to the horrid extent it did - but that's just how our system & the people involved swing. :(

    but as for the essay (& don't have time to think much more about it), I do think there's some bigger issues at play to discuss, and the biggest idea I wanted to impart is we're not going to do very well if we try to tackle it simply through protectionism and individual go-it-alone national policy, unless we simply don't significantly give a shit about the rest of the world, left or right, which is certainly a thesis to consider.


    PERACLES I cannot pretend to understand what you are writing about except the Chinese 'experiment' is a miracle.

    Where once there was nothing? there is now a middle class of 350 million people? Of course how does one define a 'middle class'.

    It is nevertheless a miracle.

    And yet, there are wondrous things occurring in India.
    And in this great land of science and industry and progress and 'democracy'...There are people who are achieving things never know how to spell occurring.

    Your note about 250,000 Indian farmers dead?

    I have other personal thoughts about this.

    I grew up in the fifties hearing abou

    predicted by Ghandi?

    Hell my PC says I do not even

    t poverty in China and India.

    Oh, and I have always prepared for dissapointment.

    Thank you for this.


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