NoNonsense Globalization by Wayne Ellwood

Author:Wayne Ellwood [Ellwood, Wayne]
Language: eng
Format: epub
ISBN: 9781780262383
Publisher: New Internationalist

The dangers of overproduction

In their urgent need to grow, corporations have ignored a fundamental aspect of capitalist production: over-capacity. It was Henry Ford, one of the pioneers of mass production, who realized 80 years ago the inherent dilemma of replacing labor with machines and then paying the remaining workers poverty-level wages. You could produce a lot of cars but in the end you would have no-one who could afford to buy them: too many goods and too few buyers. Today, sophisticated improvements in manufacturing equipment have boosted productivity while destroying millions of jobs and curbing wage growth. Henry Ford’s own automobile sector is a case in point. One major reason for the massive restructuring in that industry over the past decade is over-capacity, estimated at more than 30 per cent worldwide. According to The Economist, the global auto industry can produce 20 million more vehicles a year than the market can absorb. Production is shifting to low-wage countries like Mexico, which was the world’s eighth-largest carmaker in 2014. Companies like Ford and Nissan have pledged to invest billions there in the future. China is still the world’s largest car maker, with a quarter of global production – followed by the US, Japan, Germany and South Korea. But this may change. The average manufacturing wage in China at $3.50 per hour is now higher than the $2.70 per hour in Mexico. (Car workers in North America make between $25 and $30 an hour.)

There is a global over-capacity in everything from shoes and steel to clothing and electronic goods. One estimate puts the excess manufacturing capacity in China alone at more than 40 per cent. As industries consolidate to cut losses, factories are closed but output remains the same or even increases. This produces falling rates of profit, which in turn drives industry to look for further efficiencies. One tack is to continue to cut labor costs – which helps the bottom line initially but actually dampens global demand over time. Another is the merger-and-acquisition route – cut costs by consolidating production, closing factories and laying off workers. However, this too is self-defeating in the long run since it also inevitably reduces demand.

The real danger of this overproduction is ‘deflation’. Instead of a steady rise in employment and relatively stable prices for commodities and manufactured goods, deflation is a downward spiral of both prices and wages. In economic terms, the formula is simple: capacity exceeds demand, prices fall, unemployment rises and wages are forced down farther.

In the 1930s, the result was a resounding and destructive economic crash which saw plants close and millions of workers made redundant. This catastrophe was reversed only when factories boosted production of armaments and other supplies for the Second World War. So far deflation has been kept at bay in the 21st century by making the US economy the ‘consumer of last resort’. According to the IMF, the US has provided about half the growth in total world demand since 1988. The US may still be recovering

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